<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 1996
REGISTRATION NO. 333-11893
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
INTERMEDIA CAPITAL PARTNERS IV, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA 4841 94-3247750
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
INTERMEDIA PARTNERS IV, CAPITAL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 9999 94-3247948
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
235 MONTGOMERY STREET, SUITE 420
SAN FRANCISCO, CA 94104
(415) 616-4600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
LEO J. HINDERY, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
INTERMEDIA PARTNERS IV, CAPITAL CORP.
235 MONTGOMERY STREET, SUITE 420
SAN FRANCISCO, CA 94104
(415) 616-4600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
GREGG F. VIGNOS, ESQ.
THERESA G. MORAN, ESQ.
PILLSBURY MADISON & SUTRO LLP
235 MONTGOMERY STREET
SAN FRANCISCO, CALIFORNIA 94104
(415) 983-1000
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
---------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INTERMEDIA CAPITAL PARTNERS IV, L.P.
INTERMEDIA PARTNERS IV, CAPITAL CORP.
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(b) OF REGULATION S-K, AND RULE 404(a)
SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS IN S-4
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN FORM S-4 LOCATION OR HEADING IN PROSPECTUS
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus................ Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus........ Inside Front and Outside Back Cover Pages
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information...................... Prospectus Summary; Risk Factors; Selected
Financial Information and Operating Data
4. Terms of the Transaction......... Prospectus Summary; The Exchange Offer;
Description of the Notes
5. Pro Form Financial
Information...................... Pro Forma Financial Information
6. Material Contracts with the
Company Being Acquired........... Not Applicable
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be
Underwriters..................... Plan of Distribution
8. Interests of Named Experts and
Counsel.......................... Legal Matters
9. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities....... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information With Respect to
S-3 Registrants.................. Not Applicable
11. Incorporation of Certain
Information by Reference......... Not Applicable
12. Information with Respect to
S-2 or S-3 Registrations......... Not Applicable
13. Incorporation of Certain
Information by Reference......... Not Applicable
14. Information with Respect to
Registrants Other than S-2 or S-3
Registrants...................... Prospectus Summary; Risk Factors; The
Exchange Offer; Capitalization; Selected
Financial Information and Operating Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management;
Principal Security Holders; Certain
Relationships and Related Transactions;
Description of Other Obligations;
Description of the Notes; Financial
Statements
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN FORM S-4 LOCATION OR HEADING IN PROSPECTUS
- ------------------------------------------- ---------------------------------------------
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C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to
S-3 Companies...................... Not Applicable
16. Information with Respect to
S-2 or S-3 Companies............... Not Applicable
17. Information with Respect to
Companies Other than S-2 or S-3
Companies.......................... Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies,
Consents or Authorizations are to
be Solicited....................... Not Applicable
19. Information if Proxies,
Consents or Authorizations are to
be Solicited or in an Exchange
Offer.............................. Not Applicable
</TABLE>
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 10, 1996
PROSPECTUS
INTERMED LOGO
OFFER TO EXCHANGE ALL OUTSTANDING
11 1/4% SENIOR NOTES DUE 2006
FOR
11 1/4% SENIOR NOTES DUE 2006
WITH INTEREST FIRST PAYABLE COMMENCING FEBRUARY 1, 1997
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OF
INTERMEDIA CAPITAL PARTNERS IV, L.P.
INTERMEDIA PARTNERS IV, CAPITAL CORP.
InterMedia Capital Partners IV, L.P., a California limited partnership
("ICP-IV"), and InterMedia Partners IV, Capital Corp., a Delaware corporation
and a wholly owned subsidiary of ICP-IV ("IPCC," and together with ICP-IV, the
"Issuers") hereby offer, jointly and severally, upon the terms and subject to
the conditions set forth in this Prospectus and the accompanying letter of
transmittal (the "Letter of Transmittal," and together with this Prospectus, the
"Exchange Offer"), to exchange their 11 1/4% Senior Notes Due 2006 (the
"Exchange Notes"), which have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to a Registration Statement (as
defined herein) of which this Prospectus is a part, for the outstanding 11 1/4%
Senior Notes Due 2006 (the "Old Notes" and, together with the Exchange Notes,
the "Notes") of the Issuers. The Notes will be obligations of the Issuers and
will rank pari passu in payment with all senior indebtedness of the Issuers, if
any, and senior in right of payment to all future subordinated indebtedness of
the Issuers, if any. However, all other consolidated indebtedness of ICP-IV,
including borrowings by ICP-IV's subsidiaries under the Bank Facility, trade
payables and other liabilities, will be structurally senior to the Exchange
Notes and secured by substantially all of ICP-IV's assets. The Exchange Notes
will not be guaranteed by any of ICP-IV's subsidiaries. ICP-IV is a holding
company with no direct operations and, therefore, the Notes will also be
effectively subordinated to all other liabilities (including trade payables and
accrued liabilities) of ICP-IV's subsidiaries. As of September 30, 1996, the
obligations of ICP-IV's subsidiaries that are structurally senior to the
Exchange Notes included total indebtedness of $605.9 million (including
obligations under the Bank Facility) and total trade payables and other
liabilities of $60.9 million, including $12.1 million in mandatorily redeemable
preferred stock of a subsidiary of ICP-IV. The Indenture will allow the Company
(as defined herein) to incur additional indebtedness. See "Risk
Factors -- Holding Company Structure; Structural Subordination."
The Issuers will accept for exchange any and all Old Notes that are validly
tendered on or prior to 5:00 p.m., New York City time, on the date the Exchange
Offer expires, which will be , 1996, unless the Exchange Offer is
extended (the "Expiration Date"). The exchange of Exchange Notes for the Old
Notes will be made as soon as practicable after the close of the Exchange Offer.
The Issuers will accept for exchange all Old Notes tendered and not validly
withdrawn pursuant to the Exchange Offer and will deliver to the Trustee (as
defined herein) for cancellation all Old Notes so accepted for exchange. The
Issuers shall cause the Trustee to authenticate and deliver to each holder of
the Old Notes the Exchange Notes equal in principal amount to the Old Notes of
such holder so accepted for exchange. The Exchange Offer is not conditioned upon
any minimum
(Cover continued on next page)
The Issuers will not receive any proceeds from this offering, and no
underwriter is being utilized in connection with the Exchange Offer. See "Use of
Proceeds."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE ISSUERS ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
SEE "RISK FACTORS" BEGINNING ON PAGE 26 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE EXCHANGE
NOTES.
------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is December , 1996
<PAGE> 5
(Continued from cover page)
principal amount of Old Notes being tendered for exchange. See "The Exchange
Offer." The Issuers have agreed to pay the expenses of the Exchange Offer.
The Exchange Notes will be obligations of the Issuers issued pursuant to the
Indenture (as defined herein) under which the Old Notes were issued. The form
and terms of the Exchange Notes are identical in all material respects to the
form and terms of the Old Notes except that the Exchange Notes will not contain
terms with respect to transfer restrictions and the Exchange Notes have been
registered under the Securities Act. See "The Exchange Offer."
The Exchange Notes will mature on August 1, 2006, unless previously
redeemed. Interest on the Exchange Notes is payable semi-annually on August 1
and February 1 of each year, commencing February 1, 1997. The Exchange Notes
will be redeemable, in whole or in part, at the option of the Issuers, at any
time on or after August 1, 2001 at the redemption prices set forth herein plus
accrued and unpaid interest and Liquidated Damages (as defined herein) thereon,
if any, to the date of redemption. Notwithstanding the foregoing, any time on or
before August 1, 1999, the Issuers, at their option, may redeem up to 35% of the
aggregate principal amount of Exchange Notes originally issued with the net
proceeds of one or more Public Equity Offerings or Strategic Equity Investments
(as defined herein), at 111.25% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages thereon, if any, to the date of
redemption, provided however that at least 65% of the aggregate principal amount
of Exchange Notes originally issued are outstanding immediately after giving
effect to any such redemption. Upon a Change of Control (as defined herein), the
Issuers will be required to make an offer to repurchase all outstanding Exchange
Notes at a price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the date of
repurchase. See "Description of the Notes."
The Exchange Notes are being offered hereunder to satisfy certain
obligations of the Issuers contained in the Registration Agreement (as defined
herein). Based on existing interpretations of the Securities Act by the staff of
the Securities and Exchange Commission ("Commission") set forth in several
no-action letters to third parties, and subject to the immediately following
sentence, the Issuers believe that the Exchange Notes issued pursuant to the
Exchange Offer may be offered for resale, resold and otherwise transferred by
the holders thereof without further compliance with the registration and
prospectus delivery provisions of the Securities Act. However, any holder of the
Old Notes who is an "affiliate" of the Issuers or who intends to participate in
the Exchange Offer for the purpose of distributing the Exchange Notes (i) will
not be able to rely on the interpretation by the staff of the Commission set
forth in the above mentioned no-action letters, (ii) will not be able to tender
its Old Notes in the Exchange Offer and (iii) must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any sale or transfer of the Old Notes unless such sale or transfer is made
pursuant to an exemption from such requirements.
Each holder of the Old Notes (other than certain specified holders) who
wishes to exchange the Old Notes for Exchange Notes in the Exchange Offer is
required to represent to the Issuers that (i) it is not an affiliate of the
Issuers, (ii) any Exchange Notes to be received by it were acquired in the
ordinary course of its business and (iii) at the time of the commencement of the
Exchange Offer, it has no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes.
Each broker-dealer that receives Exchange Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Issuers have agreed that, starting on the Expiration
Date and ending on the close of business on the 180th day following the
Expiration Date, they will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "The Exchange Offer" and "Plan
of Distribution."
Until all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
The Old Notes and the Exchange Notes constitute new issues of securities
with no established public trading market. The Old Notes, however, have traded
on the National Association of Securities Dealers, Inc.'s PORTAL Market. Any Old
Notes not tendered and accepted in the Exchange Offer will remain outstanding.
To the extent that Old Notes are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered, and tendered but unaccepted, Old Notes
could be adversely affected. Following consummation of the Exchange Offer, the
holders of Old Notes will continue to be subject to the existing restrictions on
transfer thereof and the Issuers will have no further obligation to such holders
to provide for the registration under the Securities Act of the Old Notes. See
"Description of the Notes -- Registration Rights; Liquidation Damages." No
assurance can be given as to the liquidity of the trading market for either the
Old Notes or the Exchange Notes.
<PAGE> 6
[LOGO]
[MAP OF LOCATION OF THE COMPANY'S CABLE TELEVISION SYSTEMS]
<PAGE> 7
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT
FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH
FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR
A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE
MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,
SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH
THE PROVISIONS OF THIS PARAGRAPH.
FOR FLORIDA RESIDENTS:
PURSUANT TO SECTION 517.061(11)(a)(5) OF THE FLORIDA SECURITIES ACT, YOU
HAVE THE RIGHT TO RESCIND YOUR SUBSCRIPTION (UNLESS YOU ARE AN INSTITUTIONAL
INVESTOR DESCRIBED IN SECTION 517.061(7) OF THE FLORIDA SECURITIES ACT) BY
GIVING NOTICE OF SUCH RESCISSION BY TELEPHONE, TELEGRAPH OR LETTER, WITHIN THREE
DAYS AFTER YOU FIRST TENDER CONSIDERATION, TO THE INITIAL PURCHASERS. IF NOTICE
IS NOT RECEIVED BY SUCH TIME, THE FOREGOING RIGHT OF RESCISSION SHALL BE NULL
AND VOID.
------------------------
AVAILABLE INFORMATION
The Issuers filed with the Commission a Registration Statement on Form S-4
(the "Registration Statement," which term shall encompass all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act and the
rules and regulations promulgated thereunder, covering the Exchange Notes being
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement. For further information with respect to the
Issuers and the Exchange Offer, reference is made to the Registration Statement.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the document or matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. The Registration Statement,
including the exhibits thereto, can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, at the Regional Offices of the Commission
at 7 World Trade Center, 14th Floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
can be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
Under the terms of the Indenture (as defined herein), under which the Old
Notes were issued, and under which the Exchange Notes are to be issued, each of
the Issuers has agreed that, whether or not it is required to do so by the rules
and regulations of the Commission, for so long as any of the Notes remain
outstanding, it will furnish to the holders of the Notes and file with the
Commission (unless the Commission will not accept such a filing) annual reports
of ICP-IV containing audited consolidated financial statements, as well as
quarterly reports containing unaudited consolidated financial statements for
each of the first three quarters of each fiscal year. Such reports will contain
a management's discussion and analysis of financial condition and results of
operation and each such annual report will include summary subscriber
information. In addition, for
i
<PAGE> 8
so long as any of the Notes remain outstanding, ICP-IV has agreed to make
available to any prospective purchaser of the Notes or beneficial owner of the
Notes in connection with any sale thereof the information required by Rule
144A(d)(4) under the Securities Act.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE ISSUERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE ISSUERS SINCE THE DATE HEREOF.
ii
<PAGE> 9
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, financial statements, including the notes thereto, and pro forma
financial information appearing elsewhere in this prospectus (the "Prospectus").
As used in this Prospectus, unless the context requires otherwise, (i) the
"Company" refers to InterMedia Capital Partners IV, L.P., a California limited
partnership ("ICP-IV"), and its subsidiaries, (ii) "Systems" refers to the cable
television systems acquired by the Company pursuant to the Acquisitions (as
defined herein), (iii) "IPCC" refers to InterMedia Partners IV, Capital Corp., a
Delaware corporation and a wholly owned subsidiary of ICP-IV, (iv) the "Issuers"
refers to ICP-IV and IPCC, (v) the "Operating Partnership" refers to InterMedia
Partners IV, L.P., a California limited partnership ("IP-IV") and a subsidiary
of ICP-IV, (vi) the "Related InterMedia Entities" refers, collectively, to
InterMedia Partners, a California limited partnership, InterMedia Partners II,
L.P., InterMedia Partners III, L.P., InterMedia Partners V, L.P. and their
consolidated subsidiaries, that are affiliated with the Company (see "The
Acquisitions"), (vii) "TCI" refers to Tele-Communications, Inc. or
Tele-Communications, Inc. and its affiliates, as the context requires, (viii)
"DMA" refers to Designated Market Area, a term developed by A.C. Nielsen
Company, a national media ratings service, and used to describe a geographically
distinct market and (ix) "EBI" refers to Effective Buying Income, which is
defined as personal income less personal tax and certain nontax payments, and is
also referred to as "disposable" or "after tax" income. A glossary of certain
terms appearing herein has been included in this Prospectus. See "Glossary."
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN
INVESTMENT IN THE NOTES.
THE COMPANY
The Company was formed to acquire and consolidate various cable television
systems located in high-growth areas of the southeastern United States (the
"Southeast"), including certain cable television systems owned by the Related
InterMedia Entities and TCI or affiliates thereof. TCI, an investor in each of
the Related InterMedia Entities, directly owns 49.0% of ICP-IV's non-preferred
equity. The Company has one of the largest concentrations of basic subscribers
in the Southeast and is the largest cable television service provider in
Tennessee. The Company's operations are composed of three clusters that, in
aggregate, served approximately 570,153 basic subscribers and passed
approximately 848,006 homes as of September 30, 1996.
The three clusters are comprised of (i) Nashville, its suburbs and
surrounding areas (the "Nashville/MidTennessee Cluster"), (ii) the
Greenville/Spartanburg metropolitan area and northeastern Georgia (the
"Greenville/Spartanburg Cluster") and (iii) eastern Tennessee, which includes
suburban Knoxville (the "Knoxville/East Tennessee Cluster").
As of September 30, 1996, the operating data for the Company's three
clusters was as follows:
<TABLE>
<S> <C>
Basic Subscribers:
Nashville/Mid-Tennessee Cluster.......................................... 325,703
Greenville/Spartanburg Cluster........................................... 146,503
Knoxville/East Tennessee Cluster......................................... 97,947
-------
Total............................................................ 570,153
=======
Homes Passed:
Nashville/Mid-Tennessee Cluster.......................................... 507,497
Greenville/Spartanburg Cluster........................................... 205,326
Knoxville/East Tennessee Cluster......................................... 135,183
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Total............................................................ 848,006
=======
</TABLE>
The Company serves approximately 90.0% and 70.0%, respectively, of all the
basic cable television subscribers in the Nashville Metropolitan Market (as
defined herein) and the Greenville/Spartanburg
1
<PAGE> 10
Metropolitan Market (as defined herein). The Nashville Metropolitan Market and
the Greenville/Spartanburg Metropolitan Market are located within the 33rd and
35th largest DMAs in the United States, respectively.
The Company operates in primarily urban and suburban areas in the Southeast
that in recent years have experienced significant economic, household and income
growth. The Southeast has been, and is projected to continue to be, one of the
fastest growing regions in the United States due to a diverse employment base, a
low cost of living and a favorable business climate. According to Market
Statistics, Inc., from 1995 to 2000, the counties served by the Systems are
projected to experience a weighted average estimated compounded annual household
growth of 1.9%, as compared to national estimated compounded annual household
growth of 1.1%. The counties served by the Systems are also projected to achieve
a weighted average EBI compounded annual growth rate of 3.4% from 1994 to 1999,
as compared to a national average compounded annual growth rate of 3.0%. See
"Business -- Overview of Cable Television Systems." These attractive demographic
trends helped the Systems to achieve, from December 31, 1993 to December 31,
1995, a compounded internal basic subscriber growth rate of approximately 5.3%
per annum compared to a national compounded average growth rate of 3.4% per
annum, according to the National Cable Television Association ("NCTA").
Management believes that the attractive demographic trends of these counties
provide the potential for continued significant basic subscriber and revenue
growth.
BUSINESS STRATEGY
Overview
The Company and each of the Related InterMedia Entities were created by Leo
J. Hindery, Jr., who has over 10 years of experience in the cable television
industry, to own and operate cable television systems in the United States. Mr.
Hindery created the Company with the goal of developing it into a medium-sized
multiple system operator ("MSO"). TCI, the largest cable television operator in
the United States, with wholly owned and affiliated cable television systems
serving approximately 14.0 million basic subscribers, directly owns 49.0% of
ICP-IV's non-preferred equity. Management believes that the Company's
relationship with TCI provides substantial benefits, including (i) the ability
to purchase programming and equipment at rates approximating those available to
TCI and (ii) access to TCI's engineering, technical, marketing, advertising,
accounting and regulatory expertise. There can be no assurance, however, that
such benefits will continue to be available to the Company. See "Risk
Factors -- Loss of Beneficial Relationship with TCI" and
"Business -- Relationship with TCI."
Operating Strategy
The Company's strategy is to own, operate and develop cable television
systems primarily in geographically clustered, high-growth markets in the
Southeast. The operating strategy was developed by a senior management team of
experienced operating, engineering, marketing and financial executives. The
operating strategy includes the following key elements:
Cluster Subscribers. Management believes the Company can derive
significant economies of scale and operating efficiencies by clustering its
operations. Operational advantages and cost savings associated with clustering
include centralizing management, billing, marketing, customer service, technical
and administrative functions, and reducing the number of headends. Management
believes that clustering will enable the Company to more effectively utilize
capital by more efficiently delivering cable and related services to a greater
number of households. Management also believes that clustering will provide the
Company with significant revenue opportunities, including the ability to attract
additional advertising and to offer a broader platform for data services, and
residential and business telephony services.
Focus on Regions with Attractive Demographics. The Company owns and
develops cable television systems in areas that in recent years have experienced
annual economic, household and income growth that have exceeded national
averages. See "Business -- Overview of Cable Television Systems." In recent
years, the Southeast has been one of the fastest growing regions in the United
States due in part to a diverse
2
<PAGE> 11
employment base, a low cost of living and a favorable business climate.
Management believes that the Company will continue to benefit from the household
growth in, and the outward expansion of, the metropolitan areas served by the
Company. Management further believes that households located in areas with
attractive demographics are more likely to subscribe to cable television
services, premium service packages and new service offerings.
Upgrade Cable Television Systems. The Company has begun a capital
improvement program (the "Capital Improvement Program") to comprehensively
upgrade its operating network. Management believes that the Capital Improvement
Program will further the Company's efforts to reduce costs, create additional
revenue opportunities, increase customer satisfaction and enhance system
reliability. Successfully upgrading the architecture of the Systems will expand
channel capacity, enhance network quality and dependability, augment
addressability and allow the Company to offer two-way transmission and advanced
interactive services. Currently, over 74.2% of the Company's operations offer
between 30 to 61 channels of programming. Following implementation of the
Capital Improvement Program, over 85.0% of such operations will be able to offer
62 or more channels and over 70.0% will be served by plant with a bandwidth of
750 MHz enabling subscribers to receive the equivalent of 82 or more analog
channels. Through 2001, the Company expects to spend approximately $230.1
million in additional capital on the Capital Improvement Program that it expects
to finance with internally generated cash flow and borrowings available under
the Revolving Credit Facility (as defined herein). See "Risk Factors -- Future
Capital Requirements" and "Business -- Upgrade Strategy and Capital
Expenditures."
Target Additional Revenue Sources. Management believes that the Company's
geographic clustering, the demographic profile of its subscribers and
implementation of the Capital Improvement Program affords the Company the
opportunity to pursue revenue sources incremental to its core business.
Management also believes that the Company can create additional revenue growth
opportunities through further development of existing advertising, pay-per-view
and home shopping services. Possible future services include high-speed data
transmission (including Internet access), near video-on-demand ("NVOD"),
interactive services such as video games, and residential and business
telephony, including a wireline network platform for personal communications
services ("PCS") operators.
Emphasize Customer Service. Management believes that the Company provides
quality customer service and attractive programming packages at reasonable
rates. As part of its customer service efforts, the Company has instituted
training and incentive programs for all of its employees and instituted
same-day, evening and weekend installation and repair visit options in several
of its service areas. To further emphasize customer service, the Company's
employee bonus program includes specific customer service incentives designed to
increase the speed and effectiveness of service visits, shorten installation
response times and ensure that customer telephone calls are answered promptly by
customer service representatives.
Utilize Innovative Sales and Marketing Techniques. The Company is seeking
to increase its penetration levels for basic service, expanded basic service and
premium service and to increase revenue per household through targeted
promotions and innovative marketing strategies. For example, the Company has
entered into a co-marketing campaign with Sprint Corporation to offer a
combination of cable television and long distance telephone services. Additional
marketing strategies that the Company utilizes include promotional previews of
premium programs, discounted installation fees, expedited installation service
and special pricing on premium services. The Company seeks to maximize its
revenue per subscriber by cross-promoting its programming services, by using
"tiered" packaging strategies for marketing premium services and promoting niche
programming services, and by offering more entertainment choices and new
services.
3
<PAGE> 12
THE ACQUISITIONS
Primary Acquisitions. On February 1, 1996, InterMedia Partners of Tennessee
("IP-TN"), a subsidiary of ICP-IV, acquired cable television systems located in
Kingsport, Tennessee (the "Kingsport System") from Time Warner Entertainment
Company, L.P. ("Time Warner"), and cable television systems located in
Hendersonville, Waverly and Monterey, Tennessee, and Fort Campbell, Kentucky
(the "ParCable System") from ParCable, Inc. ("ParCable"). These systems served,
as of September 30, 1996, approximately 53,808 basic subscribers and were
acquired for an aggregate purchase price of $92.2 million which was funded with
a portion of the proceeds from the Bridge Loan (as defined herein). On July 30,
1996 the Company acquired cable television systems serving approximately 361,636
basic subscribers in Tennessee, South Carolina and Georgia as of September 30,
1996, upon the Company's acquisition of equity interests in Robin Media
Holdings, Inc. ("RMH") and InterMedia Partners of West Tennessee, L.P. ("IPWT")
and TCI's contribution to the Company of certain cable television systems. On
August 1, 1996, a subsidiary of ICP-IV acquired the cable television systems of
Viacom in the Nashville Metropolitan Market for a purchase price of $313.5
million. The acquired cable television systems in and around Nashville (the
"Viacom Nashville System") served, as of September 30, 1996, 148,849 basic
subscribers. The acquisition of the cable television systems of Time Warner,
ParCable, IPWT, RMH, TCI and Viacom are collectively referred to as the "Primary
Acquisitions." The fair market values of the Primary Acquisitions aggregate
approximately $1,093.4 million and were financed with proceeds from the offering
of the Old Notes (the "Private Offering"), borrowings available under the Bank
Facility (as defined herein) and the Contributed Equity (as defined herein). See
"The Acquisitions -- Primary Acquisitions."
Miscellaneous Acquisitions. The Company, through IP-TN, also acquired
cable television systems in Tennessee from Annox, Inc. ("Annox"), Tellico Cable,
Inc. ("Tellico"), Rochford Realty and Construction Company, Inc. ("Rochford")
and Prime Cable Partners, Inc. ("Prime Cable"), that served, as of September 30,
1996, an aggregate of approximately 5,860 basic subscribers. The aggregate
purchase price for the Annox, Tellico and Rochford systems of $8.5 million was
funded with a portion of the proceeds from the Bridge Loan. The purchase price
for the Prime Cable System of $1.5 million was funded with borrowings under the
Revolving Credit Facility (as defined herein). The acquisitions of the cable
television systems of Annox, Tellico, Rochford and Prime Cable are referred to
herein as the "Miscellaneous Acquisitions." Except as otherwise noted, financial
results for the systems acquired pursuant to the Miscellaneous Acquisitions are
not included herein due to the immateriality of such systems. See "The
Acquisitions -- Miscellaneous Acquisitions." The Miscellaneous Acquisitions,
together with the Primary Acquisitions, are referred to herein as the
"Acquisitions."
See "Glossary" for the definitions of terms.
4
<PAGE> 13
The following table sets forth, for each acquisition, the cluster in which
the system is located, the approximate number of basic subscribers and the
acquisition price.
<TABLE>
<CAPTION>
BASIC SUBSCRIBERS
AS OF ACQUISITION
SEPTEMBER 30, PRICE (1)
ACQUISITION CLUSTER(S) 1996 (IN MILLIONS)
- ----------------------------------------- ------------------------- ----------------- -------------
<S> <C> <C> <C>
PRIMARY ACQUISITIONS:
Kingsport System....................... Knoxville/East Tennessee 31,985 $ 62.1
ParCable System........................ Nashville/Mid-Tennessee 21,823 30.1
IPWT................................... Nashville/Mid-Tennessee 48,523 72.5
RMH.................................... Nashville/Mid-Tennessee 102,166 376.3
Knoxville/East Tennessee 64,444
Greenville/Spartanburg 32,024
TCI.................................... Greenville/Spartanburg 114,479 238.9
Viacom Nashville System................ Nashville/Mid-Tennessee 148,849 313.5
MISCELLANEOUS ACQUISITIONS:
Nashville/Mid-Tennessee 4,342 10.0
Knoxville/East Tennessee 1,518
------- --------
Total Acquisitions............. 570,153 $ 1,103.4
======= ========
</TABLE>
- ---------------
(1) For RMH and IPWT, the acquisition price represents the fair market value of
equity interests acquired and liabilities assumed. For the TCI cable
television systems the acquisition price represents the fair market value of
assets contributed by TCI to the Company. See "The Acquisitions."
5
<PAGE> 14
THE TRANSACTIONS
The Private Offering was part of a financing plan (the "Financing Plan")
designed to enable the Company to complete the Primary Acquisitions, repay the
Bridge Loan and provide the Company with future liquidity and working capital
through a revolving credit facility. Under the Financing Plan, (i) the Operating
Partnership entered into a $475.0 million revolving credit facility (the
"Revolving Credit Facility") and a $220.0 million term loan (the "Term Loan"
and, together with the Revolving Credit Facility, the "Bank Facility"), (ii)
ICP-IV and IPCC issued the Old Notes, (iii) RMH issued $12.0 million of
mandatorily redeemable preferred stock (the "RMH Redeemable Preferred Stock")
and (iv) ICP-IV received $360.0 million of cash and in-kind contributions of new
equity from its partners ("Contributed Equity"). The Private Offering closed
concurrently with the Bank Facility, the receipt of the Contributed Equity by
ICP-IV and the consummation of certain of the Primary Acquisitions.
Approximately $88.8 million of the net proceeds from the Private Offering was
used to purchase a portfolio of securities, initially consisting of U.S.
government securities (including any securities substituted in respect thereof,
the "Pledged Securities") which, together with interest thereon, represent funds
sufficient to provide for payment in full of interest on the Notes through
August 1, 1999 and which are pledged as security for repayment of principal of
the Notes under certain circumstances. In addition, a portion of the borrowings
under the Bank Facility, proceeds of the Private Offering and Contributed Equity
was used to pay transaction costs and expenses related to the Acquisitions and
the Financing Plan. The Acquisitions and Financing Plan are collectively
referred to herein as the "Transactions."
The following table presents the sources and uses under the Financing Plan
upon completion of the Transactions:
<TABLE>
<S> <C>
SOURCES (IN MILLIONS)
----------------------
Bank Facility:
Revolving Credit Facility(1)............................................. $ 338.0
Term Loan................................................................ 220.0
Senior Notes............................................................... 292.0
RMH Redeemable Preferred Stock(2).......................................... 12.0
Cash transferred from acquired systems..................................... 2.2
Contributed Equity:
Cash contributions....................................................... 190.6
Contribution of cable properties(3)...................................... 117.6
General and limited partner interests in IPWT(4)......................... 13.3
Note receivable from IPWT in exchange for limited partnership
interest(5)........................................................... 11.7
Note receivable from IPWT in exchange for preferred limited partnership
interest(5)........................................................... 25.0
Contribution of note receivable from the General Partner(6).............. 1.8
-------
Total Contributed Equity.............................................. 360.0
-------
TOTAL SOURCES FOR THE ACQUISITIONS......................................... 1,224.2
-------
USES (IN MILLIONS)
-------------------
Investments held in escrow(7).............................................. 88.8
Fair market values of Primary Acquisitions:
IPWT(4)(5)(8)............................................................ 72.5
RMH(9)................................................................... 376.3
TCI Greenville/Spartanburg(3)............................................ 238.9
Viacom Nashville......................................................... 313.5
-------
Total Primary Acquisitions............................................... 1,001.2
Repayment of the Bridge Loan(10)........................................... 100.8
Acquisition of the Prime Cable System...................................... 1.5
Note receivable from General Partner(6).................................... 1.8
Payment of first year's management fee(11)................................. 3.4
Transaction costs and expenses............................................. 17.5
-------
TOTAL USES FOR THE ACQUISITIONS............................................ 1,215.0
-------
NET CASH................................................................... $ 9.2
=======
</TABLE>
- ---------------
(1) The Company had $137.0 million of borrowings available under the Revolving
Credit Facility after giving effect to the Acquisitions.
6
<PAGE> 15
(2) Represents mandatorily redeemable preferred stock of RMH, a subsidiary of
ICP-IV, held by a wholly owned subsidiary of TCI. See note 9 below and
"Description of Other Obligations -- Description of Preferred Equity
Interests."
(3) Affiliates of TCI have contributed to ICP-IV cable television systems
located within the Greenville/Spartanburg Metropolitan Market
(collectively, the "Greenville/Spartanburg System") having an aggregate
estimated fair market value of $238.9 million in exchange for (i) $117.6
million of limited partnership interests and (ii) the assumption of $121.3
million of TCI debt by the Company which was paid upon completion of the
Financing Plan. See "The Acquisitions -- The Primary Acquisitions."
(4) Prior to completion of the Transactions, InterMedia Partners ("IP-I") was
the 80.1% general partner and 9.9% limited partner of IPWT. General
Electric Capital Corporation ("GECC") was a 10.0% limited partner of IPWT.
IP-I and GECC transferred their interests in IPWT for limited partner
interests in ICP-IV valued at $13.3 million.
(5) GECC transferred to ICP-IV its $55.8 million note and related interest
receivables of $3.4 million, including contingent interest, from IPWT in
exchange for (i) cash of approximately $22.5 million, (ii) an $11.7 million
limited partner interest in ICP-IV and (iii) a $25.0 million preferred
limited partner interest in ICP-IV. See "Description of Other
Obligations -- Description of Preferred Equity Interests."
(6) Represents a note receivable from InterMedia Capital Management IV, L.P.
("ICM-IV") issued in connection with ICM-IV's capital contributions to
ICP-IV. See "Certain Relationships and Related Transactions -- Certain
Other Related Transactions -- ICM-IV."
(7) Represents a portion of the proceeds from the Private Offering used to
purchase a portfolio of Pledged Securities which represent funds sufficient
to provide for payment in full of interest on the Notes through August 1,
1999 and that, under certain circumstances, will be pledged as security for
repayment of principal on the Notes.
(8) Represents the estimated fair market value of IPWT's assets.
(9) Represents the estimated fair market value of RMH's assets. In conjunction
with a recapitalization of RMH, a wholly owned subsidiary of TCI converted
an outstanding loan to a Related InterMedia Entity into a partnership
interest and received in dissolution thereof (i) 365 shares of RMH Class B
Common Stock (as defined herein) valued at $.037 million and (ii) 12,000
shares of RMH Redeemable Preferred Stock valued at $12.0 million. IP-IV
purchased 3,285 shares of RMH Class A Common Stock (as defined herein) for
$0.3 million and loaned RMH $364.0 million, which RMH used to repay $346.5
million of indebtedness, $14.3 million of accrued interest and a $3.2
million call premium on the RMG Notes (as defined herein). On July 31,
1996, RMH merged with and into RMG, with RMG as the surviving corporation.
All of the RMH capital stock described herein was converted as a result of
the merger into capital stock of RMG with the same terms. See "Description
of Other Obligations -- Description of Preferred Equity Interests."
(10) The borrowings from the Bridge Loan were used for (i) the Miscellaneous
Acquisitions other than the Prime Cable System acquisition ($8.5 million),
(ii) the acquisitions of the ParCable System ($30.1 million) and the
Kingsport System ($62.1 million), and (iii) payment of $0.1 million of
accrued interest on the Bridge Loan. The Company loaned $15.0 million of
the proceeds from the Bridge Loan to RMH to fund an interest payment for
RMG. The $15.0 million loan is not included in the $100.8 million repayment
of the Bridge Loan, but is included in the $346.5 million of indebtedness
of RMH described in note 9 above.
(11) Represents payment of the first year's management and consulting fees paid
to ICM-IV. Under ICP-IV's Partnership Agreement (as defined herein),
management fees are equal to 1.0% of ICP-IV's non-preferred Contributed
Equity and ICP-IV has agreed to pay the first year's management fees upon
receipt of the Contributed Equity. Thereafter, the Partnership Agreement
provides that management fees generally are to be paid in advance on a
quarterly basis.
7
<PAGE> 16
THE ISSUERS
IPCC is a wholly owned subsidiary of ICP-IV and is a Delaware corporation
formed solely for the purpose of serving as a co-issuer of the Notes in order to
facilitate the Private Offering. ICP-IV believes that certain prospective
purchasers of the Notes may be restricted in their ability to purchase debt
securities of limited partnerships, such as ICP-IV, unless such debt securities
are jointly issued by a corporation. IPCC will not have any substantial
operations or assets of any kind and will not have any revenues. As a result,
prospective purchasers of the Notes should not expect IPCC to participate in
servicing the interest and principal obligations on the Notes. The Indenture
imposes substantial restrictions on the activities of IPCC. See "Description of
the Notes -- Certain Covenants."
ICP-IV is a California limited partnership formed in March 1996. The
partners of the Operating Partnership transferred their partnership interests to
ICP-IV as of June 1996. References herein to ICP-IV or the Company prior to June
1996 refer to the Operating Partnership and its subsidiaries. The Company's
executive offices are located at 235 Montgomery Street, Suite 420, San
Francisco, California 94104, and its telephone number at such location is (415)
616-4600. The Company's operational headquarters is located at 424 Church
Street, Suite 1600, Nashville, Tennessee 37219, and its telephone number at such
location is (615) 244-2300.
THE EXCHANGE OFFER
SECURITIES OFFERED......$292,000,000 aggregate principal amount of 11 1/4%
Senior Notes Due 2006, which have been registered under
the Securities Act (the "Exchange Notes," and, together
with the Old Notes, the "Notes").
THE EXCHANGE OFFER......Upon the terms and subject to the conditions set forth
in this Prospectus and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), the Company
hereby offers to exchange (the "Exchange Offer"), $1,000
principal amount of Exchange Notes in exchange for each
$1,000 principal amount of Old Notes that are validly
tendered and not withdrawn on or prior to the Expiration
Date (as defined herein). Holders of Old Notes whose Old
Notes are not tendered and accepted in the Exchange
Offer will continue to hold such Old Notes and will be
entitled to all the rights and preferences and will be
subject to the limitations applicable thereto under the
Indenture governing the Old Notes and the Exchange
Notes.
RESALE..................Based on interpretations by the staff of the Commission
set forth in no-action letters issued to third parties,
the Company believes the Exchange Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by
any holder thereof (other than broker-dealers, as set
forth below, and any such holder that is an "affiliate"
of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration
and prospectus delivery requirements of the Securities
Act, provided that such Exchange Notes are acquired in
the ordinary course of such holder's business and that
such holder has no arrangement or understanding with any
person to participate in the distribution of such
Exchange Notes. Any holder who tenders in the Exchange
Offer with the intention to participate, or for the
purpose of participating, in a distribution of the
Exchange Notes or who is an affiliate of the Company may
not rely upon such interpretations by the staff of the
Commission and, in the absence of an exemption
therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act
in connection with any secondary resale transaction.
Failure to comply with such requirements in such
instance may result in such holder incurring liabilities
under the Securities Act for which the holder is not
indemnified by the
8
<PAGE> 17
Company. Each broker-dealer (other than an affiliate of
the Company) that receives Exchange Notes for its own
account in exchange for Old Notes, where such Old Notes
were acquired by such broker-dealer as a result of
market-making activities or other trading activities,
must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The
Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. The Company has
agreed that, for a period of 180 days after the
Expiration Date (as defined herein), it will make this
Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of
Distribution." Any broker-dealer who is an affiliate of
the Company may not rely on such no-action letters and
must comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with a secondary resale transaction. The
Exchange Offer is not being made to, nor will the
Company accept surrenders for exchange from, holders of
Old Notes in any jurisdiction in which this Exchange
Offer or the acceptance thereof would not be in
compliance with the securities or blue sky laws of such
jurisdiction.
EXPIRATION DATE.........The Exchange Offer will expire at 5:00 p.m., New York
City time, on , 1996, unless extended, in
which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is
extended.
CONDITIONS TO THE
EXCHANGE OFFER..........Notwithstanding any other term of the Exchange Offer, or
any extension of the Exchange Offer, the Issuers will
not be required to accept for exchange, or exchange
Exchange Notes for, any Old Notes, and may terminate the
Exchange Offer or, at their option, modify or otherwise
amend the Exchange Offer as provided herein before the
acceptance of such Old Notes, if:
(a) any statute, rule or regulation shall have
been enacted, or any action shall have been taken
by any court or governmental authority which, in
the reasonable judgment of the Issuers, seeks to or
would prohibit, restrict, materially delay or
otherwise render illegal consummation of the
Exchange Offer, or
(b) any change, or any development involving a
prospective change, in the business or financial
affairs of the Issuers or any of its subsidiaries
has occurred which, in the sole judgment of the
Issuers, might materially impair the ability of the
Issuers to proceed with the Exchange Offer or
materially impair the contemplated benefits of the
Exchange Offer to the Issuers, or
(c) there shall occur a change in the current
interpretations by the staff of the Commission
which, in the Issuers' reasonable judgment, might
materially impair the Issuers' ability to proceed
with the Exchange Offer.
If the Issuers determine in their sole discretion that
any of the above conditions is not satisfied, the
Issuers may (i) refuse to accept any Old Notes and
return all tendered Old Notes to the tendering Holders,
(ii) extend the Exchange Offer and retain all Old Notes
tendered prior to the Expiration Date, subject, however,
to the right of Holders to withdraw such Old Notes (see
"-- Terms of the Exchange Offer-- Withdrawal of Tenders
of Notes") or (iii) waive such unsatisfied conditions
with respect to the Exchange Offer and
9
<PAGE> 18
accept all validly tendered Old Notes which have not
been withdrawn. If such waiver constitutes a material
change to the Exchange Offer, the Issuers will promptly
disclose such waiver by means of a prospectus supplement
that will be distributed to the Holders of Old Notes,
and the Issuers will extend the Exchange Offer for a
period of time, depending upon the significance of the
waiver and the manner of disclosure to such Holders, if
the Exchange Offer otherwise would expire during such
period. The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being tendered.
The Issuers reserve the right to terminate or amend the
Exchange Offer at any time prior to the Expiration Date
upon the occurrence of any such conditions.
PROCEDURES FOR TENDERING
OLD NOTES...............Each holder of Old Notes wishing to accept the Exchange
Offer must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in accordance with
the instructions contained herein and therein, and mail
or otherwise deliver such Letter of Transmittal, or
facsimile thereof, together with such Old Notes and any
other required documentation to The Bank of New York,
the Exchange Agent, at the address set forth herein and
therein. By executing the Letter of Transmittal, each
holder will represent to the Company that, among other
things, the Exchange Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course
of business of the person receiving such Exchange Notes,
whether or not such person is the holder, that neither
the holder nor any such other person has an arrangement
or understanding with any person to participate in the
distribution of such Exchange Notes and that neither the
holder nor any such other person is an "affiliate" of
the Company within the meaning of Rule 405 under the
Securities Act or, that if such holder or other person
is an affiliate of the Company, such holder or other
person will comply with the registration and prospectus
delivery requirements of the Securities Act to the
extent applicable. See "The Exchange Offer -- Terms of
the Exchange Offer -- Procedures for Tendering Old
Notes" and "The Exchange Offer -- Terms of the Exchange
Offer -- Guaranteed Delivery Procedures".
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......Any beneficial owner whose Old Notes are registered in
the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender such
Old Notes in the Exchange Offer should contact such
registered holder promptly and instruct such registered
holder to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on his own
behalf, such beneficial owner must, prior to completing
and executing the Letter of Transmittal and delivering
his Old Notes, either make appropriate arrangements to
register ownership of the Old Notes in such beneficial
owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered
ownership may take considerable time and may not be able
to be completed prior to the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange
Offer -- Procedures for Tendering Old Notes."
GUARANTEED DELIVERY
PROCEDURES..............Holders of Old Notes who wish to tender their Old Notes
and whose Old Notes are not immediately available or who
cannot deliver their Old Notes, the Letter of
Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent prior to the
Expiration Date, or who
10
<PAGE> 19
cannot complete the procedure for book-entry transfer on
a timely basis, must tender their Old Notes according to
the guaranteed delivery procedures set forth in "The
Exchange Offer -- Terms of the Exchange
Offer -- Guaranteed Delivery Procedures."
ACCEPTANCE OF OLD
NOTES AND DELIVERY OF
EXCHANGE NOTES..........Subject to certain conditions (as described more fully
in "The Exchange OfferConditions of the Exchange
Offer"), the Company will accept for exchange any and
all Old Notes which are properly tendered in the
Exchange Offer and not withdrawn, prior to 5:00 p.m.,
New York City time, on the Expiration Date. The Exchange
Notes issued pursuant to the Exchange Offer will be
delivered as promptly as practicable following the
Expiration Date.
WITHDRAWAL RIGHTS.......Except as otherwise provided herein, tenders of Old
Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange
Offer -- Withdrawal of Tenders of Old Notes."
CERTAIN FEDERAL INCOME
TAX CONSIDERATIONS......For a discussion of certain federal income tax
considerations relating to the exchange of the Exchange
Notes for the Old Notes, see "Certain Federal Income Tax
Considerations."
EXCHANGE AGENT..........The Bank of New York is the Exchange Agent. The address,
telephone number and facsimile number of the Exchange
Agent are set forth in "The Exchange Offer -- Exchange
Agent."
CONSEQUENCES OF FAILURE
TO EXCHANGE OLD NOTES...Holders of Old Notes who do not exchange their Old Notes
for Exchange Notes pursuant to the Exchange Offer will
continue to be subject to the restrictions on transfer
of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant
to exemptions from, or in transactions not subject to,
the registration requirements of the Securities Act and
applicable state securities laws. In general, the Old
Notes may not be offered or sold, unless registered
under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The
Company does not currently anticipate that it will
register the Old Notes under the Securities Act.
REGISTRATION RIGHTS.....In the event the Issuers fail to consummate the Exchange
Offer the Issuers will file with the Commission a Shelf
Registration Statement to cover resales of the Old Notes
by the Holders thereof. If the Exchange Offer
Registration Statement or the Shelf Registration
Statement is not declared effective, or if the Exchange
Offer is not consummated, on or prior to 120 days
following the original issuance of the Old Notes (the
"Effectiveness Target Date"), the Issuers will be
required to pay liquidated damages to the Holders of the
Notes equal to 0.50% of principal amount per annum for
the first 90-day period following the Effectiveness
Target Date. The liquidated damages will increase by an
additional 0.25% per annum with respect to each
subsequent 90-day period up to a maximum liquidated
damages of 1.0% per annum. See "Description of the
Notes -- Registration Rights; Liquidated Damages."
11
<PAGE> 20
THE NOTES
THE NOTES...............$292.0 million principal amount of 11 1/4% Senior Notes
Due 2006. The form and terms of the Exchange Notes are
identical in all material respects to the form and terms
of the Old Notes (except that the Exchange Notes will be
registered under the Securities Act) and, therefore,
will be treated as a single class under the Indenture
with any Old Notes that remain outstanding. The Exchange
Notes and the Old Notes are herein collectively referred
to as the "Notes."
ISSUERS.................InterMedia Capital Partners IV, L.P. and InterMedia
Partners IV, Capital Corp.
ISSUE PRICE.............The Notes will be issued at 100.0% of their principal
amount.
INTEREST PAYMENT
DATES...................Cash interest at 11 1/4% per annum will accrue and will
be payable on August 1 and February 1 of each year,
commencing February 1, 1997.
SECURITY................At the closing of the Private Offering, ICP-IV used
$88.8 million of the net proceeds thereof to purchase a
portfolio of Pledged Securities that, together with
interest thereon, represent funds sufficient to provide
for payment in full of interest on the Notes through
August 1, 1999 and that are pledged as security for
repayment of principal of the Notes under certain
circumstances. Proceeds from the Pledged Securities will
be used by ICP-IV to make interest payments on the Notes
through August 1, 1999. See "Description of the
Notes -- Security." The Pledged Securities are held by
the Trustee under the Pledge Agreement pending
disbursement.
MATURITY DATE...........August 1, 2006.
SINKING FUND............None.
OPTIONAL REDEMPTION.....Except as provided below, the Notes will not be subject
to redemption at the option of the Issuers prior to
August 1, 2001. Thereafter, the Notes will be
redeemable, upon not less than 30 nor more than 60 days
notice, at the Issuers' option, in whole or in part, at
the redemption prices set forth herein, plus accrued and
unpaid interest and Liquidated Damages (as defined
herein) thereon, if any, to the date of redemption. See
"Description of the Notes -- Optional Redemption."
In addition, at any time on or prior to August 1, 1999,
the Issuers, at their option, may redeem up to 35.0% of
the aggregate principal amount of Notes originally
issued with the net proceeds of one or more Public
Equity Offerings or Strategic Equity Investments (as
defined herein), at a redemption price equal to 111.25%
of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the
date of redemption, provided however that at least 65.0%
of the aggregate principal amount of Notes originally
issued are immediately outstanding after giving effect
to any such redemption and, provided further, that such
redemption occurs within 90 days of the closing of such
Public Equity Offering or Strategic Equity Investment.
CHANGE OF CONTROL.......In the event of a Change of Control (as defined herein),
each holder of the Notes ("Holder") may require the
Issuers to repurchase all of the Notes held by such
Holder at 101.0% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages
thereon, if any, to the date of purchase. See
"Description of the Notes -- Change of Control Offer."
12
<PAGE> 21
RANKING.................The Notes will be general obligations of the Issuers and
will rank pari passu with all senior indebtedness of the
Issuers, if any, and senior in right of payment with all
future subordinated indebtedness of the Issuers, if any.
ICP-IV is a holding company with no direct operations
and, therefore, the Notes will be effectively
subordinated to all other liabilities (including trade
payables and accrued liabilities) of ICP-IV's
subsidiaries. As of September 30, 1996, the obligations
of ICP-IV's subsidiaries that are structurally senior to
the Notes included total indebtedness of $605.9 million
(including obligations under the Bank Facility) and
total trade payables and other liabilities of $60.9
million, including $12.1 million in RMH Redeemable
Preferred Stock. The Indenture allows ICP-IV and its
subsidiaries to incur additional indebtedness.
CERTAIN COVENANTS.......The Indenture contains certain covenants, including, but
not limited to, covenants with respect to the following
matters: (i) limitations on restricted payments; (ii)
limitations on incurrence of indebtedness and issuance
of preferred equity; (iii) limitations on asset sales;
(iv) restrictions on dividends and other payments
affecting subsidiaries; (v) limitations on certain
transactions with affiliates; and (vi) restrictions on
mergers, consolidations and the transfer of all or
substantially all of the assets of the Issuers to
another person. These covenants are subject to important
exceptions and qualifications. In the event that the
ratings assigned to the Notes from rating agencies are
"Investment Grade Ratings" and no Default (as defined
herein) or Event of Default (as defined herein) exists,
the Issuers will no longer be required to comply with
certain covenants. See "Description of the
Notes -- Certain Covenants."
USE OF PROCEEDS.........The Company will not receive any proceeds from this
exchange offer, and no underwriter is being utilized in
connection with the Exchange Offer. See "Use of
Proceeds."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
carefully considered in evaluating an investment in the Notes or tendering the
Old Notes in exchange for the Exchange Notes offered hereby.
13
<PAGE> 22
ORGANIZATIONAL STRUCTURE OF THE COMPANY(1)
The Company's organizational structure is summarized as follows (a more
detailed organizational chart is located at page 93):
[STRUCTURAL CHART]
- ---------------
(1) In the chart above, "G.P." represents general partner and "L.P." represents
limited partner.
(2) Issuers of Notes offered hereby.
14
<PAGE> 23
SUMMARY SUPPLEMENTAL HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR RATIOS AND OPERATING DATA)
The following table presents summary historical financial data of the
Kingsport System, the ParCable System, IPWT, RMH, the Greenville/Spartanburg
System and the Viacom Nashville System on an aggregate basis for the periods
indicated. These supplemental data have not been prepared in accordance with
GAAP, which do not allow for the aggregation of financial data for entities that
are not under common ownership. Nevertheless, management believes that the
aggregate financial information shown below (which excludes the Miscellaneous
Acquisitions, except since their acquisitions by the Company during the nine
months ended September 30, 1996) may be helpful in understanding the historical
results of operations of the systems combined in the Acquisitions and in
evaluating an investment in the Notes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------ -----------------------------------
PRO FORMA PRO FORMA
1993(1) 1994(1) 1995 1995(2) 1995 1996 1996(2)
-------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue......................... $171,845 $190,196 $211,821 $211,821 $155,746 $169,246 $169,246
Operating Expenses:
Program fees.................. 32,252 40,445 43,338 42,779 32,042 36,850 36,034
Other operating costs......... 68,304 75,132 79,474 79,474 54,175 60,370 60,370
Management and consulting
fees........................ 465 585 2,058 3,350 1,453 1,232 2,513
Depreciation and
amortization................ 134,948 91,716
--------- ----------
Total operating
expenses.............. 260,551 190,633
--------- ----------
Loss from operations............ (48,730 ) (21,387 )
Total interest expense(3)....... 76,511 (57,384 )
Net loss........................ (108,450 ) (68,352 )
BALANCE SHEET DATA
(at end of period):
Total assets.................... $998,145
Total debt...................... 837,000
Total partners' capital......... 99,768
FINANCIAL RATIOS AND OTHER DATA:
EBITDA(4)....................... $ 70,824 $ 74,034 $ 86,951 $ 68,076 $ 70,794 $ 70,329
EBITDA margin(4)................ 41.2% 38.9% 41.0% 43.7% 41.8% 41.6 %
Capital expenditures (excluding
acquisitions)................. 29,513 46,968 50,887 33,442 46,294
EBITDA to total interest
expense(3).................... 1.2 x
Ratio of earnings to fixed
charges(5).................... --
OPERATING STATISTICAL DATA (at
the end of period, except
averages):
Homes passed.................... 756,081 789,878 813,731 807,058 848,006
Basic subscribers............... 493,109 528,038 553,865 544,230 570,153
Basic penetration............... 65.2% 66.9% 68.1% 67.4% 67.2%
Premium service units........... 341,537 404,557 431,278 424,330 432,610
Premium penetration............. 69.3% 76.6% 77.9% 78.0% 75.9%
Average monthly revenue per
basic subscriber.............. $ 31.67 $ 31.09 $ 32.74 $ 32.28 $ 33.14
</TABLE>
- ---------------
(1) The comparability of the combined results of operations for 1993 and 1994 is
affected by RMH's acquisitions of cable television systems in 1993. During
February, March and December 1993, RMH acquired cable television systems
serving, as of their respective acquisition dates, approximately 1,400,
15,600 and 30,300 basic subscribers, respectively, in the
Greenville/Spartanburg Cluster and the Nashville Mid-Tennessee Cluster (the
"1993 Acquisitions"). Results of operations for the 1993 Acquisitions are
included in the 1993 results of operations only from the dates the systems
were acquired, whereas results of operations for these systems are included
for the full year in 1994 and 1995.
15
<PAGE> 24
(2) For more detailed information regarding the pro forma financial results, see
"Pro Forma Financial Information."
(3) The total interest expense and ratio of EBITDA to total interest expense do
not include the interest income from the Pledged Securities.
(4) Earnings before interest, income taxes, depreciation and amortization, gain
(loss) on disposal of fixed assets and other income (expense). EBITDA
margin is EBITDA divided by total revenues. EBITDA and EBITDA margin are
commonly used in the cable industry to analyze and compare cable television
companies on the basis of operating performance, leverage and liquidity.
However, EBITDA and EBITDA margin do not purport to represent cash flows
from operating activities in related Statements of Cash Flows or the
percentage of cash flows to gross revenues and should not be considered in
isolation or as a substitute for measures of performance in accordance with
GAAP. EBITDA as presented does not include any adjustments for selling,
general and administrative cost savings that management anticipates
achieving, compared to predecessors' costs, from the clustering of the
Systems. Management estimates such annual costs savings will be
approximately $3.3 million. There can be no assurance that the expected
cost savings will be achieved in conjunction with the Acquisitions.
(5) In computing the pro forma ratio of earnings to fixed charges, pro forma
earnings consist of pro forma loss before income tax benefit and pro forma
fixed charges. Pro forma fixed charges include pro forma interest on
long-term borrowings, related amortization of debt issue costs, preferred
equity dividend requirements and the portion of pro forma rental expense
under operating leases deemed to be representative of the interest factor.
Pro forma earnings, as adjusted for the Transactions, were inadequate to
cover pro forma fixed charges by $124.9 million for the year ended December
31, 1995 and by $74.1 million for the nine months ended September 30, 1996.
16
<PAGE> 25
SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT FOR RATIOS AND OPERATING DATA)
The historical financial and operating data of the Company as of and for
the nine months ended September 30, 1996 include the results of operations of
the Kingsport System, the ParCable System, IPWT, RMH, the Greenville/Spartanburg
System, the Viacom Nashville System and the Miscellaneous Systems only from the
dates the systems were acquired by the Company in 1996. Prior to its acquisition
of the systems during the nine months ended September 30, 1996, the Company had
no operating results to report. Summary financial information has not been
provided for IPCC because it was formed in April 1996 in contemplation of the
Transactions and its financial position and results of operations are
insignificant.
As a result of the substantial continuing interest in the Company of the
former owners of IPWT, RMH and the Greenville/Spartanburg System (the
"Previously Affiliated Entities"), which the Company acquired on July 30, 1996
pursuant to the Primary Acquisitions, the historical financial information of
the Previously Affiliated Entities has been combined on a historical cost basis
through the date of the Company's acquisitions of the systems as if the
Previously Affiliated Entities had always been members of the same operating
group, except for the Greenville/Spartanburg System, which has been included
from January 27, 1995, the date such system was acquired by TCI from an
unrelated former cable operator.
The Summary Financial and Operating Data of the Previously Affiliated
Entities presented below include the historical financial information of IPWT
and of RMH for each of the three years in the period ended December 31, 1995,
for the seven months ended July 31, 1995 and for the period from January 1, 1996
through July 30, 1996, and of the Greenville/Spartanburg System for the period
from January 27, 1995 through December 31, 1995, for the period from January 27,
1995 through July 31, 1995 and for the period from January 1, 1996 through July
30, 1996. The financial information for the Previously Affiliated Entities has
been derived from the Combined Financial Statements of the Previously Affiliated
Entities for each of the three years in the period ended December 31, 1995, for
the seven months ended July 31, 1995 and for the period from January 1, 1996
through July 30, 1996.
The Summary Financial and Operating Data for the Kingsport System and the
ParCable System for each of the three years in the period ended December 31,
1995, the one month ended January 31, 1996, and the summary financial and
operating data for the Viacom Nashville System for each of the three years in
the period ended December 31, 1995, the six months ended June 30, 1995 and 1996
which are periods prior to the Company's acquisition of each such system, are
presented separately. The summary financial and operating data for the
Greenville/Spartanburg System are also presented separately for each of the two
years in the period ended December 31, 1994 and for the period from January 1,
1995 through January 26, 1995.
The Summary Financial and Operating Data of the Kingsport System, the
ParCable System, the Greenville/Spartanburg System and the Viacom Nashville
System have been derived from the audited and unaudited financial statements and
accounting records of each of those systems. These data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and related notes
thereto of the Previously Affiliated Entities, the Greenville/ Spartanburg
System, the Kingsport System and the Viacom Nashville System included elsewhere
in this Prospectus, which include a discussion of events that affect the
comparability of the information presented below.
17
<PAGE> 26
SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT FOR RATIOS AND OPERATING DATA)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
THE COMPANY 1995 1996
- ---------------------------------------------------------------------- ------------ -----------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................................................... $ -- $ 47,391
Operating expenses:
Program fees........................................................ -- 10,136
Other operating costs............................................... -- 15,427
Depreciation and amortization....................................... -- 26,521
------ ---------
Total operating expenses..................................... -- 52,084
------ ---------
Loss from operations.................................................. -- (4,693)
Net loss.............................................................. -- (734)
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets.......................................................... $ 707 $ 998,145
Total debt............................................................ -- 837,000
Total partners' capital (deficit)..................................... (625) 99,768
FINANCIAL RATIOS AND OTHER DATA:
EBITDA(1)............................................................. $ -- $ 21,828
EBITDA margin(1)...................................................... -- 46.1%
Cash flows from operating activities.................................. -- 7,957
Cash flows from investing activities.................................. -- (528,020)
Cash flows from financing activities.................................. -- 533,584
Capital expenditures (excluding acquisitions)......................... -- 10,910
Ratio of earnings to fixed charges(2)................................. -- --
OPERATING STATISTICAL DATA (AT END OF PERIOD, EXCEPT AVERAGES):
Homes passed(3)....................................................... -- 848,006
Basic subscribers(4).................................................. -- 570,153
Basic penetration(5).................................................. -- 67.2%
Premium service units(4).............................................. -- 432,610
Premium penetration(5)................................................ -- 75.9%
Average monthly revenue per basic subscriber(6)....................... $ -- $ 29.43
</TABLE>
18
<PAGE> 27
SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT FOR RATIOS AND OPERATING DATA)
<TABLE>
<CAPTION>
SEVEN
MONTHS
ENDED
YEAR ENDED DECEMBER 31, JULY PERIOD
------------------------------ 31, 1/1/96-
PREVIOUSLY AFFILIATED ENTITIES(7) 1993 1994 1995(8) 1995 7/30/96
- ------------------------------------------------------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................................ $ 57,685 $ 73,049 $128,971 $72,578 $ 81,140
Operating expenses:
Program fees......................................... 9,376 13,189 24,684 13,923 17,080
Other operating costs................................ 20,215 25,675 47,360 25,663 29,698
Management and consulting fees....................... 465 585 815 530 398
Depreciation and amortization........................ 66,940 68,216 70,154 41,141 36,507
-------- -------- -------- ------- --------
Total operating expenses...................... 96,996 107,665 143,013 81,257 83,683
-------- -------- -------- ------- --------
Loss from operations................................... (39,311) (34,616) (14,042) (8,679) (2,543)
Net loss............................................... (55,992) (60,027) (44,910) (27,923) (35,272)
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets........................................... $357,652 $275,058 $590,494 578,870
Total debt............................................. 431,896 403,500 411,219 423,659
Total equity (deficit)................................. (129,800) (166,977) 37,249 17,263
FINANCIAL RATIOS AND OTHER DATA:
EBITDA(1).............................................. $ 27,629 $ 33,600 $ 56,112 $32,462 $ 33,964
EBITDA margin(1)....................................... 47.9% 46.0% 43.5% 44.7% 41.9%
Cash flows from operating activities................... (12,186) (112) 8,107 8,441 (14,007)
Cash flows from investing activities................... (30,838) 4,871 (24,614) (7,856) (18,736)
Cash flows from financing activities................... 12,692 (4,784) 18,066 28 30,086
Capital expenditures (excluding acquisitions).......... 11,334 12,432 26,301 9,745 18,587
Ratio of earnings to fixed charges(2).................. -- -- -- -- --
Operating Statistical Data (at end of period, except
averages):
Homes passed(3)........................................ 308,429 332,645 503,246 497,130 512,926
Basic subscribers(4)................................... 211,745 227,050 354,436 345,039 360,057
Basic penetration(5)................................... 68.7% 68.3% 70.4% 69.4% 70.2%
Premium service units(4)............................... 128,732 151,528 265,216 258,928 264,541
Premium penetration(5)................................. 60.8% 66.7% 74.8% 75.0% 73.5%
Average monthly revenue per basic subscriber(6)........ $ 27.86 $ 27.85 $ 31.08 $ 31.67 $ 32.35
</TABLE>
19
<PAGE> 28
SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT FOR RATIOS AND OPERATING DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, PERIOD
--------------------- 1/1/95-
GREENVILLE/SPARTANBURG SYSTEM 1993 1994 1/26/95(8)
- -------------------------------------------------------------------- -------- -------- ----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................................................. $ 43,892 $ 45,899 $ 3,117
Operating expenses:
Program fees...................................................... 10,908 14,076 795
Other operating costs............................................. 16,859 17,998 1,309
Depreciation and amortization..................................... 7,328 7,332 618
-------- -------- --------
Total operating expenses................................... 35,095 39,406 2,722
-------- -------- --------
Income from operations.............................................. 8,797 6,493 395
Net income.......................................................... 4,931 3,503 146
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets........................................................ $ 71,200 $ 66,469
Total debt.......................................................... 27,386 20,467
Total parent's investment........................................... 31,362 34,865
FINANCIAL RATIOS AND OTHER DATA:
EBITDA(1)........................................................... $ 16,125 $ 13,825 $ 1,013
EBITDA margin(1).................................................... 36.7% 30.1% 32.5%
Cash flows from operating activities(9)............................. 10,727 (18)
Cash flows from investing activities(9)............................. (11,032) (385)
Cash flows from financing activities(9)............................. (94) 157
Capital expenditures (excluding acquisitions)....................... 7,871 11,032 385
Ratio of earnings to fixed charges(2)............................... 4.8x 3.4x 2.3x
OPERATING STATISTICAL DATA (AT END OF PERIOD, EXCEPT AVERAGES):
Homes passed(3)..................................................... 153,600 155,624
Basic subscribers(4)................................................ 105,621 112,985
Basic penetration(5)................................................ 68.8% 72.6%
Premium service units(4)............................................ 95,022 102,668
Premium penetration(5).............................................. 90.0% 90.9%
Average monthly revenue per basic subscriber(10).................... $ 35.23 $ 34.99
</TABLE>
<TABLE>
<CAPTION>
MONTH
YEAR ENDED DECEMBER 31, ENDED
------------------------------- JANUARY 31,
KINGSPORT SYSTEM 1993 1994 1995 1996
- ------------------------------------------------------------ ------- ------- ------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $10,443 $10,100 $10,914 $ 937
Operating expenses:
Program fees.............................................. 2,065 1,950 2,219 211
Other operating costs..................................... 3,203 3,116 3,484 356
Depreciation and amortization............................. 1,094 924 1,087 87
------- ------- ------- -----
Total operating expenses........................... 6,362 5,990 6,790 654
------- ------- ------- -----
Income from operations...................................... 4,081 4,110 4,124 283
Net income.................................................. 4,126 4,230 3,268 193
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets................................................ $ 7,791 $ 7,735 $ 8,385
Total debt.................................................. -- -- --
Total divisional equity..................................... 6,867 6,686 6,644
</TABLE>
20
<PAGE> 29
<TABLE>
<CAPTION>
MONTH
ENDED
YEAR ENDED DECEMBER 31, JANUARY 31,
KINGSPORT SYSTEM 1993 1994 1995 1996
- ------------------------------------------------------------ ------- ------- ------- -----
<S> <C> <C> <C> <C>
FINANCIAL RATIOS AND OTHER DATA:
EBITDA(1)................................................... $ 5,175 $ 5,034 $ 5,211 $ 370
EBITDA margin(1)............................................ 49.6% 49.8% 47.7% 39.5%
Cash flows from operating activities(9)..................... 4,309 267
Cash flows from investing activities(9)..................... (1,108) (18)
Cash flows from financing activities(9)..................... (3,193) (209)
Capital expenditures (excluding acquisitions)............... 430 508 1,108 18
Ratio of earnings to fixed charges(2)....................... 57.5x 50.8x 4.5x 3.0x
OPERATING STATISTICAL DATA (AT END OF PERIOD, EXCEPT
AVERAGES):
Homes passed period(3)...................................... 39,951 41,180 42,307
Basic subscribers(4)........................................ 30,006 31,032 31,434
Basic penetration(5)........................................ 75.1% 75.4% 74.3%
Premium service units(4).................................... 9,015 11,049 12,809
Premium penetration(5)...................................... 30.0% 35.6% 40.7%
Average monthly revenue per basic subscriber(6)............. $ 29.15 $ 27.64 $ 28.91
</TABLE>
21
<PAGE> 30
SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT FOR RATIOS AND OPERATING DATA)
<TABLE>
<CAPTION>
MONTH
YEAR ENDED DECEMBER 31, ENDED
------------------------------- JANUARY 31,
PARCABLE SYSTEM 1993 1994 1995 1996
- ------------------------------------------------------------ ------- ------- ------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ 6,406 $ 6,500 $ 6,777 $ 621
Operating expenses:
Program fees.............................................. 1,528 1,606 1,746 148
Other operating costs..................................... 3,854 3,390 2,223 242
Management and consulting fees............................ -- -- 1,243 113
Depreciation and amortization............................. 722 680 662 55
------- ------- ------- ----
Total operating expenses........................... 6,104 5,676 5,874 558
------- ------- ------- ----
Income from operations...................................... 302 824 903 63
Net income.................................................. 108 789 829 58
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets................................................ $ 3,188 $ 2,693 $ 2,221
Total debt.................................................. -- -- --
Total shareholder's equity.................................. 8,195 10,790 13,318
FINANCIAL RATIOS AND OTHER DATA:
EBITDA(1)................................................... $ 1,024 $ 1,504 $ 1,565 $ 118
EBITDA margin(1)............................................ 16.0% 23.1% 23.1% 19.0%
Cash flows from operating activities(9).....................
Cash flows from investing activities(9).....................
Cash flows from financing activities(9).....................
Capital expenditures (excluding acquisitions)............... 190 169 135 6
Ratio of earnings to fixed charges(2)....................... 10.6x 16.9x 26.1x 22.0x
OPERATING STATISTICAL DATA (AT END OF PERIOD,
EXCEPT AVERAGES):
Homes passed(3)............................................. 26,985 27,238 27,529
Basic subscribers(4)........................................ 20,363 21,019 21,729
Basic penetration(5)........................................ 75.5% 77.2% 78.9%
Premium service units(4).................................... 9,788 9,833 9,464
Premium penetration(5)...................................... 48.1% 46.8% 43.6%
Average monthly revenue per basic subscriber(6)............. $ 26.96 $ 26.33 $ 26.64
</TABLE>
22
<PAGE> 31
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- ---------------------
VIACOM NASHVILLE SYSTEM 1993 1994 1995 1995 1996
- ---------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue....................................... $ 53,419 $ 54,648 $ 62,042 $ 29,834 $ 33,293
Operating expenses:
Program fees................................ 8,375 9,624 13,894 6,595 7,872
Other operating costs....................... 24,173 24,953 25,098 11,973 13,428
Depreciation and amortization............... 8,010 8,368 9,655 4,605 5,657
-------- -------- -------- -------- --------
Total operating expenses............. 40,558 42,945 48,647 23,173 26,957
-------- -------- -------- -------- --------
Income from operations........................ 12,861 11,703 13,395 6,661 6,336
Net income.................................... 9,461 6,308 3,793 1,823 1,734
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets.................................. $ 90,342 $104,187 $117,198 $123,907
Total debt.................................... -- -- -- --
Total owner's equity.......................... 87,122 99,482 105,637 $111,122
FINANCIAL RATIOS AND OTHER DATA:
EBITDA(1)..................................... $ 20,871 $ 20,071 $ 23,050 $ 11,266 $ 11,993
EBITDA margin(1).............................. 39.1% 36.7% 37.2% 37.8% 36.0%
Cash flows from operating activities.......... 15,034 15,762 19,929 14,109 8,900
Cash flows from investing activities.......... (10,035) (21,815) (22,291) (10,260) (12,651)
Cash flows from financing activities.......... (4,999) 6,053 2,362 (3,849) 3,751
Capital expenditures (excluding
acquisitions)............................... 9,688 22,827 22,958 10,470 12,480
Ratio of earnings to fixed charges(2)......... 3.4x 2.7x 2.4x 2.4x 2.3x
OPERATING STATISTICAL DATA (AT END OF PERIOD,
EXCEPT AVERAGES):
Homes passed(3)............................... 227,116 233,191 240,649 235,890 243,705
Basic subscribers(4).......................... 125,374 135,952 146,266 141,045 149,362
Basic penetration(5).......................... 55.2% 58.3% 60.8% 59.8% 61.3%
Premium service units(4)...................... 98,980 129,479 143,789 139,502 146,395
Premium penetration(5)........................ 78.9% 95.2% 98.3% 98.9% 98.0%
Average monthly revenue per basic
subscriber(6)............................... $ 36.07 $ 34.76 $ 36.57 $ 35.53 $ 37.15
</TABLE>
23
<PAGE> 32
(1) Earnings before interest, income taxes, depreciation and amortization, gain
(loss) on disposal of fixed assets and other income (expense). EBITDA
margin is EBITDA divided by total revenues. EBITDA and EBITDA margin are
commonly used in the cable industry to analyze and compare cable television
companies on the basis of operating performance, leverage and liquidity.
However, EBITDA and EBITDA margin do not purport to represent cash flows
from operating activities in related Statements of Cash Flows or cash flow
as a percentage of revenue and should not be considered in isolation or as
a substitute for or superior to measures of performance in accordance with
GAAP.
(2) In computing the ratio of earnings to fixed charges, earnings consist of
income (loss) before income tax expense (benefit) and fixed charges. Fixed
charges include interest on long-term borrowings, related amortization of
debt issue costs and the portion of rental expense under operating leases
deemed to be representative of the interest factor. The Company's earnings
for the nine months ended September 30, 1996 were inadequate to cover fixed
charges by $18,365. For the Previously Affiliated Entities, earnings for
the years ended December 31, 1993, 1994 and 1995, for the seven months
ended July 31, 1995 and for the period from January 1, 1996 through July
30, 1996 were inadequate to cover fixed charges by $77,648, $79,047,
$62,412, $36,565 and $50,016, respectively.
(3) Homes passed refers to estimates of the approximate number of dwelling
units in a particular community that can be connected to the cable
television distribution system without any further significant extension of
principal transmission lines. Such estimates are derived from a variety of
sources, including billing records, house counts, city directories and
other local sources.
(4) Except for the Viacom Nashville System, basic subscribers at end of period
are determined as the sum of all private residential customers being
directly billed for basic cable services and total bulk and commercial
equivalent units. Total bulk and commercial equivalent units for any month
are equal to related cable revenue for such month divided by the
predominant rate charged within the system for basic and expanded basic
services. For the Viacom Nashville System, basic subscribers at end of
period are determined as the number of subscribers directly billed for
basic cable services. Premium service units at end of period equal the
aggregate number of single premium channels to which customers subscribed.
A basic subscriber may subscribe to more than one premium service.
(5) Basic penetration represents basic subscribers at the end of a period
calculated as a percentage of homes passed at the end of such period.
Premium penetration represents premium service units at the end of a period
calculated as a percentage of total basic subscribers as of the
corresponding period end.
(6) Average monthly revenue per basic subscriber is calculated as the sum of
total revenue per average number of basic subscribers for each month
divided by the number of months during the period presented. The average
number of basic subscribers for each month is calculated as the sum of the
number of basic subscribers as of the beginning of the month and the number
of basic subscribers as of the end of the month divided by two.
(7) The combined information of the Previously Affiliated Entities includes the
historical financial information of IPWT and RMH as of and for each of the
three years in the period ended December 31, 1995, as of and for the seven
months ended July 31, 1995, as of July 30, 1996 and for the period from
January 1, 1996 through July 30, 1996 and of the Greenville/Spartanburg
System as of December 31, 1995, July 31, 1995 and July 30, 1996 and for the
period from January 27, 1995 through December 31, 1995, for the period from
January 27, 1995 through July 31, 1995 and for the period from January 1,
1996 through July 30, 1996. The comparability of the combined results of
operations for 1993 and 1994 is affected by RMH's 1993 Acquisitions of
cable television systems serving approximately 47,300 basic subscribers in
the Greenville/Spartanburg Cluster and the Nashville/Mid-Tennessee Cluster.
Results of operations for the 1993 Acquisitions are included in 1993
results of operations only from the dates such systems were acquired,
whereas results of operations for such systems are included for the full
year in 1994 and 1995.
(8) The historical financial information of the Previously Affiliated Entities
have been combined on a historical cost basis as if the Previously
Affiliated Entities had always been members of the same operating group,
except for the Greenville/Spartanburg System, which has been included from
January 27, 1995, the date such system was acquired by TCI from an
unrelated former cable operator.
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<PAGE> 33
The results of operations of the Greenville/Spartanburg System for the
period from January 1, 1995 through January 26, 1995 are presented
separately under the Summary Historical Financial and Operating Data of the
Greenville/Spartanburg System, along with the 1993 and 1994 information for
the Greenville/Spartanburg System.
(9) Cash flows from operating, investing and financing activities are not
available for the following systems for the following periods as statements
of cash flows were not prepared by the former operators of the respective
systems:
<TABLE>
<S> <C> <C>
Greenville/Spartanburg System -- Year ended December 31, 1993
Kingsport System -- Years ended December 31, 1993 and 1994
ParCable System -- Years ended December 31, 1993, 1994 and 1995
-- One month ended January 31, 1996
</TABLE>
(10) Average monthly revenue per basic subscriber for the Greenville/Spartanburg
System for the years ended December 31, 1993 and 1994 is calculated as the
total revenue for the year divided by the average number of basic
subscribers for the corresponding year. Average number of basic subscribers
was calculated as the sum of the number of basic subscribers at January 1
and December 31 of each year divided by two. The number of basic
subscribers for each month in 1993 and 1994 is not available.
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<PAGE> 34
RISK FACTORS
In addition to the other information contained in this Prospectus, before
tendering their Old Notes for the Exchange Notes offered hereby, holders of Old
Notes and prospective purchasers should consider carefully the following
factors, which (other than "Consequences of Exchange and Failure to Exchange"
and "Absence of Public Market; Possible Volatility of Exchange Note Price") are
generally applicable to the Old Notes as well as the Exchange Notes:
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act and applicable state
securities laws, or pursuant to an exemption therefrom. The Issuers do not
intend to register the Old Notes under the Securities Act. In addition, any
holder of Old Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. To the extent Old Notes are tendered and
accepted in the Exchange Offer, the trading market, if any, for the Old Notes
could be adversely affected. See "The Exchange Offer."
SUBSTANTIAL LEVERAGE; DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES
The Company has indebtedness that is substantial in relation to partners'
capital. On September 30, 1996, the Company's total debt balance was
approximately $837.0 million and partners' capital balance was approximately
$99.8 million. Under the Financing Plan, ICP-IV has received $360.0 million of
new equity from its partners, comprised of cash and in-kind contributions. Pro
forma earnings, as adjusted for the Transactions, were inadequate to cover pro
forma fixed charges by $124.9 million for the year ended December 31, 1995 and
by $74.1 million for the nine months ended September 30, 1996. See "Pro Forma
Financial Information." In addition, subject to the restrictions in the
indenture for the Notes (the "Indenture"), ICP-IV and its subsidiaries (other
than IPCC) may incur additional indebtedness from time to time to finance
acquisitions and capital expenditures or for general corporate purposes. The
high level of the Company's indebtedness will have important consequences to
Holders of the Notes, including: (i) a substantial portion of the Company's cash
flow from operations must be dedicated to debt service and will not be available
for general corporate purposes or for the Capital Improvement Program; (ii) the
Company's ability to obtain additional debt financing in the future for working
capital, capital expenditures, acquisitions or for the Capital Improvement
Program may be limited; and (iii) the Company's level of indebtedness could
limit its flexibility in reacting to changes in the industry and economic
conditions generally. See "-- Future Capital Requirements."
There can be no assurance that the Company will generate earnings in future
periods sufficient to cover its fixed charges, including its debt service
obligations with respect to the Notes. In the absence of such earnings or other
financial resources, the Company could face substantial liquidity problems.
ICP-IV's ability to pay interest on the Notes and to satisfy its other debt
obligations will depend upon its future operating performance, including the
successful implementation of the Capital Improvement Program (which the Company
currently anticipates will require approximately $230.1 million in additional
capital through 2001), and will be affected by prevailing economic conditions
and financial, business and other factors, many of which are beyond the
Company's control. Based upon expected increases in revenue and cash flow, the
Company anticipates that its cash flow, together with available borrowings,
including borrowings under the Revolving Credit Facility, will be sufficient to
meet its operating expenses and capital expenditure requirements and to service
its debt requirements for the next several years. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations." However, in
order to satisfy its repayment obligations with respect to the Notes, ICP-IV may
be required to refinance the Notes on their maturity. There can be no
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<PAGE> 35
assurance that financing will be available at that time in order to accomplish
any necessary refinancing on terms favorable to the Company or at all. If the
Company is unable to service its indebtedness, it will be forced to adopt an
alternative strategy that may include actions such as reducing or delaying
capital expenditures, selling assets, restructuring or refinancing its
indebtedness or seeking additional equity capital. There can be no assurance
that any of these strategies could be effected on satisfactory terms, if at all.
Management believes that substantial growth in revenues and operating cash flows
is not achievable without implementing at least a significant portion of the
Capital Improvement Program. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
HOLDING COMPANY STRUCTURE; STRUCTURAL SUBORDINATION
The Notes will be general obligations of the Issuers and will rank pari
passu with all senior indebtedness of the Issuers, if any. The Company's
operations are conducted through the Operating Partnership's direct and indirect
subsidiaries. The Issuers hold no significant assets other than their
investments in and advances to ICP-IV's subsidiaries and the Issuers have no
independent operations and, therefore, are dependent on the cash flow of
ICP-IV's subsidiaries and other entities to meet their own obligations,
including the payment of interest and principal obligations on the Notes when
due. Accordingly, the Issuers' ability to make interest and principal payments
when due to Holders and the Issuers' ability to purchase the Notes upon a Change
of Control or Asset Sale is dependent upon the receipt of sufficient funds from
ICP-IV's subsidiaries and will be severely restricted by the terms of existing
and future indebtedness of ICP-IV's subsidiaries. The Bank Facility was entered
into by a subsidiary of ICP-IV and prohibits payment of distributions by any of
ICP-IV's subsidiaries to the Issuers prior to February 1, 2000, and permits such
distributions thereafter only to the extent necessary for ICP-IV to make cash
interest payments on the Notes at the time such cash interest is due and
payable, provided that no default or event of default with respect to the Bank
Facility exists or would exist as a result. See "Description of Other
Obligations -- The Bank Facility." There can be no assurance that the Bank
Facility will permit the distribution of amounts sufficient for ICP-IV to make
cash interest payments when due. See "-- Substantial Leverage; Deficiency of
Earnings to Cover Fixed Charges." Furthermore, ICP-IV's subsidiaries, other than
IPCC, will not be obligors under the Notes. As a result, the creditors of
ICP-IV, including the Holders, will effectively rank junior to all creditors of
ICP-IV's subsidiaries, other than IPCC, including trade creditors and the bank
lenders under the Bank Facility. In the event of dissolution, bankruptcy,
liquidation or reorganization of ICP-IV or any of its subsidiaries, the Holders
will not receive any amounts in respect of the Notes until after payment in full
of the claims of creditors of ICP-IV's subsidiaries, other than IPCC. As of
September 30, 1996 the obligations of ICP-IV's subsidiaries that are
structurally senior to the Notes included total indebtedness of $605.9 million
(including obligations under the Bank Facility), and total trade payables and
other liabilities of $60.9 million, including $12.1 million in RMH Redeemable
Preferred Stock. In addition, the Indenture will allow ICP-IV and its
subsidiaries to incur additional Indebtedness. See "Capitalization";
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Description of the Notes."
NONRECOURSE NATURE OF THE NOTES
The Notes are being issued solely by the Issuers, which are the sole
obligors thereunder. Neither the general partner of ICP-IV (the "General
Partner"), the direct and indirect investors in ICP-IV (including TCI and other
institutional investors), nor any of their respective directors, officers,
partners, stockholders, employees or affiliates will be an obligor under the
Notes, and the Indenture expressly provides that the General Partner, the
investors in ICP-IV (including TCI and other institutional investors), together
with their respective directors, officers, partners, stockholders, employees or
affiliates shall not have any liability for any obligations of the Issuers under
the Notes or such Indenture or any claim based on, in respect of, or by reason
of, such obligations, and that by accepting the Notes, each Holder waives and
releases all such liability, which waiver and release are part of the
consideration for issuance of the Notes. There should be no expectation that the
General Partner, the direct and indirect investors in ICP-IV (including TCI and
other institutional investors), or any person other than the Issuers, will, in
the future, fund the operations or deficits of the Issuers or any of their
subsidiaries. See "Description of the Notes."
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<PAGE> 36
RESTRICTIONS IMPOSED BY LENDERS
The Bank Facility and, to a lesser extent, the Indenture contain a number
of significant covenants that, among other things, restrict the ability of the
Company to dispose of assets or merge, incur debt, pay distributions, repurchase
or redeem capital stock, create liens, make capital expenditures and make
certain investments or acquisitions and otherwise restrict corporate activities.
The Bank Facility also contains, among other covenants, requirements that the
Operating Partnership maintain specified financial ratios, including maximum
leverage and minimum interest coverage and prohibits the Operating Partnership
and its subsidiaries from prepaying the Company's other indebtedness (including
the Notes). The ability of the Company to comply with such provisions may be
affected by events that are beyond the Company's control. The breach of any of
these covenants could result in a default under the Bank Facility. In the event
of any such default, lenders party to the Bank Facility could elect to declare
all amounts borrowed under the Bank Facility, together with accrued interest and
other fees, to be due and payable. If the indebtedness under the Bank Facility
were to be accelerated, all indebtedness outstanding under such Bank Facility
would be required to be paid in full before the subsidiaries of ICP-IV that are
parties to the Bank Facility would be permitted to distribute any assets or cash
to ICP-IV. There can be no assurance that the assets of ICP-IV and its
subsidiaries would be sufficient to repay all borrowings under the Bank Facility
and the other creditors of such subsidiaries in full. In addition, as a result
of these covenants, the ability of the Operating Partnership and its
subsidiaries to respond to changing business and economic conditions and to
secure additional financing, if needed, may be significantly restricted, and the
Company may be prevented from engaging in transactions that might otherwise be
considered beneficial to the Company. See "Description of Other
Obligations -- The Bank Facility."
PURCHASE OF NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Issuers are required to
make an offer to purchase all outstanding Notes at a purchase price equal to
101.0% of the principal amount thereof, together with accrued and unpaid
interest, if any, to the date of purchase. There can be no assurance that the
Issuers will have available funds sufficient to purchase the Notes upon a Change
of Control. In addition, any Change of Control, and any repurchase of the Notes
required under the Indenture upon a Change of Control, would constitute an event
of default under the Bank Facility, with the result that the obligations of the
borrowers thereunder could be declared due and payable by the lenders. Any
acceleration of the obligations under the Indenture or the Bank Facility would
make it unlikely that the Operating Partnership could make adequate
distributions to ICP-IV in order to service the Notes and, accordingly, that the
Operating Partnership could make adequate distributions to ICP-IV as required to
permit the Issuers to effect a purchase of the Notes upon a Change of Control.
See "Description of Other Obligations."
FUTURE CAPITAL REQUIREMENTS
Consistent with the Company's business strategy, and in order to comply
with requirements imposed by certain of its franchising authorities and to
address existing and potential competition, the Company has begun implementing
the Capital Improvement Program. Pursuant to the Capital Improvement Program,
the Company plans to expand and upgrade the Systems' plant to improve channel
capacity and system reliability and to allow for interactive services such as
enhanced pay-per-view, home shopping, data transmission (including Internet
access), telephone services and other interactive services to the extent they
become technologically viable and economically practicable. The Company expects
to upgrade both its existing systems with a digital-capable, high-capacity,
broadband hybrid fiber/coaxial cable to accomplish these objectives. The Company
currently plans to spend approximately $230.1 million in additional capital
through 2001 to fully implement the Capital Improvement Program. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Although the Company has taken steps to begin the upgrading process
and anticipates that it will continue to upgrade portions of its systems over
the next several years, there can be no assurance that the Company will be able
to upgrade its cable television systems at a rate that will allow it to remain
competitive with competitors that either do not rely on cable into the home
(e.g., MMDS and DBS (as defined herein)) or have access to significantly greater
amounts of capital and an existing communications network (e.g., certain
telephone companies). In addition, the Company currently
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<PAGE> 37
estimates that it will make other capital expenditures through 2001 of
approximately $127.4, principally for maintenance of its plant and other fixed
assets. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The Company's business requires continuing investment to
finance capital expenditures and related expenses for expansion of the Company's
subscriber base and system development. There can be no assurance that the
Company will be able to fund its Capital Improvement Program or any of its other
capital expenditures. The Company's inability to upgrade its cable television
systems or make its other planned capital expenditures would have a material
adverse effect on the Company's operations and competitive position and could
have a material adverse effect on the Company's ability to service its debt,
including the Notes. See "Business -- Upgrade Strategy and Capital
Expenditures."
LIMITED OPERATING HISTORY; DEPENDENCE ON MANAGEMENT
ICP-IV was organized in March 1996. The partners of the Operating
Partnership transferred their partnership interests to ICP-IV in 1996. See "The
Partnership Agreement -- Organization." Prospective investors, therefore, have
limited historical financial information about the Company upon which to base an
evaluation of its performance and an investment in the Notes. Pursuant to the
Acquisitions, the Company has substantially increased the size of its
operations. Therefore, the historical financial data of the Company may not be
indicative of the Company's future results of operations. Further, there can be
no assurance that the Company will be able to successfully implement its
business strategy. The future success of the Company will be largely dependent
upon the efforts of senior management of its general partner, ICM-IV, including
Leo J. Hindery, Jr., the Company's founder who manages the business and
operations of the Company. See "Management" and "Certain Relationships and
Related Transactions -- Management by ICM-IV." Although ICM-IV as general
partner of ICP-IV may acquire systems on behalf of the Company, there is no
obligation to do so. Further, the Related InterMedia Entities or a new entity
controlled by Mr. Hindery may acquire cable television systems not contemplated
in this Prospectus, which may require a substantial amount of the attention of
Mr. Hindery.
COMPETITION IN CABLE TELEVISION INDUSTRY; RAPID TECHNOLOGICAL CHANGE
Cable television systems face competition from other sources of news,
information and entertainment, such as off-air television broadcast programming,
newspapers, movie theaters, live sporting events, interactive computer programs
and home video products, including video tape cassette recorders. Competing
sources of video programming include, but are not limited to, off-air broadcast
television, direct broadcast satellite ("DBS") service, multipoint multichannel
distribution service ("MMDS") systems, satellite master antenna television
("SMATV") systems and other new technologies. Furthermore, the cable television
industry is subject to rapid and significant changes in technology. The effect
of any future technological changes on the viability or competitiveness of the
Company's business cannot be predicted. See "Business -- Competition."
In addition, the Telecommunications Act of 1996 has repealed the
cable/telephone cross-ownership ban, and telephone companies will now be
permitted to provide cable television service within their service areas.
Certain of such potential service providers have greater financial resources
than the Company, and in the case of local exchange carriers seeking to provide
cable service within their service areas, have an installed plant and switching
capabilities, any of which could give them competitive advantages with respect
to cable television operators such as the Company.
BellSouth Telecommunications, Inc. ("BellSouth") has applied for cable
franchises in certain areas where the Company operates. On October 22, 1996 the
Tennessee Cable Telecommunications Association and the Cable Television
Association of Georgia filed a formal complaint with the Federal Communications
Commission challenging certain acts and practices that BellSouth is taking in
connection with its deployment of video distribution facilities in certain areas
of Tennessee and Georgia. The Company is joined by several other cable operators
in the complaint. The Company cannot predict the likelihood of success in this
complaint nor can there be any assurance that the Company will be successful
with this complaint. Furthermore, the Company cannot predict either the extent
to which competition from Bell South or other potential service providers will
materialize or, if such competition materializes, the extent of its effect on
the Company. See "Business -- Competition."
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<PAGE> 38
REGULATION OF THE CABLE TELEVISION INDUSTRY
The cable television industry is subject to extensive regulation at the
federal, state and local levels, and many aspects of such regulation are
currently the subject of judicial proceedings and administrative or legislative
proposals. In February 1996, Congress passed, and the President signed into law,
major telecommunications reform legislation, the Telecommunications Act of 1996
(the "1996 Act"). Among other things, the 1996 Act reduces in some circumstances
and by 1999 will eliminate, rate regulation for cable programming service
("CPS") packages for all cable television systems and immediately eliminates
regulation of this service tier for small cable operators. The Federal
Communications Commission (the "FCC") is undertaking numerous rulemaking
proceedings to interpret and implement the provisions of the 1996 Act. The 1996
Act and the FCC's implementing regulations could have a significant effect on
the cable television industry. In addition, the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act") imposed
substantial regulation on the cable television industry, including rate
regulation, and significant portions of the 1992 Act remain in effect despite
the enactment of the 1996 Act and remain highly relevant to the Company's
operations.
The Company elected the benchmark or cost-of-service methodologies to
justify its basic and CPS tier rates in effect prior to May 15, 1994, but relied
primarily upon the cost-of-service methodology to justify regulated service
rates in effect after May 14, 1994. The Company's cost-of-service cases
justifying certain rates for the CPS tier of service are currently pending
before the FCC. Additionally, pursuant to the FCC's regulations, several local
franchising authorities are reviewing the Company's basic rate justifications
and several other franchising authorities have requested that the FCC review the
Company's basic rate justifications. Although the Company generally believes
that its rates are justified under the FCC's benchmark or cost-of-service
methodologies, it cannot predict the ultimate resolution of these cases.
Management believes that the regulation of the cable television industry
will remain a matter of interest to Congress, the FCC and other regulatory
bodies. There can be no assurance as to what, if any, future actions such
legislative and regulatory authorities may take or the effect thereof on the
industry or the Company. See "Legislation and Regulation."
EXPIRATION OF FRANCHISES
As of September 30, 1996, twenty-one franchises relating to approximately
16,944 of the basic subscribers served by the Systems, have expired or are
scheduled to expire prior to December 31, 1996. The terms of these franchises
require the Company to negotiate the renewals of such franchises with the local
franchising authorities, and all twenty-one franchises are currently in informal
renewal negotiations. In connection with a renewal of a franchise, the
franchising authority may require the Company to comply with different
conditions with respect to franchise fees, channel capacity and other matters,
which conditions could increase the Company's cost of doing business. Although
management believes that it generally will be able to negotiate renewals of its
franchises, there can be no assurance that the Company will be able to do so and
the Company cannot predict the impact of any new or different conditions that
might be imposed by franchising authorities in connection with such renewals.
See "Business -- Franchises."
RELATED PARTY TRANSACTIONS
Conflicts of interests may arise due to certain contractual relationships
of the Company and the Company's relationship with the Related InterMedia
Entities and its other affiliates. InterMedia Management, Inc. ("IMI"), which is
wholly owned by Leo J. Hindery, Jr., provides administrative services at cost to
the Company and to the operating companies of the Related InterMedia Entities.
Conflicts of interest may arise in the allocation of management and
administrative services as a result of such relationships. NationsBanc Capital
Markets, Inc., one of the Initial Purchasers, is an affiliate of NationsBanc
Investment Corp. and certain of its affiliates, which together hold a 9.0%
limited partnership interest in ICP-IV. Toronto Dominion Securities (USA) Inc.,
one of the Initial Purchasers, is an affiliate of Toronto Dominion Capital,
which holds a 3.0% limited partnership interest in ICP-IV. See "The
Acquisitions"; "Certain Relationships and Related Transactions" and "Plan of
Distribution."
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<PAGE> 39
LOSS OF BENEFICIAL RELATIONSHIP WITH TCI
The Company's relationship with TCI currently enables the Company to (i)
purchase programming services and equipment from a subsidiary of TCI at rates
that management believes are generally lower than the Company could obtain
through arm's-length negotiations with third parties, (ii) share in TCI's
marketing test results, (iii) share in the results of TCI's research and
development activities and (iv) consult with TCI's operating personnel with
expertise in engineering, technical, marketing, advertising, accounting and
regulatory matters. While the Company expects the relationship to continue, TCI
is under no obligation to offer such benefits to the Company, and there can be
no assurance that such benefits will continue to be available in the future
should TCI's ownership in the Company significantly decrease or should TCI for
any other reason decide not to continue to offer such benefits to the Company.
The loss of the relationship with TCI could adversely affect the financial
position and results of operations of the Company. Further, the Bank Facility
provides that an event of default will exist if TCI does not own beneficially
35.0% or more of ICP-IV's non-preferred partnership interests. See
"Business -- Relationship with TCI"; "Certain Relationships and Related
Transactions -- Certain Other Relationships"; "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Transactions with
Affiliates" and "Description of Other Obligations -- The Bank Facility."
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF EXCHANGE NOTE PRICE
The Exchange Notes are new securities for which there is currently no
market. The Company does not intend to apply for listing of the Exchange Notes
on any securities exchange or for the inclusion of the Exchange Notes in any
automated quotation system. Although the Company has been advised by the Initial
Purchasers that, following completion of the Private Offering, the Initial
Purchasers intended to make a market in the Notes, they are not obligated to do
so and any such market making activities may be discontinued at any time without
notice. Accordingly, there can be no assurance as to the development or
liquidity of any market for the Exchange Notes. If a market for the Exchange
Notes were to develop, the Exchange Notes could trade at prices that may be
higher or lower than their initial offering price depending upon many factors,
including prevailing interest rates, the Company's operating results and the
markets for similar securities. Historically, the market for non-investment
grade debt has been subject to disruptions that have caused substantial
volatility in the prices of securities similar to the Exchange Notes. There can
be no assurance that, if a market for the Exchange Notes were to develop, such a
market would not be subject to similar disruptions.
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<PAGE> 40
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally issued and sold by the Issuers on July 30,
1996 to the Initial Purchasers in reliance on Section 4(2) of the Securities
Act. The Initial Purchasers offered and sold the Old Notes only to "qualified
institutional buyers" (as defined in Rule 144A) in compliance with Rule 144A and
to a limited number of other institutional "accredited investors" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act) that, prior to their
purchase of Old Notes, delivered to the Initial Purchasers a letter containing
certain representations and agreements.
In connection with the sale of the Old Notes, the Issuers and the Initial
Purchasers entered into a Registration Rights Agreement dated July 19, 1996 (the
"Registration Agreement"), which generally requires the Issuers (i) to file with
the Commission the Exchange Offer Registration Statement with respect to the
Exchange Offer or (ii) to cause the Old Notes to be registered under the
Securities Act pursuant to a Shelf Registration Statement (as defined herein).
The sole purpose of this Exchange Offer is to fulfill the obligations of the
Issuers with respect to the Registration Agreement. The term "holder" with
respect to the Exchange Offer means any person in whose name Notes are
registered on the registrar's books or any other person who has obtained a
properly completed bond power from the registered Holder, or any person whose
Notes are held of record by The Depository Trust Company ("DTC") who desires to
deliver such Old Notes, by book-entry transfer at DTC.
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Issuers believe the Exchange
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any Holder thereof
(other than broker-dealers, as set forth below, and any such Holder that is an
"affiliate" of the Issuers within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such Holder's business and that such Holder
has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. Any Holder who tenders in the Exchange
Offer with the intention to participate, or for the purpose of participating, in
a distribution of the Exchange Notes or who is an affiliate of the Issuers may
not rely upon such interpretations by the staff of the Commission and, in the
absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
secondary resale transaction. Failure to comply with such requirements in such
instance may result in such Holder incurring liabilities under the Securities
Act for which the Holder is not indemnified by the Issuers. Each broker-dealer
(other than an affiliate of the Issuers) that receives Exchange Notes for its
own account in exchange for Old Notes, where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution." The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. The Issuers have agreed that, for a period of 180
days after the Expiration Date, it will make the Prospectus available to any
broker-dealer for use in connection with any such sale. See "Plan of
Distribution." Any broker-dealer who is an affiliate of the Issuers may not rely
on such no-action letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction.
The Exchange Offer is not being made to, nor will the Issuers accept
surrenders for exchange from, Holders of Old Notes in any jurisdiction in which
this Exchange Offer or the acceptance thereof would not be in compliance with
the securities or blue sky laws of such jurisdiction.
By tendering in the Exchange Offer, each Holder of Old Notes will represent
to the Issuers that, among other things, (i) the Exchange Notes acquired
pursuant to the Exchange Offer are being acquired in the ordinary course of
business of the person receiving such Exchange Notes, whether or not such person
is the Holder, (ii) neither the Holder of Old Notes nor any such other person
has an arrangement or understanding
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<PAGE> 41
with any person to participate in the distribution of such Exchange Notes, (iii)
neither the Holder nor any such other person is an "affiliate" of the Issuers as
defined in Rule 405 under the Securities Act or, if such Holder is an
"affiliate," that such Holder will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable, (iv) if
the Holder is not a broker-dealer, that neither the Holder nor any such other
person is engaged in or intends to engage in the distribution of such Exchange
Notes, and (v) if such Holder is a broker-dealer, that it will receive Exchange
Notes for its own account in exchange for Old Notes that were acquired as a
result of market-making activities or other trading activities and that it will
be required to acknowledge that it will deliver a prospectus in connection with
any resale of such Exchange Notes.
Participation in the Exchange Offer is voluntary and Holders should
carefully consider whether to participate. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on
whether to participate in the Exchange Offer.
Pursuant to the terms of the Registration Agreement, if, under certain
circumstances, the Exchange Offer is not permitted, the Issuers shall, as
promptly as practicable (but in no event more than 30 days after so required or
requested pursuant to the Registration Agreement), file with the Commission and
thereafter shall cause to be declared effective under the Securities Act within
90 days after so required or requested pursuant to the Registration Agreement a
Shelf Registration Statement relating to the offer and sale of the Old Notes or
the Exchange Notes, as applicable, by the Holders from time to time in
accordance with the methods of distribution elected by such Holders and set
forth in such Shelf Registration Agreement. The Issuers will be required to keep
the Shelf Registration Statement continuously effective in order to permit the
prospectus forming part thereof to be usable by the Holders for a period of
three years from the date of the Shelf Registration Statement is declared
effective by the Commission or such shorter period that will terminate when all
the Old Notes or Exchange Notes, as applicable, covered by the Shelf
Registration Statement have been sold pursuant to the Shelf Registration
Statement.
TERMS OF THE EXCHANGE OFFER
General. Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, the Issuers hereby offer to
exchange any and all Old Notes validly tendered and not withdrawn prior to 5:00
p.m., New York City time, on the Expiration Date. Subject to the minimum
denomination requirements of the Exchange Notes, the Issuers will issue $1,000
principal amount of Exchange Notes in exchange for each $1,000 principal amount
of outstanding Old Notes accepted in the Exchange Offer. Holders may tender some
or all of their Old Notes pursuant to the Exchange Offer. However, Old Notes may
be tendered only in amounts that are integral multiples of $1,000 principal
amount.
The form and terms of the Exchange Notes will be identical in all material
respects to the form and terms of the Old Notes except that (i) the Exchange
Notes will be registered under the Securities Act and, therefore, will not bear
legends restricting the transfer and (ii) Holders of the Exchange Notes will not
be entitled to certain rights of Holders of Old Notes under the Registration
Agreement, which will terminate upon consummation of the Exchange Offer. The
Exchange Notes will evidence the same debt as the Old Notes, will be entitled to
the benefits of the Indenture and will be treated as a single class thereunder
with any Old Notes that remain outstanding. The Exchange Offer is not
conditioned upon any minimum aggregate principal amount of Old Notes being
tendered for exchange.
As of the date of this Prospectus, $292,000,000 aggregate principal amount
of Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1996 to all Holders
known to the Issuers.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the Delaware General Corporation Law or the Indenture in connection with the
Exchange Offer. The Issuers intend to conduct the Exchange Offer in accordance
with the provisions of the Registration Agreement and the applicable
requirements of the Exchange Act, and the rules and regulations of the
Commission thereunder. Old Notes which are not tendered for exchange in the
Exchange Offer will remain outstanding and interest thereon will continue to
accrue.
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<PAGE> 42
The Issuers shall be deemed to have accepted validly tendered Old Notes
when, as and if the Issuers have given written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering Holders for the
purposes of receiving the Exchange Notes from the Issuers. If any tendered Old
Notes are not accepted for exchange because of an invalid tender, the occurrence
of certain other events set forth herein or otherwise, certificates for any such
unaccepted Old Notes will be returned, without expense, to the tendering Holder
thereof as promptly as practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Issuers will pay all charges and expenses,
other than certain applicable taxes described below, in connection with the
Exchange Offer. See "-- Fees and Expenses."
Expiration Date; Extensions; Amendments. The term "Expiration Date" shall
mean 5:00 p.m., New York City time, on , 1996, unless the Issuers,
in their sole discretion, extend the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended. Although the Issuers have no current intention to extend the
Exchange Offer, the Issuers reserve the right to extend the Exchange Offer at
any time and from time to time by giving oral or written notice to the Exchange
Agent and by timely public announcement communicated, unless otherwise required
by applicable law or regulation, by making a release to the Dow Jones News
Service. During any extension of the Exchange Offer, all Notes previously
tendered pursuant to the Exchange Offer and not withdrawn will remain subject to
the Exchange Offer. The date of the exchange of the Exchange Notes for Old Notes
will be the first New York Stock Exchange trading day following the Expiration
Date.
The Issuers reserve the right, in their sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth under "-- Conditions of the
Exchange Offer" below shall not have been satisfied, by giving oral or written
notice of such delay, extension or termination to the Exchange Agent or (ii) to
amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the Holders of Old Notes. If
the Exchange Offer is amended in any manner determined by the Issuers to
constitute a material change, the Issuers will promptly disclose such amendment
by means of a prospectus supplement that will be distributed to the Holders of
Old Notes, and the Issuers will extend the Exchange Offer for a period of time,
depending upon the significance of the amendment and the manner of disclosure to
such Holders, if the Exchange Offer otherwise would expire during such period.
In all cases, issuance of the Exchange Notes for Old Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of a properly completed and duly executed
Letter of Transmittal and all other required documents; provided, however, that
the Issuers reserve the absolute right to waive any conditions of the Exchange
Offer or defects or irregularities in the tender of Old Notes. If any tendered
Old Notes are not accepted for any reason set forth in the terms and conditions
of the Exchange Offer or if Old Notes are submitted for a greater principal
amount than the Holder desires to exchange, such unaccepted or non-exchanged Old
Notes or substitute Old Notes evidencing the unaccepted portion, as appropriate,
will be returned without expense to the tendering Holder (or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's account at DTC
pursuant to the book-entry procedures described below, such non-exchanged Old
Notes will be credited to an account maintained with DTC), unless otherwise
provided in the Letter of Transmittal, as promptly as practicable after the
expiration or termination of the Exchange Offer.
Interest on the Exchange Notes. Holders of Old Notes that are accepted for
exchange will not receive accrued interest thereon at the time of exchange.
However, each Exchange Note will bear interest from the most recent date to
which interest has been paid on the Old Notes or Exchange Notes, or if no
interest has been paid on the Old Notes or Exchange Notes, from July 30, 1996.
Procedures for Tendering Old Notes. The tender to the Issuers of Old Notes
by a Holder thereof pursuant to one of the procedures set forth below will
constitute an agreement between such Holder and the Issuers in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
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<PAGE> 43
Transmittal. A Holder of the Old Notes may tender such Old Notes by (i) properly
completing and signing a Letter of Transmittal or a facsimile thereof (all
references in this Prospectus to a Letter of Transmittal shall be deemed to
include a facsimile thereof) and delivering the same, together with any
corresponding certificate or certificates representing Old Notes being tendered
(or confirmation of a book-entry-transfer of such Old Notes into the Exchange
Agent's account at DTC pursuant to the book-entry procedures described below)
and any required signature guarantees, to the Exchange Agent at its address set
forth in the Letter of Transmittal on or prior to the Expiration Date (or
complying with the procedure for book-entry transfer described below) or (ii)
complying with the guaranteed delivery procedures described below.
If tendered Old Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Notes to be issued in exchange therefor
are to be issued (and any untendered Old Notes are to be reissued) in the name
of the registered Holder (which term, for the purposes described herein, shall
include any participant in DTC, also referred to as a book-entry facility) whose
name appears on a security listing as the owner of Old Notes, the signature of
such signer need not be guaranteed. In any other case, the tendered Old Notes
must be endorsed or accompanied by written instruments of transfer in form
satisfactory to the Issuers and duly executed by the registered Holder and the
signature on the endorsement or instrument of transfer must be guaranteed by a
member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or an "eligible guarantor
institution" as defined by rule 17Ad-15 under the Exchange Act (any of the
foregoing hereinafter referred to as an "Eligible Institution"). If the Exchange
Notes or Old Notes not exchanged are to be delivered to an address other than
that of the registered Holder appearing on the note register for the Old Notes,
the signature in the Letter of Transmittal must be guaranteed by an Eligible
Institution.
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT
TO THE ISSUERS. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
A tender will be deemed to have been received as of the date when (i) the
tendering Holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at DTC) is received by the Exchange
Agent or (ii) a Notice of Guaranteed Delivery or letter or facsimile
transmission to similar effect (as provided below) from an Eligible Institution
is received by the Exchange Agent. Issuances of Exchange Notes in exchange for
Old Notes tendered pursuant to a Notice of Guaranteed Delivery or letter or
facsimile transmission to similar effect (as provided below) by an Eligible
Institution will be made only against submission of a duly signed Letter of
Transmittal (and any other required documents) and deposit of the tendered Old
Notes (or confirmation of a book-entry transfer of such Old Notes into the
Exchange Agent's account at DTC pursuant to the book-entry procedures described
below).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Issuers, which determination will be final and binding. The Issuers reserve
the absolute right to reject any and all tenders not in proper form or the
acceptance for exchange of which may, in the opinion of the Issuers' counsel, be
unlawful. The Issuers also reserve the absolute right to waive any of the
conditions of the Exchange Offer or any defect or irregularity in the tender of
any Old Notes. None of the Issuers, the Exchange Agent or any other person will
be under any duty to give notification of any defects or irregularities in
tenders or incur any liability for failure to give any such notification. Any
Old Notes received by the Exchange Agent that are not validly tendered and as to
which the defects or irregularities have not been cured or waived, or if Old
Notes are submitted in principal amount greater than the principal amount of Old
Notes being tendered by such tendering Holder, such unaccepted or
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<PAGE> 44
non-exchanged Old Notes will be returned by the Exchange Agent to the tendering
Holder, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
In addition, the Issuers reserve the right in their sole discretion (i) to
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date and (ii) to the extent permitted by applicable law, to
purchase Old Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers may differ from the terms
of the Exchange Offer.
Book-Entry Transfer. The Issuers understand that the Exchange Agent will
make a request promptly after the date of this Prospectus to establish an
account with respect to the Old Notes at DTC for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in DTC's system may make book-entry delivery
of Old Notes by causing DTC to transfer such Old Notes into the Exchange Agent's
account with respect to the Old Notes in accordance with DTC's Automated Tender
Offer Program ("ATOP") procedures for such book-entry transfers. Although
delivery of the Old Notes may be effected through book-entry transfer into the
Exchange Agent's account at DTC, the exchange for Old Notes so tendered will
only be made after timely confirmation (a "Book-Entry Confirmation") of such
book-entry transfer of the Old Notes into the Exchange Agent's account, and
timely receipt by the Exchange Agent of an Agent's Message (as defined herein)
and any other documents required by the Letter of Transmittal. The term "Agent's
Message" means a message, transmitted by DTC and received by the Exchange Agent
and forming part of the Book-Entry Confirmation, which states that DTC has
received express acknowledgment from a participant tendering Old Notes that such
participant has received and agrees to be bound by the terms of the Letter of
Transmittal, and that such agreement may be enforced against such participant.
Guaranteed Delivery Procedures. If a Holder desires to participate in the
Exchange Offer and such Holder's Old Notes are not immediately available, or
time will not permit such Holder's Old Notes or other required documents to
reach the Exchange Agent before the Expiration Date, or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if (i) the tender is made through an Eligible Institution, (ii) on or
prior to the Expiration Date, the Exchange Agent has received from an Eligible
Institution a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form
provided by the Issuers (by telegram, telex, facsimile transmission, mail or
hand delivery), setting forth the name and address of the tendering Holder, the
name(s) in which the Old Notes are registered, the certificate number(s) of the
Old Notes to be tendered and the amount tendered, and stating that the tender is
being made thereby and guaranteeing that, within three New York Stock Exchange
trading days after the date of execution of the Notice of Guaranteed Delivery,
such Old Notes, in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at DTC), will be
delivered by such Eligible Institution together with any other documents
required by the Letter of Transmittal and (iii) the certificates for all
physically tendered Old Notes, in proper form for transfer, or a confirmation of
book-entry transfer of such Old Notes into the Exchange Agent's account at DTC,
as the case may be, and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within three New Stock Exchange
Trading Days after the date of execution of the Notice of Guaranteed Delivery.
Unless Old Notes being tendered by the above-described method are deposited with
the Exchange Agent within the time period set forth above (accompanied or
preceded by a properly completed Letter of Transmittal and any other required
documents), the Issuers may, at their option, reject the tender. Copies of a
Notice of Guaranteed Delivery which may be used by Eligible Institutions for the
purposes described in this paragraph are available from the Exchange Agent.
Terms and Conditions of the Letter of Transmittal. The Letter of
Transmittal contains, among other things, the following terms and conditions,
which are part of the Exchange Offer.
The party tendering Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Old Notes to the Issuers and irrevocably constitutes
and appoints the Exchange Agent as the Transferor's true and lawful agent and
attorney-in-fact with respect to such tendered Old Notes, with full power of
substitution, among other things, to cause the Old Notes to be assigned,
transferred and exchanged. The Transferor represents and warrants that it has
full power and authority to tender, exchange, assign and transfer the old
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<PAGE> 45
Notes and to acquire Exchange Notes issuable upon the exchange of such tendered
Old Notes, and that, when the same are accepted for exchange, the Issuers will
acquire good and unencumbered title to the tendered Old Notes, free and clear of
all liens, restrictions, charges, encumbrances and adverse claims. The
Transferor also warrants that it will, upon request, execute and deliver any
additional documents reasonably requested by the Issuers or the Exchange Agent
as necessary or desirable to complete and give effect to the transactions
contemplated by the Letter of Transmittal. The Transferor further agrees that
acceptance of any tendered Old Notes by the Issuers and the issuance of Exchange
Notes in exchange therefor shall constitute performance in full by the Issuers
of their obligations under the Registration Rights Agreement and that the
Issuers shall have no further obligations or liabilities thereunder (except in
certain limited circumstances). All authority conferred by the Transferor will
survive the death, bankruptcy or incapacity of the Transferor and every
obligation of the Transferor shall be binding upon the heirs, personal
representatives, executors, administrators, successors, assigns, trustees in
bankruptcy and other legal representatives of such Transferor.
By executing a Letter of Transmittal, each Holder will make to the Issuers
the representations set forth above under the heading "-- Purpose and Effect of
the Exchange Offer."
Withdrawal of Tenders of Notes. Tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having tendered the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number or numbers
and principal amount of such Old Notes), (iii) contain a statement that such
Holder is withdrawing his election to have such Old Notes exchanged, (iv) be
signed by the Holder in the same manner as the original signature on the Letter
of Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Old Notes register the transfer of such Old
Notes in the name of the person withdrawing the tender and (v) specify the name
in which any such Old Notes are to be registered, if different from that of the
Depositor. If Old Notes have been tendered pursuant to the procedure for
book-entry transfer, any notice of withdrawal must specify the name and number
of the account at DTC. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Issuers,
which determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Any Old Notes which have been
tendered but which are not accepted for exchange will be returned to the Holder
thereof without cost to such Holder (or, in the case of Old Notes tendered by
book-entry transfer into the Exchange Agent's account at DTC pursuant to the
book-entry transfer procedures described above, such Old Notes will be credited
to an account maintained with DTC for the Old Notes) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described above under "-- Procedures for Tendering Old Notes" at any
time on or prior to the Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, or any extension of
the Exchange Offer, the Issuers will not be required to accept for exchange, or
exchange Exchange Notes for, any Old Notes, and may terminate the Exchange Offer
or, at their option, modify or otherwise amend the Exchange Offer as provided
herein before the acceptance of such Old Notes, if:
(a) any statute, rule or regulation shall have been enacted, or any
action shall have been taken by any court or governmental authority which,
in the reasonable judgment of the Issuers, seeks to or would prohibit,
restrict, materially delay or otherwise render illegal consummation of the
Exchange Offer, or
(b) any change, or any development involving a prospective change, in
the business or financial affairs of the Issuers or any of its subsidiaries
has occurred which, in the sole judgment of the Issuers,
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<PAGE> 46
might materially impair the ability of the Issuers to proceed with the
Exchange Offer or materially impair the contemplated benefits of the
Exchange Offer to the Issuers, or
(c) there shall occur a change in the current interpretations by the
staff of the Commission which, in the Issuers' reasonable judgment, might
materially impair the Issuers' ability to proceed with the Exchange Offer.
If the Issuers determine in their sole discretion that any of the above
conditions is not satisfied, the Issuers may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering Holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the Expiration Date,
subject, however, to the right of Holders to withdraw such Old Notes (see
"-- Terms of the Exchange Offer-- Withdrawal of Tenders of Notes") or (iii)
waive such unsatisfied conditions with respect to the Exchange Offer and accept
all validly tendered Old Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Issuers will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the Holders of Old Notes, and the Issuers will extend the
Exchange Offer for a period of time, depending upon the significance of the
waiver and the manner of disclosure to such Holders, if the Exchange Offer
otherwise would expire during such period.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. All executed Letters of Transmittal must be directed to the Exchange
Agent at one of the addresses set forth below.
By mail (registered or certified mail recommended):
The Bank of New York
Reorganization Section
101 Barclay Street, 7E
New York, New York 10286
Attn: Enrique Lopez
By hand or over-night delivery:
The Bank of New York
101 Barclay Street-Lobby Level
Corporate Trust Services Window
New York, New York 10286
Attn: Enrique Lopez
By Facsimile Transmission (for Eligible Institutions only):
(212) 571-3080
Attn: Enrique Lopez
Confirm by Telephone:
(212) 815-2742
Delivery to an address other than as set forth above, or transmissions of
instructions via a facsimile number other than the one set forth above, will not
constitute a valid delivery.
FEES AND EXPENSES
The Issuers have not retained any dealer-manager or other soliciting agent
in connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptance of the Exchange Offer. The Issuers,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith. The Issuers also may pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus, the Letter of
Transmittal and related documents to the beneficial owners of the Old Notes and
in handling or forwarding tenders for exchange. The
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<PAGE> 47
expenses to be incurred in connection with the Exchange Offer will be paid by
the Issuers. Such expenses include, among others, fees and expenses of the
Exchange Agent, accounting and legal fees and printing costs.
The Issuers will pay all transfer taxes, if any, applicable to the exchange
of the Old Notes pursuant to the Exchange Offer. If, however, Exchange Notes, or
Old Notes for principal amounts not tendered or accepted for exchange, are to be
delivered to, or are to be issued in the name of, any person other than the
registered Holder of the Old Notes tendered or if a transfer tax is imposed for
any reason other than the exchange of the Old Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the Holder
or any other persons) will be payable by the tendering Holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering Holder.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Issuers. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Issuers since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) Holders of Old Notes in any jurisdiction in which
the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Issuers may, at
their discretion, take such action as they may deem necessary to make the
Exchange Offer in any such jurisdiction and extend the Exchange Offer to Holders
of Old Notes in such jurisdiction. In any jurisdiction the securities laws or
blue sky laws of which require the Exchange Offer to be made by a licensed
broker or dealer, the Exchange Offer is being made on behalf of the Issuers by
one or more registered brokers or dealers which are licensed under the laws of
such jurisdiction.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities within the meaning of Rule 144
of the Securities Act. Accordingly, such Old Notes may be resold only (i) to the
Issuers or any subsidiary thereof, (ii) inside the United States to a qualified
institutional buyer in compliance with Rule 144A, (iii) inside the United States
to an institutional accredited investor that, prior to such transfer, furnishes
to the Trustee a signed letter containing certain representations and agreements
relating to the restrictions on transfer of the Old Notes (the form of which
letter can be obtained from the Trustee) and, if such transfer is in respect of
an aggregate principal amount of Old Notes at the time of transfer of less than
$100,000, an opinion of counsel acceptable to the Issuers that such transfer is
in compliance with the Securities Act, (iv) outside the United States in
compliance with Rule 904 under the Securities Act, (v) pursuant to the exemption
from registration provided by Rule 144 under the Securities Act (if available)
or (vi) pursuant to an effective registration statement under the Securities
Act. The liquidity of the Old Notes could be adversely affected by the Exchange
Offer. See "Risk Factors -- Consequences of Exchange and Failure to Exchange."
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, as reflected in the Issuers' accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Issuers. The costs of the Exchange Offer and the unamortized
expenses related to the issuance of the Old Notes will be amortized over the
term of the Exchange Notes.
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USE OF PROCEEDS
The Issuers will not receive any proceeds from this exchange offer, and no
underwriter is being utilized in connection with the Exchange Offer.
CAPITALIZATION
The following table sets forth the Company's consolidated capitalization as
of September 30, 1996. This table should be read in conjunction with the
"Summary Supplemental Historical and Pro Forma Financial Data"; "Summary
Historical Financial and Operating Data"; and "Selected Historical Financial
Data" and the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<S> <C>
Long-term debt:
Bank Facility Revolving Credit Facility(1)...................................... $ 325,000
Term Loan..................................................................... 220,000
11 1/4% Senior Notes Due 2006(2).............................................. 292,000
--------
Total debt............................................................ 837,000
--------
RMH Redeemable Preferred Stock(3)............................................... 12,143
--------
Minority interest(4)............................................................ 358
--------
Partners' capital:
Preferred Limited Partner Interest(5)......................................... 24,949
General and limited partners' interest........................................ 76,669
Note receivable from general partner.......................................... (1,850)
--------
Total partners' capital............................................... 99,768
--------
Total capitalization.................................................. $ 949,269
========
</TABLE>
- ---------------
(1) The Revolving Credit Facility provides for borrowings up to $475.0 million
in the aggregate, with permanent annual commitment reductions beginning in
1999, and matures in 2004. As of September 30, 1996 the Company had $150.0
million available under the Revolving Credit Facility.
(2) ICP-IV used $88.8 million of the net proceeds of the Notes to purchase a
portfolio of Pledged Securities that, together with interest therein,
represent funds sufficient to provide for payment in full of interest on the
Notes through August 1, 1999.
(3) The RMH Redeemable Preferred Stock has an annual cumulative dividend of
10.0% and is mandatorily redeemable on September 30, 2006. See "Description
of Other Obligations -- Description of Preferred Equity Interests."
(4) Represents TCI's ownership interest in RMH's Class B Common Stock pursuant
to the Transactions.
(5) The Preferred Limited Partner Interest (as defined herein) has an annual
cumulative dividend of 11.75% and is not mandatorily redeemable. See
"Description of Other Obligations -- Description of Preferred Equity
Interests."
40
<PAGE> 49
PRO FORMA FINANCIAL INFORMATION
The following unaudited Pro Forma Condensed Combined Statements of
Operations (the "Pro Forma Financial Information") are based on the historical
statements of operations of the Company, the Kingsport System, the ParCable
System, the Previously Affiliated Entities and the Viacom Nashville System. The
Company's historical results of operations for the nine months ended September
30, 1996 include the operating results of the systems acquired pursuant to the
Acquisitions only from their respective acquisition dates. The historical
statement of operations information for the Kingsport System and the ParCable
System for the month ended January 31, 1996, for the Previously Affiliated
Entities for the period from January 1, 1996 through July 30, 1996 and for the
Viacom Nashville System for the period from January 1, 1996 through August 1,
1996, representing that portion of 1996 prior to the Company's acquisition of
these systems, is presented separately from the historical results of the
Company for the nine months ended September 30, 1996. As a result of the
substantial continuing interest in the Company to be held by the partners of
IPWT, the shareholders of RMH and the shareholder of the Greenville/Spartanburg
System, the historical combined financial information of the Previously
Affiliated Entities has been combined on a historical cost basis as if the
Previously Affiliated Entities had always been members of the same operating
group, except for the Greenville/Spartanburg System, which has been included
only from January 27, 1995, the date TCI acquired the system from an unrelated
former cable operator. The statement of operations information for the period
January 1, 1995 through January 26, 1995 for the Greenville/Spartanburg System,
representing that portion of 1995 prior to its ownership by TCI, is presented
separately under the heading "Historical" in deriving the pro forma results for
the year ended December 31, 1995.
The Pro Forma Condensed Combined Statements of Operations for the nine
months ended September 30, 1996 and for the year ended December 31, 1995 give
effect to the Transactions as if they had occurred as of January 1, 1996 and
January 1, 1995, respectively. The Transactions and related adjustments are
described in the accompanying Notes to Unaudited Pro Forma Condensed Combined
Statements of Operations. The pro forma adjustments are based upon available
information and certain assumptions that management believes are reasonable. The
Pro Forma Condensed Combined Statements of Operations do not include any
adjustments for selling, general and administrative cost savings management
anticipates achieving, compared to predecessors' costs, from clustering of the
Systems. As discussed further at Note 3 below, management estimates such annual
cost savings will be approximately $3.3 million. There can be no assurance that
expected cost savings will be achieved in conjunction with the Acquisitions. The
Pro Forma Financial Information does not purport to represent what the Company's
results of operations would actually have been had the Transactions in fact
occurred on such dates or to project the Company's results of operations for any
future period or date. The Pro Forma Financial Information should be read in
conjunction with the historical financial statements of the Company, the
Previously Affiliated Entities, the Kingsport System and the Viacom Nashville
System included elsewhere in this Prospectus.
On May 8, 1996, IPSE acquired the Prime Houston System with the intent of
exchanging with TCI the Prime Houston System for the Viacom Nashville System.
The purchase price for the Prime Houston System of approximately $300.0 million
was financed entirely with non-recourse debt from TCIC, and Bank of America. As
was planned, on July 31, 1996, TCI and TCIC consummated the acquisition of all
of Viacom's cable television systems including the Viacom Nashville System. On
August 1, 1996, IPSE acquired the Viacom Nashville System in exchange for the
Prime Houston System and cash equal to the difference between the fair market
values of the systems. The aggregate purchase price of the Viacom Nashville
System pursuant to the exchange was $313.5 million. TCI managed the Prime
Houston System during the Company's ownership period, and, under the terms of
the exchange agreement, was obligated to and had the right to purchase the Prime
Houston System from the Company for an amount in cash sufficient to repay the
outstanding balances of the TCIC and bank loan in the event that TCI had been
unable to complete the Viacom acquisition by October 1, 1996. There was no
economic effect to the Company as a result of IPSE's temporary ownership of the
Prime Houston System, and the accounts of the Prime Houston System and related
debt and interest expense have been excluded from the Company's historical and
pro forma consolidated financial statements. IPSE's acquisition of the Viacom
Nashville System has been accounted for as a purchase, and the Viacom Nashville
System's results of operations have been included in the Company's
41
<PAGE> 50
historical consolidated results only from August 1, 1996, the date of the
exchange. Also, the Viacom Nashville System's results of operations are
reflected in the Company's pro forma results of operations for the nine months
ended September 30, 1996 and for the year ended December 31, 1995 as if the
Viacom Nashville System had been acquired on January 1, 1996 and January 1,
1995, respectively.
For purposes of the accompanying Pro Forma Financial Information,
adjustments relating to the Transactions are made under the purchase method of
accounting for the Kingsport System, the ParCable System and the Viacom
Nashville System, whereas historical cost bases are used for the Previously
Affiliated Entities due to the continuing interests of certain partners of the
Company in these entities. For all of the acquisitions accounted for under the
purchase method of accounting, such adjustments are based upon a preliminary
allocation of the purchase prices and upon the assumptions and adjustments
described in the accompanying notes. In the opinion of management, all
adjustments have been made that are necessary to present fairly the Pro Forma
Financial Information.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL(1)
-------------------------------------------------------------------
PREVIOUSLY VIACOM
AFFILIATED NASHVILLE
ENTITIES KINGSPORT PARCABLE SYSTEM
(1/1/96- (1/1/96- (1/1/96- (1/1/96- PRO FORMA PRO
COMPANY 7/30/96) 1/31/96) 1/31/96) 8/1/96) COMBINED ADJUSTMENTS FORMA(3)
-------- ---------- --------- -------- --------- -------- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Basic and cable services... $ 33,370 $ 56,658 $ 736 $412 $24,052 $115,228 $115,228
Pay services............... 7,893 14,185 100 107 7,146 29,431 29,431
Other services............. 6,128 10,297 101 102 7,959 24,587 24,587
------- -------- ---- ---- ------- -------- -------- --------
Total revenues......... 47,391 81,140 937 621 39,157 169,246 169,246
------- -------- ---- ---- ------- -------- -------- --------
Program fees............... 10,136 17,080 211 148 9,275 36,850 (816)(4) 36,034
Other direct expenses...... 5,731 10,000 133 92 5,296 21,252 21,252
Depreciation and
amortization............. 26,521 36,507 87 55 6,646 69,816 12,812(5) 91,716
9,088(6)
Selling, general and
administrative........... 8,975 19,698 223 150 10,072 39,118 39,118
Management and consulting
fees..................... 721 398 113 1,232 1,281(7) 2,513
------- -------- ---- ---- ------- -------- -------- --------
Total operating expenses... 52,084 83,683 654 558 31,289 168,268 22,365 190,633
------- -------- ---- ---- ------- -------- -------- --------
Income (loss) from
operations............... (4,693) (2,543) 283 63 7,868 978 (22,365) (21,387 )
Interest and other income
(expense)................ 4,519 72 -- -- (44) 4,547 (445)(8) 4,674
572(2)
Interest expense........... (18,191) (47,545) (90) -- (2,866) (68,692 ) 11,308(9) (57,384 )
------- -------- ---- ---- ------- -------- -------- --------
Income (loss) before income
taxes.................... (18,365) (50,016) 193 63 4,958 (63,167 ) (10,930) (74,097 )
Income tax expense
(benefit)................ 388 (14,744) -- 5 2,499 (11,852 ) 4,460(10) (6,351 )
1,041(11)
------- -------- ---- ---- ------- -------- -------- --------
Income before extraordinary
items and minority
interest................. (18,753) (35,272) 193 58 2,459 (51,315 ) (16,431) (67,746 )
Extraordinary gain on early
extinguishment of debt,
net of tax............... 18,483 -- -- -- -- 18,483 (18,483)(2) --
Minority interest.......... (464) -- -- -- -- (464 ) (142)(12) (606 )
------- -------- ---- ---- ------- -------- -------- --------
Net income (loss).......... $ (734)... $(35,272) $ 193 $ 58 $ 2,459 $(33,296) $(35,056) $(68,352)
======= ======== ==== ==== ======= ======== ======== ========
</TABLE>
42
<PAGE> 51
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(1) The pro forma presentation includes the historical statements of operations
of the Company, the Previously Affiliated Entities, the Kingsport System,
the ParCable System and the Viacom Nashville System. The historical
statement of operations of the Previously Affiliated Entities include the
results of IPWT, RMH and the Greenville/Spartanburg System for the nine
months ended September 30, 1996. The results of operations of the Kingsport
System and the ParCable System are for the period from January 1, 1996
through January 31, 1996. The results of operations of the Previously
Affiliated Entities and the Viacom Nashville System are for the period from
January 1, 1996 through July 30, 1996 and for the period from January 1,
1996 through August 1, 1996, respectively. The results of operations of the
Systems acquired pursuant to the Acquisitions are included in the
historical results of the Company since their respective acquisition dates.
(2) The following adjustments have been included in the pro forma condensed
combined statement of operations to exclude non-recurring charges and
credits which are included in the historical statements of operations:
<TABLE>
<CAPTION>
Non-recurring Items Amount
------------------------------------------------------------ -------
<C> <S> <C>
(i) Extraordinary gain on early extinguishment of debt which is
comprised of the recognition of the unamortized portion in
July 1996 of a debt restructuring credit associated with the
restructuring of IPWT's long-term debt in 1994 (see the
Company's interim and IPWT's Financial Statements for
details), offset by costs associated with prepayment of RMG
Notes, net of tax........................................... $18,483
(ii) Fees incurred in connection with the
acquisitions/contribution of the Previously Affiliated
Entities. .................................................. 572
(iii) Accrual of contingent interest upon completion of the
Transactions under the terms of IPWT's loan agreement with
GECC (see Note 9). ......................................... 3,030
</TABLE>
(3) The pro forma results presented above do not include any adjustments for
selling, general and administrative cost savings that management
anticipates achieving, compared to predecessors' costs, from clustering of
the Systems. Such cost savings are anticipated from the cost sharing
agreements the Company and the Related InterMedia Entities have with IMI to
provide accounting, operational, marketing, engineering, legal, regulatory
compliance and other administrative services at cost. Other cost savings
are anticipated from headcount reductions at the Viacom Nashville System
and changes to sales commission programs at the Greenville/Spartanburg
System. Management anticipates aggregate annual cost savings from these
items will be approximately $3,300. There can be no assurance that expected
cost savings will be achieved in conjunction with the Acquisitions.
(4) Through its affiliation with TCI, the Company is able to purchase
programming services from a subsidiary of TCI pursuant to an agreement that
is also available to each of the acquired Systems. The pro forma adjustment
to programming expenses reflects the Company's estimate of programming
expense savings using the rates specified in the agreement. All previous
TCI affiliates were already receiving the benefits of similar agreements
with a subsidiary of TCI. See "Certain Relationships and Related
Transactions--Certain Other Relationships" and "Risk Factors--Loss of
Beneficial Relationship with TCI."
(5) Represents the pro forma effect of additional depreciation and amortization
expense resulting from (i) the increase (decrease) in property and
equipment of $1,349, $2,434 and $(13,570) for the Kingsport System, the
ParCable System and the Viacom Nashville System, respectively, (ii) the
increase in franchise rights of $49,716, $23,481 and $234,006 for the
Kingsport System, the ParCable System and the Viacom Nashville System,
respectively, (iii) the increase (decrease) in goodwill of $3,774, $1,996
and $(26,916) for the Kingsport System, the ParCable System and the Viacom
Nashville System, respectively, (iv) decrease in other intangible assets of
$1,001 for the Viacom
43
<PAGE> 52
Nashville System and (v) the use of different lives for depreciation and
amortization. The changes in property and equipment and franchise rights
and other intangible assets result from the estimated effects of applying
purchase accounting for these acquisitions. Pro forma depreciation is
computed using the double-declining balance method over the following
estimated useful lives:
<TABLE>
<CAPTION>
ASSETS YEARS
------
<S> <C>
Cable television plant................................................ 5 - 10
Buildings and improvements............................................ 10
Furniture and fixtures................................................ 3 - 7
Equipment and other................................................... 3 - 10
</TABLE>
Pro forma franchise rights are amortized on a straight-line basis over the
weighted average lives, calculated based on the lesser of the remaining
franchise lives or the base twelve-year term of ICP-IV's Partnership
Agreement. Other intangible assets, consisting primarily of goodwill, are
amortized on a straight-line basis over the term of ICP-IV's Partnership
Agreement.
The pro forma adjustments to depreciation and amortization expense are
comprised of additional depreciation and amortization of $529 and $226 for
the Kingsport System and the ParCable System for the one month ended
January 31, 1996, respectively, and $12,057 for the Viacom Nashville System
for the nine months ended September 30, 1996.
(6) Represents the pro forma effect of using the double-declining balance
method rather than the straight-line method of computing depreciation
expense for the Greenville/Spartanburg System and the effect of amortizing
the Greenville/Spartanburg System's intangible assets over the weighted
average lives of the franchise rights or the term of ICP-IV's Partnership
Agreement, calculated as described above, versus 40 years, to conform to
the policies of the Company. The pro forma adjustments are computed as
follows:
<TABLE>
<S> <C>
Depreciation and amortization expense as previously recorded.................. $ 7,706
Depreciation and amortization expense based on the Company's accounting
policies.................................................................... 16,794
-------
Pro forma adjustment.......................................................... $ 9,088
=======
</TABLE>
(7) Reflects an increase in management and consulting fees. Under ICP-IV's
Partnership Agreement, management fees are equal to one percent of ICP-IV's
non-preferred Contributed Equity. See "The Partnership Agreement."
(8) Represents the elimination of the Company's historical interest income and
RMH's historical interest expense accrued on the $15,000 of the Bridge Loan
which the Company loaned to RMH on April 1, 1996.
44
<PAGE> 53
(9) Adjustment of interest expense to give effect to the Transactions is
summarized as follows:
<TABLE>
<S> <C>
Elimination of historical interest expense:
The Company................................................................ $ 18,191
Previously Affiliated Entities:
RMH..................................................................... 21,642
IPWT (including contingent interest of $3,030 accrued upon completion of
the Transactions)...................................................... 3,092
Greenville/Spartanburg System........................................... 22,811
-------
Total Previously Affiliated Entities............................... 47,545
Kingsport System (1/1/96-1/31/96).......................................... 90
Viacom Nashville System.................................................... 2,866
-------
Total historical................................................... 68,692
-------
Interest expense related to the amount of debt incurred by the Company in
connection with the Bank Facility and the Notes:
Interest on the Revolving Credit Facility (LIBOR plus 1.625%)........... 18,062
Interest on the Term Loan (LIBOR plus 2.375%)........................... 12,994
Interest on the Notes (11.25%).......................................... 24,638
Other commitment fees................................................... 385
Amortization of debt issue costs........................................ 1,305
-------
Total pro forma interest expense................................... 57,384
-------
Net reduction in pro forma interest expense................................ $(11,308)
=======
</TABLE>
The calculation of pro forma interest expense on the Bank Facility is based
upon the November 14, 1996 LIBOR rate of 5.50%. If the LIBOR rate were to
increase or decrease by 12.5 basis points, pro forma interest expense on
the Revolving Credit Facility and the Term Loan would increase or decrease
by $317 and $206, respectively for a nine-month period.
(10) Represents elimination of the historical tax provisions of the ParCable
System, the Greenville/ Spartanburg System and the Viacom Nashville System
pursuant to the Transactions. As a partnership, the tax effects of ICP-IV's
results of operations accrue to its partners.
(11) Reflects the tax effect of the pro forma adjustments to RMH's reduction in
interest expense after giving effect to the Transactions at a combined
federal and state effective rate of approximately 38.0%. The pro forma
adjustment for interest expense is the only adjustment affecting RMH's
historical financial information and RMH is the only taxable entity on a
pro forma basis. Upon completion of the Acquisitions, RMG, as a
corporation, is the only taxpaying entity in the Company's legal entity
structure. The pro forma adjustments are calculated as follows:
<TABLE>
<CAPTION>
INTEREST TAX TAX
EXPENSE RATE EFFECT
-------- ---- ------
<S> <C> <C> <C>
RMH's historical interest expense for the nine months ended
September 30, 1996............................................ $ 21,642 $
Pro forma interest expense allocated from ICP-IV and the
Operating Partnership to RMH after giving effect to the
Acquisitions.................................................. 18,903
-------
Pro forma adjustment.......................................... (2,739) 38.0% (1,041)
=======
</TABLE>
(12) Represents the pro forma adjustment for TCI's minority interest in RMH,
comprised of (i) a 10.0% cumulative preferred dividend based on the RMH
Redeemable Preferred Stock value of $12,000 payable upon redemption and
(ii) 10.0% of RMH's net loss before minority interest, up to the
outstanding amount of RMH Class B Common Stock, valued at approximately
$37. See "Description of Other Obligations -- Description of Preferred
Equity Interests -- RMG Redeemable Preferred Stock."
45
<PAGE> 54
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL(1)
--------------------------------------------------------------------------------
GREENVILLE/
PREVIOUSLY SPARTANBURG VIACOM
AFFILIATED (1/1/95- NASHVILLE PRO FORMA PRO
COMPANY ENTITIES 1/26/95) KINGSPORT PARCABLE SYSTEM COMBINED ADJUSTMENTS(2) FORMA(3)
------- ---------- ----------- --------- -------- --------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic and cable
services...... $ $ 85,632 $ 1,835 $ 8,427 $4,815 $37,243 $137,952 $ $137,952
Pay services.... -- 23,942 783 1,192 1,320 11,575 38,812 38,812
Other
services...... -- 19,397 499 1,295 642 13,224 35,057 35,057
------- -------- ------ ------- ------ ------- -------- -------- ---------
Total
revenues... -- 128,971 3,117 10,914 6,777 62,042 211,821 -- 211,821
------- -------- ------ ------- ------ ------- -------- -------- ---------
Program fees.... -- 24,684 795 2,219 1,746 13,894 43,338 (559)(4) 42,779
Other direct
expenses...... -- 16,851 720 1,426 1,054 8,954 29,005 29,005
Depreciation and
amortization... -- 70,154 618 1,086 662 9,655 82,175 35,124(5) 134,948
17,649(6)
Selling, general
and
administrative... -- 30,509 589 2,058 1,169 16,144 50,469 50,469
Management and
consulting
fees.......... -- 815 -- -- 1,243 -- 2,058 1,292(7) 3,350
------- -------- ------ ------- ------ ------- -------- -------- ---------
Total operating
expenses...... -- 143,013 2,722 6,789 5,874 48,647 207,045 53,506 260,551
------- -------- ------ ------- ------ ------- -------- -------- ---------
Income (loss)
from
operations.... -- (14,042) 395 4,125 903 13,395 4,776 (53,506) (48,730 )
Interest and
other income
(expense)..... -- 465 -- -- -- (124) 341 341
Interest
expense....... -- (48,835) (161) (856) -- (4,819) (54,671 ) (21,840)(8) (76,511 )
------- -------- ------ ------- ------ ------- -------- -------- ---------
Income (loss)
before income
taxes......... -- (62,412) 234 3,269 903 8,452 (49,554 ) (75,346) (124,900 )
Income tax
expense
(benefit)..... -- (17,502) 88 -- 74 4,659 (12,681 ) (2,337)(9) (17,613 )
(2,595)(10)
------- -------- ------ ------- ------ ------- -------- -------- ---------
Income before
minority
interest...... -- (44,910) 146 3,269 829 3,793 (36,873 ) (70,414) (107,287 )
Minority
interest...... -- -- -- -- -- -- (1,163)(11) (1,163 )
------- -------- ------ ------- ------ ------- -------- -------- ---------
Net income
(loss)........ $ -- $(44,910) $ 146 $ 3,269 $ 829 $ 3,793 $(36,873) $(71,577) $(108,450)
======= ======== ====== ======= ====== ======= ======== ======== =========
</TABLE>
46
<PAGE> 55
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(1) The pro forma presentation includes the historical statements of operations
of the Company, the Previously Affiliated Entities, the Kingsport System,
the ParCable System and the Viacom Nashville System. The historical
statement of operations of the Previously Affiliated Entities include the
results of IPWT and RMH for the year ended December 31, 1995 and the
results of operations for the period from January 27, 1995 through December
31, 1995 of the Greenville/Spartanburg System. The results of operations of
the Greenville/Spartanburg System for the period from January 1, 1995
through January 26, 1995 are presented separately.
(2) The adjustments to the pro forma income statement presented above do not
include non-recurring charges and credits, as follows:
<TABLE>
<CAPTION>
Non-recurring items Amount
----------------------------------------------------------------------- -------
<C> <S> <C>
(i) Extraordinary gain on early extinguishment of debt which is comprised
of the recognition of the unamortized portion of a debt restructuring
credit associated with the restructuring of IPWT's long-term debt in
1994 (see the Company's interim and IPWT's Financial Statements for
details), offset by costs associated with prepayment of RMG Notes, net
of tax................................................................. $23,275
(ii) Fees incurred in connection with the acquisitions/contribution of the
Previously Affiliated Entities......................................... 572
(iii) Conditions were met for an accrual of contingent interest upon
completion of the Transactions under the terms of IPWT's loan agreement
with GECC.............................................................. 3,030
</TABLE>
(3) The pro forma results presented above do not include any adjustments for
selling, general and administrative cost savings that management
anticipates achieving, compared to predecessors' costs, from clustering of
the Systems. Such cost savings are anticipated from the cost sharing
agreements the Company and the Related InterMedia Entities have with IMI to
provide accounting, operational, marketing, engineering, legal, regulatory
compliance and other administrative services at cost. Other cost savings
are anticipated from headcount reductions at the Viacom Nashville System
and changes to sales commission programs at the Greenville/Spartanburg
System. Management anticipates aggregate annual cost savings from these
items will be approximately $3,300. There can be no assurance that expected
cost savings will be achieved in conjunction with the Acquisitions.
(4) Through its affiliation with TCI, the Company is able to purchase
programming services from a subsidiary of TCI pursuant to an agreement that
is also available to each of the acquired Systems. The pro forma adjustment
to programming expenses reflects the Company's estimate of programming
expense savings using the rates specified in the agreement. All previous
TCI affiliates were already receiving the benefits of similar agreements
with a subsidiary of TCI. See "Certain Relationships and Related
Transactions -- Certain Other Relationships" and "Risk Factors -- Loss on
Beneficial Relationship with TCI."
(5) Represents the pro forma effect of additional depreciation and amortization
expense resulting from (i) the increase (decrease) in property and
equipment of $1,280, $2,387 and $(6,701) for the Kingsport System, the
ParCable System and the Viacom Nashville System, respectively, (ii) the
increase in franchise rights of $49,716, $23,479 and $229,622 for the
Kingsport System, the ParCable System and the Viacom Nashville System,
respectively, (iii) the increase (decrease) in goodwill of $3,774, $1,996
and $(23,747) for the Kingsport System, the ParCable System and the Viacom
Nashville System, respectively, (iv) decrease in other intangible assets of
$870 for the Viacom Nashville System and (v) the use of different lives for
depreciation and amortization. The changes in property and equipment and
franchise rights and other intangible assets result from the estimated
effects of applying purchase accounting for these acquisitions. Pro forma
depreciation is computed using the double-declining balance method over the
following estimated useful lives:
47
<PAGE> 56
<TABLE>
<CAPTION>
ASSETS YEARS
--------------------------------------------------------------------- -----
<S> <C>
Cable television plant............................................... 5 - 10
Buildings and improvements........................................... 10
Furniture and fixtures............................................... 3 - 7
Equipment and other.................................................. 3 - 10
</TABLE>
Pro forma franchise rights are amortized on a straight-line basis over the
weighted average lives, calculated based on the lesser of the remaining
franchise lives or the base twelve-year term of ICP-IV's Partnership
Agreement. Other intangible assets, consisting primarily of goodwill, are
amortized on a straight-line basis over the term of ICP-IV's Partnership
Agreement.
The pro forma adjustments to depreciation and amortization expense are
comprised of additional depreciation and amortization of $6,309, $2,706 and
$26,109 for the Kingsport System, the ParCable System and the Viacom
Nashville System, respectively.
(6) Represents the pro forma effect of using the double-declining balance
method rather than the straight-line method of computing depreciation
expense for the Greenville/Spartanburg System and the effect of amortizing
the Greenville/Spartanburg System's intangible assets over the weighted
average lives of the franchise rights or the term of ICP-IV's Partnership
Agreement, calculated as described above, versus 40 years, to conform to
the policies of the Company. The pro forma adjustments are computed as
follows:
<TABLE>
<S> <C>
Depreciation and amortization expense as previously recorded.................. $14,139
Depreciation and amortization expense based on the Company's accounting
policies.................................................................... 31,788
-------
Pro forma adjustment.......................................................... $17,649
=======
</TABLE>
(7) Reflects an increase in management and consulting fees. Under ICP-IV's
Partnership Agreement, management fees are equal to one percent of ICP-IV's
non-preferred Contributed Equity and the first year's management fees are
paid in advance upon receipt of the Contributed Equity. See "The
Partnership Agreement."
(8) Adjustment of interest expense to give effect to the Transactions is
summarized as follows:
<TABLE>
<S> <C>
Elimination of historical interest expense:
RMH........................................................................... $36,462
IPWT.......................................................................... 534
Greenville/Spartanburg System (1/27/95-12/31/95).............................. 11,839
-------
Previously Affiliated Entities................................................ 48,835
Greenville/Spartanburg System (1/1/95-1/26/95)................................ 161
Kingsport System.............................................................. 856
Viacom Nashville System....................................................... 4,819
-------
Total historical......................................................... 54,671
-------
Interest expense related to the amount of debt incurred by the Company in
connection with the Bank Facility and the Notes:
Interest on the Revolving Credit Facility (LIBOR plus 1.625%)................. 24,082
Interest on the Term Loan (LIBOR plus 2.375%)................................. 17,325
Interest on the Notes (11.25%)................................................ 32,850
Other commitment fees......................................................... 514
Amortization of debt issue costs.............................................. 1,740
-------
Total pro forma interest expense.............................................. 76,511
-------
Net increase to pro forma interest expense.................................... $21,840
=======
</TABLE>
The calculation of pro forma interest expense on the Bank Facility is based
upon the November 14, 1996 LIBOR rate of 5.50%. If the LIBOR rate were to
increase or decrease by 12.5 basis points, pro forma interest expense on
the Revolving Credit Facility and the Term Loan would increase or decrease
by $423 and $275, respectively, per annum.
(9) Reflects the tax effect of the pro forma adjustments to RMH's reduction in
interest expense after giving effect to the Transactions and the Viacom
Nashville Acquisition at a combined federal and state
48
<PAGE> 57
effective rate of approximately 38.0%. Following the completion of the
Acquisitions, RMG, as a corporation, will be the only taxpaying entity in
the Company's corporate structure. The pro forma adjustments are calculated
as follows:
<TABLE>
<CAPTION>
INTEREST TAX TAX
EXPENSE RATE EFFECT
-------- ---- -------
<S> <C> <C> <C>
RMH's 1995 historical interest expense...................... $ 36,462
Pro forma interest expense allocated from ICP-IV and the
Operating Partnership to RMH after giving effect to the
Acquisitions.............................................. 30,307
-------
Pro forma adjustment........................................ (6,155) 38.0% $(2,337)
=======
</TABLE>
(10) Represents the elimination of the historical tax provisions of the ParCable
System, the Greenville/Spartanburg System and the Viacom Nashville System
pursuant to the Transactions. As a partnership, the tax effects of ICP-IV's
results of operations accrue to its partners.
(11) Represents the pro forma adjustment for TCI's minority interest in RMH,
composed of (i) a 10.0% cumulative preferred dividend based on the RMH
Redeemable Preferred Stock value of $12,000 payable upon redemption and
(ii) 10.0% of RMH's net loss before minority interest, up to the
outstanding amount of RMH Class B Common Stock, valued at approximately
$37. See "Description of Other Obligations -- Description of Preferred
Equity Interests -- RMG Redeemable Preferred Stock."
49
<PAGE> 58
SELECTED FINANCIAL INFORMATION AND OPERATING DATA
THE COMPANY
(IN THOUSANDS, EXCEPT FOR RATIOS AND OPERATING DATA)
The selected financial information as of December 31, 1995 and as of and
for the nine months ended September 30, 1996 have been derived from the
financial statements of the Company. The Company's financial information and
operating data as of and for the nine months ended September 30, 1996 include
the results of operations of the Kingsport System, the ParCable System, IPWT,
RMH, the Greenville/Spartanburg System, the Viacom Nashville System and the
Miscellaneous Systems only from the dates such systems were acquired by the
Company in 1996 prior to its first acquisition in January 1996. These data
should be read in conjunction with the financial statements and related notes
thereto of the Company as of December 31, 1995 and September 30, 1996 and for
the year ended December 31, 1995 and for the nine months ended September 30,
1996 included elsewhere in this Prospectus. The selected financial information
of the Kingsport System and the ParCable System for the periods prior to their
acquisition by the Company are provided separately in this Prospectus. Selected
financial information has not been provided for IPCC because it was formed in
April 1996 in contemplation of the Transactions and its financial position and
results of operations are insignificant.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................................................................... $ -- $ 47,391
Operating expenses:
Programs fees............................................................. -- (10,136)
Other operating costs..................................................... -- (15,427)
Depreciation and amortization............................................. -- (26,521)
-------- --------
Loss from operations........................................................ -- (4,693)
Interest and other income................................................... -- 4,759
Gain on sale of investments................................................. -- 286
Interest expense............................................................ -- (18,191)
Other income (expense)...................................................... -- (526)
-------- --------
Loss before income taxes.................................................... -- (18,365)
Provision for income taxes.................................................. -- (388)
-------- --------
Net loss before extraordinary items......................................... -- (18,753)
Extraordinary gain on early extinguishment of debt, net of tax.............. -- 18,483
Minority interest........................................................... -- (464)
-------- --------
Net loss.................................................................... $ -- $ (734)
======== ========
BALANCE SHEET DATA (AT END OF PERIOD)
Total assets................................................................ $ 707 $ 998,145
Total debt.................................................................. -- 837,000
Total partners' capital (deficit)........................................... (625) 99,768
FINANCIAL RATIOS AND OTHER DATA
EBITDA(1)................................................................... $ -- $ 21,828
EBITDA margin(1)............................................................ -- 46.1%
Cash flows from operating activities........................................ -- 7,957
Cash flows from investing activities........................................ -- (528,020)
Cash flows from financing activities........................................ -- 533,584
Capital expenditures (excluding acquisitions)............................... -- 10,910
Ratio of earnings to fixed charges(2)....................................... -- --
OPERATING STATISTICAL DATA (AT END OF PERIOD, EXCEPT AVERAGES):
Homes passed................................................................ -- 848,006
Basic subscribers........................................................... -- 570,153
Basic penetration........................................................... -- 67.2%
Premium services units...................................................... -- 432,610
Premium penetration......................................................... -- 75.9%
Average monthly revenue per basic subscriber(3)............................. $ -- $ 29.43
</TABLE>
50
<PAGE> 59
SELECTED FINANCIAL INFORMATION AND OPERATING DATA
PREVIOUSLY AFFILIATED ENTITIES
(IN THOUSANDS, EXCEPT FOR RATIOS AND OPERATING DATA)
As a result of the substantial continuing interest in the Company of the
former owners of the Previously Affiliated Entities, the historical financial
information of the Previously Affiliated Entities has been combined on a
historical cost basis as if the Previously Affiliated Entities had always been
members of the same operating group, except for the Greenville/Spartanburg
System, which has been included only from January 27, 1995, the date such system
was acquired by TCI from an unrelated former cable operator.
The selected combined financial information presented below includes the
historical financial information (i) of RMH as of December 31, 1992, for the
period from May 1, 1992 (the date of RMH's acquisition of RMG) through December
31, 1992, as of and for each of the three years in the period ended December 31,
1995, as of July 30, 1996, for the seven months ended July 31, 1995 and for the
period from January 1, 1996 through July 30, 1996, (ii) of IPWT as of and for
each of the five years in the period ended December 31, 1995, as of July 30,
1996, for the seven months ended July 31, 1995 and for the period from January
1, 1996 through July 30, 1996, and (iii) of the Greenville/Spartanburg System as
of December 31, 1995, as of July 30, 1996, for the period from January 27, 1995
through December 31, 1995, for the period from January 27, 1995 through July 31,
1995 and for the period from January 1, 1996 through July 30, 1996. The combined
financial information of the Previously Affiliated Entities as of and for each
of the five years in the period ended December 31, 1995 have been derived from
the audited Combined Financial Statements of the Previously Affiliated Entities
as of December 31, 1994 and 1995 and for each of the three years in the period
ended December 31, 1995, and from the audited financial statements of RMH as of
December 31, 1992 and 1993 and for the period from April 30, 1992 (the date of
RMH's acquisition of RMG) through December 31, 1992, and from the unaudited
financial statements of IPWT as of December 31, 1991, 1992 and 1993 and for each
of the two years in the period ended December 31, 1992. The combined financial
information of the Previously Affiliated Entities as of July 30, 1996, for the
seven months ended July 31, 1995 and for the period from January 1, 1996 through
July 30, 1996 have been derived from the unaudited Combined Financial Statements
of the Previously Affiliated Entities as of July 30, 1996, for the seven months
ended July 31, 1995 and for the period from January 1, 1996 through July 30,
1996. These data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Combined
Financial Statements and notes thereto of the Previously Affiliated Entities
included elsewhere in this Prospectus, which includes a discussion of events
that affect the comparability of the information presented below.
The selected financial information of RMH's predecessor business for
periods prior to May 1, 1992 are not included in the combined financial
information presented below. The predecessor business consisted of the combined
operations of certain cable operations in middle and east Tennessee acquired by
RMH on April 30, 1992. Selected consolidated financial information for periods
prior to the date the systems were acquired by RMH is not available or not
practicable to obtain, except for total revenues which were $22,412 and $7,923
for the year ended December 31, 1991 and the period from January 1, 1992 through
April 30, 1992, respectively. The selected financial information of the
Greenville/Spartanburg System as of and for each of the four years in the period
ended December 31, 1994 and for the period from January 1, 1995 through January
26, 1995 are provided separately.
51
<PAGE> 60
SELECTED FINANCIAL INFORMATION AND OPERATING DATA
PREVIOUSLY AFFILIATED ENTITIES (4)
(IN THOUSANDS, EXCEPT FOR RATIOS AND OPERATING DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SEVEN MONTHS PERIOD
------------------------------------------------------- ENDED JULY 31, 1/1/96-
1991 1992 1993 1994 1995 1995 7/30/96
-------- -------- --------- --------- --------- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue....................... $ 9,616 $ 32,581 $ 57,685 $ 73,049 $ 128,971 $ 72,578 $ 81,140
Operating expenses:
Program fees................ (1,644) (4,933) (9,376) (13,189) (24,684) (13,923) (17,080)
Other operating costs....... (4,536) (12,766) (20,215) (25,675) (47,360) (25,663) (29,698)
Management and consulting
fees...................... -- (177) (465) (585) (815) (530) (398)
Depreciation and
amortization.............. (15,884) (56,511) (66,940) (68,216) (70,154) (41,141) (36,507)
-------- -------- --------- --------- --------- -------- --------
Total operating
expenses........... (22,064) (74,387) (96,996) (107,665) (143,013) (81,257) (83,683)
-------- -------- --------- --------- --------- -------- --------
Loss from operations.......... (12,448) (41,806) (39,311) (34,616) (14,042) (8,679) (2,543)
Interest and other income..... 7 8,793 8,898 1,442 1,172 888 179
Gain (loss) on disposal of
fixed assets................ -- (2) (1,967) (1,401) (63) 39 (14)
Interest expense.............. (8,640) (32,357) (44,760) (44,278) (48,835) (28,157) (47,545)
Other expense................. -- (8) (508) (194) (644) (656) (93)
Equity in net loss of
investee.................... -- (4,900) -- -- -- -- --
-------- -------- --------- --------- --------- -------- --------
Loss before income tax
benefit..................... (21,081) (70,280) (77,648) (79,047) (62,412) (36,565) (50,016)
Income tax benefit............ 13,756 21,656 19,020 17,502 8,642 14,744
-------- -------- --------- --------- --------- -------- --------
Net loss...................... $(21,081) $(56,524) $ (55,992) $ (60,027) $ (44,910) $(27,923) $(35,272)
======== ======== ========= ========= ========= ======== ========
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets.................. $ 67,732 $430,716 $ 357,652 $ 275,058 $ 590,494 $578,870
Total debt.................... 92,877 408,655 431,896 403,500 411,219 423,659
Total equity (deficit)........ (27,881) (73,808) (129,800) (166,977) 37,249 17,263
FINANCIAL RATIOS AND OTHER
DATA:
EBITDA(1)..................... $3,436 $ 14,705 $ 27,629 $ 33,600 $ 56,112 $ 32,462 $ 33,964
EBITDA margin(1).............. 35.7% 45.1% 47.9% 46.0% 43.5% 44.7% 41.9%
Cash flows from operating
activities.................. 3,627 4,993 (12,186) (112) 8,107 8,441 (14,007)
Cash flows from investing
activities.................. (3,460) (4,937) (30,838) 4,871 (24,614) (7,856) (18,736)
Cash flows from financing
activities.................. (37) -- 12,692 (4,784) 18,066 28 30,086
Capital expenditures
(excluding acquisitions).... 3,350 9,842 11,334 12,432 26,301 9,745 18,587
Ratio of earnings to fixed
charges(2).................. -- -- -- -- -- -- --
OPERATING STATISTICAL DATA (AT
END OF PERIOD, EXCEPT
AVERAGES):
Homes passed.................. 65,653 228,462 308,429 332,645 503,246 497,130 512,926
Basic subscribers............. 42,374 150,733 211,745 227,050 354,436 345,039 360,057
Basic penetration............. 64.5% 66.0% 68.7% 68.3% 70.4% 69.4% 70.2%
Premium service units......... 18,128 78,868 128,732 151,528 265,216 258,928 264,541
Premium penetration........... 42.8% 52.3% 60.8% 66.7% 74.8% 75.0% 73.5%
Average monthly revenue per
basic subscriber(3)......... $ 18.83 $ 25.20 $ 27.86 $ 27.85 $ 31.08 $ 31.67 $ 32.35
</TABLE>
52
<PAGE> 61
SELECTED FINANCIAL INFORMATION AND OPERATING DATA
GREENVILLE/SPARTANBURG SYSTEM
(IN THOUSANDS, EXCEPT FOR RATIOS AND OPERATING DATA)
The selected financial information for the Greenville/Spartanburg System as
of and for each of the four years in the period ended December 31, 1994 and for
the period from January 1, 1995 through January 26, 1995 have been derived from
the financial statements of the Greenville/Spartanburg System. These data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the audited financial statements and
related notes thereto of the Previously Affiliated Entities, which include the
financial information of the Greenville/Spartanburg System for the period from
January 27, 1995 through December 31, 1995, and the audited financial statements
of the Greenville/Spartanburg System as of and for the year ended December 31,
1994 and for the period January 1, 1995 through January 26, 1995 included
elsewhere in this Prospectus. The balance sheet and statement of operations data
as of and for the years ended December 31, 1991, 1992 and 1993 have been derived
from unaudited financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD
-------------------------------------------- 1/1/95-
1991 1992 1993 1994 1/26/95
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue........................................... $ 36,935 $ 40,186 $ 43,892 $ 45,899 $3,117
Operating expenses:
Program fees.................................... (9,253) (9,975) (10,908) (14,076) (795 )
Other operating costs........................... (14,885) (15,625) (16,859) (17,998) (1,309 )
Depreciation and amortization................... (6,618) (6,922) (7,328) (7,332) (618 )
-------- -------- -------- -------- -------
Total operating expenses................. (30,756) (32,522) (35,095) (39,406) (2,722 )
-------- -------- -------- -------- -------
Income from operations............................ 6,179 7,664 8,797 6,493 395
Interest and other income......................... 1,540 998 1,086 1,278 --
Gain on disposal of fixed assets.................. 9 13 28 -- --
Interest expense.................................. (2,980) (2,068) (1,932) (2,150) (161 )
-------- -------- -------- -------- -------
Income before income tax expense.................. 4,748 6,607 7,979 5,621 234
Income tax expense................................ (1,599) (2,194) (3,048) (2,118) (88 )
-------- -------- -------- -------- -------
Income before cumulative effect of change in
accounting principle............................ 3,149 4,413 4,931 3,503 146
Cumulative effect of change in accounting
principle....................................... 2,635 -- -- -- --
-------- -------- -------- -------- -------
Net income........................................ $ 5,784 $ 4,413 $ 4,931 $ 3,503 $ 146
======== ======== ======== ======== =======
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets...................................... $ 64,477 $ 66,631 $ 71,200 $ 66,469
Total debt........................................ 30,063 28,792 27,386 20,467
Total parent's investment......................... 23,818 26,431 31,362 34,865
FINANCIAL RATIOS AND OTHER DATA:
EBITDA(1)......................................... $ 12,797 $ 14,586 $ 16,125 $ 13,825 $1,013
EBITDA margin(1).................................. 34.6% 36.3% 36.7% 30.1% 32.5 %
Cash flows form operating activities(5)........... 10,727 (18 )
Cash flows from investing activities(5)........... (11,032) (385 )
Cash flows from financing activities(5)........... (94) 157
Capital expenditures (excluding
acquisitions)................................... 7,921 7,016 7,871 11,032 385
Ratio of earnings to fixed charges(2)............. 2.5x 4.0x 4.8x 3.4x 2.3 x
OPERATING STATISTICAL DATA (AT END OF PERIOD,
EXCEPT AVERAGES):
Homes passed...................................... 148,937 152,071 153,600 155,624
Basic subscribers................................. 96,219 102,031 105,621 112,985
Basic penetration................................. 64.6% 67.1% 68.8% 72.6%
Premium service units............................. 80,495 88,054 95,022 102,668
Premium penetration............................... 83.7% 86.3% 90.0% 90.9%
Average monthly revenue per basic subscriber(6)... $ 31.99 $ 33.78 $ 35.23 $ 34.99
</TABLE>
53
<PAGE> 62
SELECTED FINANCIAL INFORMATION AND OPERATING DATA
KINGSPORT SYSTEM
(IN THOUSANDS, EXCEPT FOR RATIOS AND OPERATING DATA)
The selected financial information for the Kingsport System as of and for
the year ended December 31, 1995 and for the period from January 1, 1996 through
January 31, 1996 have been derived from the audited financial statements of the
Kingsport System. The balance sheet and statement of operations data as of and
for the years ended December 31, 1992, 1993 and 1994 have been derived from
unaudited records of the Kingsport System. These data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited financial statements and related
notes thereto of the Kingsport System as of and for the year ended December 31,
1995 and as of January 31, 1996 and for the period from January 1, 1996 through
January 31, 1996 included elsewhere in this Prospectus. The selected financial
information of the Kingsport System for 1991, during which period the system was
under the management of a predecessor cable operator, is not practicable to
obtain.
<TABLE>
<CAPTION>
MONTH
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------- JANUARY 31,
1992 1993 1994 1995 1996
------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................................ $ 9,918 $ 10,443 $ 10,100 $ 10,914 $ 937
Operating expenses:
Program fees......................................... (1,875) (2,065) (1,950) (2,219) (211)
Other operating costs................................ (2,231) (3,203) (3,116) (3,484) (356)
Depreciation and amortization........................ (1,207) (1,094) (924) (1,087) (87)
------- ------- ------- ------- -------
Total operating expenses...................... (5,313) (6,362) (5,990) (6,790) (654)
------- ------- ------- ------- -------
Income from operations................................. 4,605 4,081 4,110 4,124 283
Gain on disposal of fixed assets....................... -- 45 -- -- --
Interest income (expense).............................. -- -- 120 (856) (90)
------- ------- ------- ------- -------
Net income............................................. $ 4,605 $ 4,126 $ 4,230 $ 3,268 $ 193
======= ======= ======= ======= =======
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets........................................... $ 8,911 $ 7,791 $ 7,735 $ 8,385
Total debt............................................. -- -- -- --
Total divisional equity................................ 7,612 6,867 6,686 6,644
FINANCIAL RATIOS AND OTHER DATA:
EBITDA (1)............................................. $ 5,812 $ 5,175 $ 5,034 $ 5,211 $ 370
EBITDA margin(1)....................................... 58.6% 49.6% 49.8% 47.7% 39.5%
Cash flows from operating activities(5)................ 4,309 267
Cash flows from investing activities(5)................ (1,108) (18)
Cash flows from financing activities(5)................ (3,193) (209)
Capital expenditures (excluding acquisitions)(7)....... 430 508 1,108 18
Ratio of earnings to fixed charges(2).................. 80.4x 57.5x 50.8x 4.5x 3.0x
OPERATING STATISTICAL DATA (AT END OF PERIOD, EXCEPT
AVERAGES):
Homes passed........................................... 39,423 39,951 41,180 42,307
Basic subscribers...................................... 29,788 30,006 31,032 31,434
Basic penetration...................................... 75.6% 75.1% 75.4% 74.3%
Premium service units.................................. 12,157 9,015 11,049 12,809
Premium penetration.................................... 40.8% 30.0% 35.6% 40.7%
Average monthly revenue per basic subscriber(3)........ $ 28.14 $ 29.15 $ 27.64 $ 28.91
</TABLE>
54
<PAGE> 63
SELECTED FINANCIAL INFORMATION AND OTHER OPERATING DATA
PARCABLE SYSTEM
(IN THOUSANDS, EXCEPT FOR RATIOS AND OPERATING DATA)
The selected financial information for the ParCable System as of and for
each of the five years in the period ended December 31, 1995 and for the period
from January 1, 1996 through January 31, 1996 have been derived from unaudited
financial records furnished by the management of the ParCable System.
<TABLE>
<CAPTION>
MONTH
YEAR ENDED DECEMBER 31, ENDED
----------------------------------------------- JANUARY 31,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................................... $ 5,400 $ 5,888 $ 6,406 $ 6,500 $ 6,777 $ 621
Operating expenses:
Program fees............................................. (1,217) (1,349) (1,528) (1,606) (1,746) (148)
Other operating costs.................................... (2,569) (2,689) (3,854) (3,390) (2,223) (242)
Management and consulting
fees................................................... -- -- -- -- (1,243) (113)
Depreciation and amortization............................ (729) (762) (722) (680) (662) (55)
------- ------- ------- ------- ------- -----
Total operating expenses.......................... (4,515) (4,800) (6,104) (5,676) (5,874) (558)
------- ------- ------- ------- ------- -----
Income from operations..................................... 885 1,088 302 824 903 63
Interest and other income.................................. 36 66 34 20 -- --
Interest expense........................................... -- -- -- (18) -- --
------- ------- ------- ------- ------- -----
Income before income tax
expense.................................................. 921 1,154 336 826 903 63
Income tax expense......................................... -- -- 228 37 74 5
------- ------- ------- ------- ------- -----
Net income................................................. $ 921 $ 1,154 $ 108 $ 789 $ 829 $ 58
======= ======= ======= ======= ======= =====
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets............................................... $ 4,326 $ 3,727 $ 3,188 $ 2,693 $ 2,221
Total debt................................................. -- -- -- -- --
Total shareholder's equity................................. 5,839 7,012 8,195 10,790 13,318
FINANCIAL RATIOS AND OTHER DATA:
EBITDA(1).................................................. $ 1,614 $ 1,850 $ 1,024 $ 1,504 $ 1,565 $ 118
EBITDA margin(1)........................................... 29.9% 31.4% 16.0% 23.1% 23.1% 19.0%
Cash flows from operating activities(5)....................
Cash flows from investing activities(5)....................
Cash flows from financing activities(5)....................
Capital expenditures (excluding acquisitions).............. 296 176 190 169 135 6
Ratio of earnings to fixed charges(2)...................... 29.8x 29.1x 10.6x 16.9x 26.1x 22.0x
OPERATING STATISTICAL DATA (AT END OF PERIOD, EXCEPT
AVERAGES):
Homes passed............................................... 26,622 26,827 26,985 27,238 27,529
Basic subscribers.......................................... 18,846 19,385 20,363 21,019 21,729
Basic penetration.......................................... 70.8% 72.3% 75.5% 77.2% 78.9%
Premium service units...................................... 10,906 9,992 9,788 9,833 9,464
Premium penetration........................................ 57.9% 51.5% 48.1% 46.8% 43.6%
Average monthly revenue per basic subscriber(3)............ $ 25.61 $ 25.93 $ 26.96 $ 26.33 $ 26.64
</TABLE>
55
<PAGE> 64
SELECTED FINANCIAL INFORMATION AND OPERATING DATA
VIACOM NASHVILLE SYSTEM
(IN THOUSANDS, EXCEPT FOR RATIOS AND OPERATING DATA)
The selected financial information for the Viacom Nashville System as of
and for each of the five years in the period ended December 31, 1995 have been
derived from the audited financial statements of the Viacom Nashville System.
The selected financial information for the Viacom Nashville System as of and for
the six months ended June 30, 1995 and 1996 have been derived from the unaudited
financial records of the Viacom Nashville System. This data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and related notes
thereto of the Viacom Nashville System for each of the three years in the period
ended December 31, 1995 and the six months ended June 30, 1995 and 1996 included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue........................ $ 44,097 $ 48,746 $ 53,419 $ 54,648 $ 62,042 $ 29,834 $ 33,293
Costs and expenses:
Program fees................. (6,973) (7,788) (8,375) (9,624) (13,894) (6,595) (7,872)
Other operating costs........ (20,877) (22,322) (24,173) (24,953) (25,098) (11,973) (13,428)
Depreciation and
amortization............... (7,141) (7,155) (8,010) (8,368) (9,655) (4,605) (5,657)
-------- -------- -------- -------- -------- -------- --------
Total operating
expenses............ (34,991) (37,265) (40,558) (42,945) (48,647) (23,173) (26,957)
-------- -------- -------- -------- -------- -------- --------
Income from operations......... 9,106 11,481 12,861 11,703 13,395 6,661 6,336
Interest and other income...... 64 4 1 4 13 -- --
Gain on disposal of fixed
assets....................... 30 20 4 13 20 -- --
Interest expense............... (6,513) (4,372) (3,043) (3,599) (4,819) (2,458) (2,436)
Other expense.................. (81) (73) (80) (108) (157) (61) (41)
-------- -------- -------- -------- -------- -------- --------
Income before income tax
expense and extraordinary
item......................... 2,606 7,060 9,743 8,013 8,452 4,142 3,859
Income tax expense............. (1,716) (3,278) (282) (1,705) (4,659) (2,319) (2,125)
Extraordinary
item -- utilization of net
operating loss
carryforwards................ -- 1,022 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income..................... $ 890 $ 4,804 $ 9,461 $ 6,308 $ 3,793 $ 1,823 $ 1,734
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets................... $ 88,387 $ 84,909 $ 90,342 $104,187 $117,198 $123,907
Total debt..................... -- -- -- -- --
Total owner's equity........... 86,140 82,659 87,122 99,482 105,637 $111,122
FINANCIAL RATIOS AND OTHER DATA:
EBITDA(1)...................... $ 16,247 $ 18,636 $ 20,871 $ 20,071 $ 23,050 $ 11,266 $ 11,993
EBITDA margin(1)............... 36.8% 38.2% 39.1% 36.7% 37.2% 37.8% 36.0%
Cash flows from operating
activities................... 10,159 13,334 15,034 15,762 19,929 14,109 8,900
Cash flows from investing
activities................... (3,089) (5,049) (10,035) (21,815) (22,291) (10,260) (12,651)
Cash flows from financing
activities................... (7,070) (8,285) (4,999) 6,053 2,362 (3,849) 3,751
Capital expenditures (excluding
acquisitions)................ 3,132 5,013 9,688 22,827 22,958 10,470 12,480
Ratio of earnings to fixed
charges(2)................... 1.3x 2.3x 3.4x 2.7x 2.4x 2.4x 2.3x
OPERATING STATISTICAL DATA (AT
END OF PERIOD, EXCEPT
AVERAGES):
Homes passed................... 214,208 221,376 227,116 233,191 240,649 235,890 243,705
Basic subscribers.............. 112,354 119,089 125,374 135,952 146,266 141,045 149,362
Basic penetration.............. 52.5% 53.8% 55.2% 58.3% 60.8% 59.8% 61.3%
Premium service units.......... 80,763 81,420 98,980 129,479 143,789 139,502 146,395
Premium penetration............ 71.9% 68.4% 78.9% 95.2% 98.3% 98.9% 98.0%
Average monthly revenue per
basic subscriber(3).......... $ 33.43 $ 34.95 $ 36.07 $ 34.76 $ 36.57 $ 35.53 $ 37.15
</TABLE>
56
<PAGE> 65
NOTES TO SELECTED FINANCIAL INFORMATION AND OPERATING DATA
(1) Earnings before interest, income taxes, depreciation and amortization, gain
(loss) on disposal of fixed assets, other income (expense) and equity in net
loss of investee (which is applicable only to RMH in 1992, see Note 7 to RMH
Consolidated Financial Statements). EBITDA margin is EBITDA divided by total
revenue. EBITDA and EBITDA margin are commonly used in the cable industry to
analyze and compare cable television companies on the basis of operating
performance, leverage and liquidity. However, EBITDA and EBITDA margin do
not purport to represent cash flows from operating activities in related
Statements of Cash Flows or cash flow as a percentage of revenue and should
not be considered in isolation or as a substitute for or superior to
measures of performance in accordance with GAAP.
(2) In computing the ratio of earnings to fixed charges, earnings consist of
income (loss) before income tax expense (benefit) and fixed charges. Fixed
charges include interest on long-term borrowings, related amortization of
debt issuance costs and the portion of rental expense under operating leases
deemed to be representative of the interest factor. The Company's earnings
for the nine months ended September 30, 1996 were inadequate to cover fixed
charges by $18,365. For the Previously Affiliated Entities, earnings for the
years ended December 31, 1991, 1992, 1993, 1994 and 1995, for the seven
months ended July 31, 1995 and for the period from January 1, 1996 through
July 30, 1996 were inadequate to cover fixed charges by $21,081, $70,280,
$77,648, $79,047, $62,412, $36,565 and $50,016, respectively. RMH's ratio of
earnings to fixed charges for 1991 is not included in the amounts listed
above as the information is not practicable to obtain. The 1992 amount for
RMH represents earnings inadequate to cover fixed charges for the period
from May 1, 1992 to December 31, 1992.
(3) Average monthly revenue per basic subscriber is calculated as the sum of
total revenue per average number of basic subscribers for each month divided
by the number of months during the period presented. The average number of
basic subscribers for each month is calculated as the sum of the number of
basic subscribers as of the beginning of the month and the number of basic
subscribers as of the end of the month divided by two.
(4) The comparability of the operating data set forth above for the Previously
Affiliated Entities for 1992, 1993 and 1994 is affected by RMH's acquisition
of cable systems. The number of basic subscribers served by RMH increased by
approximately 26,800 and 47,300 during 1992 and 1993, respectively, as a
result of the cable television systems acquired.
(5) Cash flows from operating, investing and financing activities are not
available for the following systems for the following periods as statements
of cash flows were not prepared by the former operators of the respective
systems:
Greenville/Spartanburg System -- Years ended December 31, 1991, 1992
and 1993
Kingsport System -- Years ended December 31, 1992, 1993 and 1994
ParCable System -- Years ended December 31, 1991, 1992, 1993, 1994 and
1995
-- One month ended January 31, 1996
(6) Average monthly revenue per basic subscriber for the Greenville/Spartanburg
System for the years ended December 31, 1991, 1992, 1993 and 1994 is
calculated as the total revenue for the year divided by the average number
of basic subscribers for the corresponding year. Average number of basic
subscribers was calculated as the sum of the number of basic subscribers at
January 1 and December 31 of each year divided by two.
(7) The amount of capital expenditures for the Kingsport System in 1992 is not
practicable to obtain.
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<PAGE> 66
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the separate
financial statements of the Previously Affiliated Entities, the
Greenville/Spartanburg System, the Viacom Nashville System and the Kingsport
System, and other information appearing elsewhere in this Prospectus. The
audited financial statements for the Previously Affiliated Entities present the
results of operations for IPWT, RMH and the Greenville/Spartanburg System on a
combined basis as if the entities had always been members of the same operating
group, except for the Greenville/Spartanburg System, which has been included
from January 27, 1995, the date such system was acquired by TCI from TeleCable
Corporation ("TeleCable").
The discussion of results of operations covers periods prior to the
Transactions. Accordingly, the analysis does not reflect the significant impact
that the Transactions will have on the Company. In addition, the discussion does
not address the historical results of operations or financial condition of the
ParCable System and the Miscellaneous Acquisitions due to the relative
immateriality of their respective results during the periods covered. See "Pro
Forma Financial Data" and "The Acquisitions."
OVERVIEW
Each of the Previously Affiliated Entities, the Greenville/Spartanburg
System, the Viacom Nashville System and the Kingsport System has generated
substantially all of its revenues from monthly subscription fees for basic,
expanded basic (also referred to as cable programming services, "CPS"), premium
and ancillary services (such as rental of converters and remote control devices)
and installation charges. Additional revenues have been generated from local and
national advertising sales, pay-per-view programming and home shopping
commissions.
The Systems have generated increases in revenues during each of the past
three years and the nine months ended September 30, 1996 primarily as a result
of internal subscriber growth. The Company's ability to increase its basic and
expanded basic service rates has been limited by the 1992 Cable Act, which
generally became effective on September 1, 1993. However, after 1994, channels
have been added in certain of the Company's cable television systems and rate
increases have been implemented on the expanded basic tier. Programming fees,
which comprise a substantial portion of total operating expenses, have
experienced significant industry-wide increases, particularly during 1995 and
the first quarter of 1996. Operating, general and administrative expenses have
also increased as a result of subscriber growth and costs related to
implementing rate regulation. The net effect of these factors has had a negative
impact on EBITDA margins. EBITDA is defined as earnings before interest, income
taxes, depreciation and amortization and other income (expense). EBITDA margin
is defined as EBITDA divided by total revenues. EBITDA and EBITDA margin are
commonly used in the cable industry to analyze and compare cable television
companies on the basis of operating performance, leverage and liquidity.
However, EBITDA and EBITDA margin do not purport to represent cash flows from
operating activities in related Statements of Cash Flows or cash flow as a
percentage of revenue and should not be considered in isolation or as a
substitute for or superior to measures of performance in accordance with GAAP.
The Company expects to realize significant general and administrative cost
savings as a result of clustering the systems and to realize reduced program
fees through its relationship with TCI. Such cost savings are anticipated from
the cost sharing agreements the Company and the Related InterMedia Entities have
with IMI to provide accounting, operational, marketing, engineering, legal,
regulatory compliance and other administrative services at cost. Other cost
savings are anticipated from headcount reductions at the Viacom Nashville System
and changes to sales commission programs at the Greenville/Spartanburg System.
There can be no assurance that expected cost savings can be achieved in
conjunction with the Acquisitions. See "Business -- Relationship with TCI,"
"-- Operating Strategy" and "Risk Factors -- Loss of Relationship with TCI."
Each of the Company, IPWT and RMH has reported net losses primarily caused
by high levels of depreciation and amortization and interest expense.
Depreciation and amortization expense also had a significant impact on the
operating results of the Viacom Nashville System and the Greenville/Spartanburg
58
<PAGE> 67
System. Management believes that net losses are common for cable television
companies and that the Company will incur net losses in the future.
Historically, certain programmers have periodically increased the rates
charged for their services. Management believes that such rate increases are
common for the cable television industry and that the Company will experience
program fee rate increases in the future.
Acquisitions
During the nine months ended September 30, 1996 the Company acquired cable
television systems serving approximately 570,200 basic subscribers in Tennessee,
South Carolina and Georgia through (i) the Company's acquisition on July 30,
1996 of controlling equity interests in IPWT and RMG (ii) the equity
contribution on July 30, 1996 of Greenville/Spartanburg System to the Company by
affiliates (iii) the purchase of the Prime Houston System and the exchange with
TCI on August 1, 1996 of the Prime Houston System for the Viacom Nashville
System, and (iv) the purchases on January 29, 1996, February 1, 1996, May 2,
1996, July 1, 1996, and August 6, 1996 of the Miscellaneous Acquisitions for
cash.
The Company paid cash of approximately $415.7 million, including related
acquisition costs and fees, for the purchase of the Kingsport System, the
ParCable System, the Viacom Nashville System and the Miscellaneous Systems. The
purchase price of the Viacom Nashville System of $313.5 million includes $300.0
million paid in May 1996 for the Prime Houston System and cash of $13.5 million,
net of purchase price adjustments, paid to TCI upon the exchange of the Prime
Houston System for the Viacom Nashville System. The Company financed the
purchase of the Prime Houston System with nonrecourse debt and owned the Prime
Houston System temporarily in contemplation of exchanging the Prime Houston
System with TCI for the Viacom Nashville System. Of the total nonrecourse debt
incurred to finance the Prime Houston acquisition, $297.0 million was
outstanding at an interest rate of 8.0% and $3.0 million was outstanding at
LIBOR plus 1 1/8%. TCI managed the Prime Houston System during the Company's
ownership period. Under the terms of the various agreements with TCI, the
Company could not dispose of and did not have effective control over the use of
the Prime Houston assets, and there was no economic effect to the Company from
the Prime Houston assets during the Company's ownership of the system. The
accounts of the Prime Houston System and the related debt and interest expense
have been excluded from the Company's consolidated financial statements for the
nine months ended September 30, 1996. The purchase of the Kingsport System, the
ParCable System, the Viacom Nashville System and the Miscellaneous Systems have
been accounted for as purchases and results of operations are included in the
Company's consolidated results only from the dates the systems were acquired.
The purchase price allocation to tangible and intangible assets acquired has
been recorded based on preliminary estimates of fair market values, pending
receipt of final appraisals.
In connection with the Company's acquisitions of RMG and IPWT, the Company
paid cash of $0.3 million for its equity interests in RMG and repaid in cash
$365.5 million of the acquired entities' indebtedness, including $14.9 million
of accrued interest. The Company also paid cash to TCI of $120.8 million in
connection with TCI's contribution of the Greenville/Spartanburg System to the
Company. The cash payment to TCI has been recorded as an equity distribution in
the Company's consolidated financial statements for the nine months ended
September 30, 1996.
The Company acquired IPWT and extinguished $36.7 million of IPWT's
indebtedness in exchange for non-cash consideration consisting of limited
partner interests in ICP-IV of $25.0 million and a preferred limited partner
interest in ICP-IV of $25.0 million. TCI received non-cash consideration of
$117.6 million in the form of a 49.0% limited partner interest in ICP-IV in
exchange for its contribution of the Greenville/Spartanburg System to the
Company.
IPWT, RMG and the Greenville/Spartanburg System were acquired from entities
in which TCI had a significant ownership interest. Because of TCI's substantial
continuing interest in these entities as a 49.0% limited partner in ICP-IV,
these acquisitions were accounted for at their historical cost basis as of the
acquisition date. Results of these entities are included in the Company's
consolidated results only from the date of acquisition.
59
<PAGE> 68
Rate Regulation and Competition
The 1992 Cable Act significantly changed the regulatory environment in
which the Company operates. Rate regulations adopted by the FCC in response to
the 1992 Cable Act generally became effective on September 1, 1993 and were
subsequently amended on several occasions. The 1996 Act eliminates rate
regulation on the CPS tier after March 31, 1999. In addition, rates are
deregulated on both the basic and CPS tiers when a cable system becomes subject
to effective competition, which under the 1996 Act would include the provision,
other than by direct broadcast satellite, of comparable video programming by a
local exchange carrier in the franchise area.
RMH and IPWT have elected to justify their existing basic and CPS tier
rates under FCC cost of service rules, which are subject to further revision and
regulatory interpretation. The Viacom Nashville System, the
Greenville/Spartanburg System and the Kingsport System have determined their
rates based on a benchmark established by the FCC. RMH's and IPWT's cost of
service cases justifying rates for the CPS tier of service are currently pending
before the FCC and, pursuant to FCC regulations, several local franchises have
requested that the FCC review the Systems' basic rate justifications. Management
believes that the Systems and the Viacom Nashville System have substantially
complied in all respects with related FCC regulations and the outcome of these
proceedings will not have a material adverse effect on the financial statements
of the Company. See "Risk Factors -- Regulation of the Cable Television
Industry" and "Legislation and Regulation."
The Company is subject to actual or potential competition from alternative
providers of video services, including wireless service providers and local
telephone companies. BellSouth Telecommunications, Inc. ("BellSouth") has
applied for cable franchises in certain areas where the Company operates. On
October 22, 1996 the Tennessee Cable Telecommunications Association ("TCTA") and
the Cable Television Association of Georgia ("CTAG") filed a formal complaint
with the Federal Communications Commission challenging certain acts and
practices that BellSouth is taking in connection with its deployment of video
distribution facilities in certain areas of Tennessee and Georgia. The Company
is joined by several other cable operators as the "Complainant Cable Operators"
in the complaint.
Specifically the TCTA and the CTAG have alleged in the complaint that
BellSouth is (i) subsidizing its deployment of cable television facilities with
regulated services revenues that are not subject to competition; (ii)
discriminating against cable operators and other telecommunications providers by
failing to charge its video affiliates the same pole attachment and conduit
occupancy rates that it charges unaffiliated Georgia and Tennessee operators;
and (iii) charging Tennessee cable television operators conduit occupancy rates
that are 1900% above the maximum permitted by the Federal Communications
Commission. The Company cannot predict the likelihood of success on this
complaint nor can there be any assurance that the Company will be successful.
The Company cannot predict the extent to which competition will materialize
or, if competition materializes, the extent of its effect on the Company. See
"Risk Factors -- Competition in Cable Television Industry; Rapid Technological
Change"; "Business -- Competition" and "Legislation and Regulation."
Transactions with Affiliates
TCI's indirect ownership of IPWT and RMH and its direct ownership of the
Greenville/Spartanburg System from January 27, 1995 has enabled each of these
systems to purchase programming services from Satellite Services Inc. ("SSI"), a
subsidiary of TCI. During the three years ended December 31, 1995, IPWT and RMH
paid, in the aggregate, 83.7% of their program fees to SSI. During the period
from January 27, 1995 to December 31, 1995, the Greenville/Spartanburg System
paid 74.5% of its program fees to SSI.
Due to TCI's equity ownership in the Company, the Company is also able to
purchase programming services from SSI. Management believes that the aggregate
programming rates obtained through this relationship are lower than the rates
the Company could obtain through arm's-length negotiations with third parties.
TCI is under no obligation to offer such benefits to the Company, and there can
be no assurance that such benefits will continue to be available in the future
should TCI's ownership in the Company significantly decrease or should TCI for
any other reason decide not to continue to offer such benefits to the Company.
The loss of the relationship with TCI could adversely affect the financial
position and results of operations of the Company. See "Risk Factors -- Loss of
Beneficial Relationship with TCI."
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<PAGE> 69
The Related InterMedia Entities and the Company have entered into
agreements ("Administrative Agreements") with IMI, pursuant to which IMI
provides accounting, operational, marketing, engineering, legal, regulatory
compliance and other administrative services at cost. IMI is wholly owned by Leo
J. Hindery, Jr., who is the managing general partner of and owns the controlling
interest in ICM-IV, which is the general partner of ICP-IV. Generally, IMI
charges costs to the Related InterMedia Entities based on each entity's number
of basic subscribers as a percentage of total basic subscribers for all of the
Related InterMedia Entities. In addition to changes in IMI's aggregate cost of
providing such services, changes in the number of the Company's basic
subscribers and/or changes in the number of basic subscribers for the other
Related InterMedia Entities will affect the level of IMI costs charged to the
Company. IMI charged $1.3 million to the Company for the nine months ended
September 30, 1996, $0.4 million, $0.6 million, $0.6 million and $0.4 million to
IPWT in 1993, 1994, 1995, and the first seven months of 1996, respectively, and
$1.1 million, $2.0 million, $2.4 million and $1.5 million to RMH in 1993, 1994,
1995, and the first seven months of 1996, respectively. Under the terms of the
Administrative Agreements, management expects the level of IMI costs charged to
the Company in 1996 to be comparable to the level of costs charged to RMH and
IPWT in 1995.
ICM-IV manages the business of the Company for an annual fee of one percent
of non-preferred Contributed Equity. InterMedia Capital Management V, L.P.
("ICM-V") managed the business of RMH for fees of $0.5 million for each of the
years ended December 31, 1993 and 1994 and $0.3 million for the year ended
December 31, 1995. InterMedia Capital Management ("ICM") managed the business of
IPWT for a fee of $0.1 million for the year ended December 31, 1994 and $0.5
million for the year ended December 31, 1995. For a more detailed description of
the agreements the Company and the Related InterMedia Entities have with IMI,
see "Certain Relationships and Related Transactions."
RESULTS OF OPERATIONS -- THE COMPANY
The following table sets forth for the period indicated statement of
operations and other data of the Company expressed in dollar amounts (in
thousands) and as a percentage of revenue. Statement of operations and other
data are presented for the three months ended September 30, 1996 for comparative
and analytical purposes. As described above, the Company acquired all of its
cable television systems during the nine months ended September 30, 1996. A
significant portion of these acquisitions occurred during the three months ended
September 30, 1996. Results of operations of the acquired cable television
systems have been included in the Company's results of operations only from the
dates the systems were acquired. The Company had no operations prior to its
first acquisition on January 29, 1996.
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<PAGE> 70
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
---------------------- ----------------------
PERCENTAGE PERCENTAGE
AMOUNT OF REVENUE AMOUNT OF REVENUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue........................................... $ 39,457 100.0% $ 47,391 100.0%
Costs and Expenses:
Program fees.................................... (8,555) (21.7) (10,136) (21.4)
Other direct and operating expenses(1).......... (4,829) (12.2) (5,731) (12.1)
Selling, general and administrative(2).......... (7,374) (18.7) (8,975) (18.9)
Management and consulting fees.................. (587) (1.5) (721) (1.5)
Depreciation and amortization................... (21,787) (55.2) (26,521) (56.0)
------- ----- ------- -----
Loss from operations.............................. (3,675) (9.3) (4,693) (9.9)
Interest and other income......................... 4,307 10.9 4,759 10.0
Gain on sale of investments....................... 286 0.7 286 0.6
Interest expense.................................. (14,189) (35.9) (18,191) (38.4)
Other income (expense)............................ (524) (1.3) (526) (1.1)
Provision for income taxes........................ (388) (1.0) (388) (0.8)
Extraordinary gain on early extinguishment of
debt,
net of tax...................................... 18,483 46.8 18,483 39.0
Minority interest................................. (464) (1.2) (464) (1.0)
------- ----- ------- -----
Net income (loss)................................. 3,836 9.7 $ (734) (1.6)
======= ===== ======= =====
Other Data:
EBITDA(3)......................................... $ 18,112 45.9% $ 21,828 46.1%
</TABLE>
- ---------------
(1) Other direct and operating expenses consist of expenses relating to
installations, plant repairs and maintenance and other operating costs
directly associated with revenues.
(2) Selling, general and administrative expenses consist mainly of costs related
to system offices, customer service representatives and sales and
administrative employees.
(3) EBITDA is defined as earnings before interest, income taxes, depreciation
and amortization and other income (expense). EBITDA is a commonly used
measure of performance in the cable industry. However, it does not purport
to represent cash flows from operating activities in related Consolidated
Statements of Cash Flows and should not be considered in isolation or as a
substitute for measures of performance in accordance with GAAP. For
information concerning cash flows from operating, investing and financing
activities, see Audited Financial Statements included elsewhere in this
Prospectus.
Revenues
For the three months and nine months ended September 30, 1996, the Company
generated total revenues of $39.5 million and $47.4 million, respectively. The
Company's total revenues consisted of $27.3 million and $33.4 million of basic
service revenues, or 69.1% and 70.4% of total revenues for the three and nine
months ended September 30, 1996, respectively. Pay service revenues of $6.7
million and $7.9 million represented 17.0% and 16.7% of total revenues for the
three months and nine months ended September 30, 1996, respectively. Other
service revenues of $5.5 million and $6.1 million represented 13.9% and 12.9% of
total revenues, for the three months and nine months ended September 30, 1996,
respectively. The increase in other service revenues as a percentage of total
revenues between the three months ended and nine months ended operating results
is due primarily to the acquisitions of RMH, the Greenville/Spartanburg System
and the Viacom Nashville System which have significant amounts of advertising
revenues compared to those systems acquired during the first six months of the
year. Basic, pay and other service revenues for the six months ended June 30,
1996 represented 77.0%, 15.1% and 7.9%, respectively, of total revenues for the
same period. The
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<PAGE> 71
Company served approximately 570,200 basic subscribers and had 432,600 pay units
at September 30, 1996, compared to approximately 57,400 basic subscribers and
23,800 pay units at June 30, 1996.
Average basic service revenue per basic subscriber for the three months
ended September 30, 1996 was $22.46, compared to $21.93 for the nine months
ended September 30, 1996 and $21.62 for the six months ended June 30, 1996. The
increase represents rate increases implemented by RMG and the Viacom Nashville
System in September 1996 and higher effective basic service rates for the
systems acquired in July and August 1996, compared to those systems acquired
during the first six months of the year. Average pay service revenue per pay
unit decreased from $9.13 for the nine months ended September 30, 1996 to $8.21
for the three months ended September 30, 1996. The decrease is due primarily to
marketing promotions offered during the third quarter 1996 and the impact of
acquiring certain systems with lower average pay service revenue per pay unit.
Program Fees
Program fees of $8.6 million and $10.1 million for the three and nine
months ended September 30, 1996, respectively, represent 25.2% and 24.6% of
basic and pay service revenues for the respective periods. The increase in
program fees as a percentage of cable service revenues for the three months
ended September 30, 1996 compared to the nine month period reflects a higher
effective program rate per basic subscriber for the Viacom Nashville System and
the Greenville/Spartanburg System, which offer more channels to its basic
subscribers than those systems acquired prior to the third quarter 1996.
Other Direct Expenses
Other direct expenses, which include costs related to technical personnel,
franchise fees and repairs and maintenance, amounted to $4.8 million and $5.7
million for the three and nine months ended September 30, 1996, respectively.
Other direct expenses as a percentage of total revenues for the three and nine
months ended September 30, 1996 remained relatively constant at 12.2% and 12.1%,
respectively.
Depreciation and Amortization
Depreciation and amortization expense of $21.8 million and $26.5 million
for the three and nine months ended September 30, 1996, respectively, represent
55.2% and 56.0% of total revenues for the respective periods. The significant
amount of depreciation and amortization expense for each of the periods ended
September 30, 1996 results from the cable television assets purchased during the
nine months ended September 30, 1996. Furthermore, depreciation is computed
using the double-declining balance method over estimated useful lives which do
not exceed ten years, and the Company's intangible assets are amortized on a
straight line basis over the lesser of the estimated useful lives or the
twelve-year term of ICP-IV.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses for the three and
nine months ended September 30, 1996 amounted to $7.4 million and $9.0 million
or 18.7% and 18.9% of total revenues, respectively.
Management and Consulting Fees
Management and consulting fees of $0.6 million and $0.7 million for the
three and nine months ended September 30, 1996 represent fees charged by ICM-IV.
ICM-IV manages the business of the Company for a per annum fee of 1% of the
Company's total non-preferred capital contributions, or $3.4 million. The
significant increase in management and consulting fees for the three months
ended September 30, 1996, compared to the first six months of the year is a
result of the significant equity contributions during the three months ended
September 30, 1996. During the six months ended June 30, 1996 ICM-IV management
and consulting fees were determined in accordance with the ICP-IV partnership
agreement based on attributed equity which was calculated as a percentage of the
purchase price of the acquired systems.
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<PAGE> 72
Interest and Other Income
Interest and other income includes the following: (i) equity distribution
income of $2.9 million received from a former investee of RMG during the three
months ended September 30, 1996, (ii) $0.4 million of interest income earned on
a $15.0 million loan to RMH prior to the Company's acquisition of RMH on July
30, 1996, (iii) $0.9 million of interest income earned on the pledged
securities, and (iv) other income and interest earned on cash and cash
equivalents of $0.6 million.
Gain on sale of investments
The gain on sale of investments resulted from the sale of certain limited
partner interests during the three months ended September 30, 1996.
Interest expense
Interest expense for the nine months ended September 30, 1996 includes
interest on a bridge loan obtained by a subsidiary of ICP-IV for acquisitions of
certain cable television systems during the first seven months of the year and
interest on borrowings outstanding under the 11.25% senior notes and bank debt,
which were incurred to finance the Company's acquisitions in July and August
1996. See "Acquisitions" and "Liquidity and Capital Resources."
Other income (expense)
Other expense of $0.5 million for the three and nine months ended September
30, 1996 primarily represents the expensing of directly related costs incurred
in connection with the July 30, 1996 acquisitions, which were accounted for on
an historical cost basis.
Provision for income taxes
The provision for income taxes has been recorded based on RMG's effective
rate expected for the year ending December 31, 1996. As partnerships, the tax
attributes of ICP-IV and its subsidiaries other than RMG and IPCC accrue to the
partners.
Extraordinary gain on early extinguishment of debt
The extraordinary gain on early extinguishment of debt includes (i) costs
paid in July 1996 associated with the prepayment of RMG's long-term debt and
(ii) the recognition of the unamortized portion in July 1996 of a debt
restructuring credit associated with the restructuring of IPWT's long-term debt
in 1994.
Minority interest
Minority interest represents accrued dividends of $0.1 million on RMG's
mandatorily redeemable preferred stock and the allocation of $0.3 million of
RMG's income for the period from July 30, 1996 through September 30, 1996 to a
subsidiary of TCI as the minority shareholder of RMG's common stock.
Net income (loss)
Net income for the three months ended September 30, 1996 was significantly
impacted by the acquisitions and related debt financing in July and August and
the extraordinary gain on early extinguishment of long-term debt that was
assumed in connection with the acquisitions of RMG and IPWT. Revenues and loss
before income taxes for the three months ended September 30, 1996 represented
83.3% and 75.1% of revenues and loss before income taxes for the nine months
ended September 30, 1996.
RESULTS OF OPERATIONS -- THE PREVIOUSLY AFFILIATED ENTITIES
The comparability of results of operations for the Previously Affiliated
Entities for the years ended December 31, 1993 and 1994 is affected by RMH's
acquisitions of cable television systems. During February,
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<PAGE> 73
March and December 1993, RMH acquired cable television assets serving at the
time approximately 1,400, 15,600 and 30,300 basic subscribers, respectively, in
the Greenville/Spartanburg Cluster and Nashville/Mid-Tennessee Cluster (the
"1993 Acquisitions"). Results of operations for the 1993 Acquisitions are
included in 1993 results of operations only from the dates the systems were
acquired, while results of operations for these systems are included for the
full years in 1994 and 1995.
The comparability of results of operations for the Previously Affiliated
Entities for the seven months ended July 31, 1995 and the period from January 1,
1996 to July 30, 1996, and the years ended December 31, 1994 and 1995 is
affected by the combining of results of operations for the
Greenville/Spartanburg System from January 27, 1995 with results of operations
for IPWT and RMH (the "1995 Combination").
The following table sets forth for the periods indicated statement of
operations and other data of the Previously Affiliated Entities expressed in
dollar amounts (in thousands) and as a percentage of revenue.
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED JULY PERIOD FROM JANUARY 1,
31, 1995 1996 TO JULY 30, 1996
----------------------- -----------------------
PERCENTAGE PERCENTAGE
AMOUNT OF REVENUE AMOUNT OF REVENUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................. $ 72,578 100.0% $ 81,140 100.0%
Costs and Expenses:
Program fees.......................... (13,923) (19.2) (17,080) (21.1)
Other direct and operating
expenses(1)........................ (9,499) (13.1) (10,000) (12.3)
Selling, general and
administrative(2).................. (16,164) (22.3) (19,698) (24.3)
Management and consulting fee......... (530) (0.7) (398) (0.5)
Depreciation and amortization......... (41,141) (56.7) (36,507) (45.0)
------- ----- ------- -----
Loss from operations.................... (8,679) (12.0) (2,543) (3.1)
Interest and other income............... 888 1.2 179 0.2
Gain (loss) on disposal of fixed
asset................................. 39 0.1 (14) 0.0
Interest expense........................ (28,157) (38.8) (47,545) (58.6)
Other expense........................... (656) (0.9) (93) (0.1)
Income tax benefit...................... 8,642 11.9 14,744 18.2
------- ----- ------- -----
Net loss................................ (27,923) (38.5) (35,272) (43.5)
======= ===== ======= =====
OTHER DATA:
EBITDA(3)............................... 32,462 44.7% 33,964 41.9%
</TABLE>
65
<PAGE> 74
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1993 1994 1995
----------------------- ----------------------- -----------------------
PERCENTAGE PERCENTAGE PERCENTAGE
AMOUNT OF REVENUE AMOUNT OF REVENUE AMOUNT OF REVENUE
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue......................... $ 57,685 100.0% $ 73,049 100.0% $128,971 100.0%
Costs and Expenses:
Program fees.................. (9,376) (16.3) (13,189) (18.1) (24,684) (19.1)
Other direct and operating
expenses(1)................. (7,801) (13.5) (9,823) (13.4) (16,851) (13.1)
Selling, general and
administrative(2)........... (12,414) (21.5) (15,852) (21.7) (30,509) (23.7)
Management and consulting fee... (465) (0.8) (585) (0.8) (815) (0.6)
Depreciation and amortization... (66,940) (116.0) (68,216) (93.4) (70,154) (54.4)
------- ------ ------- ----- ------- -----
Loss from operations............ (39,311) (68.1) (34,616) (47.4) (14,042) (10.9)
Interest and other income....... 8,898 15.4 1,442 2.0 1,172 0.9
Loss on disposal of fixed
assets........................ (1,967) (3.4) (1,401) (1.9) (63) --
Interest expense................ (44,760) (77.6) (44,278) (60.6) (48,835) (37.9)
Other expense................... (508) (0.9) (194) (0.3) (644) (0.5)
Income tax benefit.............. 21,656 37.5 19,020 26.0 17,502 13.6
------- ------ ------- ----- ------- -----
Net loss........................ $(55,992) (97.1)% $(60,027) (82.2)% $(44,910) (34.8)%
======= ====== ======= ===== ======= =====
OTHER DATA:
EBITDA(3)....................... $ 27,629 47.9% $ 33,600 46.0% $ 56,112 43.5%
</TABLE>
- ---------------
(1) Other direct and operating expenses consist of expenses relating to
installations, plant repairs and maintenance and other operating costs
directly associated with revenues.
(2) Selling, general and administrative expenses consist mainly of costs related
to system offices, customer service representatives and sales and
administrative employees.
(3) EBITDA is defined as earnings before interest, income taxes, depreciation
and amortization, gain (loss) on disposal of fixed assets and other income
(expense). EBITDA is a commonly used measure of performance in the cable
industry. However, it does not purport to represent cash flows from
operating activities in related Consolidated Statements of Cash Flows and
should not be considered in isolation or as a substitute for measures of
performance in accordance with GAAP. For information concerning cash flows
from operating, investing and financing activities, see Audited Financial
Statements included elsewhere in this Prospectus.
COMPARISON OF THE SEVEN MONTHS ENDED JULY 31, 1995 AND THE PERIOD FROM JANUARY 1
TO JULY 30, 1996
Revenues. The Previously Affiliated Entities' revenues increased $8.6
million, or by 11.8%, for the seven months ended July 30, 1996 compared with the
corresponding period in the prior year. The impact of comparing revenues for the
seven months ended July 30, 1996 with revenues for the period from January 27,
1995 to July 31, 1995 for the Greenville/Spartanburg System resulted in a $3.1
million increase in revenues. Additionally, revenues increased $2.8 million due
to subscriber growth and $3.6 million due to basic and expanded basic rate
increases. As of July 30, 1996, basic subscribers and premium units increased
from July 31, 1995 by approximately 15,000 subscribers, or 4.4%, and 5,600
units, or 2.2%, respectively. The increase in basic subscribers primarily
reflects the impact of an increase of approximately 15,800 homes passed and
higher basic penetration which grew from 69.4% at July 31, 1995 to 70.2% at July
30, 1996. During the three months ended March 31, 1996, each of the Previously
Affiliated Entities implemented basic and/or expanded basic rate increases. The
rate increases resulted in a 4.2% average increase in overall rates charged for
basic and expanded basic services combined. Partially offsetting these revenue
increases was a $0.6 million decrease in pay service revenues reflecting the
impact of premium discount packages which offer combinations
66
<PAGE> 75
of premium channels at prices that represent significant savings over the price
for an individual channel and a $0.4 million decrease in ancillary service
revenues.
Program Fees. Program fees increased $3.2 million, or by 22.7%, for the
seven months ended July 30, 1996 compared with the corresponding period in the
prior year. The impact of comparing program fees for the seven months ended July
30, 1996 with program fees for the period from January 27, 1995 to July 31, 1995
for the Greenville/Spartanburg System resulted in a $0.8 million increase in
program fees. Additionally, program fees increased $0.6 million due to
subscriber growth and $1.8 million due to the net impact of higher rates charged
by certain programmers and higher pay-per-view program costs. The increase in
program fees as a percentage of revenues reflects the impact of program fee
increases outpacing revenue growth for the period.
Other Direct and Operating Expenses. Other direct and operating expenses
increased $0.5 million, or by 5.3%, for the seven months ended July 30, 1996
compared with the corresponding period in the prior year. The impact of
comparing other direct and operating expenses for the seven months ended July
30, 1996 with the period from January 27, 1995 to July 31, 1995 for the
Greenville/Spartanburg System resulted in a $0.7 million increase in expense.
Increased labor costs for the RMH and IPWT systems contributed $0.5 million to
the increase in costs. RMH labor costs increased primarily due to an increase in
workforce driven by basic subscriber growth, and IPWT labor costs increased due
to an increase in the average salary per employee. These increases were offset
by a $0.7 million reduction in costs primarily due to lower labor costs for the
Greenville/Spartanburg System driven by a decrease in workforce and an increase
in construction-related activities. Also contributing to the decrease was a
reduction in repairs and maintenance expense for the RMH and IPWT systems. Other
direct and operating expenses as a percentage of revenues decreased due to
proportionately lower increases in costs relative to revenue growth.
Selling, General and Administrative. Selling, general and administrative
("SG&A") expenses increased $3.5 million, or by 21.9%, for the seven months
ended July 30, 1996 compared with the corresponding period of the prior year.
The impact of comparing SG&A for the seven months ended July 30, 1996 with SG&A
for the period from January 27, 1995 to July 31, 1995 for the
Greenville/Spartanburg System resulted in a $0.6 million increase in SG&A. Other
SG&A costs increased by an aggregate amount of $1.7 million due to subscriber
growth. Of the remaining increase, $0.4 million represents an increase in the
corporate overhead cost allocation from TCI to the Greenville/Spartanburg System
which TCI began allocating in May 1995. Also contributing to the higher costs
were increases in labor, marketing and advertising sales expense and
professional services costs of approximately $0.6 million, $0.7 million, and
$0.2 million, respectively. The labor cost increase primarily resulted from
increases in the workforce driven by basic subscriber growth. The marketing and
advertising sales expense increases resulted from higher levels of marketing
activities for each of the Previously Affiliated Entities and an increase in
advertising sales activities for the Greenville/ Spartanburg System. The
increase in professional services reflects increased utilization of outside
labor for the RMH system.
SG&A as a percentage of revenues increased due to proportionately higher
costs for the Greenville/ Spartanburg System in relation to revenue growth.
Depreciation and Amortization. Depreciation and amortization decreased
$4.6 million, or by 11.3%, for the seven months ended July 30, 1996 compared
with the corresponding period of the prior year. The decrease reflects a
combined $4.8 million decrease for the IPWT and RMH systems due to their use of
an accelerated depreciation method that results in higher depreciation expense
being recognized in the earlier years and lower expense in the later years. This
decrease was offset by (i) an increase in property and equipment placed in
service between July 1995 and July 1996 and (ii) the $0.6 million impact of
comparing depreciation and amortization for the seven months ended July 30, 1996
with depreciation and amortization for the period from January 27, 1995 to July
31, 1995 for the Greenville/Spartanburg System.
Interest and other income. Interest and other income consist primarily of
interest on RMH notes receivable that were issued in connection with previous
sales of cable television systems (the "RMH Seller Notes") and interest earned
on cash equivalents. Interest and other income decreased $709, or by 79.8%, for
the seven months ended July 30, 1996 compared with the corresponding period of
the prior year. The decrease reflects the effect of collection in June 1995 of
the RMH Seller Notes.
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<PAGE> 76
Interest Expense. Interest expense increased $19.4 million, or by 68.9%,
for the seven months ended July 30, 1996 compared with the corresponding period
of the prior year because of an $16.4 million increase in interest expense
allocations from TCI for the Greenville/Spartanburg System and a $2.8 million
increase in interest expense for IPWT. The increase for IPWT primarily reflects
the recognition of $3.0 million for contingent interest. Upon completion of the
Transactions, conditions were met for an accrual of contingent interest under
the terms of IPWT's loan agreement with GECC.
Income Tax Benefit. Income tax benefit increased $6.1 million, or by
70.6%, for the seven months ended July 30, 1996 compared with the corresponding
period of the prior year primarily due to an increase in the taxable loss before
income tax benefit coupled with an increase in the effective tax benefit rate
for the RMH system, offset by a decrease in the effective tax benefit rate for
the Greenville/Spartanburg System.
RMH has not established a valuation allowance to reduce the deferred tax
assets related to its unexpired net operating loss carryforwards. Due to an
excess of appreciated asset value over the tax basis of RMH's net assets,
Management believes it is more likely than not that the deferred tax assets
related to the unexpired net operating losses will be realized.
Net Loss. Net loss increased $7.3 million, or by 26.3%, for the seven
months ended July 31, 1996 compared with the corresponding period of the prior
year primarily due to the increase in interest expense partially offset by an
increase in EBITDA and the income tax benefit.
EBITDA. EBITDA increased $1.5 million, or by 4.6%, for the seven months
ended July 31, 1996 compared with the corresponding period of the prior year. Of
the increase, $1.0 million represents the impact of comparing EBITDA for the
seven months ended July 31, 1996 with EBITDA for the period January 27, 1995 to
July 31, 1995 for the Greenville/Spartanburg System. The remainder of the
increase is attributable to higher revenues partially offset by increases in
program fees, other direct and operating expenses and SG&A. EBITDA as a
percentage of revenues decreased due to increases in program fees and SG&A
expenses as a percentage of revenues.
COMPARISON OF YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Revenues. The Previously Affiliated Entities' revenues increased $15.4
million, or 26.6%, for 1994 compared to 1993 and increased $55.9 million, or
76.6%, for 1995 compared to 1994. The 1993 Acquisitions accounted for $11.7
million of the increase in revenues for 1994 compared to 1993 and the 1995
Combination accounted for $47.2 million of the increase in revenues for 1995
compared to 1994.
Excluding the impact of the 1993 Acquisitions and the 1995 Combination,
internal subscriber growth accounted for approximately $4.9 million and $4.8
million of the increase in revenues for 1994 compared to 1993 and 1995 compared
to 1994, respectively. Basic subscribers increased by approximately 15,300, or
7.2%, for 1994 compared to 1993 and 13,000, or 5.8%, for 1995 compared to 1994.
The increase in basic subscribers primarily reflects the impact of an increase
in homes passed during the three year period and higher basic penetration rates
for 1995 compared to 1994. The number of premium units increased by
approximately 22,800 units, or 17.7%, and 10,500 units, or 6.9%, for 1994
compared to 1993 and 1995 compared to 1994, respectively, reflecting the impact
of premium discount packages which offer combinations of premium channels at
prices that represent significant savings over the price for individual
channels. This volume increase was slightly offset by decreases in revenues of
approximately $0.4 million and $0.1 million for 1994 compared to 1993 and 1995
compared to 1994, respectively, due to the impact of lower rates per subscriber
from the premium discount packages.
The impact of higher rates due to basic and expanded basic rate increases
accounted for approximately $3.9 million of the increase in revenues for 1995
compared to 1994. The FCC ordered a freeze on basic and expanded basic rates for
the period April 5, 1993 through May 15, 1994. In compliance with the rate
freeze, IPWT and RMH did not increase their basic and expanded basic rates
during this period, and chose to maintain their rates through December 30, 1994.
During the period from December 31, 1994 through the first quarter of 1995,
channels were added and rate increases were implemented on the expanded basic
tier. The
68
<PAGE> 77
rate increases resulted in a 7.6% average increase in RMH's and IPWT's overall
rates charged for basic and expanded basic services combined.
Effective September 1, 1993, FCC regulations required the Previously
Affiliated Entities to cease charging monthly rates for additional outlets. In
1993, IPWT and RMH recognized additional outlet revenues of $1.7 million, or
3.0% of total revenues. The impact of lost additional outlet revenues was
partially offset by a $0.7 million increase in revenues from ancillary services
and installation charges.
Program Fees. Program fees increased $3.8 million, or 40.7%, for 1994
compared to 1993 and increased $11.5 million, or 87.2%, for 1995 compared to
1994. Program fees increased $1.8 million for 1994 compared to 1993 due to the
1993 Acquisitions and increased $9.1 million for 1995 compared to 1994 due to
the 1995 Combination.
Excluding the impact of the 1993 Acquisitions, program fees increased
approximately $1.3 million for 1994 compared to 1993 as a result of internal
subscriber growth. The remainder of the 1994 increase was attributable to new
channel additions and the impact of higher rates charged by certain programmers,
slightly offset by lower premium service effective rates attributable to volume
discounts for the RMH and IPWT systems. Excluding the impact of the 1995
Combination, program fees increased in 1995 compared to 1994 by $1.2 million due
to subscriber growth and by $1.2 million due to the net impact of (i) new
channel additions, (ii) higher rates charged by certain programmers and (iii)
higher pay-per-view program costs, slightly offset by lower premium service
effective rates due to volume discounts.
The increase in program fees as a percentage of revenues for 1994 compared
to 1993 reflects the impact of (i) the rate freeze on revenues and (ii) premium
discount packages. In 1995, program fees as a percentage of revenues increased
compared to 1994 reflecting the impact of the premium discount packages.
Other Direct and Operating Expenses. Other direct and operating expenses
increased $2.0 million, or 25.9%, for 1994 compared to 1993 and increased $7.0
million, or 71.6%, for 1995 compared to 1994. The 1993 Acquisitions accounted
for $1.2 million of the increase for 1994 compared to 1993 and the 1995
Combination accounted for $6.6 million of the increase for 1995 compared to
1994. Excluding the impact of the 1993 Acquisitions and the 1995 Combination,
other direct and operating expenses increased due to internal subscriber growth.
Other direct and operating expenses as a percentage of revenues remained
relatively constant for the three years ended December 31, 1995.
Selling, General and Administrative. SG&A expenses increased $3.4 million,
or 27.7%, for 1994 compared to 1993 and increased $14.7 million, or 92.5%, for
1995 compared to 1994. The 1993 Acquisitions accounted for $1.9 million of the
increase for 1994 compared to 1993 and the 1995 Combination accounted for $12.1
million of the increase for 1995 compared to 1994.
The remainder of the 1994 increase resulted from increases in payroll
expense for IPWT and RMH attributable to the implementation of customer service
and marketing initiatives and an increase in the corporate overhead allocation
due to corporate cost increases primarily related to the implementation of FCC
rate regulation. The remainder of the 1995 increase resulted from increases in
payroll, data processing and marketing costs for IPWT and RMH reflecting the
impact of an increase in the average salary per employee, subscriber growth and
customer service initiatives.
SG&A as a percentage of revenue remained relatively constant in 1994
compared to 1993. SG&A as a percentage of revenue increased in 1995 compared to
1994 primarily due to proportionately higher costs for the
Greenville/Spartanburg System in relation to revenue.
Depreciation and Amortization. Depreciation and amortization expense
increased $1.3 million, or 1.9%, for 1994 compared to 1993 and increased $1.9
million, or 2.8%, for 1995 compared to 1994. The increase in 1994 compared to
1993 primarily reflects the impact of the 1993 Acquisitions, partially offset by
the impact of the use of an accelerated depreciation method by IPWT and RMH.
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<PAGE> 78
The increase in 1995 compared to 1994 is primarily due to the impact of the
1995 Combination, offset by (i) the impact of IPWT's and RMH's use of an
accelerated depreciation method that results in higher depreciation expense
being recognized in the earlier years and lower expense in later years and (ii)
the effect of the cost of certain IPWT and RMH franchise rights becoming fully
amortized during 1994.
Interest and Other Income. Interest and other income consist primarily of
interest on RMH notes receivable that were issued in connection with previous
sales of cable television systems (the "RMH Seller Notes") and interest earned
on cash equivalents. Interest and other income decreased $7.5 million, or 83.8%,
and $0.3 million, or 18.7%, for 1994 compared to 1993 and 1995 compared to 1994,
respectively. The decrease for 1994 reflects the effect of collection in 1994 of
the RMH Seller Notes and a 1993 gain on sale of investments. In 1993, a $4.3
million gain on sale of investments resulted from redemption by the investee of
the partnership interests acquired by RMH in connection with previous sales of
cable television systems. No such transaction occurred in 1994 or 1995. The
decrease for 1995 reflects the effect of collection in 1994 of the RMH Seller
Notes.
Interest Expense. Interest expense decreased by $0.5 million, or 1.1%, for
1994 compared to 1993 and increased by $4.6 million, or 10.3%, for 1995 compared
to 1994. The decrease in 1994 compared to 1993 reflects a decrease of $1.7
million for the IPWT system as a result of a debt restructuring completed in
October 1994, offset by a $1.2 million increase for RMH due to interest on
additional borrowings. The 1995 increase reflects the impact of (i) the 1995
Combination of $11.8 million and (ii) a $0.9 million increase for RMH due to
interest on additional borrowings, offset by an $8.2 million decrease for the
IPWT system reflecting the effect of the October 1994 debt restructuring.
Income Tax Benefit. The income tax benefit decreased $2.6 million, or
12.2%, for 1994 compared to 1993 due to a lower effective tax benefit rate. The
income tax benefit decreased $1.5 million, or 8.0%, for 1995 compared to 1994
due to the impact of a decrease in the taxable loss before income tax benefit,
partially offset by a higher effective tax benefit rate.
Net Loss. In 1994, the Previously Affiliated Entities' net loss increased
$4.0 million, or 7.2%, from 1993 primarily as a result of decreases in interest
income due to collection of the RMH Seller Notes and the gain on sale of RMH
partnership interests in 1993. The Previously Affiliated Entities' net loss
decreased $15.1 million, or 25.2%, for 1995 compared to 1994 primarily due to an
increase in EBITDA and lower depreciation and amortization expense.
EBITDA. EBITDA increased $6.0 million, or 21.6%, for 1994 compared to 1993
and increased $22.5 million, or 67.0%, for 1995 compared to 1994. EBITDA
increased approximately $6.8 million for 1994 compared to 1993 due to the 1993
Acquisitions. Excluding the effect of the 1993 Acquisitions, EBITDA decreased
slightly due to the impact of the rate freeze on revenues and increases in
program fees, other direct and operating costs and SG&A.
The 1995 Combination accounted for $19.4 million of the increase for 1995
compared to 1994. The remainder of the 1995 increase reflects the impact of
revenue growth partially offset by increases in program fees, other direct and
operating expenses and SG&A for the RMH and IPWT systems.
EBITDA as a percentage of revenues decreased in 1995 compared to 1994
primarily because of the increases in program fees and SG&A as a percentage of
revenues. In 1994 compared to 1993, EBITDA as a percentage of revenues decreased
slightly because of the increase in program fees as a percentage of revenues.
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<PAGE> 79
RESULTS OF OPERATIONS -- GREENVILLE/SPARTANBURG SYSTEM
The following table sets forth, for the periods indicated, statement of
operations data of the Greenville/Spartanburg System expressed in dollar amounts
(in thousands) and as a percentage of revenue. For purposes of this analysis
only and to facilitate a meaningful comparison of results of operations for the
two-year periods ended December 31, 1994 and 1995 and the seven months ended
July 31, 1995 and the period from January 1, 1996 to July 30, 1996, the results
of operations for the period from January 1, 1995 to January 26, 1995 have been
combined with the results of operations for the period from January 27, 1995 to
December 31, 1995.
<TABLE>
<CAPTION>
PERIOD FROM
SEVEN MONTHS ENDED JANUARY 1, 1996
JULY 31, 1995 TO JULY 30, 1996
----------------------- -----------------------
PERCENTAGE PERCENTAGE
AMOUNT OF REVENUE AMOUNT OF REVENUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................. $ 28,784 100.0% $ 30,290 100.0%
Costs and Expenses:
Program fees.......................... (5,795) (20.1) (6,953) (23.0)
Other operating expenses (1).......... (10,529) (36.6) (12,251) (40.5)
Depreciation and amortization......... (7,647) (26.6) (7,706) (25.4)
------- ----- ------- -----
Income from operations.................. 4,813 16.7 3,380 11.1
Interest expense........................ (6,577) (22.9) (22,811) (75.3)
Income tax benefit...................... 748 2.6 6,964 23.0
------- ----- ------- -----
Net loss................................ $ (1,016) (3.6) $(12,467) (41.2)
======= ===== ======= =====
OTHER DATA:
EBITDA (2).............................. 12,460 43.3% 11,086 36.6%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1994 1995
----------------------- -----------------------
PERCENTAGE PERCENTAGE
AMOUNT OF REVENUE AMOUNT OF REVENUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 45,899 100.0% $ 50,331 100.0%
Cost and expenses:
Program fees....................... (14,076) (30.7) (9,879) (19.6)
Other operating expenses (1)....... (17,998) (39.2) (20,006) (39.8)
Depreciation and amortization...... (7,332) (16.0) (14,757) (29.3)
------- ----- ------- -----
Income from operations................ 6,493 14.1 5,689 11.3
Interest and other income............. 1,278 2.8 -- --
Interest expense...................... (2,150) (4.7) (12,000) (23.8)
Income tax (expense) benefit.......... (2,118) (4.6) 2,138 4.2
------- ----- ------- -----
Net income (loss)..................... $ 3,503 7.6 $ (4,173) (8.3)
======= ===== ======= =====
OTHER DATA:
EBITDA (2).............................. $ 13,825 30.1% $ 20,446 40.6%
</TABLE>
- ---------------
(1) Other operating expenses consist of expenses relating to installations,
plant repairs and maintenance and other costs directly associated with
revenues in addition to selling, general and administrative expenses related
to system offices, customer service representatives and sales and
administrative employees. For purposes of this analysis other direct
expenses and selling, general and administrative expenses have been combined
to present consistent classifications upon combination of results of
operations for the period from January 1, 1995 to January 26, 1995 with
results of operations for the period from January 27, 1995 to December 31,
1995.
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<PAGE> 80
(2) EBITDA is defined as earnings before interest, income taxes, depreciation
and amortization and other income (expense). EBITDA is a commonly used
measure of performance in the cable industry. However, it does not purport
to represent cash flows from operating activities in related Consolidated
Statements of Cash Flows and should not be considered in isolation or as a
substitute for measures of performance in accordance with GAAP. For
information concerning cash flows from operating, investing and financing
activities, see Audited Financial Statements included elsewhere in this
Prospectus.
COMPARISON OF SEVEN MONTHS ENDED JULY 31, 1995 AND THE PERIOD FROM JANUARY 1 TO
JULY 30, 1996
Revenues. The Greenville/Spartanburg System's revenues increased $1.5
million, or by 5.2%, for the seven months ended July 30, 1996 compared with the
corresponding period of the prior year. Revenue increases attributable to
subscriber growth and basic and expanded basic rate increases totaled $0.6
million and $2.1 million, respectively. As of July 30, 1996, basic subscribers
and premium units increased from July 31, 1995 by approximately 2,900
subscribers, or 2.6% and 7,200 units, or 7.3%, respectively. The increase in
basic subscribers primarily reflects the impact of an approximate 1,900 increase
in homes passed and higher basic penetration that grew from 72.1% at July 31,
1995 to 73.1% at July 30, 1996. During the three months ended March 31, 1996,
the system implemented rate increases on the basic and expanded basic tier. The
rate increases resulted in a 2.0% average increase in the rates charged for
basic and expanded basic services combined. Partially offsetting these revenue
increases was a $0.4 million decrease in premium revenues reflecting the impact
of lower rates per subscriber from premium discount packages and a $0.8 million
decrease in ancillary service revenues.
Program Fees. Program fees increased $1.2 million, or by 20.0%, for the
seven months ended July 30, 1996 compared with the corresponding period of the
prior year primarily due to higher rates charged by certain programmers. The
increase in program fees as a percentage of revenues reflects the impact of
program fee increases outpacing revenue growth for the period.
Other Operating Expenses. Other operating expenses increased $1.7 million,
or by 16.4%, for the seven months ended July 30, 1996 compared with the
corresponding period of the prior year. Contributing to the increase was a $0.4
million increase in the corporate overhead cost allocation from TCI. In May
1995, TCI began allocating corporate overhead to the Greenville/Spartanburg
System. Also contributing to the increase was a $2.1 million increase in SG&A
costs primarily attributable to increased SG&A labor, marketing and advertising
sales costs driven by basic subscriber growth and increased levels of marketing
and advertising sales activities, respectively. Partially offsetting these
increases was an approximate $0.7 million reduction in other direct and
operating expenses primarily associated with a reduction in the direct labor
force and an increase in the level of construction activity. Other operating
expenses as a percentage of revenues increased due to proportionately higher
increases in costs relative to revenue growth.
Interest Expense. Interest expense increased $16.2 million, or by 246.8%,
for the seven months ended July 30, 1996 compared with the corresponding period
of the prior year due to higher interest expense allocations from TCI.
Income Tax Benefit. The income tax benefit increase of $6.2 million for
the seven months ended July 30, 1996 compared with the corresponding period of
the prior year is due to an increase in the loss before income tax benefit
offset by a decrease in the effective tax benefit rate.
Net Loss. The net loss increase of $11.5 million for the seven months
ended July 30, 1996 compared with the corresponding period of the prior year is
primarily due to the increase in interest expense partially offset by the
increase in income tax benefit.
EBITDA. EBITDA decreased $1.4 million, or by 11.0%, for the seven months
ended July 30, 1996 compared with the corresponding period of the prior year
because revenue growth was more than offset by increases in program fees and
other operating expenses. EBITDA as a percentage of revenues decreased because
of increases in program fees and other operating expenses as a percentage of
revenue.
72
<PAGE> 81
COMPARISON OF YEARS ENDED DECEMBER 31, 1994 AND 1995
Revenues. The Greenville/Spartanburg System's revenues increased $4.4
million, or 9.7%, for 1995 compared to 1994. Of the increase, $1.1 million was
attributable to subscriber growth and $0.4 million resulted from the impact of
basic and expanded basic rate increases. Basic subscribers, which totaled
approximately 114,300 at December 31, 1995, increased by approximately 1,350, or
1.2%, from the prior period end. The number of premium units served between 1994
and 1995 remained relatively constant and totaled approximately 103,200 units at
December 31, 1995. The increase in basic subscribers primarily reflects the
impact of a 1,070 increase in homes passed, which totaled approximately 156,700
at December 31, 1995, and an increase in basic penetration, which grew from
72.6% at December 31, 1994 to 73.0% at December 31, 1995. During the first
quarter of 1995, the Greenville/Spartanburg System implemented rate increases on
the basic and expanded basic tier. The rate increases resulted in a 5.5% average
increase in overall rates charged for basic and expanded basic services
combined. The remainder of the revenue increase was due to a $3.2 million
increase in ancillary service revenues, including a $1.9 million impact of a
change in accounting treatment for franchise fees charged to customers, offset
by a $0.2 million decrease in premium revenues reflecting the impact of lower
rates per subscriber from premium discount packages. Franchise fees charged to
customers are excluded from revenues and operating expenses in 1994. In 1995
franchise fees charged to customers are included in revenues and an offsetting
expense is included in operating expenses.
Program Fees. Program fees decreased $4.2 million, or 29.8%, for 1995
compared to 1994. The decrease reflects the impact of lower program fees as a
result of the Greenville/Spartanburg System's affiliation with TCI effective
January 27, 1995, the date the system was acquired by TCI from TeleCable. Prior
to January 27, 1995, under the ownership of TeleCable, the
Greenville/Spartanburg System's program fees were based on an allocation of
total program fees incurred by TeleCable and the allocated cost did not reflect
the impact of volume discounts.
Other Operating Expenses. Other operating expenses increased $2.0 million,
or 11.2%, for 1995 compared to 1994. Of this increase, $1.9 million is due to a
change in accounting treatment for franchise fees charged to customers.
Franchise fees charged to customers are excluded from revenues and operating
expenses in 1994 and included in revenues and operating expenses in 1995.
Excluding the impact of the different accounting treatment, other operating
costs remained relatively constant for 1995 compared to 1994. Other operating
costs as a percentage of revenues decreased slightly reflecting the impact of
efficiencies gained by combining the operations of the system with TCI's
existing operations.
Depreciation and Amortization. Depreciation and amortization expense
increased $7.4 million, or 101.3%, for 1995 compared to 1994 due primarily to a
revaluation of the Greenville/Spartanburg System's assets in January 1995, at
the time the system was acquired by TCI from TeleCable. As a result of purchase
accounting, TCI recognized a significant step up in the value of assets of the
Greenville/Spartanburg System.
Interest and Other Income. In 1994, interest and other income of $1.3
million represents interest earned on a receivable from an affiliate which
resulted from daily cash management activities between the system and its former
owner, TeleCable. There was no interest or other income in 1995.
Interest Expense. Interest expense increased $9.9 million, or 458.1%, for
1995 compared to 1994 primarily due to interest expense allocations from TCI
effective January 27, 1995, the date TCI acquired the Greenville/Spartanburg
System from TeleCable.
Income Tax Expense. Income tax expense decreased $4.3 million, from a $2.1
million expense in 1994 to a $2.1 million benefit in 1995, due to the loss
before income tax benefit in 1995, primarily resulting from the increase in
interest expense for 1995 compared to 1994, offset by a decrease in the
effective tax rate.
Net Income/Loss. Net income (loss) decreased $7.7 million from net income
in 1994 of $3.5 million to a net loss in 1995 of $4.2 million, primarily due to
the increase in interest expense for 1995 compared to 1994.
EBITDA. EBITDA increased $6.6 million, or 47.9%, for 1995 compared to 1994
as a result of higher revenues and lower programming fees. EBITDA as a
percentage of revenues increased in 1995 compared to 1994 because of the
decrease in programming fees.
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<PAGE> 82
RESULTS OF OPERATIONS -- VIACOM NASHVILLE SYSTEM
The following table sets forth, for the periods indicated, statement of
operations and other data of the Viacom Nashville System expressed in dollar
amounts (in thousands) and as a percentage of revenue.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------------------------
1995 1996
---------------------- ----------------------
PERCENTAGE PERCENTAGE
AMOUNT OF REVENUE AMOUNT OF REVENUE
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $29,834 100.0% $33,293 100.0%
Costs and expenses:
Program fees............................ (6,595) (22.1) (7,872) (23.6)
Other direct expenses(1)................ (4,188) (14.0) (4,546) (13.7)
Selling, general and
administrative(2).................... (7,785) (26.1) (8,882) (26.7)
Depreciation and amortization........... (4,605) (15.4) (5,657) (17.0)
------- ----- ------- -----
Operating income.......................... 6,661 22.3 6,336 19.0
Interest expense.......................... (2,458) (8.2) (2,436) (7.3)
Other expense............................. (61) (0.2) (41) (0.1)
Income tax expense........................ (2,319) (7.8) (2,125) (6.4)
------- ----- ------- -----
Net income................................ $ 1,823 6.1% $ 1,734 5.2%
======= ===== ======= =====
OTHER DATA:
EBITDA (3)................................ $11,266 37.8% $11,993 36.0%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1993 1994 1995
--------------------- --------------------- ---------------------
PERCENTAGE PERCENTAGE PERCENTAGE
AMOUNT OF REVENUE AMOUNT OF REVENUE AMOUNT OF REVENUE
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................... $ 53,419 100.0% $ 54,648 100.0% $ 62,042 100.0%
Costs and expenses:
Program fees..................... (8,375) (15.7) (9,624) (17.6) (13,894) (22.4)
Other direct expenses(1)......... (8,032) (15.0) (8,355) (15.3) (8,954) (14.4)
Selling, general and
administrative(2)............. (16,141) (30.2) (16,598) (30.4) (16,144) (26.0)
Depreciation and amortization.... (8,010) (15.0) (8,368) (15.3) (9,655) (15.6)
------- ----- -------- ----- -------- -----
Operating income................... 12,861 24.1 11,703 21.4 13,395 21.6
Interest expense................... (3,043) (5.7) (3,599) (6.6) (4,819) (7.8)
Other expense...................... (75) (0.2) (91) (0.2) (124) (0.2)
Income tax expense................. (282) (0.5) (1,705) (3.1) (4,659) (7.5)
------- ----- -------- ----- -------- -----
Net income......................... $ 9,461 17.7% $ 6,308 11.5% $ 3,793 6.1%
======= ===== ======== ===== ======== =====
OTHER DATA:
EBITDA(3).......................... $ 20,871 39.1% $ 20,071 36.7% $ 23,050 37.2%
</TABLE>
- ---------------
(1) Other direct expenses consist of labor, plant repairs and maintenance and
other operating costs directly associated with revenues.
(2) Selling, general and administrative expenses consist mainly of costs related
to system offices, customer service representatives and sales and
administrative employees.
(3) EBITDA is defined as net income before interest, income taxes, depreciation
and amortization, and other income (expense). EBITDA is a commonly used
measure of performance in the cable industry. However, EBITDA does not
purport to represent cash flows from operating activities in related
74
<PAGE> 83
Statements of Cash Flows and should not be considered in isolation or as
substitute for measures of performance in accordance with GAAP. For
information concerning cash flows from operating, investing and financing
activities, see Audited Financial Statements included elsewhere in this
Prospectus.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1995 AND 1996
Revenues. Revenues increased $3.5 million, or 11.6%, for 1996 compared to
1995. Of the increase, $1.8 million was attributable to subscriber growth and
$0.8 million resulted from the impact of net rate increases. The remaining $0.9
million increase was primarily due to increases in pay-per-view subscriptions
($0.4 million) and equipment lease revenues ($0.3 million). As of June 30, 1996,
basic subscribers and premium units increased by approximately 8,317, or 5.9%,
and 6,893, or 4.9%, respectively. The increase in basic subscribers primarily
reflects the impact of a 7,815 increase in homes passed and higher basic
penetration which grew from 59.8% in 1995 to 61.3% in 1996. Premium penetration
decreased from 98.9% in 1995 to 98.0% in 1996. During 1995 and 1996, Nashville
added channel capacity and implemented rate increases on the expanded basic
tier. The rate increases resulted in a 5.8% increase in the average monthly
subscription revenue for basic and expanded basic services combined and was
offset by a 3.0% decrease in average premium service revenue.
Program Fees. Program fees increased $1.3 million, or 19.4%, for 1996
compared to 1995. Of the increase, $0.5 million was primarily due to subscriber
growth, and $0.6 million was attributable to new channel additions and the
impact of increases in rates charged by certain programmers. The remaining $0.2
million increase is primarily due to pay-per-view product costs. Program fees as
a percentage of revenues increased, reflecting the impact of increased
programming fee rates and increased channels.
Other Direct Expenses. Other direct expenses increased $0.4 million, or
8.5%, for 1996 compared to 1995 due to increased franchise fees and copyright
fees directly corresponding to increased revenues. Other direct expenses as a
percentage of revenues decreased, primarily reflecting the high impact of 1996
revenue growth.
Selling, General and Administrative. Selling, general and administrative
expenses increased $1.1 million, or 14.1%, from 1995 due to the increased
allocation of corporate administrative expenses (see Note 2 of the Notes to
Financial Statements of VSC Cable Inc.) resulting primarily from a non-recurring
marketing credit in 1995. Selling, general and administrative expenses as a
percentage of revenues increased, reflecting the impact of the increased
corporate administrative expense allocation.
Depreciation and Amortization. Depreciation and amortization expense
increased $1.1 million, or 22.8%, from 1995 primarily due to distribution system
rebuilds which occurred between late 1994 and 1996, offset by assets which
became fully depreciated during 1995 and 1996. Total capital expenditures from
July 1, 1995 to June 30, 1996 amounted to $24.9 million.
Interest Expense. Interest expense remained relatively constant from 1995
(see Note 2 of the Notes to Financial Statements of VSC Cable Inc.).
Provision for Income Taxes. Provision for income taxes decreased $0.2
million, or 8.4%, from 1995 primarily due to decreased taxable income and a
reduced effective tax rate.
Net Income. Net income decreased $0.1 million, or 4.9%, from 1995 as a
result of increased operating expenses offset by increased revenues and
decreased provision for income taxes.
EBITDA. EBITDA increased $0.7 million, or 6.5%, from 1995 as a result of
higher revenues partly offset by increased program fees, other direct and
selling, general and administrative expenses. EBITDA as a percentage of revenues
decreased from 1995 due to the increase in program fees and selling, general and
administrative expenses as a percentage of revenue.
COMPARISON OF YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Revenues. Revenues increased $1.2 million, or 2.3%, for 1994 compared to
1993. The increase was attributable to subscriber growth and increases in other
service revenues, offset by effective rate decreases for
75
<PAGE> 84
basic and expanded basic combined and for premium services. The reduction in the
combined basic and expanded basic rate was a result of rate regulations
implemented pursuant to the 1992 Cable Act. As of December 31, 1994, basic
subscribers and premium units have increased since December 31, 1993, by 10,578,
or 8.4%, and 30,499, or 30.8%, respectively, resulting in a $4.3 million
increase in revenues. The increase in basic subscribers primarily reflects the
impact of a 6,075 increase in homes passed and higher basic penetration which
grew from 55.2% in 1993 to 58.3% in 1994. Premium penetration increased from
78.9% in 1993 to 95.2% in 1994 due primarily to package pricing of premium
services which lowered revenue per premium unit. Premium service revenue
increased $0.4 million, or 5.1%. Decreases in basic and expanded basic combined
rates and premium rates accounted for $6.3 million of the decrease in revenues.
The rate decreases resulted in a 11.6% decrease in the average monthly
subscription revenue for basic and expanded basic services combined and a 19.3%
decrease in average premium service revenue. Other service revenue increases
consist primarily of equipment lease ($1.9 million) due to increased customers
and equipment charges, and advertising ($0.6 million).
Revenues increased $7.4 million, or 13.5%, for 1995 compared to 1994. Of
the increase, approximately $4.5 million was attributable to subscriber growth
and $0.5 million resulted from the impact of net rate increases. The remaining
$2.4 million increase was primarily due to increases in pay-per-view ($0.6
million), advertising ($0.5 million) and equipment lease ($0.9 million)
revenues. As of December 31, 1995, basic subscribers and premium units have
increased since December 31, 1994, by 10,314, or 7.6%, and 14,310, or 11.1%,
respectively. The increase in basic subscribers primarily reflects the impact of
a 7,458 increase in homes passed and higher basic penetration, which grew from
58.3% in 1994 to 60.8% in 1995. Premium penetration increased from 95.2% in 1994
to 98.3% in 1995. During 1994 and 1995, the Viacom Nashville System added
channel capacity and implemented rate increases on the expanded basic tier. The
rate increases resulted in a 3.0% increase in the average monthly subscription
revenue for basic and expanded basic services combined and was offset by a 6.2%
decrease in average premium service revenue.
Program Fees. Program fees increased $1.2 million, or 14.9%, for 1994
compared to 1993 due primarily to subscriber growth. Program fees increased $4.3
million, or 44.4%, for 1995 compared to 1994. Of the increase, $1.3 million was
primarily due to subscriber growth, and $2.6 million was attributable to new
channel additions and the impact of increases in rates charged by certain
programmers. The remaining $0.4 million increase is primarily due to
pay-per-view product costs.
Program fees as a percentage of revenues increased for 1994 compared to
1993 and 1995 compared to 1994, reflecting the impact of increased programming
fee rates and increased channels.
Other Direct Expenses. Other direct expenses increased $0.3 million, or
4.0%, for 1994 compared to 1993 and $0.6 million, or 7.2%, for 1995 compared to
1994. The increase for 1994 compared to 1993 is primarily a result of subscriber
growth. Of the increase in 1995 compared to 1994, $0.3 million relates to
increased franchise fees and copyright fees directly corresponding to increased
revenues. The remaining $0.3 million increase reflects the increased cost of
maintaining the distribution system. Other direct expenses as a percentage of
revenues increased slightly for 1994 compared to 1993, primarily reflecting slow
1994 revenue growth. Other direct expenses as a percentage of revenues decreased
for 1995 compared to 1994, primarily reflecting the high impact of 1995 revenue
growth.
Selling, General and Administrative. SG&A increased $0.5 million, or 2.8%,
for 1994 compared to 1993 due to increased payroll costs offset by the decreased
allocation of corporate administrative expenses (see Note 3 of the Notes to
Financial Statements of VSC Cable Inc.). SG&A decreased $0.5 million, or 2.7%,
for 1995 compared to 1994 due to the decreased allocation of corporate
administrative expenses offset by increased payroll costs. Payroll costs
increased during the three year period ended December 31, 1995 primarily due to
increases in the workforce driven by basic subscriber growth and increases in
average salary per employee.
SG&A as a percentage of revenues increased for 1994 compared to 1993
reflecting the impact of the increase in payroll costs relative to revenue
growth. SG&A as a percentage of revenues decreased for 1995 compared to 1994,
reflecting the impact of the decreased corporate administrative expense
allocation.
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<PAGE> 85
Depreciation and Amortization. Depreciation and amortization expense
increased $0.4 million, or 4.5%, for 1994 compared to 1993 and increased $1.3
million, or 15.4%, for 1995 compared to 1994 primarily due to distribution
system rebuilds which occurred between late 1994 through 1995, offset by assets
which became fully depreciated during 1995.
Interest Expense. Interest expense increased $0.6 million, or 18.3%, for
1994 compared to 1993 and increased $1.2 million, or 33.9%, for 1995 compared to
1994 due to the increased allocation of corporate interest (see Note 3 of the
Notes to Financial Statements of VSC Cable Inc.).
Income Taxes. Provision for income taxes increased $1.4 million, or
504.6%, for 1994 compared to 1993 and increased $3.0 million, or 173.3%, for
1995 compared to 1994 as a result of the effective tax rate increasing caused
primarily by the utilization of net operating loss carryforwards in 1994 and
1993.
Net Income. Net income decreased $3.2 million, or 33.3%, for 1994 compared
to 1993 as a result of increased programming fees, other direct expenses,
selling, general and administrative expenses, interest expense and provision for
income taxes offset by increased revenues. Net income decreased $2.5 million, or
39.9%, for 1995 compared to 1994 as a result of increased programming fees,
other direct expenses, interest expense and provision for income taxes offset by
increased revenues and decreased selling, general and administrative expenses.
EBITDA. EBITDA decreased $0.8 million, or 3.8%, for 1994 compared to 1993
as a result of increased programming, other direct, and SG&A expenses partly
offset by higher revenues. EBITDA increased $3.0 million, or 14.8%, for 1995
compared to 1994 as a result of higher revenues and decreased SG&A expenses
partly offset by increased programming and other direct expenses. EBITDA as a
percentage of revenues decreased for 1994 compared to 1993 due to the increase
in programming, other direct and SG&A expenses as a percentage of revenue.
EBITDA as a percentage of revenues increased for 1995 compared to 1994 due to
the decrease in other direct and SG&A expenses as a percentage of revenue.
RESULTS OF OPERATIONS -- KINGSPORT SYSTEM
The following table sets forth, for the periods indicated, certain
statement of operations and other data of the Kingsport System expressed in
dollar amounts (in thousands) and as a percentage of revenue.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1994 (UNAUDITED) 1995
------------------------ -----------------------
PERCENTAGE PERCENTAGE
AMOUNT OF REVENUE AMOUNT OF REVENUE
-------- ----------- ------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................. $ 10,100 100.0% $10,914 100.0%
Costs and Expenses:
Program fees.......................... (1,950) (19.3) (2,219) (20.3)
Other operating costs(1).............. (3,116) (30.9) (3,484) (31.9)
Depreciation and amortization......... (924) (9.1) (1,087) (10.0)
------ ---- ------ ----
Income from operations.................. 4,110 40.7 4,124 37.8
Other income (expense).................. 120 1.2 (856) (7.8)
------ ---- ------ ----
Net income.............................. $ 4,230 41.9% $ 3,268 30.0%
====== ==== ====== ====
OTHER DATA:
EBITDA(2)............................... $ 5,034 49.8% $ 5,211 47.8%
</TABLE>
- ---------------
(1) Other operating costs consist of expenses relating to installations, plant
repairs and maintenance and other costs directly associated with revenues in
addition to SG&A expenses related to system offices, customer service
representatives and sales and administrative employees.
(2) EBITDA is defined as earnings before interest, income taxes, depreciation
and amortization and other income (expense). EBITDA is a commonly used
measure of performance in the cable industry.
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<PAGE> 86
However, it does not purport to represent cash flows from operating
activities in related Consolidated Statements of Cash Flows and should not
be considered in isolation or as a substitute for measures of performance in
accordance with GAAP. For information concerning cash flows from operating,
investing and financing activities, see Audited Financial Statements
included elsewhere in this Prospectus.
Revenues. The Kingsport System's revenues for 1995 increased 8.1% from the
prior year primarily due to subscriber growth. The number of basic subscribers
served by the system increased by 402, or 1.3%, from 31,032 at December 31, 1994
to 31,434 at December 31, 1995. The number of homes passed increased from 41,180
at December 31, 1994 to 42,307 at December 31, 1995. Premium units increased
1,760, or 15.9%, from 11,049 to 12,809 for December 31, 1995 compared to
December 31, 1994 primarily reflecting the impact of premium discount packages.
Basic and premium penetration levels were 74.3% and 40.7%, respectively, at
December 31, 1995.
Program Fees. Program fees for 1995 increased 13.8% from the prior year
primarily due to subscriber growth and higher rates charged by certain
programmers. Program fees as a percentage of revenues totaled 20.3% for 1995 and
19.3% for the prior year.
Other Operating Expenses. Other operating expenses for 1995 increased
11.8% from the prior year. The increase from the prior year was primarily due to
increased compensation and employee related costs and corporate expenses. Other
operating expenses as a percentage of revenue were 31.9% in 1995 and 30.9% for
the prior year.
Depreciation and Amortization. Depreciation and amortization was 10.0% of
revenues for 1995 and increased 17.6% from the prior year.
Net Income. The Kingsport System's net income for 1995 decreased 22.7%
from the prior year. The decrease in net income primarily reflects the impact of
an increase in depreciation and amortization and interest expense.
EBITDA. EBITDA increased 3.5% from the prior year primarily due to
increased revenues partially offset by increased program fees and other
operating costs. EBITDA as a percentage of revenues was 47.8% in 1995 compared
with 49.8% for the prior year because increases in program fees and other
operating costs for 1995 outpaced revenue growth during the period.
HISTORICAL LIQUIDITY AND CAPITAL RESOURCES -- THE COMPANY
NINE MONTHS ENDED SEPTEMBER 30, 1996
The following table sets forth for the nine months ended September 30, 1996
certain statement of cash flows information of the Company (in thousands). The
Company consummated acquisitions of cable television systems in January,
February, May, July and August. Cash flows from operating activities of the
acquired systems have been included only from the dates of acquisition.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996
-----------------
<S> <C>
STATEMENT OF CASH FLOWS DATA:
Cash flows from operating activities........................................ $ 7,957
Cash flows from investing activities........................................ (528,020)
Cash flows from financing activities........................................ 533,584
</TABLE>
The Company's cash balance increased from zero as of January 1, 1996 to
$13,521 as of September 30, 1996.
Cash flows from operating activities
The Company generated cash flows from operating activities of $8.0 million
for the nine months ended September 30, 1996 reflecting (i) income from
operations of $21.8 million before non-cash charges to income for depreciation
and amortization of $26.5 million; (ii) interest and other income received of
$3.9 million;
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<PAGE> 87
(iii) interest paid of $20.1 million; and (iv) other working capital changes and
other expenses of approximately $2.4 million.
Cash flows from investing activities
The Company used cash during the nine months ended September 30, 1996 of
$415.7 to fund its purchase of the Viacom Nashville System and the Miscellaneous
Acquisitions and $0.3 million to purchase a controlling common stock interest in
RMG. The Company also received cash of $2.2 million as part of IPWT's and RMG's
total assets acquired. In April 1996, prior to the Company's purchase of RMG, a
subsidiary of the Company loaned $15.0 million to RMG's parent, Robin Media
Holdings Inc. ("RMH"). The loan is still outstanding and has been eliminated in
consolidation as of September 30, 1996.
The Company purchased property and equipment of $10.9 million during the
nine months ended September 30, 1996 consisting primarily of cable system
upgrades and rebuilds, plant extensions, converters and initial subscriber
installations.
Under the terms of the related indenture, the Company purchased
approximately $88.8 million in pledged securities that, together with interest
thereon, represent funds sufficient to provide for payment in full of interest
on the Company's $292.0 million of 11.25% senior notes (the "Notes") through
August 1, 1999. Proceeds from the securities will be used to make interest
payments on the Notes through August 1, 1999.
Cash flows from financing activities
The Company financed the acquisitions described above and its investment in
the pledged securities with proceeds from the issuance of the Notes, a $220.0
million bank term loan (the "Term Loan") and borrowings of $338.0 million under
a bank revolving credit agreement (the "Revolving Credit Facility" together with
the Term Loan, the "Bank Facility"), and $190.6 in cash contributions from the
partners of ICP-IV. The Company subsequently repaid borrowings under the
Revolving Credit Facility of $13.0 million. The Company paid debt issue costs of
$16.9 million in connection with the offering of the Notes and the bank
financing and paid syndication costs of $1.0 million in connection with raising
its contributed equity.
The Company repaid $350.6 of RMH's and IPWT's indebtedness upon its
acquisition of these entities. The Company paid a call premium and other fees
associated with the repayment of RMH's indebtedness of $4.7 million.
The Company paid cash to TCI of $120.8 million as repayment of debt assumed
upon TCI's contribution of the Greenville/Spartanburg System to the Company. The
amount paid has been recorded as a distribution to TCI in the accompanying
consolidated financial statements.
HISTORICAL LIQUIDITY AND CAPITAL RESOURCES -- THE PREVIOUSLY AFFILIATED ENTITIES
The following table sets forth, for the periods indicated, certain
statement of cash flows data of the Previously Affiliated Entities (in
thousands).
The comparability of statement of cash flows data for the Previously
Affiliated Entities for the years ended December 31, 1993 and 1994 is affected
by the 1993 Acquisitions. The comparability of statement of cash flows data for
the seven months ended July 31, 1995, the period from January 1, 1996 to July
30, 1996, and the years ended December 31, 1994 and 1995 is affected by the 1995
Combination.
The Previously Affiliated Entities' most significant capital requirements
have been to finance purchases of property and equipment, consisting of cable
system upgrades and rebuilds, plant extensions, converters and initial
subscriber installations.
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<PAGE> 88
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED PERIOD FROM
JULY 31, JANUARY 1, 1996
1995 TO JULY 30, 1996
------------ ----------------
<S> <C> <C>
STATEMENT OF CASH FLOWS DATA:
Cash flows from operating activities........................... $ 8,441 $(14,007)
Cash flows from investing activities........................... (7,856) (18,736)
Cash flows from financing activities........................... 28 30,086
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
STATEMENT OF CASH FLOWS DATA:
Cash flows from operating activities..................... $(12,186) $ (112) $ 8,107
Cash flows from investing activities..................... (30,838) 4,871 (24,614)
Cash flows from financing activities..................... 12,692 (4,784) 18,066
</TABLE>
SEVEN MONTHS ENDED JULY 31, 1995
The Previously Affiliated Entities showed an increase in cash of $0.6
million from $3.3 million as of January 1, 1995 to $3.9 million as of July 31,
1995.
Cash flows from operating activities
The Previously Affiliated Entities' cash flows from operating activities of
$8.4 million for the seven months ended July 30, 1995 reflect (i) income from
operations of $32.5 million before non-cash charges to income for depreciation
and amortization of $41.1 million; (ii) interest received of $3.7 million, (iii)
interest payments on long-term obligations of approximately $21.2 million; (iv)
intercompany interest charges of $6.4 million paid by the Greenville/Spartanburg
System to TCI; (v) advances to affiliates of $0.8 million; and (vi) a net
increase in cash of $0.6 million representing other working capital changes, net
of non-operating expense.
Cash flows from investing activities
The Previously Affiliated Entities used cash during the seven months ended
July 31, 1995 primarily to fund purchases of property and equipment of $5.6
million, $0.9 million and $3.3 million for RMH, IPWT and the
Greenville/Spartanburg System, respectively. Collections of $2.6 million were
received on the RMH Seller Notes.
Cash flows from financing activities
During the seven months ended July 31, 1995, the Previously Affiliated
Entities' cash flows from financing activities consisted primarily of net
borrowings of $1.0 and $0.6 million, respectively under RMH's and IPWT's
revolving credit notes payable and distributions to TCI by the
Greenville/Spartanburg System of $1.0 million.
SEVEN MONTHS ENDED JULY 30, 1996
The Previously Affiliated Entities showed a decrease in cash of $2.7
million from $4.9 million as of January 1, 1996 to $2.2 million as of July 30,
1996.
Cash flows from operating activities
The Previously Affiliated Entities reported a net deficit in cash flows
from operating activities of $14.0 million for the seven months ended July 30,
1996 reflecting (i) income from operations of $34.0 million before non-cash
charges to income for depreciation and amortization of $36.5 million; (ii)
interest received of $0.1 million, (iii) interest payments on long-term
obligations of approximately $21.7 million;
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(iv) intercompany interest charges of $22.8 million paid by the
Greenville/Spartanburg System to TCI; (v) advances to affiliates of $1.0 million
and (vi) other working capital uses and non-operating expenses of $2.6 million,
including $2.3 million for increases in inventory primarily related to rebuild
activity in RMH's Tennessee systems.
Cash flows from investing activities
The Previously Affiliated Entities used cash during the seven months ended
July 30, 1996 primarily to fund purchases of property and equipment of $13.1
million, $0.8 million and $4.7 million for RMH, IPWT and the
Greenville/Spartanburg System, respectively.
Cash flow from financing activities
For the seven months ended July 31, 1996, the Previously Affiliated
Entities' principal sources of cash consisted of a loan of $15.0 million from
the Company to RMH, and equity contributions from TCI to the
Greenville/Spartanburg System of $15.3 million.
YEAR ENDED DECEMBER 31, 1993
The Previously Affiliated Entities' cash balance of $33.6 million as of
January 31, 1993 primarily represented cash balances acquired upon RMG's
purchase of RMG in 1992. The Previously Affiliated Entities' cash balance
decreased by $30.3 million during 1993 to $3.3 million as of December 31, 1993.
Cash flows from operating activities
The Previously Affiliated Entities reported a net deficit in cash flows
from operating activities of $12.2 million for the year ended December 31, 1993
reflecting (i) income from operations of $27.6 million before non-cash charges
to income for depreciation and amortization of $66.9 million; (iii) interest
received of $2.9 million; (iv) interest payments on long-term obligations of
approximately $34.3 million; (v) advances to affiliates of $7.8 million; and
(vi) other working capital uses and non-operating expenses of $0.6 million. The
increase in cash flows from operating activities of $10.3 million for accrued
interest is primarily a result of the deferred interest provisions on IPWT's
debt outstanding with GECC. During 1994 the GECC debt was restructured, and the
terms of the restructured debt require quarterly interest payments.
Cash flows from investing activities
During the year ended December 31, 1993, the Previously Affiliated Entities
collected $40.5 million on the RMH Seller Notes and received proceeds of $18.3
million from sales of investments in limited partnerships which were part of
total assets acquired upon RMH's purchase of RMG. The Previously Affiliated
Entities used cash of $78.3 million for the 1993 Acquisitions consummated by
RMH, and cash of $9.2 million and $2.1 million for purchases of property and
equipment by RMH and IPWT, respectively.
Cash flows from financing activities
During the year ended December 31, 1993, the Previously Affiliated Entities
borrowed an additional $13.0 million under RMH's revolving credit note payable.
YEAR ENDED DECEMBER 31, 1994
The Previously Affiliated Entities' cash balance of $3.3 million remained
constant at January 1, 1993 and December 31, 1994.
Cash flows from operating activities
The Previously Affiliated Entities reported a net deficit in cash flows
from operating activities of $0.1 million for the year ended December 31, 1994
reflecting (i) income from operations of $33.6 million before non-cash charges
to income for depreciation and amortization of $68.2 million; (ii) interest
received of
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<PAGE> 90
$0.7 million; (iii) interest payments on long-term obligations of $43.7 million;
(v) payments received from affiliates of $9.7 million; and (vi) other working
capital uses and non-operating expenses of $0.4 million.
As of December 31, 1994 the Previously Affiliated Entities had negative
working capital of $13.8 million due to franchise fees and copyright fees that
are paid quarterly and semiannually and due to the timing of interest payments
on the RMG Notes. Interest is paid on the RMG Notes semiannually on April 1 and
October 1.
Cash flows from investing activities
During the year ended December 31, 1994, the Previously Affiliated Entities
collected $17.8 million on the RMH Seller Notes. The Previously Affiliated
Entities used cash primarily for purchases of property and equipment of $11.2
million and $1.3 million for RMH and IPWT, respectively.
Cash flows from financing activities
During the year ended December 31, 1994, the Previously Affiliated Entities
received a capital contribution from IPWT's majority owner of $20.1 million. The
Previously Affiliated Entities used cash of $22.1 million to repay IPWT's
long-term obligations under the terms of a debt restructuring and $2.6 million
to repay borrowings under IPWT's revolving credit note payable.
YEAR ENDED DECEMBER 31, 1995
The Previously Affiliated Entities' cash balance increased by $1.6 million
from $3.3 million as of January 1, 1995 to $4.9 million as of December 31, 1995.
Cash flows from operating activities
The Previously Affiliated Entities generated cash from operating activities
of $8.1 million for the year ended December 31, 1995 reflecting (i) income from
operations of $56.2 million before non-cash charges to income for depreciation
and amortization of $70.2 million; (iv) interest received of $4.1 million, (v)
interest payments on long-term obligations of $40.4 million; and (vi)
intercompany interest charges of $11.8 million paid by the
Greenville/Spartanburg System to TCI.
As of December 31, 1995 the Previously Affiliated Entities had negative
working capital of $13.8 million due to franchise fees and copyright fees that
are paid quarterly and semiannually and due to the timing of interest payments
on the RMG Notes. Interest is paid on the RMG Notes semiannually on April 1 and
October 1.
Accounts receivable increased from December 31, 1994 to December 31, 1995
by $2.8 million or 49% as a result of the 1995 Combination. Inventory increased
$1.2 million or 71% during 1995 primarily related to rebuild activity in RMH's
Tennessee systems.
Cash flows from investing activities
During the year ended December 31, 1995, the Previously Affiliated Entities
received proceeds of $2.6 million from sale of the last RMH Seller Note. The
Previously Affiliated Entities used cash primarily to fund purchases of property
and equipment of $11.9 million, $1.4 million and $13.4 million for RMH, IPWT and
the Greenville/Spartanburg System, respectively.
Cash flows from financing activities
During the year ended December 31, 1995, the Previously Affiliated Entities
received net borrowings of $12.0 million under RMH's revolving credit note
payable, repaid $0.4 million under IPWT's revolving credit facility with GECC
and received a $6.5 million capital contribution made by TCI to the
Greenville/Spartanburg System.
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HISTORICAL LIQUIDITY AND CAPITAL RESOURCES -- GREENVILLE/SPARTANBURG SYSTEM
The following table sets forth, for the periods indicated, certain
statement of cash flows data of the Greenville/Spartanburg System (in
thousands). For purposes of this analysis only and to provide a meaningful
comparison of statement of cash flows data for the two year periods ended
December 31, 1994 and 1995 and the seven months ended July 31, 1995 and the
period from January 1, 1996 to July 30, 1996, the statement of cash flows data
for the period from January 1, 1995 to January 26, 1995 have been combined with
the statement of cash flows data for the period from January 27, 1995 to
December 31, 1995 and with the period from January 27, 1995 to July 31, 1995.
The Greenville/Spartanburg System's most significant capital requirements
have been to finance purchases of property and equipment, consisting of cable
system upgrades and rebuilds, plant extensions, converters and initial
subscriber installations.
<TABLE>
<CAPTION>
SEVEN MONTHS PERIOD FROM
ENDED JANUARY 1, 1996
JULY 31, 1995 TO JULY 30, 1996
------------- ----------------
<S> <C> <C>
STATEMENT OF CASH FLOWS DATA:
Cash flows from operating activities............................. $ 5,605 $(12,568)
Cash flows from investing activities............................. (3,685) (4,654)
Cash flows from financing activities............................. (842) 15,286
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1995
------------- ----------------
<S> <C> <C>
STATEMENT OF CASH FLOWS DATA:
Cash flows from operating activities............................. $10,727 $ 8,414
Cash flows from investing activities............................. (11,032) (13,439)
Cash flows from financing activities............................. (94) 6,641
</TABLE>
SEVEN MONTHS ENDED JULY 31, 1995
The Greenville/Spartanburg System showed an increase in cash of $1.1
million from $0.3 million as of January 1, 1995 to $1.4 million as of July 31,
1995.
Cash flows from operating activities
The Greenville/Spartanburg System's cash flows from operating activities of
$5.6 million for the seven months ended July 31, 1995 reflect (i) income from
operations of $12.5 million before non-cash charges to income for depreciation
and amortization of $7.6 million; (ii) intercompany interest charges of $6.4
million paid by the Greenville/Spartanburg System to TCI and $0.2 million paid
to Telecable and its affiliates; and (vi) other working capital uses and
non-operating expense of $0.3 million.
Cash flows from investing activities
The Greenville/Spartanburg System used cash during the seven months ended
July 31, 1995 to fund purchases of property and equipment of $3.7 million.
Cash flows from financing activities
During the seven months ended July 31, 1995 the Greenville/Spartanburg
System's cash flows from financing activities consisted of distributions to TCI
by the Greenville/Spartanburg System of $1.0 million and intercompany advances
from Telecable of 0.2 million.
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PERIOD FROM JANUARY 1, 1996 TO JULY 30, 1996
The Greenville/Spartanburg System showed a decrease in cash of $1.9 million
from $1.9 million as of January 1, 1996 to zero million as of July 30, 1996.
Cash flows from operating activities
The Greenville/Spartanburg System reported a net deficit in cash flows from
operating activities of $12.6 million for the seven months ended July 30, 1996
reflecting (i) income from operations of $11.1 million before non-cash charges
to income for depreciation and amortization of $7.7 million; (ii) intercompany
interest charges of $22.8 million paid by the Greenville/Spartanburg System to
TCI; and (iii) other working capital changes of $0.9 million.
Cash flows from investing activities
The Greenville/Spartanburg System used cash during the seven months ended
July 30, 1996 to fund purchases of property and equipment of $4.7 million.
Cash flows from financing activities
During the seven months ended July 30, 1996 the Greenville/Spartanburg
System's cash flows from financing activities consisted of equity advances from
TCI of $15.3 million.
YEAR ENDED DECEMBER 31, 1994
The Greenville/Spartanburg System showed a decrease in cash of $0.4 million
from $0.7 million as of January 1, 1994 to $0.3 million as of December 31, 1994.
Cash flows from operating activities
The Greenville/Spartanburg System generated cash flows from operating
activities of $10.7 million for the year ended December 31, 1994 reflecting (i)
income from operations of $13.8 million before non-cash charges to income for
depreciation and amortization of $7.3 million; (ii) intercompany interest
charges of $2.2 million paid to Telecable; and (iii) income tax expense of $2.1
million.
Cash flows from investing activities
The Greenville/Spartanburg System used cash during the year ended December
31, 1994 to fund purchases of property and equipment of $11.0 million.
Cash flows from financing activities
During the year ended December 31, 1994 the Greenville/Spartanburg System's
cash flows from financing activities consisted of intercompany payments to
Telecable of $0.1 million.
YEAR ENDED DECEMBER 31, 1995
The Greenville/Spartanburg System showed an increase in cash of $1.6
million from $0.4 million as of January 1, 1995 to $2.0 million as of December
31, 1995.
Cash flows from operating activities
The Greenville/Spartanburg System generated cash flows from operating
activities of $8.4 million for the year ended December 31, 1995 reflecting (i)
income from operations of $20.4 million before non-cash charges to income for
depreciation and amortization of $14.7 million; and (ii) intercompany interest
charges of $0.2 million paid to Telecable and $11.8 million paid to TCI.
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Cash flows from investing activities
The Greenville/Spartanburg System used cash during the year ended December
31, 1995 to fund purchases of property and equipment of $13.5 million.
Cash flows from financing activities
During the year ended December 31, 1995 the Greenville/Spartanburg System's
cash flows from financing activities consisted of intercompany advances from
Telecable of $0.2 million and equity contributions from TCI of $6.5 million.
HISTORICAL LIQUIDITY AND CAPITAL RESOURCES -- VIACOM NASHVILLE SYSTEM
The following table sets forth, for the periods indicated, certain
statement of cash flows data of the Viacom Nashville System (in thousands).
The Viacom Nashville System's most significant capital requirements have
been to finance purchases of property and equipment, consisting of cable system
upgrades and rebuilds, plant extensions, converters and initial subscriber
installations.
Viacom International Inc. funds the working capital requirements of its
businesses based upon a centralized cash management system. Accordingly, for
each period discussed, the net cash generated by (used for) the Viacom
Nashville's operating and investing activities is distributed to (provided by)
Viacom International Inc.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1995 1996
-------- --------
<S> <C> <C>
STATEMENT OF CASH FLOWS DATA:
Cash flows from operating activities................................. $ 14,109 $ 8,900
Cash flows from investing activities................................. (10,260) (12,651)
Cash flows from financing activities................................. (3,849) 3,751
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
STATEMENT OF CASH FLOWS DATA:
Cash flows from operating activities..................... $ 15,034 $ 15,762 $ 19,929
Cash flows from investing activities..................... (10,035) (21,815) (22,291)
Cash flows from financing activities..................... (4,999) 6,053 2,362
</TABLE>
SIX MONTHS ENDED JUNE 30, 1995
Cash flows from operating activities
The Viacom Nashville System's cash flows from operating activities of $14.1
million for the six months ended June 30, 1995 reflect (i) income from
operations of $11.3 million before non-cash charges to income for depreciation
and amortization of $4.6 million; (ii) intercompany interest charges of $2.5
million paid to Viacom International Inc.; (iii) income tax refunds received of
$3.9 million and (iv) other increases in cash of $1.4 million due to the net
effect of changes in working capital and non-operating expenses.
Cash flows from investing activities
The Viacom Nashville System used cash during the six months ended June 30,
1995 primarily to fund purchases of property and equipment of $10.5 million.
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Cash flows from financing activities
During the six months ended June 30, 1995 the Viacom Nashville System's
cash flows from financing activities consisted of distributions to Viacom
International Inc. of $3.8 million.
SIX MONTHS ENDED JUNE 30, 1996
Cash flows from operating activities
The Viacom Nashville System's cash flows from operating activities of $8.9
million for the six months ended June 30, 1996 reflect (i) income from
operations of $12.0 million before non-cash charges to income for depreciation
and amortization of $5.7 million; (ii) intercompany interest charges of $2.4
million paid to Viacom International Inc.; (iii) income taxes paid of $1.0
million and (iv) other increases in cash of $0.3 million due to the net effect
of changes in working capital and non-operating expenses.
Cash flows from investing activities
The Viacom Nashville System used cash during the six months ended June 30,
1996 primarily to fund purchases of property and equipment of $12.5 million.
Cash flows from financing activities
During the six months ended June 30, 1996 the Viacom Nashville System's
cash flows from financing activities consisted of equity advances from Viacom
International Inc. of $3.8 million.
YEAR ENDED DECEMBER 31, 1993
Cash flows from operating activities
The Viacom Nashville System's cash flows from operating activities of $15.0
million for the year ended December 31, 1993 reflect (i) income from operations
of $20.9 million before non-cash charges to income for depreciation and
amortization of $8.0 million; (ii) intercompany interest charges of $3.0 million
paid to Viacom International Inc.; (iii) income taxes paid of $3.2 million and
(iv) other increases in cash of $0.3 million due to the net effect of changes in
working capital and non-operating expenses.
Cash flows from investing activities
The Viacom Nashville System used cash during the year ended December 31,
1993 primarily to fund purchases of property and equipment of $9.7 million.
Cash flows from financing activities
During the year ended December 31, 1993 the Viacom Nashville System's cash
flows from financing activities consisted of distributions to Viacom
International Inc. of $5.0 million.
YEAR ENDED DECEMBER 31, 1994
Cash flows from operating activities
The Viacom Nashville System's cash flows from operating activities of $15.8
million for the year ended December 31, 1994 reflect (i) income from operations
of $20.1 million before non-cash charges to income for depreciation and
amortization of $8.4 million; (ii) intercompany interest charges of $3.6 million
paid to Viacom International Inc.; and (iii) income taxes paid of $0.7 million.
Cash flows from investing activities
The Viacom Nashville System used cash during the year ended December 31,
1994 primarily to fund purchases of property and equipment of $22.8 million and
received cash of $1.0 million related to decreases in other assets.
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<PAGE> 95
Cash flows from financing activities
During the year ended December 31, 1994 the Viacom Nashville System's cash
flows from financing activities consisted of equity advances from Viacom
International Inc. of $6.1 million.
YEAR ENDED DECEMBER 31, 1995
The Viacom Nashville System's cash flows from operating activities of $19.9
million for the year ended December 31, 1995 reflect (i) income from operations
of $23.1 million before non-cash charges to income for depreciation and
amortization of $9.7 million; (ii) intercompany interest charges of $4.8 million
paid to Viacom International Inc.; (iii) income tax refunds received of $1.1
million; and (iv) other increases in cash of $0.5 million due to the net effect
of changes in working capital and non-operating expenses.
Cash flows from investing activities
The Viacom Nashville System used cash during the year ended December 31,
1995 primarily to fund purchases of property and equipment of $23.0 million and
received cash of $0.7 million related to decreases in other assets.
Cash flows from financing activities
During the year ended December 31, 1995 the Viacom Nashville System's cash
flows from financing activities consisted of equity advances from Viacom
International Inc. of $2.4 million.
HISTORICAL LIQUIDITY AND CAPITAL RESOURCES -- KINGSPORT SYSTEM
The following table sets forth, for the year ended December 31, 1995
certain statement of cash flows data of the Kingsport System (in thousands).
The Kingsport System's most significant capital requirements have been to
finance purchases of property and equipment, consisting of cable system upgrades
and rebuilds, plant extensions, converters and initial subscriber installations.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
STATEMENT OF CASH FLOWS DATA:
Cash flows from operating activities....................................... $ 4,309
Cash flows from investing activities....................................... (1,108)
Cash flows from financing activities....................................... (3,193)
</TABLE>
YEAR ENDED DECEMBER 31, 1995
The Kingsport System's cash balance of $0.1 million did not change from
January 1, 1995 to December 31, 1995.
Cash flows from operating activities
The Kingsport System generated cash flows from operating activities of $4.3
million for the year ended December 31, 1995 reflecting (i) income from
operations of $5.2 million before non-cash charges to income for depreciation
and amortization of $1.1 million; and (ii) intercompany interest charges of $0.9
million paid to TWE.
Cash flows from investing activities
The Kingsport System used cash during the year ended December 31, 1995 to
fund purchases of property and equipment of $1.1 million.
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<PAGE> 96
Cash flows from financing activities
During the year ended December 31, 1995 the Kingsport System's cash flows
from financing activities consisted of intercompany payments to TWE of $3.2
million.
LIQUIDITY AND CAPITAL RESOURCES
The Private Offering of the Notes was part of the Financing Plan designed
to enable the Company to complete the Primary Acquisitions, repay the Bridge
Loan and provide the Company with future liquidity and working capital through
the Bank Facility. Concurrently with the closing of the Private Offering on July
30, 1996, the Operating Partnership entered into the Bank Facility with The Bank
of New York Company Inc. ("The Bank of New York"), NationsBank of Texas, N.A.
("NationsBank of Texas"), and The Toronto-Dominion Bank as arranging agents and
The Bank of New York, as administrative agent. The Bank Facility provides for an
aggregate $475.0 million Revolving Credit Facility and a $220.0 million Term
Loan. The Revolving Credit Facility provides for permanent annual commitment
reductions beginning in 1999, and matures in 2004. The Term Loan requires
semiannual payments of $0.5 million starting January 1, 1999 through January 1,
2004, and final principal payments in two equal installments on July 1, 2004 and
January 1, 2005. As of September 30, 1996 the Company has $325.0 million
outstanding under the Revolving Credit Facility, leaving availability of $150.0
million. Prior to January 1, 1999, the Company will have no mandatory
amortization requirements under the Bank Facility. (See "Description of Other
Obligations").
The Notes in the amount of $292.0 million will mature on August 1, 2006,
unless previously redeemed. Interest on the Notes in the amount of 11 1/4% per
annum is payable semi-annually on August 1 and February 1 of each year,
commencing February 1, 1997. The Notes will be redeemable, in whole or in part,
at the option of the Issuers, at any time on or after August 1, 2001 at the
redemption prices set forth herein plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of redemption. Notwithstanding
the foregoing, any time on or before August 1, 1999, the Issuers, at their
option, may redeem up to 35.0% of the aggregate principal amount of Notes
originally issued with the net proceeds of one or more Public Equity Offerings
or Strategic Equity Investments, at 111.25% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the
date of redemption, provided however that at least 65.0% of the aggregate
principal amount of Notes originally issued are outstanding immediately after
giving effect to any such redemption. Upon a Change of Control, the Issuers will
be required to make an offer to repurchase all outstanding Exchange Notes at a
price equal to 101.0% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of repurchase. See
"Description of the Notes."
The Notes will be obligations of the Issuers and will rank pari passu in
payment with all senior indebtedness of the Issuers, if any, and senior in right
of payment to all future subordinated indebtedness of the Issuers, if any.
However, all other consolidated indebtedness of ICP-IV, including borrowings by
ICP-IV's subsidiaries under the Bank Facility, will be structurally senior to
the Notes and secured by substantially all of ICP-IV's assets. The Notes will
not be guaranteed by any of ICP-IV's subsidiaries. ICP-IV is a holding company
with no direct operations and, therefore, the Notes will also be effectively
subordinated to all other liabilities (including trade payables and accrued
liabilities) of ICP-IV's subsidiaries. As of September 30, 1996, the obligations
of ICP-IV's subsidiaries that are structurally senior to the Notes included
total indebtedness of $605.9 million (including obligations under the Bank
Facility) and total trade payables and other liabilities of $60.9 million,
including $12.1 million in mandatorily redeemable preferred stock of a
subsidiary of ICP-IV. The Indenture will allow the Company to incur additional
indebtedness. See "Risk Factors -- Holding Company Structure; Structural
Subordination."
Borrowings under the Revolving Credit Facility and the Term Loan are
available under interest rate options related to the base rate of the
administrative agent for the Bank Facility ("ABR") (which is based on the
administrative agent's published prime rate) and LIBOR. Interest rates vary
under each option based on the Operating Partnership's senior leverage ratio.
For ABR loans the rate varies from ABR to ABR plus 0.50%, and for LIBOR loans
the rate varies from LIBOR plus 0.75% to LIBOR plus 1.75%. Interest periods are
specified as one, two or three months for LIBOR loans. The Bank Facility
requires quarterly interest
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<PAGE> 97
payments, or more frequent interest payments if a shorter period is selected
under the LIBOR option. The Bank Facility also requires the Operating
Partnership to pay quarterly a commitment fee of 0.25% or 0.375% per year,
depending on the senior leverage ratio of the Operating Partnership, on the
unused portion of available credit. The applicable borrowing rate for the Term
Loan is expected to be LIBOR plus 2.375% or ABR plus 1.125%.
The obligations of the Operating Partnership under the Bank Facility are
secured by a first priority pledge of the capital stock and/or partnership
interests of the Operating Partnership and its subsidiaries, a negative pledge
on other assets of the Operating Partnership and its Restricted Subsidiaries and
a pledge of any inter-company notes. The obligations of the Operating
Partnership under the Bank Facility are guaranteed by the Operating Partnership
and its Restricted Subsidiaries.
The Bank Facility, Term Loan and the Indenture restrict, among other
things, the Company's ability to incur additional indebtedness, incur liens, pay
distributions or make certain other restricted payments, consummate certain
asset sales and enter into certain transactions with affiliates. In addition,
the Bank Facility and Indenture restrict the ability of a subsidiary to pay
distributions or make certain payments to ICP-IV, merge or consolidate with any
other person or sell, assign, transfer, lease convey or otherwise dispose of all
or substantially all of the assets of the Company. The Bank Facility prohibits
the Company from, among other things, (i) having a senior leverage ratio, as
defined under the Bank Facility, at closing in excess of 5.75:1, declining as
follows: 5.5:1.0 from January 1, 1997 through December 31, 1997; 5.25:1.0 from
January 1, 1998 through June 30, 1998; 5.0:1.0 from July 1, 1998 through June
30, 1999; 4.75:1.0 from July 1, 1999 through December 31, 1999; 4.5:1.0 from
January 1, 2000 through June 30, 2000; 4.0:1.0 from July 1, 2000 through June
30, 2001; and 3.75:1.0 from July 1, 2001 and thereafter, (ii) having an interest
coverage ratio of less than 2.0:1.0 through December 31, 2000, less than
2.25:1.0 from January 1, 2001 through December 31, 2001 and less than 2.5:1.0
from January 1, 2002 and thereafter, and (iii) having a ratio of annualized cash
flow to pro forma debt service for any fiscal quarter of less than 1.10. As of
September 30, 1996, the Company's senior leverage ratio is 5.23:1.0, its
interest coverage ratio is 2.35:1.0 and its annualized cash flow to pro forma
debt service is 2.53:1.0. Such restrictions and compliance tests, together with
the Company's substantial leverage and the pledge of substantially all of
ICP-IV's assets, could limit the Company's ability to respond to market
conditions, to provide for unanticipated capital investments or to take
advantage of business opportunities. See "Risk Factors -- Restrictions Imposed
by Lenders"; "Description of Other Obligations -- The Bank Facility" and
"Description of the Notes."
Management believes that the Company will be able to realize substantial
growth rates in revenue over the next several years through a combination of
household growth, increased penetration and new product offerings that the
Company will be able to make available as technological upgrades are completed
under the Capital Improvement Program.
For each of the years through maturity of the Exchange Notes, the Company's
principal sources of liquidity are expected to be cash generated from operations
and borrowings under the Revolving Credit Facility. Management believes that,
with the Company's ability to realize operating efficiencies and sustain
substantial growth rates in revenue, it will be able to generate cash flows from
operating activities which, together with available borrowing capacity under the
Revolving Credit Facility, will be sufficient to fund required interest payments
and planned capital expenditures over the next several years. However, the
Company may not be able to generate sufficient cash from operations or
accumulate sufficient cash from other activities or sources to repay in full the
principal amounts outstanding under the Notes on maturity. In order to satisfy
its repayment obligations with respect to the Notes, the Company may be required
to refinance the Notes. There can be no assurance that financing will be
available at that time in order to accomplish any necessary refinancing on terms
favorable to the Company. See "Risk Factors -- Substantial Leverage; Deficiency
of Earnings to Cover Fixed Charges."
Capital Improvement Program
The Company's most significant capital needs are to finance cable system
upgrades and rebuilds, plant extensions and purchases of converters and other
customer premise equipment. Planned capital expenditures
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also provide for initial subscriber installations, purchases of digital and
insertion equipment and replacement purchases of machinery and equipment. The
following table summarizes the Company's planned capital expenditures:
<TABLE>
<CAPTION>
THREE MONTHS FOUR YEARS
ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 2001 TOTAL
------------ ------------ ------------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Capital Improvement Program
Upgrades and rebuilds................... $ 26.7 $ 84.4 $ 72.0 $183.1
Converters.............................. 7.5 13.0 26.5 47.0
----- ------ ------ ------
Total Capital Improvement Program.... 34.2 97.4 98.5 230.1
----- ------ ------ ------
Line extensions and other................. 5.6 24.8 97.0 127.4
----- ------ ------ ------
Total planned capital
expenditures.................. $ 39.8 $122.2 $195.5 $357.5
===== ====== ====== ======
</TABLE>
Management expects to fund capital expenditures from borrowings available
under the Revolving Credit Facility and cash generated from operations. However,
there can be no assurance that all of the funds required for these planned
capital expenditures will be available as needed. See "Risk Factors -- Future
Capital Requirements" and "Description of the Notes."
The Capital Improvement Program is expected to allow the Company to expand
system capacity, provide the capability to offer new services including
additional premium packages, enhanced pay-per-view programming, additional
advertising and data and voice services and to create the marketing flexibility
to fund revenue growth for existing services. Other expenditures will target new
revenue sources and be expended on an incremental basis when these revenue
streams are quantifiable. Management believes that substantial growth in
revenues and operating cash flows is not achievable without implementing at
least a significant portion of the Capital Improvement Program.
In addition to capital expenditures expected to be incurred in connection
with the Capital Improvement Program, the Company currently estimates that it
will make other capital expenditures through 2001 of approximately $127.4
million, principally for line extensions and other capital requirements as set
forth in the table above. The Company's business requires continuing investment
to finance capital expenditures and related expenses for expansion of the
Company's subscriber base and system development. The Company's inability to
upgrade its cable television systems or make its other planned capital
expenditures would have a material adverse effect on the Company's operations
and competitive position and could have a material adverse effect on the
Company's ability to service its debt, including the Notes. See "Risk
Factors -- Future Capital Requirements" and "-- Restrictions Imposed by
Lenders."
Inflation
During the periods covered in this discussion, inflation did not have a
significant impact on results of operations and financial position of the cable
television systems. Periods of high inflation could have an adverse effect to
the extent that increased operating costs and increased borrowing costs for
variable interest rate debt may not be offset by increases in subscriber rates.
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THE ACQUISITIONS
GENERAL
The Company was formed to acquire and consolidate various cable television
systems in the Southeast, including certain cable television systems owned by
the Related InterMedia Entities and by TCI. Pursuant to the Acquisitions, the
Company acquired several cable television systems, primarily in Tennessee and
South Carolina, serving an aggregate of approximately 570,153 basic subscribers
as of September 30, 1996. The Acquisitions had an aggregate purchase price of
approximately $1,103.4 million including related acquisition costs of $1.6
million.
The following discussion summarizes the terms and conditions of the Primary
Acquisitions and the Miscellaneous Acquisitions (which taken together constitute
the "Acquisitions").
PRIMARY ACQUISITIONS
The aggregate purchase price for the Primary Acquisitions of $1,093.4
million, including related acquisition costs of $1.4 million, was funded with
the proceeds from the Bridge Loan and a portion of the proceeds from the
Financing Plan. See "Description of Other Obligations." Financial results for
the Primary Acquisitions are included in the Company's Pro Forma Financial
Information.
Kingsport System. On February 1, 1996, IP-TN, through an asset purchase
agreement, purchased the cable television systems of Time Warner in Kingsport,
Tennessee, which served approximately 31,985 basic subscribers as of September
30, 1996, for a total purchase price of $62.1 million.
ParCable System. On February 1, 1996, IP-TN, through an asset purchase
agreement, purchased the cable television systems of ParCable in Hendersonville,
Waverly and Monterey, Tennessee, and in Fort Campbell, Kentucky, which together
served approximately 21,823 basic subscribers as of September 30, 1996, for an
aggregate purchase price of $30.1 million.
IPWT. On July 30, 1996, pursuant to a contribution agreement by and among
ICP-IV, IP-I and GECC (the "IPWT Contribution Agreement"), ICP-IV acquired the
partnership interests and debt of IPWT, which served approximately 48,523 basic
subscribers in West Tennessee as of September 30, 1996. IPWT was acquired for
total consideration of $72.5 million. The partners of IPWT were (i) IP-I, which
was an 80.1% general partner and a 9.9% limited partner and (ii) a wholly owned
subsidiary of GECC, which was a 10.0% limited partner. The total consideration
of $72.5 million included an equity value of $13.3 million and the acquisition
of indebtedness owed to GECC of approximately $55.8 million in principal plus
interest of $3.4 million. GECC transferred to ICP-IV the indebtedness owed by
IPWT to GECC in exchange for (i) approximately $22.5 million in cash, (ii) a
$25.0 million preferred limited partner interest in ICP-IV (the "Preferred
Limited Partner Interest") and (iii) an $11.7 million limited partner interest
in ICP-IV. In addition, IP-I and GECC transferred to ICP-IV their partnership
interests in IPWT in exchange for a $12.0 million limited partnership interest
and a $1.3 million limited partnership interest, respectively, in ICP-IV. The
foregoing transaction was structured such that 99.0% of the acquired partnership
interests in IPWT was transferred to the Operating Partnership and the remaining
1.0% limited partnership interest in IPWT was transferred to IP-TN. See
"Description of Other Obligations -- Description of Preferred Equity Interests."
RMH. On July 30, 1996, the Operating Partnership acquired RMH and its
wholly owned subsidiary, RMG, which served approximately 198,634 basic
subscribers in Nashville, Knoxville and Northeastern Georgia as of September 30,
1996, for total consideration of approximately $376.3 million. InterMedia
Partners V, L.P. ("IP-V") owned all of the outstanding equity of RMH prior to
consummation of the acquisition. Pursuant to a stock purchase agreement between
the Operating Partnership and ICM-V, the general partner of IP-V, the Operating
Partnership purchased 3,285 shares of RMH's Class A common stock (the "RMH Class
A Common Stock") for $0.3 million. As part of the acquisition of RMH, the
Company paid the following obligations of RMG, aggregating to $364.0 million
including (i) $306.5 million to repay the RMG Notes, (ii) $3.2 million to pay
the call premium on the RMG Notes, (iii) $14.3 million to pay the accrued
interest on RMG's indebtedness, (iv) $15.0 million to repay an intercompany loan
from IP-TN, the
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proceeds of which were used to fund a payment on the RMG Notes on April 1, 1996
and (v) $25.0 million to repay the RMG Revolving Loan. In connection with the
RMH transaction, RMH's capital structure was reorganized to provide for three
classes of capital stock, (i) the RMH Class A Common Stock, (ii) the RMH Class B
common stock (the "RMH Class B Common Stock") and (iii) the RMH Redeemable
Preferred Stock. As part of the recapitalization of RMH, TCID-IP V, Inc., a
wholly owned subsidiary of TCI, converted its outstanding loan to IP-V into a
partnership interest and received in dissolution thereof (i) 365 shares of RMH
Class B Common Stock valued at approximately $0.037 million and (ii) 12,000
shares of RMH Redeemable Preferred Stock valued at $12.0 million. Upon
completion of this recapitalization, the Operating Partnership has 60.0% of the
voting power of RMH (and TCI has the remaining 40.0%) and owns 100.0% of the RMH
Class A outstanding Common Stock, with TCID-IP V, Inc. owning 100.0% of RMH's
Class B Common Stock and $12.0 million in RMH Redeemable Preferred Stock. On
July 31, 1996, RMH merged with and into RMG, with RMG as the surviving
corporation. All of the RMH capital stock described herein was converted as a
result of the merger into capital stock of RMG with the same terms. See
"Description of Other Obligations -- Description of Preferred Equity Interests."
TCI Greenville/Spartanburg. The Greenville/Spartanburg System, which
served approximately 114,479 basic subscribers as of September 30, 1996, was
contributed to the Company on July 30, 1996 under the terms of the contribution
agreement (the "G/S Contribution Agreement") by and among ICP-IV and TCI of
Greenville, Inc., TCI of Piedmont, Inc. and TCI of Spartanburg, Inc., each of
which is a wholly owned subsidiary of TCI (collectively, the "TCI Entities").
Under the G/S Contribution Agreement, the TCI Entities transferred their
interests in the Greenville/Spartanburg System to the Company in exchange for
consideration valued at $238.9 million. The consideration for the
Greenville/Spartanburg System consisted of $117.6 million of limited partnership
interests in ICP-IV and an assumption of $121.3 million of indebtedness by the
Company that was subsequently repaid with the proceeds of the Financing Plan.
Viacom Nashville. On August 1, 1996, pursuant to an exchange agreement
between IPSE, a subsidiary of ICP-IV, and TCIC, a wholly owned subsidiary of TCI
(the "Exchange Agreement"), the Company acquired the Viacom Nashville System,
which served approximately 148,849 basic subscribers as of September 30, 1996.
Under the Exchange Agreement, in a transaction intended to qualify as a
like-kind exchange that is substantially tax-free under section 1031 of the
Code, TCIC transferred the Viacom Nashville System to IPSE in exchange for cable
television systems in Houston, Texas and cash equal to the difference between
the fair market values of the systems. The Company had acquired the Houston
cable television systems from affiliates of Prime Cable on May 8, 1996 for
approximately $300.0 million. The aggregate purchase price of the Viacom
Nashville System pursuant to the exchange was approximately $313.5 million,
subject to certain adjustments.
MISCELLANEOUS ACQUISITIONS
The aggregate purchase price for the Miscellaneous Acquisitions of $10.0
million, including related acquisition costs of $0.2 million, was funded with a
portion of the proceeds from the Bridge Loan and borrowings available under the
Revolving Credit Facility. Financial results for the Miscellaneous Acquisitions
prior to their acquisitions by the Company during the nine months ended
September 30, 1996 are not included in the Pro Forma Financial Information due
to the immateriality of these systems.
Annox System. On January 29, 1996, IP-TN, through an asset purchase
agreement, purchased the cable television system of Annox (the "Annox System")
located in Cheatham, Davidson, Dickson and Robertson counties near Nashville,
which in aggregate served approximately 1,922 basic subscribers as of September
30, 1996, for an aggregate purchase price of $4.3 million.
Tellico System. On May 2, 1996, IP-TN, through an asset purchase
agreement, purchased the cable television system of Tellico (the "Tellico
System") located in Loudon and Blount counties near Knoxville, which in
aggregate served approximately 1,518 basic subscribers as of September 30, 1996,
for an aggregate purchase price of $2.2 million.
Rochford System. On July 1, 1996, IP-TN, through an asset purchase
agreement, purchased the cable television system of Rochford (the "Rochford
System") located in Davidson and Williamson counties near
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Nashville, which in aggregate served approximately 1,305 basic subscribers as of
September 30, 1996, for an aggregate purchase price of $2.0 million.
Prime Cable System. On August 6, 1996, IP-TN, through an asset purchase
agreement, purchased the cable television system of Prime Cable (the "Prime
Cable System") located in central Tennessee for an aggregate purchase price of
approximately $1.5 million. The system is estimated to have served an aggregate
of 1,115 basic subscribers as of September 30, 1996.
ORGANIZATIONAL STRUCTURE OF THE COMPANY (1)
The Company's organizational structure is as shown below:
[STRUCTURAL CHART]
- ---------------
(1) In the chart above, "G.P." represents general partner, "M.G.P." represents
managing general partner and "L.P." represents limited partner.
(2) Issuers of Notes offered hereby.
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<PAGE> 102
BUSINESS
GENERAL
The Company was formed to acquire and consolidate various cable television
systems located in high-growth areas of the Southeast, including certain cable
television systems owned by the Related InterMedia Entities and TCI. TCI, an
investor in each of the Related InterMedia Entities, directly owns 49.0% of ICP-
IV's non-preferred equity. The Company has one of the largest concentrations of
basic subscribers in the Southeast and is the largest cable television service
provider in Tennessee. The Company's operations are composed of three clusters
that, in aggregate, served approximately 570,153 basic subscribers and passed
approximately 848,006 homes as of September 30, 1996.
The three clusters served, as of September 30, 1996, approximately (i)
325,703 basic subscribers in the Nashville/Mid-Tennessee Cluster, (ii) 146,503
basic subscribers in the Greenville/Spartanburg Cluster and (iii) 97,947 basic
subscribers in the Knoxville/East Tennessee Cluster.
The Company serves approximately 90.0% and 70.0%, respectively, of all of
the basic cable television subscribers in the Nashville Metropolitan Market and
the Greenville/Spartanburg Metropolitan Market. The Nashville Metropolitan
Market and the Greenville/Spartanburg Metropolitan Market are located within the
33rd and 35th largest DMAs in the United States, respectively.
The Company operates primarily in urban and suburban areas in the Southeast
that in recent years have experienced significant economic, household and income
growth. The Southeast has been, and is projected to continue to be, one of the
fastest growing regions in the United States due to a diverse employment base, a
low cost of living and a favorable business climate. According to Market
Statistic, Inc., from 1995 to 2000, the counties served by the Systems are
projected to experience a weighted average compounded annual household growth of
1.9% as compared to national estimated compounded annual household growth of
1.1%. The counties served by the Systems are also projected to achieve a
weighted average EBI compounded annual growth rate of 3.4% from 1994 to 1999, as
compared to a national average compounded annual growth rate of 3.0%. See
"-- Overview of Cable Television Systems." These attractive demographic trends
helped the Systems to achieve, from December 31, 1993 to December 31, 1995, a
compounded weighted internal basic subscriber growth rate of approximately 5.3%
per annum compared to a national compounded average growth rate of 3.4% per
annum, according to the NCTA. Management believes that the attractive
demographic trends of these counties provide the potential for continued
significant basic subscriber and revenue growth.
The Company and each of the Related InterMedia Entities were created by Leo
J. Hindery, Jr., who has over 10 years of experience in the cable television
industry, to own and operate cable television systems in the United States. Mr.
Hindery created the Company with the goal of developing it into a medium-sized
MSO. Mr. Hindery is the managing general partner of the general partners of each
of the Related InterMedia Entities.
RELATIONSHIP WITH TCI
TCI, through wholly owned subsidiaries, directly owns 49.0% of ICP-IV's
non-preferred equity. TCI is the largest cable television operator in the United
States, with wholly owned and affiliated systems serving approximately 14.0
million subscribers. Management believes that the Company's relationship with
TCI provides substantial benefits, including (i) the ability to purchase
programming and equipment at rates approximating those available to TCI and (ii)
access to TCI's engineering, technical, marketing, advertising, accounting and
regulatory expertise.
As a result of its relationship with TCI, the Company has the ability to
purchase its programming at rates approximating those available to TCI. The
Company has a contract with SSI, a subsidiary of TCI, to obtain basic and
premium programming. SSI contracts with various programmers to purchase
programming for TCI and its related companies. The Company has the option to
purchase its programming through its contract with SSI for which it pays SSI's
cost plus an administrative fee.
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In addition, management believes the Company benefits from its relationship
with TCI by (i) sharing in TCI's marketing test results, which typically involve
leading edge services and technologies, such as NVOD, (ii) sharing in the
results of TCI's research and development activities, including TCI's research
on broadband fiber, digital compression and technical standards, and (iii)
access to and the ability to consult with TCI's operating personnel with
expertise in technical, marketing, accounting and regulatory matters. Through
the Company's access to and relationship with TCI, the Company benefits from the
potential to participate at an early stage in joint ventures between TCI and
other telecommunications and media companies such as Internet access provider
@Home and PCS provider Sprint Spectrum.
TCI, however, is under no obligation to offer such benefits to the Company,
and there can be no assurance that such benefits will continue to be available
in the future should TCI's ownership in the Company significantly decrease or
should TCI otherwise decide not to continue to offer such participation to the
Company. The loss of the relationship with TCI would adversely affect the
financial position and results of operations of the Company. See "Risk
Factors -- Loss of Beneficial Relationship with TCI."
OPERATING STRATEGY
The Company's strategy is to own, operate and develop cable television
systems in geographically clustered, high-growth markets in the Southeast. The
operating strategy was developed by the Company's senior management team, which
includes experienced operating, engineering, marketing and financial executives.
The operating strategy includes the following key elements:
Cluster Subscribers. Management believes the Company can derive
significant economies of scale and operating efficiencies by clustering its
operations. Operational advantages and cost savings associated with
clustering include centralizing management, billing, marketing, customer
service, technical and administrative functions, and reducing the number of
headends. Management believes that clustering will enable the Company to
more effectively utilize capital by more efficiently delivering cable and
related services to a greater number of households. The Company intends to
(i) create regional customer service centers in each of the operating
regions, which should allow the Company to staff, train and monitor its
customer service operations more effectively, and (ii) substantially reduce
the number of its headends, engineering support facilities and associated
maintenance costs. Management believes that clustering also provides the
Company with significant revenue opportunities including the ability to
attract additional advertising and to offer a broader platform for data
services, and residential and business telephony services.
Focus on Regions with Attractive Demographics. The Company owns and
develops cable television systems in areas that in recent years have
experienced annual economic, household and income growth that has exceeded
national averages. See "-- Overview of Cable Television Systems." In recent
years, the Southeast has been one of the fastest growing regions in the
United States due in part to a diverse employment base, a low cost of
living and a favorable business climate. Management believes that the
Company will continue to benefit from the household growth in, and the
outward expansion of, the metropolitan areas served by the Company.
Furthermore, management believes that households located in areas with
attractive demographics are more likely to subscribe to cable television
services, premium service packages and new service offerings.
Upgrade Cable Television Systems. The Company has begun a Capital
Improvement Program to comprehensively upgrade its operating network.
Management believes that the Capital Improvement Program will further the
Company's efforts to reduce costs, create additional revenue opportunities,
increase customer satisfaction and enhance system reliability. Successfully
upgrading the architecture of the Company's operations will expand channel
capacity, enhance network quality and dependability, augment addressability
and allow the Company to offer two-way transmission and advanced
interactive services. Currently, over 74.2% of the Company's operations
offer between 30 to 61 channels of programming. Following implementation of
the Capital Improvement Program, over 85.0% of such operations will be able
to offer 62 or more channels and over 70.0% will be served by plant with a
bandwidth of 750 MHz enabling subscribers to receive the equivalent of 82
or more analog channels. Through 2001, the Company expects to spend
approximately $230.1 million in additional capital on the
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Capital Improvement Program that it expects to finance with internally
generated cash flow and borrowings available under the Bank Facility. See
"Risk Factors -- Future Capital Requirements"; "-- Upgrade Strategy and
Capital Expenditures" and "Description of Other Obligations."
Target Additional Revenue Sources. Management believes that the
Company's geographic clustering, the demographic profile of its subscribers
and implementation of the Capital Improvement Program afford the Company
the opportunity to pursue revenue sources incremental to its core business.
Management also believes that the Company can create additional revenue
growth opportunities through further development of existing advertising,
pay-per-view and home shopping services. Possible future services include
high-speed data transmission (including Internet access), NVOD, interactive
services such as video games, and residential and business telephony,
including a wireline network platform for PCS operators.
Emphasize Customer Service. Management believes that the Company
provides quality customer service and attractive programming packages at
reasonable rates. As part of its customer service efforts, the Company has
instituted training and incentive programs for all of its employees and
instituted same-day, evening and weekend installation and repair visit
options in several of its service areas. Six months before the cable
industry adopted its widely publicized "On Time Guarantee Program," the
Related InterMedia Entities offered free installation if a technician
arrived late for a scheduled installation. The Company's customer service
representatives have undergone training in a new response model entitled
"Selling, Saving & Serving," which is based on a comprehensive survey of
customer needs and buying habits. When speaking to a customer, the customer
service representatives are trained to answer questions regarding service
and repair issues as well as to identify and present the most appropriate
package and services based on the customer's profile. To further emphasize
customer service, the Company's employee bonus program includes specific
customer service incentives designed to increase the speed and
effectiveness of service visits, shorten installation response times and
ensure that customer telephone calls are answered promptly by customer
service representatives.
Utilize Innovative Sales and Marketing Techniques. The Company is
seeking to increase its penetration levels for basic service, expanded
basic service and premium service and to increase revenue per household
through targeted promotions and innovative marketing strategies. For
example, the Company has entered into a co-marketing campaign with Sprint
Corporation to offer a combination of cable television and long distance
services. Through this arrangement, subscribers receive a discount on their
cable bill when subscribing to both cable and long-distance services. The
Company realizes incremental revenue from Sprint Corporation through
royalties and an upfront marketing fee, and is reimbursed for the
subscriber's discount. Additional marketing strategies that the Company
utilizes include promotional previews of premium programs, discounted
installation fees, expedited installation service and special pricing on
premium services. The Company seeks to maximize its revenue per subscriber
by cross-promoting its programming services, by using "tiered" packaging
strategies for marketing premium services and promoting niche programming
services, and by offering more entertainment choices and new services. The
Company has introduced several retention marketing campaigns, including
quarterly newsletters that inform subscribers of programming and
system-specific news. Through this vehicle, subscribers are also given the
opportunity to win programming sponsored prizes that range from computers
to free travel. Various image spots are also aired in an effort to increase
recognition of the InterMedia brand name.
The Company is also an active participant in Cable in the Classroom, a
nonprofit organization sponsored by cable MSOs. Cable companies throughout
the United States provide schools with installation and monthly cable
television services free of charge, and educators receive a satellite feed
of commercial-free programming that can be taped and used at their
convenience.
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OVERVIEW OF CABLE TELEVISION SYSTEMS
The Company's operations are located in areas of the Southeast that have
experienced rapid economic, household and income growth during the past five
years. The following table summarizes the historical and projected growth rates
of the regions served by the Company.
DEMOGRAPHIC DATA BY CLUSTER (1)
<TABLE>
<CAPTION>
ESTIMATED PROJECTED ESTIMATED PROJECTED PROJECTED
'90 - '95 '95 - '00 '90 - '95 '95 - '00 '94 - '99
HOUSEHOLD HOUSEHOLD POPULATION POPULATION HOUSEHOLD EBI
CLUSTER(2) CAGR(2) CAGR(2) CAGR(2) CAGR(2) CAGR(2)
- ---------------------------------- --------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Nashville/Mid-Tennessee........... 1.7% 2.0% 1.5% 1.6% 3.4%
Greenville/Spartanburg............ 1.5% 1.6% 1.6% 1.3% 3.3%
Knoxville/East Tennessee.......... 1.6% 1.9% 1.3% 1.6% 3.4%
Total Systems................ 1.7% 1.9% 1.5% 1.5% 3.4%
National Average.................. 0.7% 1.1% 1.0% 0.9% 3.0%
</TABLE>
- ---------------
(1) There can be no assurance that these estimates or projections have been or
will be realized. Sources: Market Statistics: 1995 Demographics
USA -- County Edition (Bill Communications); Sales and Marketing Management
1990, Survey of Buying Power (Bill Communications).
(2) Represents the average compound annual growth rates ("CAGR's") for the
counties served by each cluster weighted by the number of basic subscribers
in each county.
The following table summarizes the homes passed, basic subscribers and
basic penetration percentages, premium service units and premium penetration
percentages as of September 30, 1996, in the regions served by the Company.
OPERATING DATA BY CLUSTER
<TABLE>
<CAPTION>
PREMIUM
HOMES BASIC BASIC SERVICE PREMIUM
CLUSTER PASSED(1) SUBSCRIBERS(2) PENETRATION UNITS(3) PENETRATION
- ---------------------------------- --------- -------------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C>
Nashville/Mid-Tennessee........... 507,497 325,703 64.2% 260,577 80.0%
Greenville/Spartanburg............ 205,326 146,503 71.4% 122,894 83.9%
Knoxville/East Tennessee.......... 135,183 97,947 72.5% 49,139 50.2%
------- ------- -------
Total........................... 848,006 570,153 67.2% 432,610 75.9%
</TABLE>
- ---------------
(1) Homes passed refers to estimates by the Company of the approximate number of
dwelling units in a particular community that can be connected to the cable
network without any further extension of principal transmission lines. Such
estimates are based upon a variety of sources, including billing records,
house counts, city directories and other local sources.
(2) Basic subscribers are determined as the sum of all private residential
subscribers being directly billed for basic cable services and total bulk
and commercial equivalent units. Total bulk and commercial equivalent units
for any month are computed as related cable revenue for such month divided
by the predominant rate charged within the system for basic and expanded
basic services.
(3) Premium service units represents the aggregate number of single premium
channels subscribed for a monthly fee per channel. A basic subscriber may
subscribe to more than one premium service.
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The following table provides operating data at year-end for each of the
years in the four-year period ended December 31, 1995 and as of September 30,
1996 for the Company on a pro forma basis after giving effect to the
Acquisitions.
PRO FORMA OPERATING DATA (1)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------- SEPTEMBER 30,
1992 1993(2) 1994 1995 1996
------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Homes Passed........................ 668,159 756,081 789,878 823,097 848,006
Basic Subscribers................... 421,026 493,109 528,038 559,973 570,153
Basic Penetration................... 63.0% 65.2% 66.9% 68.0% 67.2%
Premium Service Units............... 270,491 341,537 404,557 433,732 432,610
Premium Penetration................. 64.2% 69.3% 76.6% 77.5% 75.9%
</TABLE>
- ---------------
(1) The data for the Miscellaneous Acquisitions are unavailable for 1992 through
1994 and are therefore only included in 1995 and 1996. As of December 31,
1995 the approximate totals for these systems were 9,366 homes passed, 6,108
basic subscribers and 2,454 premium service units. As of September 30, 1996
the approximate totals were 9,488 homes passed, 5,860 basic subscribers and
2,780 premium service units.
(2) The 1993 Acquisitions represent an increase in basic subscribers of 47,300.
NASHVILLE/MID-TENNESSEE CLUSTER
[MAP]
Market Demographics. The Nashville Metropolitan Market is located within
the nation's 33rd largest DMA and had a population of approximately 1,044,000 in
1995. The Nashville/Mid-Tennessee Cluster serves approximately 90.0% of the
basic cable television subscribers in the seven contiguous counties (Robertson,
Sumner, Wilson, Rutherford, Williamson, Cheatham and Davidson) that encompass
Nashville and its suburbs (the "Nashville Metropolitan Market"). The
Nashville/Mid-Tennessee Cluster also serves rural and suburban areas located in
other counties in middle Tennessee, and an area of western Tennessee between
Nashville and Memphis.
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The greater Nashville area is among the fastest growing metropolitan areas
in the United States, with estimated household growth in its four largest
counties of 5.0% in Williamson County, 4.7% in Rutherford County, 2.3% in Sumner
County and 1.1% in Davidson County from 1990 to 1995 according to data obtained
from Bill Communications and weighted by the number of subscribers in the
county. Household growth for the cluster is projected to grow at a weighted
average annual rate of 2.0% over the period from 1995 to 2000 compared to a
national average of 1.1%. The construction of an interstate highway encircling
Nashville has led to the expansion of the Nashville Metropolitan Market and
fueled household growth. Further, the cluster's weighted average household EBI
is projected to grow at an annual rate of 3.4% between 1994 and 1999, as
compared to a national average of 3.0% over the same period. See "Demographic
Data by Cluster" above. The Nashville Metropolitan Market has a diverse
employment base, a low cost of living and a favorable business climate. The
primary industries located in the Nashville Metropolitan Market include health
care, entertainment (music and tourism), auto manufacturing, government, finance
and education. In addition, Nashville's location at the convergence of several
major interstate highways makes it one of the larger distribution and
transportation hubs in the Southeast.
Summary Operating Information. The following table provides operating data
at year-end for each of the years in the four-year period ended December 31,
1995 and at September 30, 1996 for the Nashville/Mid-Tennessee Cluster.
NASHVILLE/MID-TENNESSEE CLUSTER
SUMMARY OPERATING DATA (1)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------- SEPTEMBER 30,
1992 1993(2) 1994 1995 1996
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Homes Passed...................... 362,712 440,412 465,363 488,670 507,497
Basic Subscribers................. 212,490 274,459 295,920 319,788 325,703
Basic Penetration................. 58.6% 62.3% 63.6% 65.4% 64.2%
Premium Service Units............. 134,279 191,453 236,574 260,712 260,577
Premium Penetration............... 63.2% 69.8% 80.0% 81.5% 80.0%
</TABLE>
- ---------------
(1) The data for the Miscellaneous Acquisitions are unavailable for 1992 through
1994 and are therefore only included in 1995 and 1996. As of December 31,
1995 the approximate totals for those systems located in the
Nashville/Mid-Tennessee Cluster were 7,666 homes passed, 4,706 basic
subscribers and 2,104 premium service units. As of September 30, 1996 the
approximate totals were 7,750 homes passed, 4,342 basic subscribers and
2,404 premium service units.
(2) The 1993 Acquisitions represent an increase in basic subscribers of 45,892.
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GREENVILLE/SPARTANBURG CLUSTER
[MAP]
Market Demographics. Located in the northwest corner of South Carolina and
the northeast corner of Georgia, the Greenville/Spartanburg Cluster serves the
Greenville/Spartanburg Metropolitan Market, which had a population of
approximately 756,100 in 1995, and areas in northeast Georgia, which had a
combined population of 614,000 in 1995. The Greenville/Spartanburg Metropolitan
Market is located in the nation's 35th largest DMA and serves approximately
70.0% of the basic cable television subscribers in the five counties
(Greenville, Spartanburg, Cherokee, Union and Pickens) that encompass the
combined metropolitan area of Greenville/Spartanburg (the
"Greenville/Spartanburg Metropolitan Market").
The Greenville/Spartanburg Cluster has experienced household growth above
the national average. The counties of Greenville and Spartanburg experienced
combined annual household growth of 1.3% from 1990 to 1995, as compared to a
national average of 0.7% during the same period according to data obtained from
Bill Communications and weighted by the number of subscribers in the county.
Household growth for the cluster is projected to grow at a weighted average
annual rate of 1.6% over the period from 1995 to 2000 compared to a national
average of 1.1%. The remainder of the cluster includes communities in northeast
Georgia such as the towns of Gainesville, which is in Hall County and has the
highest concentration of the Company's basic subscribers in northeast Georgia.
Household growth in Hall County is estimated to have averaged 2.4% per annum
from 1990 to 1995 according to data obtained from Bill Communications and
weighted by the number of subscribers in the county. The Greenville/Spartanburg
Metropolitan Market has experienced economic growth due to a low cost of living
and favorable business climate. Further, the average household EBI is projected
to grow at a weighted average annual rate of 3.3% between 1994 and 1999, as
compared to a national average of 3.0% over the same period. See "Demographic
Data by Cluster" above. Industries located in this area include textiles and
light manufacturing.
Summary Operating Information. The following table provides operating data
at year-end for each of the years in the four-year period ended December 31,
1995 and at September 30, 1996 for the Greenville/Spartanburg Cluster.
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GREENVILLE/SPARTANBURG CLUSTER
SUMMARY OPERATING DATA
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------- SEPTEMBER 30,
1992 1993(2) 1994 1995 1996
------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Homes Passed....................... 189,694 194,933 198,444 201,738 205,326
Basic Subscribers.................. 127,401 133,345 142,700 145,405 146,503
Basic Penetration.................. 67.2% 68.4% 71.9% 72.1% 71.4%
Premium Service Units.............. 105,154 113,949 123,231 124,188 122,894
Premium Penetration................ 82.5% 85.5% 86.4% 85.4% 83.9%
</TABLE>
KNOXVILLE/EAST TENNESSEE CLUSTER
[MAP]
Market Demographics. The Knoxville/East Tennessee Cluster serves
approximately 52,821 basic subscribers in the suburbs of Knoxville, which
include parts of Blount, Knox, Loudon and Sevier counties, and approximately
9,333 basic subscribers in rural areas west and south of Knoxville (the
"Knoxville Metropolitan Market"). In addition, the cluster serves approximately
35,793 basic subscribers in the city of Kingsport and the surrounding Tri-Cities
area (the cities of Kingsport, Johnson City and Bristol), which are located in
Tennessee's fourth largest Metropolitan Statistical Area ("MSA") and had a
population of approximately 450,000 in 1995.
The Knoxville Metropolitan Market has experienced strong economic growth as
a result of low unemployment and a pro-business environment. Recent household
growth in the Knoxville/East Tennessee Cluster has averaged 1.6% per annum on a
weighted average basis over the past five years compared to the national average
of 0.7%. Household growth for the cluster is projected to grow at a weighted
average annual rate of 1.9% over the period from 1995 to 2000 compared to a
national average of 1.1% over the same period. The city of Kingsport and the
surrounding Tri-Cities area have developed a strong economy with a low cost of
living and industry centered around manufacturing. Further, the average
household EBI is projected to grow at a weighted average annual rate of 3.4% as
compared to a national average of 3.0% over the same period. See "Demographic
Data by Cluster" above, Eastman Chemical is the largest employer in the area.
Summary Operating Information. The following table presents operating data
at year-end for each of the years in the four-year period ended December 31,
1995 and at September 30, 1996 for the Knoxville/East Tennessee Cluster.
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<PAGE> 110
KNOXVILLE/EAST TENNESSEE CLUSTER
SUMMARY OPERATING DATA (1)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------- SEPTEMBER 30,
1992 1993(2) 1994 1995 1996
------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Homes Passed.......................... 115,753 120,736 126,071 132,689 135,183
Basic Subscribers..................... 81,135 85,305 89,418 94,780 97,947
Basic Penetration..................... 70.1% 70.7% 70.9% 71.4% 72.5%
Premium Service Units................. 31,058 36,135 44,752 48,832 49,139
Premium Penetration................... 38.3% 42.4% 50.1% 51.5% 50.2%
</TABLE>
- ---------------
(1) The data for the Miscellaneous Acquisitions are unavailable for 1992 through
1994 and are therefore only included in 1995 and 1996. As of December 31,
1995 the approximate totals for those systems in the Knoxville/East
Tennessee Cluster were 1,700 homes passed, 1,402 basic subscribers and 350
premium service units. As of September 30, 1996 the approximate totals were
1,738 homes passed, 1,518 basic subscribers and 376 premium service units.
UPGRADE STRATEGY AND CAPITAL EXPENDITURES
Overview
The Company plans to upgrade its cable television systems pursuant to its
Capital Improvement Program, which is based in large part on TCI's
specifications and which has already commenced in some of the Systems.
The Capital Improvement Program is designed to (i) deploy fiber optic
cable, (ii) consolidate and upgrade headends, (iii) increase the use of
addressable technology, (iv) install two-way transmission capability and (v)
introduce digital compression capability. Through 2001, the Company expects to
spend approximately $230.1 million in additional capital on the Capital
Improvement Program that it expects to finance with internally generated cash
flow and working capital available from borrowings under the Bank Facility. See
"Risk Factors -- Future Capital Requirements" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
Pursuant to the Capital Improvement Program, the Company plans to upgrade
the Systems and to continue certain upgrades already begun in the
Greenville/Spartanburg System and the Viacom Nashville System. Since April 1995,
TCI has been upgrading its cable television systems in the
Greenville/Spartanburg area in accordance with the Capital Improvement Program.
As a result of these efforts, cable plant serving, as of September 30, 1996,
approximately 12.0% of the basic subscribers in the Greenville/Spartanburg
Cluster have already been rebuilt to 750 MHz. In anticipation of the acquisition
of the Viacom Nashville System, management has worked closely with Viacom since
late 1994 to plan and implement the rebuild of that system to the Capital
Improvement Program's specifications. As a result of these efforts, cable plant
serving, as of September 30, 1996, approximately 34.3% of the basic subscribers
in the Nashville/Mid-Tennessee Cluster has already been rebuilt to 750 MHz.
The table below summarizes the Systems' existing technical profile.
<TABLE>
<CAPTION>
CHANNEL CAPACITY AS A
BASIC SUBSCRIBERS PERCENTAGE OF BASIC SUBSCRIBERS ADDRESSABLE
AS OF ----------------------------------------- CONVERTERS AS A
SEPTEMBER 30, 30-53 54-61 62-81 82+ PERCENTAGE OF
CLUSTER 1996 CHANNELS CHANNELS CHANNELS CHANNELS BASIC SUBSCRIBERS
- ------------------------------ ----------------- -------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Nashville/Mid-Tennessee....... 325,703 62.7% 3.0% 0.0% 34.3% 35.9%
Greenville/Spartanburg........ 146,503 45.1% 30.9% 12.0% 12.0% 80.9%
Knoxville/East Tennessee...... 97,947 8.0% 92.0% 0.0% 0.0% 20.1%
------
Total....................... 570,153 48.9% 25.3% 3.1% 22.7% 44.7%
</TABLE>
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<PAGE> 111
Upon completion of the Capital Improvement Program, the Company expects its
technical profile to be as follows:
<TABLE>
<CAPTION>
BASIC CHANNEL CAPACITY AS A
SUBSCRIBERS PERCENTAGE OF BASIC SUBSCRIBERS ADDRESSABLE
AS OF ----------------------------------------- CONVERTERS AS A
SEPTEMBER 30, 30-53 54-61 62-81 82+ PERCENTAGE OF
CLUSTER 1996 CHANNELS CHANNELS CHANNELS CHANNELS BASIC SUBSCRIBERS
- --------------------------------- ------------- -------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Nashville/Mid-Tennessee.......... 325,703 0.0% 19.0% 10.9% 70.1% 69.0%
Greenville/Spartanburg........... 146,503 4.9% 0.0% 0.0% 95.1% 69.8%
Knoxville/East Tennessee......... 97,947 0.0% 13.6% 48.0% 38.4% 56.0%
------
Total.......................... 570,153 1.3% 13.1% 14.3% 71.3% 67.0%
</TABLE>
Upgrade Characteristics
To make the most efficient use of its capital, the Company expects to use
three different architectural profiles in implementing the Capital Improvement
Program. Management prioritizes which of the Company's Systems to upgrade by
considering (i) additional revenue potential, (ii) competition, (iii) cost
effectiveness and (iv) requirements under franchise agreements. Set forth below
are the general specifications for each of the three architecture types:
<TABLE>
<CAPTION>
EXPECTED
PERCENTAGE OF POTENTIAL
ARCHITECTURE TYPE SUBSCRIBERS BANDWIDTH NODE SIZE
- ------------------------------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
Metro/Suburban................................... 71.3% 750 MHz...... 500 Homes
Suburban......................................... 14.3% 550 MHz...... 2,000 Homes
Rural............................................ 14.4% 300-450 MHz.. 2,000 Homes
</TABLE>
The Company expects to upgrade plant serving the majority of its
subscribers using the metro/suburban or the suburban architectures. The
Company's system architecture is scaleable in that the specifications of each
architecture type are adaptable to the needs of each service area. Each
architecture type is designed to be easily upgraded to the next level (i.e.,
systems being rebuilt at 550 MHz will be migratable to 750 MHz). All design and
construction will support this architecture; however, the timing of the
installation of various elements of the network will depend upon local market
demand, economics, competition and other factors. This flexibility in the timing
of upgrades will enable the Company to delay certain expenditures until revenue
sources justify the capital outlay. Notwithstanding the size of the community or
the type of architecture, the Capital Improvement Program is intended to:
Deploy fiber optic cable to increase capacity, improve picture quality,
enhance reliability, reduce maintenance costs and provide a platform for future
services. Fiber optic cable makes it possible to divide a system into a number
of discrete service areas, or "nodes." The nodes, which are expected to be fed
signals by a direct fiber optic line from the headend, are designed to serve
between 500 and 2,000 homes, depending on the population density of the area
covered by that section of the system. This design is expected to make it
immediately possible to (i) narrow-cast advertising and programming to specific
groupings of subscribers, (ii) significantly reduce ongoing maintenance and
repair expenses, as it reduces the number of active electronic devices, (iii)
isolate the number of subscribers affected by most types of system malfunction
or failure thus enhancing reliability and (iv) deliver data, interactive and
voice services. The Company's extensive deployment of fiber optic cable is also
expected to reduce system powering requirements. Additionally, the deployment of
fiber optic cable will permit the reduction in the number of headends operated
by the Company, resulting in a decrease in the Company's headend-related capital
and maintenance expenditures.
Consolidate and upgrade headends with backup power and remote network
monitoring to increase system efficiency and reliability. Where feasible,
neighboring systems are expected to be interconnected via fiber optic cable into
a single, upgraded headend to help introduce addressable and digital technology.
Refinements planned for all headends are designed to deliver high system
reliability and improved operating efficiency.
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Network monitoring is expected to make it possible to identify and correct many
types of system malfunctions before they become evident to the subscriber.
Increase use of addressable technology, which will broaden choices for
subscribers. Addressable technology is widely available in the
Greenville/Spartanburg System and the Viacom Nashville System. The Company
intends to increase the number of addressable converters deployed in its
systems. Addressable technology provides subscribers with the ability to
purchase the monthly, daily or per-event programs they desire and eliminates the
need to "roll a truck" when subscribers change their selection of optional
services. Additional revenues are expected to be realized both from the rental
of addressable converters and the sale of additional programming services.
Addressable technology could also provide substantial improvement in securing
signals from theft of service.
Install two-way transmission capability for "impulse" pay-per-view, data,
interactive and voice services. Cable television systems traditionally have been
designed to transmit in a single direction from the headend. The Capital
Improvement Program is expected to make two-way transmission possible throughout
the Systems. Initially, it is expected that this capability will be used to
provide "impulse" pay-per-view, which would permit a subscriber to order an
event via a remote-control device. Trials of "impulse" pay-per-view services
have increased the buy rates of these services. Currently, the Company's
pay-per-view services must be ordered over the telephone. Two-way capability is
also expected to support the introduction of data services, interactive services
(such as games, advertising, information retrieval and home shopping) and voice
services.
Introduce the capability to carry digitally compressed signals, thus
increasing channel capacity. Digital compression, which is expected to be
commercially available within approximately 12 months, is expected to enable a
system to carry four to ten times as many channels as it can today. For example,
if an 8-to-1 digital compression system were employed, a system that can carry
30 analog channels today could carry up to 240 channels. There can be no
assurance that the technology will be available in this time period or at all.
New and Enhanced Services
The Capital Improvement Program is expected to provide for, among other
benefits, the immediate addition of channel capacity. This would enable the
Company to offer additional programming variety to subscribers and provide the
opportunity to garner increased revenue through numerous existing services as
well as new services. Selected opportunities for revenue growth include: (i)
offering additional services, which are technically possible but which the
Company has been unable to provide because of channel constraints, including (a)
a la carte programming offerings and the multiplexing of premium services, (b)
additional pay-per-view selections and (c) additional channels dedicated to
advertising, home shopping and infomercials; and (ii) the offering of other new
services to the extent they become financially and technologically feasible,
such as data, interactive and telephony services.
A La Carte Programming and Multiplexing. The Company will seek to offer
additional programming options to subscribers through a la carte premium
services such as new product tier offerings and through the multiplexing of
premium products. The Company expects the increased channel capacity resulting
from the Capital Improvement Program to enable it to offer these additional
premium selections, which management believes will increase pay penetration as
well as pay revenue per month per subscriber.
Pay-Per-View. The Company currently offers pay-per-view programming on a
per-day or per-event basis. The services include feature movies, special events,
sporting events and adult programming. The Systems' pay-per-view buy rates have
been limited due to the lack of addressability and channel capacity. As the
Company continues to upgrade its plant and to increase addressability, and as
digital compression technology becomes available, the Company expects buy rates
to increase. The Company will seek to offer a NVOD format where it offers the
current top 10 video releases and starts each of them every 15 to 30 minutes,
allowing a convenient viewing schedule for the subscriber.
Advertising, Home Shopping and Infomercials. The Company expects to
increase advertising revenue as a result of its geographic clustering of cable
television systems, high penetration rates and favorable demographic profile.
Furthermore, the increased diversity and ratings of cable programming should
enhance
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the attractiveness of cable to potential advertisers. The consolidation of the
systems in the Nashville/Mid-Tennessee Cluster eliminated the need for
advertisers to contract with multiple cable operators in order to blanket the
region and enabled the Company to deliver the entire market or any part of it to
advertisers with one transaction. Through the use of digital ad insertion
equipment, which the Company recently began to purchase, the Company would be
able to sell time directed at specific audiences and update ad content more
frequently. Furthermore, with expanded channel capacity the Company intends to
offer additional channels dedicated to home shopping and infomercials.
Data Services. As a broadband network, cable has the ability to deliver
data at a rate 350 times faster than the rate currently available over telephone
modem connections and 80 times faster than ISDN. Following completion of the
Capital Improvement Program and installation of cable modems, the Company would
be able to capitalize on this technology by providing, in addition to other
services, high-speed Internet access through services such as @Home. @Home, a
TCI joint venture that is unaffiliated with the Company, expects to utilize a
Netscape browser to offer high-speed data service with superior graphics,
original local content, audio/visual capability and rapid response times via a
hybrid fiber/coaxial connection to personal computers. The Company could also
benefit by targeting other data transmission applications, including local area
networks ("LANs") that connect businesses, government offices, or schools with
multiple outside locations. Potential LAN applications include the networking of
a local hospital with its affiliated physicians and clinics, which would allow
for near-instantaneous sharing of patient records. The Company expects new
demand for high-speed Internet access to arise as many organizations begin
offering multimedia applications with improved functionality and graphics.
Interactive Services. Classified advertising, interactive shopping and
video games (such as the SEGA Channel) offer other incremental revenue
opportunities for the Company. Unlike the "classified channels" that are
currently offered on some cable television systems, these services would also be
interactive, thereby allowing the user to view information as desired. Relative
to the print-based advertising (Yellow Pages and newspaper classified sections)
with which this service would compete, cable delivery would allow the
advertisers to make more frequent change of copy, to provide more detailed
information and, potentially, to include still or live video. With two-way
transmission capability, the Company would also be able to offer interactive
shopping on shop-at-home channels allowing a subscriber to buy on impulse and
explore only products of interest and interactive game channels allowing a
subscriber to play video games against other subscribers in different locations.
Telephony Services. Through the upgrade of its plant, management believes
the Company will be positioned to become a provider of voice services.
Applications in the field of telephony include residential toll bypass, shared
tenant services and local telephony services. The Company is exploring
opportunities to provide a wireline network platform for PCS operators.
COMPETITION
Cable television systems face competition from other sources of news and
entertainment such as newspapers, movie theaters, live sporting events,
interactive computer programs and home video products, including videotape
cassette recorders and alternative methods of receiving and distributing video
programming. Competing sources of video programming include, but are not limited
to, off-air broadcast television, DBS, MMDS, SMATV and, potentially, telephone
companies. In addition, the federal government in recent years has sought and
continues to seek ways in which to increase competition in the cable industry.
See "Legislation and Regulation." The extent to which cable service is
competitive depends upon the ability of the cable system to provide at least the
same quantity and quality of programming at competitive prices and service
levels as competitors.
DBS. DBS involves the transmission of an encoded signal directly from a
satellite to the home user. DBS provides video service using a relatively small
dish located at each subscriber's premises. In 1994, two companies offering
high-power DBS video service utilizing an 18-inch satellite receiver dish,
DIRECTV, Inc. ("DIRECTV") and United States Satellite Broadcasting, began
operations over DIRECTV's DBS satellites, and at present, together offer over
150 channels of programming to over 1.4 million households as of April 1996.
PrimeStar Partners, L.P. ("PrimeStar"), which offers 70 channels of programming
to over 1.1 million households as of April 1996, is a medium-power DBS service
provider using larger (36-inch) satellite receiver
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dishes than high-power DBS providers. DIRECTV currently requires the consumer to
purchase home dish equipment, while PrimeStar, which is owned primarily by a
consortium of cable television operators (including TCI), leases its dishes to
consumers. Both of these services provide the consumer with access to most
satellite-delivered cable television programming, including premium channels,
pay-per-view and national sporting events. Some of the services offered by DBS
are not available through the Systems, including special events and packages of
Major League Baseball, National Basketball Association, National Football League
and National Hockey League games. The DBS systems use video compression
technology to increase their channel capacity and are able to use 18-inch or
36-inch dish antennae to receive the satellite signals directly. Several
companies including EchoStar Communications Corp. have begun, and a venture
between MCI Telecommunications Corporation and The News Corporation Limited is
scheduled to begin, offering high-power DBS services.
DBS service similar to the Company's basic expanded service starts at
approximately $30 per month nationally. Prices for DBS systems have fallen
dramatically over the last year. A DBS satellite dish can be purchased for
approximately $200 under promotional offers from certain DBS service providers.
The Company is experiencing increased competition from DBS, although the product
is still in early stages of implementation. While it is difficult to assess the
magnitude of the impact that DBS will have on the Company's operations and
revenues, there can be no assurance that it will not have a material adverse
effect on the Company. See "Risk Factors -- Competition in the Cable Television
Industry; Rapid Technological Change." Prior to the advent of the high- to
medium-power satellite services, several satellite companies were offering and
continue to offer low-power service (also known as direct to the home or DTH)
requiring a much larger dish and higher upfront costs without many of the
service offerings that currently exist on high- to medium-power systems (i.e.,
sports packages and pay-per-view).
MMDS/Wireless Cable. Wireless program distribution services such as MMDS,
commonly called wireless cable television systems, use low-power microwave
frequencies to transmit video programming to subscribers. These systems
typically offer 20 to 34 channels of programming, which may include local
programming. Because MMDS is a first generation technology in its early stages
of implementation, it is difficult to assess the magnitude of the impact MMDS
will have on the cable industry or upon the Company's operations and revenue.
See "Risk Factors -- Competition in the Cable Television Industry; Rapid
Technological Change." Certain wireless cable companies may become more
competitive as a result of recently announced transactions with certain
telephone companies.
SMATV. SMATV systems may also present potential competition for cable
television operators. SMATV operators typically enter into exclusive agreements
with apartment building owners or homeowners' associations to service
condominiums, apartment complexes, hospitals, hotels, commercial complexes and
other multiple dwelling units ("MDUs"). This often precludes franchised cable
operators from serving residents of such private complexes. Due to widespread
availability of reasonably priced earth stations, SMATV systems can offer many
of the same satellite-delivered program services that are offered by franchised
cable television systems.
In most of the Company's markets there are few MDUs. Also, under the 1996
Act, the Company can engage in competitive pricing in response to pricing
offered by SMATV systems. However, it is unclear, in particular because of a
constantly changing regulatory environment, what the future impact of SMATV
operators will be on the Company's operations and revenues. See "Risk
Factors -- Competition in the Cable Television Industry; Rapid Technological
Change."
Telephone Companies. Certain regional telephone operating companies and
long distance telephone companies could become significant competitors in the
future, as they have expressed an interest in becoming subscription television
providers. Certain telephone companies have also received authorization to
test-market video and other services to certain geographic areas using fiber
optic cable and digital compression over existing telephone lines. In order to
offer video service, however, in some cases telephone companies may be required
to receive local regulatory approval (i.e., a franchise) similar to the
approvals obtained by cable operators. See "Legislation and Regulation."
The federal law that banned the cross-ownership of cable television and
telephone companies in the same service area has been repealed so that
potentially strong competitors, including telephone companies, which were
previously subject to various restrictions against entering the cable television
industry, may now provide
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cable television service in their service areas. The 1996 Act permits telephone
companies to provide cable television service through cable television systems
and open video systems ("OVS"), and by leasing capacity as common carriers to
other cable television service providers. Telephone companies may also provide
video programming over wireless cable television systems. Assuming telephone
companies begin to provide programming and other services to their customers on
a commercial basis, they have competitive advantages which include an existing
relationship with substantially every household in their service areas,
substantial financial resources, an existing infrastructure and the potential
ability to subsidize the delivery of programming through their position as the
sole source of telephone service to the home. Given the financial resources of
the local telephone companies and the changing legislative and regulatory
environment, it is expected that the local telephone companies will provide
increased competition for the cable television industry, including the Systems
which could have a material adverse effect on the Company. See "Risk
Factors -- Competition in Cable Television Industry; Rapid Technological Change"
and "Legislation and Regulation -- Federal Regulatory Provisions -- Ownership."
Overbuilds. Since the Systems generally operate under non-exclusive
franchises, other operators may obtain franchises to build competing cable
television systems. The 1992 Cable Act prohibits franchising authorities from
unreasonably refusing to award additional franchises and permits the authorities
to operate cable television systems themselves without franchises. Currently the
Company is not aware of any material overbuild, or any pending applications for
overbuilds, in any of its franchise areas. However, the Company is unable to
predict whether any of the Systems will be subject to an overbuild by
franchising authorities or other cable operators in the future, or what effect,
if any, such an overbuild may have on the Company.
Other Competition. Other new technologies, such as the proposed Local
Multipoint Distribution Service, may become competitive with services that cable
communications systems can offer. In addition, with respect to non-video
services, the FCC has authorized television broadcast stations to transmit, in
subscriber frequencies, text and graphic information useful both to consumers
and to businesses. The FCC also permits commercial and non-commercial FM
stations to use their subcarrier frequencies to provide non-broadcast services,
including data transmissions. The FCC recently 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. Telephone companies and other common carriers also provide facilities
for the transmission and distribution of data and other non-video services.
Additionally, the 1996 Act permits registered public utility holding companies,
subject to regulatory approval, to diversify into telecommunications,
information services and related services through a single-purpose subsidiary.
Such utilities have substantial resources and could pose substantial competition
to the cable industry. Prior to the passage of the 1996 Act, utility holding
companies were required to obtain approval from the SEC before entering into any
telecommunication business ventures.
Technological advances and changes in the legislative and regulatory
environment have made it very difficult to predict the effect that ongoing and
future developments may have on the cable television industry in general or on
the Company in particular. While the Company's upgrade strategy is intended to
enhance its ability to respond effectively to competition, there can be no
assurance that the Company will be successful in meeting competition.
FRANCHISES
Cable television systems are generally constructed and operated under
non-exclusive franchises granted by local governmental authorities. These
typically contain many conditions, such as time limitations on commencement and
completion of construction; conditions of service, including number of channels,
broad categories of programming, and provision of free service to schools and
certain other public institutions; and maintenance of insurance and indemnity
bonds. Certain provisions of local franchises are subject to federal regulation
under both the Cable Communications Policy Act of 1984 (the "1984 Cable Act"),
the 1992 Cable Act and the 1996 Act. See "Legislation and Regulation."
As of September 30, 1996, the Systems held 177 franchises. These
franchises, all of which are non-exclusive, provide for the payment of fees to
the issuing authority. Annual franchise fees imposed on the Systems range up to
5.0% of the gross revenues generated by the system. The 1984 Cable Act prohibits
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franchising authorities from imposing franchise fees in excess of 5.0% of gross
revenues and also permits the cable operator to seek renegotiation and
modification of franchise requirements if warranted by changed circumstances.
As of September 30, 1996, twenty-one franchises relating to approximately
16,944 of the Systems' basic subscribers have expired or are scheduled to expire
prior to December 31, 1996. The terms of these franchises require the Company to
negotiate the renewals of such franchises with the local franchising
authorities, and all twenty-one franchises are currently in informal renewal
negotiations. In connection with a renewal of a franchise, the franchising
authority may require the Company to comply with different conditions with
respect to franchise fees, channel capacity and other matters, which conditions
could increase the Company's cost of doing business. Although management
believes that it generally will be able to negotiate renewals of its franchises,
there can be no assurance that the Company will be able to do so and the Company
cannot predict the impact of any new or different conditions that might be
imposed by franchising authorities in connection with such renewals. See "Risk
Factors -- Expiration of Franchises."
The table below categorizes the Systems' franchises by date of expiration
and presents the approximate number of franchises held and the corresponding
percentage of subscribers subject to the franchises as of September 30, 1996.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF TOTAL
YEAR OF FRANCHISE EXPIRATION FRANCHISES SUBSCRIBERS
--------------------------------------------------------------- ---------- -----------
<S> <C> <C>
Prior to 1997.................................................. 21 3.0%
1997-2001...................................................... 50 25.0%
2002 and after................................................. 106 72.0%
--- -----
Total................................................ 177 100.0%
=== =====
</TABLE>
PROPERTIES
The Company's principal physical assets consist of cable television
operating plant and equipment, including signal receiving, encoding and decoding
devices, headends and distribution systems and customer drop equipment for each
of its cable television systems. The Company's cable distribution plant and
related equipment generally are attached to utility poles under pole rental
agreements with local public utilities and telephone companies, and in certain
locations are buried in underground ducts or trenches.
The Company owns or leases real property for signal reception sites and
business offices in many of the communities served by the Systems and for its
principal operating offices in Nashville, Tennessee and San Francisco,
California. The Company owns all of its service vehicles.
Management believes that its properties are in good operating condition and
are suitable and adequate for the Company's business operations.
LEGAL PROCEEDINGS
There are no material legal proceedings to which the Company is a party or
to which the Company's properties are subject. The Company knows of no
threatened or pending material legal action against it or its properties.
EMPLOYEES
The Company has approximately 1,016 full-time employees. The Company
considers its relationship with its current employees to be good.
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LEGISLATION AND REGULATION
The cable television industry is regulated at the federal level through a
combination of federal legislation and FCC regulations, by some state
governments and by substantially all local government franchising authorities.
Various legislative and regulatory proposals under consideration from time to
time by the Congress and various federal agencies have in the past, and may in
the future, materially affect the Company and the cable television industry.
Additionally, many aspects of regulation at the federal, state and local level
are currently subject to judicial review or are the subject of administrative or
legislative proposals to modify, repeal or adopt new laws and administrative
regulations and policies. The following is a summary of significant federal laws
and regulations affecting the growth and operation of the cable television
industry and a description of certain state and local laws.
FEDERAL STATUTORY LAW
THE TELECOMMUNICATIONS ACT OF 1996
On February 1, 1996, Congress passed the Telecommunications Act of 1996
("1996 Act"), which was signed into law by the President on February 8, 1996.
The 1996 Act substantially revises the Communications Act of 1934, as amended,
including the Cable Communications Policy Act of 1984 ("1984 Cable Act") and the
Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable
Act") under which the cable industry is regulated. The FCC is required to
conduct and currently is conducting various rulemaking proceedings to implement
the provisions of the 1996 Act.
The 1996 Act has been described as one of the most significant changes in
communications regulation since the original Communications Act of 1934. The
1996 Act modifies various rate regulation provisions of the 1992 Cable Act.
Generally, under the 1996 Act, customer programming service ("CPS") tier rates
are deregulated on March 31, 1999. Upon enactment, the CPS rates charged by
small cable operators are deregulated in systems serving 50,000 or fewer basic
subscribers. The 1996 Act allows cable operators to aggregate equipment costs
into broad categories, such as converter boxes, regardless of the varying levels
of functionality of the equipment within each such broad category, on a
franchise, system, regional, or company level. The statutory changes also
facilitate the rationalizing of equipment rates across jurisdictional
boundaries. These favorable cost-aggregation rules do not apply to the limited
equipment used by basic service-only subscribers.
The 1996 Act is intended, in part, to promote substantial competition in
the marketplace for telephone local exchange service and in the delivery of
video and other services and permits cable television operators to enter the
local telephone exchange market. The Company's ability to competitively offer
telephone services may be adversely affected by the degree and form of
regulatory flexibility afforded to local telephone companies (also known as
local exchange carriers or "LECs"), and in part, will depend upon the outcome of
various FCC rulemakings, including the current proceeding dealing with the
interconnection obligations of telecommunications carriers. The FCC recently
adopted a national framework for interconnection but left to the individual
states the task of implementing the FCC's rules. Although the FCC's
interconnection order is intended to benefit new entrants in the local exchange
market, it is uncertain how effective its order will be until the FCC completes
all of its rulemaking proceedings under the 1996 Act and state regulators begin
to implement the FCC's regulations. The 1996 Act also repeals the cable
television/telephone cross-ownership ban adopted in the 1984 Cable Act and
permits LECs and other service providers to provide video programming.
The most far-reaching changes in communications businesses will result from
the telephony provisions of the 1996 Act. These provisions promote local
exchange competition as a national policy by eliminating legal barriers to
competition in the local telephone business and setting standards to govern the
relationships among telecommunications providers, establishing uniform
requirements and standards for entry, competitive carrier interconnection and
unbundling of LEC monopoly services. The statute expressly preempts any legal
barriers to competition under state and local laws. Many of these barriers have
been lifted by state actions over the last few years, but the 1996 Act completes
the task. The 1996 Act also establishes new requirements to maintain
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and enhance universal telephone service and new obligations for
telecommunications providers to maintain the privacy of customer information.
Under the 1996 Act, LECs may provide video service as cable operators or
through OVS, a regulatory regime that may give them more flexibility than
traditional cable systems. The FCC has determined that a cable operator may
operate an OVS only if it is subject to effective competition within its
franchise area and this determination has been appealed; but, an operator that
elects to operate an OVS continues to be subject to the terms of any current
franchise or other contractual agreements. The 1996 Act eliminates the
requirement that telephone companies file Section 214 applications with the FCC
before providing video service. This will limit the ability of cable operators
to challenge telephone company entry into the video market. With certain
exceptions, the 1996 Act also restricts buying out incumbent cable operators in
the LEC's service area.
Other parts of the 1996 Act also will affect cable operators. The 1996 Act
directs the FCC to revise the current pole attachment rate formula. This will
result in an increase in the rates paid by entities, including cable operators,
that provide telecommunication services. (Cable operators that provide only
cable services are unaffected.) Under the V-chip provisions of the 1996 Act,
cable operators and other video providers are required to carry any program
rating information that programmers include in video signals. Cable operators
also are subject to new scrambling requirements for sexually explicit
programming. In addition, cable operators that provide Internet access or other
online services are subject to new indecency limitations. Legal proceedings have
been instituted which challenge these scrambling requirements and indecency
limitations.
These decisions preliminarily have been held invalid on constitutional
grounds but are subject to Supreme Court review.
Under the 1996 Act, a franchising authority may not require a cable
operator to provide telecommunications services or facilities, other than an
institutional network, as a condition to a grant, renewal, or transfer of a
cable franchise, and franchising authorities are preempted from regulating
telecommunications services provided by cable operators and from requiring cable
operators to obtain a franchise to provide such services. The 1996 Act also
repeals the 1992 Cable Act's anti-trafficking provision which generally required
the holding of cable television systems for three years.
It is premature to predict the effect of the 1996 Act on the cable industry
in general or the Company in particular. The FCC is undertaking numerous
rulemaking proceedings to interpret and implement the 1996 Act. It is not
possible at this time to predict the outcome of those proceedings or their
effect on the cable television industry or the Company.
FEDERAL REGULATION
In addition to the 1996 Act, the cable industry is regulated under the 1984
Cable Act, the 1992 Cable Act and the regulations implementing these statutes.
The FCC has promulgated regulations covering such areas as the registration of
cable television systems, cross-ownership of cable television systems and other
communications businesses, carriage of television broadcast programming,
consumer protection and customer service standards and lockbox availability,
origination cablecasting and sponsorship identification, limitations on
commercial advertising in children's programming, the regulation of basic cable
and cable programming service and equipment rates in cable service areas not
subject to effective competition, signal leakage and frequency use, technical
performance, maintenance of various records, equal employment opportunity,
antenna structure notification, marking and lighting, and program exclusivity.
Additionally, cable operators periodically are required to file various
informational reports with the FCC. The FCC has the authority to enforce these
regulations through the imposition of substantial fines, the issuance of cease
and desist orders and/or the imposition of administrative sanctions, such as the
revocation of FCC licenses needed to operate certain transmission facilities
often used in connection with cable operations. State or local franchising
authorities, as applicable, also have the right to enforce various regulations,
impose fines or sanctions, issue orders or seek revocation subject to the
limitations imposed upon such franchising authorities by federal, state and
local laws and regulations.
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CABLE COMMUNICATIONS POLICY ACT OF 1984
On December 29, 1984, the 1984 Cable Act, which amended the Communications
Act of 1934, took effect (as so amended, the "Communications Act"). This
legislation imposed uniform national regulations on cable television systems and
franchising authorities. Among other things, the legislation regulated the
provision of cable television service pursuant to a franchise, specified those
circumstances under which a cable television operator may modify its franchise,
established franchise renewal procedures, and established a 5.0% maximum
franchise fee payable by cable television operators to franchising authorities.
The law prescribes a standard of privacy protection for cable subscribers,
and imposes equal employment opportunity requirements on the cable television
industry. Franchising authorities are granted authority to establish
requirements in new franchises and upon the renewal of existing franchises for
the designation and use of public, educational and governmental access channels.
Franchising authorities are empowered to establish requirements for
cable-related facilities and equipment, which may include requirements that
relate to channel capacity, system configuration and other facility or equipment
requirements related to the establishment and operation of a cable television
system.
CABLE TELEVISION CONSUMER PROTECTION AND COMPETITION ACT OF 1992
On October 5, 1992, Congress enacted the 1992 Cable Act. The 1992 Cable Act
amends the 1984 Cable Act in many respects. The 1992 Cable Act allows for a
greater degree of regulation of the cable industry with respect to, among other
things: (i) cable system rates for both basic and cable programming services and
equipment; (ii) programming access terms and conditions and exclusivity
arrangements including volume discounts available to larger cable operators;
(iii) access to cable channels by unaffiliated programming services; (iv) leased
access terms and conditions; (v) horizontal and vertical ownership of cable
systems; (vi) customer service standards; (vii) franchise renewals; (viii)
television broadcast signal carriage ("must carry") and retransmission consent;
(ix) technical standards; (x) customer privacy; (xi) cable equipment
compatibility; (xii) home wiring requirements; and (xiii) obscene or indecent
programming. Additionally, the 1992 Cable Act seeks to encourage competition
with existing cable television systems by: (i) allowing municipalities to own
and operate their own cable television systems without having to obtain a
franchise; (ii) preventing franchising authorities from granting exclusive
franchises or unreasonably refusing to award additional franchises covering an
existing cable system's service area; and (iii) prohibiting the common ownership
of co-located MMDS or SMATV systems. The 1992 Cable Act also includes an
"anti-buy-through prohibition" which prohibits cable systems that have
addressable technology and addressable converters in place from requiring cable
subscribers to purchase service tiers above basic as a condition to purchasing
premium movie channels. Cable systems which are not addressable are allowed a
10-year phase-in period to comply. Management believes that compliance with a
number of provisions in this legislation relating to, among other things, rate
regulation, has had, and will most likely continue to have, a significant
negative impact on the cable television industry and on the Company's business.
Various cable operators and other parties have filed actions in the United
States District Court for the District of Columbia (the "D.C. District Court")
challenging the constitutionality of several sections of the 1992 Cable Act. A
three-judge panel of the D.C. District Court granted summary judgment for the
government upholding the constitutional validity of the must-carry provisions of
the 1992 Cable Act. That decision was appealed directly to the United States
Supreme Court (the "Supreme Court"), which remanded the case to the D.C.
District Court for further proceedings. On December 12, 1995, the three judges
of the D.C. District Court again upheld the must-carry rules' constitutional
validity. Pending the Supreme Court's final review of the constitutionality of
the must-carry rules, such rules continue in force.
On September 4, 1996, the United States Court of Appeals for the District
of Columbia (the "D.C. Appeals Court") upheld the constitutionality of several
provisions of the 1984 and 1992 Cable Acts against a First Amendment
constitutional challenge in a case that has been pending since 1993. The Court
affirmed a lower court decision upholding the constitutionality of the federal
statutory provisions authorizing (i) public, educational and governmental access
channels, (ii) commercial leased access channels, (iii) rate regulation, (iv)
liability for operators carrying obscene programming on access channels, and (v)
municipal immunity
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from damage claims; and it reversed the lower court's determination that the
federal statutory provisions authorizing (i) advance subscriber notice for
certain free premium channel previews and associated blocking requirements and
(ii) direct broadcast satellite channel set-aside requirements were
unconstitutional. The Court deferred a ruling on the constitutional challenge to
statutory requirements mandating program access and system ownership
restrictions and determined that it will consider the validity of these
provisions in a separate case involving a challenge to the FCC's regulations
implementing these statutory provisions. The 1992 Act also includes three
provisions addressing "indecent" programming on access channels -- two of which
were recently held unconstitutional in a decision by the Supreme Court. The
decision gives cable operators discretion to prohibit the provision of indecent
programming on commercial leased access channels, but not on public access
channels. An operator may prohibit or restrict indecent programming only to the
extent consistent with a written and published policy.
D.C. Appeals Court recently upheld the FCC's rate regulations implemented
pursuant to the 1992 Cable Act, but ruled that the FCC impermissibly failed to
permit cable operators to adjust rates for certain cost increases incurred
during the period between the 1992 Cable Act's passage and the initial date of
rate regulation. The Supreme Court has declined to review the decision, and the
FCC has not yet implemented the appeals court's ruling.
Although regulation under the 1992 Cable Act has been detrimental to the
Company, it is still not possible to predict the 1992 Cable Act's full impact on
the Company. Its impact will be dependent, among other factors, on the
continuing interpretation to be afforded by the FCC and the courts to the
statute and the implementing regulations, as well as the actions of the Company
in response thereto. The Company expects to continue to sustain higher operating
costs in order to administer the additional regulatory burdens imposed by the
1992 Cable Act.
FEDERAL REGULATORY PROVISIONS
Rate Regulation. The 1992 Cable Act substantially changed the rate
regulation standards contained in the 1984 Cable Act and corresponding FCC
regulations. Effective September 1, 1993, rate regulation was instituted for
certain cable television services and equipment in communities that are not
subject to effective competition as defined in the legislation. "Effective
competition" is defined by the 1992 Cable Act to exist only where (i) fewer than
30% of the households in the franchise area subscribe to a cable service; or
(ii) at least 50% of the homes in the franchise area are passed by at least two
unaffiliated multichannel video programming distributors where the penetration
of at least one distributor other than the largest exceeds 15%; or (iii) a
multichannel video programming distributor operated by the franchising authority
for that area passes at least 50% of the homes in the franchise area. Under the
1992 Cable Act virtually all cable television systems not subject to effective
competition are subject to rate regulation for basic service by local
authorities under the oversight of the FCC, which has prescribed guidelines and
criteria for such rate regulation. A local franchising authority seeking to
regulate basic service rates must certify to the FCC, among other matters, that
it has adopted regulations consistent with the FCC's rate regulation guidelines
and criteria. The 1992 Cable Act also requires the FCC to resolve complaints
about rates for CPS (i.e., rates other than for programming offered on the basic
service tier or on a per channel or per program basis) and to reduce any such
rates found to be unreasonable. The 1992 Cable Act eliminates the automatic 5.0%
annual basic service rate increase permitted by the 1984 Cable Act without local
approval.
In April 1993, the FCC adopted regulations governing the regulation of
rates for basic tier and cable programming tier services and equipment. The
regulations became effective on September 1, 1993. Cable operators may elect to
justify regulated rates for both tiers of service under either a benchmark or
cost-of-service methodology regulatory scheme. Except for those operators that
filed cost-of-service showings, cable operators with rates that were above
September 30, 1992 benchmark levels generally reduced those rates to the
benchmark level or by 10.0%, whichever was less, adjusted forward for inflation.
Cable operators that have not adjusted rates to permitted levels could be
subject to refund liability including applicable interest.
In February 1994, the FCC revised its benchmark regulations. Effective May
1994, cable television systems not seeking to justify rates with a
cost-of-service showing were to reduce rates up to 17.0% of the rates
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in effect on September 30, 1992, adjusted for inflation, channel adjustments and
changes in equipment and programming costs. Under certain conditions systems
were permitted to defer these rate adjustments until July 14, 1994. Further rate
reductions for cable systems whose rates were below the revised benchmark
levels, as well as reductions that would require operators to reduce rates below
benchmark levels in order to achieve a 17.0% rate reduction, were held in
abeyance pending completion of cable system cost studies. Based on its cost
studies, the FCC could decide to defer permanently any further rate reductions,
or require the additional 7.0% rate roll back for some or all of these systems.
The FCC also adopted a cost of service rate form to permit operators to recover
the costs of upgrading their plant.
The Company elected the benchmark or cost-of-service methodologies to
justify its basic and CPS tier rates in effect prior to May 15, 1994, but relied
primarily upon the cost-of-service methodology to justify regulated service
rates in effect after May 14, 1994. The FCC recently released a series of orders
in which it found the Company's rates in a significant majority of cases to be
reasonable, but several cost of service cases are still pending before the FCC.
These include a number of cases in which several local franchising authorities,
with the Company's concurrence, have requested that the FCC review the Company's
rate justifications. Although the Company generally believes that its rates are
justified under the FCC's benchmark or cost-of-service methodologies, it cannot
predict the ultimate resolution of these remaining cases.
In November 1994, the FCC also revised its regulations governing rate
adjustments due to channel changes and additions. Commencing on January 1, 1995,
and continuing through December 31, 1996, cable operators may charge basic
subscribers up to $.20 per channel for channels added after May 14, 1994.
Adjustments to monthly rates are capped at $1.20 plus an additional $.30 to
cover programming license fees for those channels. In 1997, cable operators may
increase rates by $.20 for one additional channel. Rates may also increase in
the third year to cover any additional costs for the programming for any of the
channels added during the entire three-year period. Cable operators electing to
use the $.20 per channel adjustment may not also take a 7.5% mark-up on
programming cost increases that is otherwise permitted under the FCC's
regulations. The FCC has requested further comment on whether cable operators
should continue to receive the 7.5% mark-up on increases in license fees for
existing programming services.
Additionally, the FCC will permit cable operators to exercise their
discretion in setting rates for New Product Tiers ("NPTs") containing new
programming services, so long as, among other conditions, the channels that are
subject to rate regulation are priced in conformance with applicable regulations
and cable operators do not remove programming services from existing
rate-regulated service tiers and offer them on the NPT.
In September 1995, the FCC authorized a new, alternative method of
implementing rate adjustments which will allow cable operators to increase rates
for programming annually on the basis of projected increases in external costs
(inflation, costs for programming, franchise-related obligations, and changes in
the number of regulated channels) rather than on the basis of cost increases
incurred in the preceding quarter. Cable operators that elect not to recover all
of their accrued external costs and inflation pass-throughs each year may
recover them (with interest) in the subsequent year.
In December 1995, the FCC adopted final cost-of-service rate regulations
requiring, among other things, cable operators to exclude 34.0% of system
acquisition costs related to intangible and tangible assets used to provide
regulated services. The FCC also reaffirmed the industry-wide 11.25% after tax
rate of return on an operator's allowable rate base, but initiated a further
rulemaking in which it proposes to use an operator's actual debt cost and
capital structure to determine an operator's cost of capital or rate of return.
After a rate has been set pursuant to a cost-of-service showing, rate increases
for regulated services are indexed for inflation, and operators are permitted to
increase rates in response to increases in costs including increases in
programming, retransmission, franchise, copyright and FCC user fees and
increases in cable specific taxes and franchise related costs.
The 1996 Act amends the rate regulation provisions of the 1992 Cable Act.
The FCC has issued interim regulations implementing these amendments and has
requested comments on its proposed final regulations. Regulation of basic cable
service continues in effect until a cable television system becomes subject to
effective competition. In addition to the existing definition of effective
competition, a new effective
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competition test permits deregulation of both basic and CPS tier rates where a
telephone company offers cable service by any means (other than direct-to-home
satellite services) provided that such service is comparable to the services
provided in the franchise area by the unaffiliated cable operator. CPS rates
will be deregulated in all franchise areas on March 31, 1999. The 1996 Act
deregulated CPS rates of small cable operators where a small cable operator
serves 50,000 or fewer subscribers. A small cable operator is defined as a cable
operator that serves fewer than 1.0% of all subscribers and is not affiliated
with any entities whose gross annual revenues in the aggregate exceed $250.0
million. Subscribers are no longer permitted to file programming service
complaints with the FCC, and complaints may only be brought by a franchising
authority if, within 90 days after a rate increase becomes effective, it
receives more than one subscriber complaint. The FCC is required to act on such
complaints within 90 days. The uniform rate provision of the 1992 Cable Act is
amended to exempt bulk discounts to multiple dwelling units so long as a cable
operator that is not subject to effective competition does not charge predatory
prices to a multiple dwelling unit.
Carriage of Broadcast Television Signals -- Must Carry/Retransmission
Consent. The 1992 Cable Act contained new signal carriage requirements. The
FCC's regulations implementing these provisions allow commercial television
broadcast stations which are "local" to a cable system, i.e., the system is
located in the station's Area of Dominant Influence ("ADI"), to elect every
three years whether to require the cable system to carry the station, subject to
certain exceptions, or whether the cable system will have to negotiate for
"retransmission consent" to carry the station. The first such election by local
broadcast stations was made on June 17, 1993 and the second election must be
made by October 6, 1996. Local noncommercial television stations are also given
mandatory carriage rights, subject to certain exceptions, but are not given the
option to negotiate retransmission consent for the carriage of their signal. In
addition, cable systems are required to obtain retransmission consent for the
carriage of all "distant" commercial broadcast stations (except for certain
"superstations," i.e., commercial satellite-delivered independent stations such
as WTBS), commercial radio stations and certain low powered television stations
carried by such cable systems after October 5, 1993. Generally, a cable operator
is required to dedicate up to one-third of its activated channel capacity for
the carriage of commercial television broadcast stations, as well as additional
channels for non-commercial television broadcast stations. The Company currently
carries all broadcast stations pursuant to the FCC's must-carry rules and has
obtained permission from all broadcasters who elected retransmission consent.
The Company has not been required to pay cash compensation to broadcasters for
retransmission consent or been required by broadcasters to remove broadcast
stations from cable television channel lineups. The Company has, however, agreed
to carry some services (e.g. ESPN 2, Home & Garden TV, America's Talking and fX)
in specified markets pursuant to retransmission consent arrangements for which
it will pay monthly fees to the service providers (as it does with other
satellite delivered services).
Franchise Fees and Franchise Imposed Requirements. Although franchising
authorities may impose franchise fees under the 1984 Cable Act, such payments
cannot exceed 5.0% of a cable television system's annual gross revenues. In
those franchise areas in which franchise fees are required, the Company
typically pays franchise fees ranging between 3.0% to the maximum of 5.0% of
gross revenues. Franchising authorities are also empowered in awarding new
franchises or renewing existing franchises to require cable operators to provide
cable-related facilities and equipment and to enforce compliance with voluntary
commitments. In the case of franchises in effect prior to the effective date of
the 1984 Cable Act, franchising authorities may enforce requirements contained
in the franchise relating to facilities, equipment and services, whether or not
cable-related. Under the 1992 Cable Act, cable operators are permitted to
itemize the franchise fee and any costs pertaining to franchise-imposed
requirements on a subscriber's bill and may pass through such costs to
subscribers.
Franchise Procedures and Renewal. The 1984 Cable Act established renewal
procedures, standards and criteria designed to protect incumbent franchisees
against arbitrary denials of renewal. While these formal procedures are not
mandatory unless timely invoked by either the cable operator or the franchising
authority, they do provide substantial protection to incumbent franchisees. Even
after the formal renewal procedures are invoked, franchising authorities and
cable operators remain free to negotiate a renewal outside the formal process.
In addition to other criteria, the 1984 Cable Act requires that franchising
authorities consider a franchisee's past performance and renewal proposal on
their own merits in light of community needs and
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without comparison to competing applicants. In the franchise renewal process, a
franchising authority may impose new and more onerous requirements such as
upgrading facilities and equipment, although the municipality must take into
account the cost of meeting such requirements. The 1992 Cable Act made several
procedural changes to the process under which a cable operator seeks to enforce
its renewal right, including permitting franchising authorities to consider the
"level" of programming service provided by a cable operator in deciding whether
to renew, and proscribing a court's ability to reverse a denial of renewal based
on procedural violations found to be "harmless error."
Historically, franchises have been renewed for cable operators that have
provided satisfactory services and have complied with the terms of their
franchises. Nevertheless, under the 1992 Cable Act, cable operators are now
subject to minimum customer service and technical performance standards adopted
by the FCC. In addition, franchising authorities may establish or enforce
customer service requirements that are more stringent than those adopted by the
FCC. Management believes that it has generally met the terms of its franchises
and has provided quality levels of service, and it anticipates that its future
franchise renewal prospects generally will be favorable. Although the 1992 Cable
Act may subject the Company to increased scrutiny by franchising authorities
during the remaining terms of the franchises, historically the Company has never
had a franchise revoked or failed to have a franchise renewed. There can be no
assurance, however, that this will continue to be the case. See "-- State and
Local Regulation."
Designated Channels. In addition to the obligation to set aside certain
channels for public, educational and governmental access programming, the 1984
Cable Act also requires a cable television system with 36 or more channels to
designate a portion of its channel capacity for commercial leased access by
third parties to provide programming that may compete with services offered by
the cable operator. As required by the 1992 Cable Act, the FCC has adopted rules
regulating the maximum reasonable rate a cable operator may charge for
commercial use of the designated channel capacity and the terms and conditions
for commercial use of such channels. The FCC currently has these rules under
reconsideration.
Ownership. Prior to the enactment of the 1996 Act, the FCC rules and
federal law generally prohibited the direct or indirect common ownership,
operation, control or interest in a cable television system, on the one hand,
and a local television broadcast station whose television signal (predicted
grade B contour as defined under FCC regulations) reaches any portion of the
community served by the cable television system, on the other hand. For purposes
of the cross-ownership rules, "control" of licensee companies is attributed to
all 5.0% or greater stockholders, except for mutual funds, banks and insurance
companies which may own less than 10.0% without attribution of control. The FCC
has requested comment as to whether to raise the attribution criteria from 5.0%
to 10.0% and for passive investors from 10.0% to 20.0%, and whether it should
exempt from attribution certain widely held limited partnership interests where
each individual interest represents an insignificant percentage of total
partnership equity. The 1996 Act eliminates the statutory ban on the
crossownership of a cable system and a television station, and permits the FCC
to amend or revise its own regulations regarding the cross-ownership ban. The
FCC recently lifted its ban on the cross-ownership of cable television systems
by broadcast networks and revised its regulations to permit broadcast networks
to acquire cable television systems serving up to 10.0% of the homes passed in
the nation, and up to 50.0% of the homes passed in a local market. The local
limit would not apply in cases where the network-owned cable system competes
with another cable operator.
Finally, in order to encourage competition in the provision of video
programming, the FCC adopted a rule in 1993 prohibiting the common ownership,
affiliation, control or interest in cable television systems and MMDS facilities
having overlapping service areas, except in very limited circumstances. The 1992
Cable Act also codified this restriction and extended it to co-located SMATV
systems, except that a cable system may acquire a co-located SMATV system if it
provides cable service to the SMATV system in accordance with the terms of its
cable television franchise. Permitted arrangements in effect as of October 5,
1992 were grandfathered. The 1992 Cable Act permits states or local franchising
authorities to adopt certain additional restrictions on the transfer of
ownership of cable television systems. The 1996 Act amended the MMDS/SMATV
co-ownership ban to permit co-ownership of MMDS or SMATV systems and cable
television systems in areas where the cable operator is subject to effective
competition.
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The cross-ownership prohibitions would preclude investors from holding
ownership interests in the Company if they simultaneously served as officers or
directors of, or held an attributable ownership interest in, these other
businesses, and would also preclude the Company from acquiring a cable
television system when the Company's officers or directors served as officers or
directors of, or held an attributable ownership in, these other businesses which
were located within the same area as the cable system which was to be acquired.
The 1996 Act generally restricts common carriers from holding greater than
a 10.0% financial interest or any management interest in cable operators which
provide cable service within the carrier's telephone exchange service area or
from entering joint ventures or partnerships with cable operators in the same
market subject to four general exceptions which include population density and
competitive market tests. The FCC may waive the buyout restrictions if it
determines that, because of the nature of the market served by the cable
television system or the telephone exchange facilities, the cable operator or
LEC would be subject to undue economic distress by enforcement of the
restrictions, the system or LEC facilities would not be economically viable if
the provisions were enforced, the anticompetitive effects of the proposed
transaction clearly would be outweighed by the public interest in serving the
community, and the local franchising authority approves the waiver.
Pursuant to the 1992 Cable Act, the FCC has imposed limits on the number of
cable television systems which a single cable operator may own. In general, no
cable operator may hold an attributable interest in cable television systems
which pass more than 30.0% of all homes nationwide. Attributable interests for
these purposes include voting interests of 5.0% or more (unless there is another
single holder of more than 50.0% of the voting stock), officerships,
directorships and general partnership interests. The FCC also has adopted rules
which limit the number of channels on a cable television system that can be
occupied by programming in which the entity that owns the cable system has an
attributable interest. The limit is 40.0% of all activated channels.
Federal cross-ownership restrictions have previously limited entry into the
cable television business by potentially strong competitors such as telephone
companies. The 1996 Act repeals the cross-ownership ban and provides that
telephone companies may operate cable television systems within their own
service areas.
All the Bell Operating Companies (except Southwestern Bell) and most of the
major independent telephone companies initially requested authority from the FCC
to provide video dialtone service in certain portions of their service areas,
but generally these companies have postponed or withdrawn their video dialtone
proposals. The 1996 Act repeals the FCC's video dialtone rules, but does not
require the termination of any video dialtone system that the FCC had approved
prior to the enactment of the 1996 Act. However, such a video dialtone provider
must elect whether to provide video service as a cable operator, an OVS
operator, or a common carrier.
The 1996 Act will enable telephone companies to provide video programming
services as common carriers, cable operators or OVS operators. If OVS systems
become widespread in the future, cable television systems could be placed at a
competitive disadvantage because, unlike OVS operators, cable television systems
are required to obtain local franchises to provide cable television service and
must comply with a variety of obligations under such franchises. Under the 1996
Act, common carriers leasing capacity for the provision of video programming
services over cable systems or OVS operators are not bound by the
interconnection obligations of Title II of the Communications Act of 1934, as
amended, which otherwise would require the carrier to make capacity available on
a nondiscriminatory basis to any other person for the provision of cable service
directly to subscribers. Additionally, under the 1996 Act, common carriers
providing video programming are not required to obtain a Section 214
certification to establish or operate a video programming delivery system.
Common carriers that qualify as OVS operators are exempt from many of the
regulatory obligations that currently apply to cable operators. However, certain
restrictions and requirements that apply to cable operators will still be
applicable to OVS operations. Common carriers that elect to provide video
services over an OVS may do so upon obtaining certification by the FCC. The 1996
Act requires the FCC to adopt rules governing the manner in which OVS operators
provide video programming services. Among other requirements, the 1996 Act
prohibits OVS operators from discriminating in the provision of video
programming services and
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requires OVS operators to limit carriage of video services selected by the OVS
operator to one-third of the OVS's capacity. OVS operators must also comply with
the FCC's sports exclusivity, network nonduplication and syndicated exclusivity
restrictions, public, educational, and government channel use requirements, the
"must-carry" requirements of the 1992 Cable Act, and regulations that prohibit
anticompetitive behavior or discrimination in the prices, terms and conditions
of providing vertically integrated satellite-delivered programming. The U.S.
Copyright Office has pending a rulemaking proceeding to determine whether an OVS
operator may be treated as a cable operator for purposes of copyright liability.
Upon compliance with such requirements, an OVS operator will be exempt from
various statutory restrictions which apply to cable operators, such as
broadcast- cable ownership restrictions, commercial leased access requirements,
franchising, rate regulation, and consumer electronics compatibility
requirements. Although OVS operators are not subject to franchise fees, as
defined by the 1996 Act, they may be subject to fees charged by local
franchising authorities or other governmental entities in lieu of franchise
fees. Such fees may not exceed the rate at which franchise fees are imposed on
cable operators and may be itemized separately on subscriber bills.
Equal Employment Opportunity. The 1984 Cable Act includes provisions to
ensure that minorities and women are provided equal employment opportunities
within the cable television industry. Pursuant to the statute, the FCC has
adopted reporting and certification rules that apply to all cable system
operators with more than five full-time employees. Failure to comply with the
Equal Employment Opportunity requirements can result in the imposition of fines
and/or other administrative sanctions, or may, in certain circumstances, be
cited by a franchising authority as a reason for denying a franchisee's renewal
request.
Technical and Customer Service Standards. The 1984 Cable Act empowers the
FCC to set certain technical standards governing the quality of cable signals
and to preempt local authorities from imposing more stringent technical
standards. The 1992 Cable Act requires the FCC to establish minimum technical
standards relating to system technical operation and signal quality and to
update such standards periodically. A franchising authority may require that an
operator's franchise contain provisions enforcing such federal standards.
Pursuant to the 1992 Cable Act, the FCC has adopted new customer service
standards with which cable operators must comply, upon their adoption by a local
franchising authority. Franchising authorities may, through the franchising
process or state and/or local ordinance, impose more stringent customer service
standards.
Pole Attachments. The 1984 Cable Act requires the FCC to regulate the
rates, terms and conditions imposed by certain public utilities for cable
systems' use of utility pole and conduit space unless the Federal Pole
Attachment Act provides that state authorities can demonstrate that they
adequately regulate cable television pole attachment rates, terms and
conditions. In some cases utility companies have increased pole attachment fees
for cable systems that have installed fiber optic cables that are using such
cables for the distribution of non-video services. The FCC recently concluded
that, in the absence of state regulation, it has jurisdiction to determine
whether utility companies have justified their demand for additional rental
fees, and that the 1984 Cable Act does not permit disparate rates based on the
type of service provided over the equipment attached to the utility's pole.
Further, in the absence of state regulation, the FCC administers such pole
attachment rates through use of a formula which it has devised and from time to
time revises. The 1996 Act extends the regulation of rates, terms and conditions
of pole attachments to telecommunications service providers, and requires the
FCC to prescribe regulations to govern the charges for pole attachments used by
telecommunications carriers to provide telecommunications services when the
parties fail to resolve the dispute over such charges. The 1996 Act, among other
provisions, increases significantly future pole attachment rates for cable
systems which use pole attachments in connection with the provision of
telecommunications services as a result of a new rate formula charged to
telecommunications carriers for the non-useable space of each pole. These rates
are to be phased in after a five-year period.
MISCELLANEOUS PROVISIONS
Fines. The Communications Act specifically empowers the FCC to impose
fines upon cable television system operators for willful or repeated violation
of the FCC's rules and regulations.
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Consumer Equipment. The 1996 Act requires the FCC, in consultation with
industry standard-setting organizations, to adopt regulations which would
encourage commercial availability to consumers of all services offered by
multichannel video programming distributors. The regulations adopted may not
prohibit programming distributors from offering consumer equipment, so long as
the cable operator's rates for such equipment are not subsidized by charges for
the services offered. The rules also may not compromise the security of the
services offered, or the efforts of service providers to prevent theft of
service. The FCC may waive these rules so as not to hinder the development of
advanced services and equipment. The 1996 Act requires the FCC to examine the
market for closed captioned programming and prescribe regulations which ensure
that video programming, with certain exceptions, is fully accessible through
closed captioning.
Telephone and Cable Wiring. The FCC has initiated a rulemaking to
consider, among other issues, whether to adopt uniform regulations governing
telephone and cable inside wiring. The regulations ultimately adopted by the FCC
could affect the Company's ownership interests and access to inside wiring used
to provide telephony and video programming services. In a related rulemaking
proceeding, the FCC will consider the appropriate treatment of inside wiring in
multiple dwelling unit buildings. The outcome of that rulemaking could affect
cable operators' access to inside wiring in MDUs.
Deletion of Network and Syndicated Programming. Cable television systems
that have 1,000 or more customers must, upon the appropriate request of a local
television station, delete the simultaneous or non-simultaneous network
programming of a distant station when such programming has also been contracted
for by the local station on an exclusive basis. FCC regulations also enable
television broadcast stations that have obtained exclusive distribution rights
for syndicated programming in their market to require a cable system to delete
or "black out" such programming from other television stations which are carried
by the cable system. The FCC also has commenced a proceeding to determine
whether to relax or abolish the geographic limitations on program exclusivity
contained in its rules, which would allow parties to set the geographic scope of
exclusive distribution rights entirely by contract, and to determine whether
such exclusivity rights should be extended to non-commercial educational
stations. It is possible that the outcome of these proceedings will increase the
amount of programming that cable operators are requested to black out.
STATE AND LOCAL REGULATION
Because a cable television system uses local streets and rights-of-way,
cable television systems are subject to state and local regulation, typically
imposed through the franchising process. State and/or local officials are
usually involved in franchisee selection, system design and construction,
safety, service rates and equipment charges, consumer relations, billing
practices and community related programming and services.
Cable television systems generally are operated pursuant to nonexclusive
franchises, permits or licenses granted by a municipality or other state or
local governmental entity. Franchises generally are granted for fixed terms and
in many cases are terminable if the franchise operator fails to comply with
material provisions. Although the 1984 Cable Act provides for certain procedural
protections, there can be no assurance that renewals will be granted or that
renewals will be made on similar terms and conditions. Franchises usually call
for the payment of fees, often based on a percentage of the system's gross
customer revenues, to the granting authority. Upon receipt of a franchise, the
cable system owner usually is subject to a broad range of obligations to the
issuing authority directly affecting the business of the system. The terms and
conditions of franchises vary materially from jurisdiction to jurisdiction, and
even from city to city within the same state, historically ranging from what
many cable operators consider reasonable to what they consider highly
restrictive or burdensome. The 1984 Cable Act places certain limitations on a
franchising authority's ability to control the operation of a cable system
operator and the courts have from time to time reviewed the constitutionality of
several general franchise requirements, including franchise fees and access
channel requirements, often with inconsistent results. On the other hand, the
1992 Cable Act prohibits exclusive franchises, and allows franchising
authorities to exercise greater control over the operation of franchised cable
television systems, especially in the area of customer service and rate
regulation. The 1992 Cable Act also allows franchising authorities to operate
their own multi-channel video distribution system without having to obtain a
franchise and permits states or local franchising authorities to adopt certain
restrictions on the ownership of cable television systems. Moreover, under the
1992 Cable Act franchising authorities are immunized from monetary
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damage awards arising from regulation of cable television systems or decisions
made on franchise grants, renewals, transfers and amendments.
The specific terms and conditions of a franchise and the laws and
regulations under which it was granted directly affect the profitability of the
cable television system. Cable franchises generally contain provisions governing
charges for basic cable television services; fees to be paid to the franchising
authority; length of the franchise term; renewal, sale or transfer of the
franchise; territory of the franchise; design and technical performance of the
system; system upgrade or rebuild requirements; public, educational and
governmental access channel requirements; use and occupancy of public streets;
and general construction and system specifications.
The 1992 Cable Act requires franchising authorities to act on any franchise
transfer request submitted after December 4, 1992 within 120 days after receipt
of all information required by FCC regulations and by the franchising authority,
if such information is specified in the franchise or a local ordinance or state
law. Approval is deemed to be granted if the franchising authority fails to act
within such period.
Various proposals have been introduced at the state and local levels with
regard to the regulation of cable television systems, and a number of states
have adopted legislation subjecting 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.
COPYRIGHT LAWS
Cable television systems are subject to federal copyright licensing
requirements under the Copyright Act of 1976, as amended (the "Copyright Act"),
covering the carriage of broadcast signals. In exchange for filing certain
reports and making semi-annual payments (based upon a percentage of revenues) to
a federal copyright royalty pool, cable operators obtain a statutory blanket
license to retransmit copyrighted material on broadcast signals. The Federal
Copyright Royalty Tribunal, which made several adjustments in copyright royalty
rates, was eliminated by Congress in 1993. Any future adjustment to the
copyright royalty rates will be done through an arbitration process to be
supervised by the U.S. Copyright Office. Under the provisions of the Copyright
Act petitions were filed in December 1995 by parties seeking to raise and lower
the copyright royalty rates.
The Copyright Office has pending proceedings aimed at examining its
policies governing the consolidated reporting of commonly owned and contiguous
cable television systems. The present policies governing the consolidated
reporting of certain cable television systems have often led to substantial
increases in the amount of copyright fees owed by the systems affected. These
situations have most frequently arisen in the context of cable television system
mergers and acquisitions. While it is not possible to predict the outcome of
this proceeding, any changes adopted by the Copyright Office in its current
policies may have the effect of reducing the copyright impact of certain
transactions involving cable company mergers and cable television system
acquisitions.
Various bills have been introduced in Congress over the past several years
that would eliminate or modify the cable television compulsory license. Without
the compulsory license, cable operators might need to negotiate rights from the
copyright owners for each program carried on each broadcast station in the
channel lineup. Such negotiated agreements could increase the cost to cable
operators of carrying broadcast signals. The 1992 Cable Act's retransmission
consent provisions expressly provide that retransmission consent agreements
between television broadcast stations and cable operators do not obviate the
need for cable operators to obtain a copyright license for the programming
carried on each broadcaster's signal.
Copyright music performed in programming supplied to cable television
systems by pay cable networks (such as HBO) and basic cable networks (such as
USA Network) has generally been licensed by the networks through private
agreements with the American Society of Composers and Publishers ("ASCAP") and
BMI, Inc. ("BMI"), the two major performing rights organizations in the United
States. ASCAP and BMI offer "through to the viewer" licenses to the cable
networks which cover the retransmission of the cable networks' programming by
cable television systems to their customers. The cable industry has just
concluded
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negotiations on licensing fees with BMI for the use of music performed in
programs locally originated by cable television systems, although no actual
agreements are in place; negotiations with ASCAP are ongoing. ASCAP has filed an
infringement suit against several cable operators as representatives of cable
systems using its music in the pay programming and cable programming networks
provided to subscribers.
The foregoing does not purport to describe all present and proposed
federal, state and local regulations and legislation relating to the cable
television industry. Other existing federal regulations, copyright licensing
requirements and, in many jurisdictions, state and local franchise requirements,
currently are the subject of a variety of judicial proceedings, legislative
hearings and administrative and legislative proposals which could change, in
varying degrees, the manner in which cable television systems operate. Neither
the outcome of these proceedings nor their impact upon the cable television
industry can be predicted at this time.
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MANAGEMENT
GENERAL PARTNER
ICM-IV, a California limited partnership, is the General Partner of ICP-IV.
Leo J. Hindery, Jr. has a controlling interest in ICM-IV. As general partner,
ICM-IV has responsibility for the overall management of the business and
operations of the Company. Pursuant to the terms of ICP-IV's limited partnership
agreement (the "Partnership Agreement"), ICM-IV receives an annual management
fee for services rendered as General Partner. The principal offices of ICM-IV
are located at 235 Montgomery Street, Suite 420, San Francisco, California 94104
and the telephone number is (415) 616-4600.
ADVISORY COMMITTEE
The Advisory Committee (as defined herein) of ICP-IV consults with and
advises ICM-IV with respect to the business and affairs of the Company. The
Advisory Committee consists of one representative of each of the seven limited
partners of ICP-IV with the largest aggregate limited partnership interests in
ICP-IV. For this purpose, the partnership interest of a limited partner includes
actual capital contributions by a limited partner and any capital contributions
by such limited partner's affiliate.
EXECUTIVES
ICP-IV has no employees. Pursuant to the Partnership Agreement, ICM-IV,
through its affiliate InterMedia Capital Management ("ICM"), provides day-to-day
management of the Company's business and operations. The six most senior
non-operating executives of ICM and IMI are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- --------------------------------------------
<S> <C> <C>
Leo J. Hindery, Jr............... 49 Managing General Partner
Edon V. Hartley.................. 36 Chief Financial Officer and Treasurer
Derek Chang...................... 28 Assistant Treasurer and Director of Treasury
Operations
Rodney M. Royse.................. 30 Executive Director of Business Development
Thomas R. Stapleton.............. 42 Controller and Executive Director of
Financial Operations
Grace de Latour.................. 47 Executive Director of Human Resources
</TABLE>
The six officers of IPCC are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- --------------------------------------------
<S> <C> <C>
Leo J. Hindery, Jr............... 49 President
Edon V. Hartley.................. 36 Chief Financial Officer and Treasurer
Derek Chang...................... 28 Secretary
Rodney M. Royse.................. 30 Vice President
Thomas R. Stapleton.............. 42 Vice President
Bruce J. Stewart................. 31 Vice President, Legal Affairs
</TABLE>
Leo J. Hindery, Jr. is the founder and Managing General Partner of ICM-IV
and ICM and President of IPCC. Mr. Hindery is also the founder and Managing
General Partner of IP-I and all of the other Related Intermedia Entities. Before
launching InterMedia Partners in 1988, Mr. Hindery was, from 1985 to 1988, Chief
Officer for Planning and Finance of The Chronicle Publishing Company of San
Francisco ("Chronicle Publishing"), which owns and operates substantial
newspaper and television broadcast properties and, at the time, cable television
properties. Prior to joining Chronicle Publishing, Mr. Hindery was, from 1983 to
1985, Chief Financial Officer and a Managing Director of Becker Paribas
Incorporated, a major New York-based investment banking firm. Mr. Hindery is on
the Board of Directors of the Home Shopping Network, Inc.,
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Netcom On-Line Communication Services, Inc., DMX, Incorporated, the NCTA, the
Cable Telecommunications Association, Cable in the Classroom and C-SPAN. He
earned a B.A. with honors from Seattle University and an M.B.A. with honors from
Stanford University's Graduate School of Business.
Edon V. Hartley is Chief Financial Officer and Treasurer of ICM, IMI and
IPCC. Ms. Hartley joined ICM in 1996. From 1993 to 1995, Ms. Hartley was Finance
Director for TCI. From 1990 to 1993, Ms. Hartley was Finance Counsel for TCI.
Ms. Hartley earned a B.S. with honors in accounting from the University of
Missouri and a J.D. with honors from the University of Denver.
Derek Chang is Assistant Treasurer and Director of Treasury Operations of
ICM, IMI and IPCC, and Secretary of IPCC. Mr. Chang joined ICM in 1994. From
1990 to 1992, Mr. Chang worked, as a financial analyst for The First Boston
Corporation in the Mergers and Acquisitions Group. Mr. Chang earned a B.A. from
Yale University and an M.B.A. from Stanford University's Graduate School of
Business.
Rodney M. Royse is Executive Director of Business Development of ICM, IMI
and IPCC, and Vice President of IPCC. Mr. Royse joined ICM in 1990. From 1988 to
1990, Mr. Royse was a financial analyst at Salomon Brothers Inc in the Corporate
Finance Group. Mr. Royse earned a B.A. in Economics from Stanford University.
Thomas R. Stapleton is Controller and Executive Director of Financial
Operations of ICM, IMI and IPCC, and Vice President of IPCC. Prior to joining
ICM in 1989, Mr. Stapleton was a Manager with Price Waterhouse LLP, the
Company's independent accountants. Mr. Stapleton was previously employed by Bank
of America in asset-based financing. Mr. Stapleton earned a B.S. degree with
honors in Business Administration from San Francisco State University.
Grace de Latour is the Executive Director of Human Resources of ICM, IMI
and IPCC. Ms. de Latour joined IMI in 1995. Prior to joining IMI, from 1994 to
1995, Ms. de Latour was Vice President of Human Resources for Expressly
Portraits. Before that, from 1972 to 1993, she was Corporate Vice President for
Human Resources for Carter Hawley Hale Stores, Inc. Ms. de Latour is on the
Board of Directors of the Independent Colleges of Northern California and the
Federated Employers of the Bay Area. Ms. de Latour earned a B.A. in sociology
from Trinity College in Washington, D.C.
KEY OPERATING MANAGEMENT
The following persons hold key operating management positions with ICM and
IMI:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- --------------------------------------------
<S> <C> <C>
Terry C. Cotten.................. 48 Executive Director of Operations
F. Steven Crawford............... 48 Chief Operating Officer
Julaine A. Smith................. 40 Operations Controller
Bruce J. Stewart................. 31 General Counsel and Executive Director of
Communications
Barbara J. Wood.................. 45 Executive Director of Budgets and Regulatory
Affairs
Kenneth A. Wright................ 40 Executive Director of Engineering and
Telecommunications
Donna K. Young................... 47 Development Executive Director of Marketing
and Ad Sales
</TABLE>
Terry C. Cotten is Executive Director of Operations for IMI. He has over 30
years of experience in the cable television industry. Prior to joining IMI in
1989, Mr. Cotten was, from 1988 to 1989, President of Western Communications'
cable system in Ventura County, serving approximately 65,000 subscribers in
Southern California. Prior to this position, Mr. Cotten was President of Western
Communications' cable system in South San Francisco from 1986 to 1988. Mr.
Cotten earned a B.S. in Management from St. Mary's College.
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F. Steven Crawford is the Chief Operating Officer for ICM. Prior to joining
ICM on October 1, 1996, Mr. Crawford was Senior Vice President of E. W. Scripps
Company from September 1992 to September 1996 and was Chief Operating Officer of
Scripps Cable serving approximately 750,000 subscribers. Mr. Crawford was Vice
President of Scripps Cable's operations in the Southeast from September 1990 to
September 1992. Mr. Crawford serves on the Board of Directors of the NCTA and
the Cable Advertising Bureau. Mr. Crawford earned a B.S. degree in business
management and a M.B.A. degree in finance from Valdosta State University.
Julaine A. Smith is Operations Controller of IMI. Ms. Smith joined IMI in
1994. Prior to joining IMI, Ms. Smith was, from 1993 to 1994, the Director of
Financial Reporting for Pacific Telesis Group. Ms. Smith also worked, from 1991
to 1992, as the Accounting Manager for the domestic cellular operations of
PacTel Corporation (now known as AirTouch Communications). Ms. Smith completed
her public accounting training at the San Francisco office of Price Waterhouse
LLP. Ms. Smith is a Certified Public Accountant and earned a B.S. in Business
Administration, Accounting from California State University at Hayward.
Bruce J. Stewart is General Counsel and Executive Director of
Communications of IMI. Mr. Stewart joined IMI as Counsel in January 1993, and
served in this position until August 1994, when he was appointed General
Counsel. Mr. Stewart is a member of the New York State Bar. Prior to joining
IMI, Mr. Stewart served as legal counsel from 1991 to 1993 at Scholastic
Productions, Inc., a subsidiary of Scholastic, Inc. located in New York City.
From 1990 to 1991, Mr. Stewart worked in New York with the Law Firm of Malcolm
A. Hoffman on commercial contract matters. Mr. Stewart earned a B.A from Holy
Cross College and a J.D. from Case Western Reserve University Law School.
Barbara J. Wood is the Executive Director of Budgets and Regulatory Affairs
of IMI. Ms. Wood has worked in the cable television industry since 1984. Prior
to joining IMI in 1992, she was, from 1991 to 1992, a regional financial manager
for Viacom handling budgeting, financial systems and internal controls. She was
in London with Videotron U.K. during its start-up from 1990 to 1991 as an
outside consultant managing the installation of financial cost accounting
systems and was a controller for Cox Communications from 1984 to 1989. Ms. Wood
is a Certified Public Accountant and earned an M.B.A. in Management from San
Diego State University.
Kenneth A. Wright is the Executive Director of Engineering and
Telecommunications Development of IMI. He is the Company's chief technologist
and directs the engineering of the Company's and Related InterMedia Entities'
cable systems. Prior to joining IMI in February 1995, Mr. Wright was, from 1991
to 1995, Director of Technology for Jones Intercable which manages cable systems
serving approximately 1.5 million subscribers. Before joining Jones Intercable,
Mr. Wright was Director of Engineering for the Western Division of United
Artists Cable which was comprised of systems in 11 states serving approximately
700,000 subscribers. Prior to that, he was a State Engineering Manager for
Centel Cable. Mr. Wright earned a B.S. from Western Michigan University and a
Master of Telecommunications and a Master level certificate in Global Business
and Culture from the University of Denver.
Donna K. Young is the Executive Director of Marketing and Ad Sales of IMI.
Ms. Young is responsible for national marketing programs, including customer
acquisition, customer retention and new product development. Prior to joining
IMI in November 1994, Ms. Young was Vice President for Business Development from
1989 to 1994 for KBLCOM, Inc., then an 800,000-subscriber MSO based in Houston.
Ms. Young is on the Board of Directors of the Cable Television Administration
and Markets Society. A native of Shelbyville, Tennessee, Ms. Young earned a
Ph.D. in educational and organizational psychology from the University of
Tennessee in Knoxville.
MANAGEMENT AND ADMINISTRATION AGREEMENTS
Pursuant to the Partnership Agreement, ICM-IV manages all aspects of the
day-to-day business and operations of the Company and in connection therewith
undertakes those activities and services that are customary in the cable
industry on behalf of the Company. For a more detailed description of the terms
in the Partnership Agreement concerning ICM-IV's management services, see
"Certain Relationships and Related Transactions -- Management by ICM-IV."
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Certain of ICP-IV's subsidiaries have entered into Administrative
Agreements with IMI, pursuant to which IMI provides accounting, operational,
marketing, engineering, legal, rate regulation and other administrative services
to the Company at cost. IMI is wholly owned by Mr. Hindery. IMI provides similar
services to all of the Related InterMedia Entities' operating companies. IMI
charges certain costs to the Company based on the Company's number of basic
subscribers as a percentage of total basic subscribers for all of the Related
InterMedia Entities' systems. See "Certain Relationships and Related
Transactions -- Services to be Rendered to the Company by IMI."
The Company believes that the terms in the Partnership Agreement concerning
ICM-IV's management services and the terms of the Administrative Agreements are
more favorable than the terms which could be obtained by unaffiliated third
parties in arm's-length negotiations with IMI or ICM-IV.
EXECUTIVE COMPENSATION
None of the employees of the Company are deemed to be executives or
officers of the Company. Services of the non-operating executives, key operating
management and other employees of ICM or IMI are provided to the Company in
exchange for fees pursuant to the Partnership Agreement and Administrative
Agreements. The executives, key operating management and other employees of ICM
or IMI who provide services to the Company are compensated by ICM or IMI and
therefore receive no compensation from the Company. No portion of the fees paid
by the Company is allocated to specific employees for the services performed by
ICM or IMI for the Company. See "Certain Relationships and Related
Transactions -- Management by ICM-IV" and "-- Services to be Rendered to the
Company by IMI."
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PRINCIPAL SECURITY HOLDERS
The following table sets forth certain information concerning the
partnership interests in ICP-IV owned by each person known to ICP-IV to own
beneficially more than a five percent non-preferred equity interest and by the
executives of ICM-IV as a group.
<TABLE>
<CAPTION>
NAMES AND ADDRESSES OF BENEFICIAL OWNERS TYPE OF INTEREST PERCENTAGE
--------------------------------------------------------- ---------------- ----------
<S> <C> <C>
Tele-Communications, Inc................................. Limited Partner 49.0%
5619 DTC Parkway, 11th Floor
Englewood, CO 80111
NationsBanc Investment Corp.............................. Limited Partner 9.0%(1)
NationsBank Corporate Center
100 North Tryon Street
Charlotte, NC 28255
IP Holdings L.P.......................................... Limited Partner 7.5%
c/o Centre Partners
30 Rockefeller Plaza, Suite 5050
New York, NY 10020
Mellon Bank, N.A., as Trustee for
Third Plaza Trust and Fourth Plaza Trust............... Limited Partner 6.3%(2)
1 Mellon Bank Center
Pittsburgh, PA 15258-0001
Sumitomo Corp............................................ Limited Partner 5.7%
Sumitomo Kanda Building
24-4, Kanda Nishikicho 3-chome
Chiyoda-ku, Tokyo 101, Japan
Executives of ICM-IV as a Group (6 persons).............. General Partner 1.1%(3)
</TABLE>
- ---------------
(1) Includes investments in ICP-IV by NationsBanc Investment Corp. and
affiliates thereof.
(2) Mellon Bank, N.A., acts as the trustee (the "Plaza Trustee") for each of
Third Plaza Trust and Fourth Plaza Trust (collectively, the "Trusts"), two
trusts under and for the benefit of certain employee benefit plans of
General Motors Corporation ("GM") and its subsidiaries. The limited
partnership interests may be deemed to be owned beneficially by General
Motors Investment Management Corporation ("GMIMCo"), a wholly owned
subsidiary of GM. GMIMCo's principal business is providing investment advice
and investment management services with respect to the assets of certain
employee benefit plans of GM and its subsidiaries and with respect to the
assets of certain direct and indirect subsidiaries of GM and associated
entities. GMIMCo is serving as the Trusts' investment manager with respect
to the limited partnership interests and in that capacity, it has the sole
power to direct the Plaza Trustee as to the voting and disposition of the
limited partnership interests. Because of the Plaza Trustee's limited role,
beneficial ownership of the limited partnership interests by the Plaza
Trustee is disclaimed.
(3) Leo J. Hindery, Jr., is the general partner and holds the controlling
interest in ICM-IV. No executive of ICM-IV or IPCC holds a direct interest
in ICP-IV.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE RELATED INTERMEDIA ENTITIES
The Related InterMedia Entities and the Company are a series of
partnerships and corporations founded by Leo J. Hindery, Jr. to own and operate
cable television systems in the United States. Mr. Hindery formed the first of
the Related InterMedia Entities, IP-I, in early 1988 with the financial backing
of TCI.
Although each of the Related InterMedia Entities and the Company are
distinct legal entities, they are operated as a cohesive group. Accordingly,
they enjoy significant operating efficiencies and reduced overhead from
centralization of certain common functions and shared economies of scale.
Clustering of the Company's operations by geographic location is also intended
to contribute significantly to operating efficiencies and revenue opportunities.
In order to achieve certain operating economies of scale and to allocate
certain administrative services equitably to all of the Related InterMedia
Entities and the Company, Mr. Hindery formed IMI. Mr. Hindery is the sole
shareholder of IMI, which performs the accounting, marketing, engineering,
administrative, operations, legal and rate regulation functions for all of the
Related InterMedia Entities and the Company at cost. Generally, IMI's costs are
allocated to each of the Related InterMedia Entities and the Company on a per
subscriber basis.
SERVICES TO BE RENDERED TO THE COMPANY BY IMI
Certain of ICP-IV's subsidiaries have entered into administrative
agreements with IMI, pursuant to which IMI provides accounting, operational,
marketing, engineering, legal, rate regulation and other administrative services
to the Company at cost.
IMI provides similar services to all of the Related InterMedia Entities'
operating companies. IMI charges certain costs to the Company primarily based on
the Company's number of basic subscribers as a percentage of total basic
subscribers for all of the Related InterMedia Entities' systems. In addition to
changes in IMI's cost of providing such services, changes in the number of the
Company's basic subscribers and/or changes in the number of basic subscribers of
the Related InterMedia Entities' operating companies will affect the level of
IMI costs charged to the Company. The Company believes that the terms of the
Administrative Agreements are more favorable than the terms that could be
obtained by unaffiliated third parties in arm's-length negotiations with IMI.
The Partnership Agreement requires that to the extent amounts paid to
affiliates, including ICM-IV, IMI or partners, exceed the amounts that would be
paid under terms afforded by unrelated third parties, such excess will result in
corresponding reductions in the Management Fee (as defined herein) payable to
ICM-IV. The payment to such affiliate of any such amount in excess of the ICM-IV
Management Fee will require the approval of 70.0% in interest of the limited
partners.
MANAGEMENT BY ICM-IV
ICM-IV manages the Company's cable systems pursuant to the Partnership
Agreement executed as of March 19, 1996. ICM-IV has assigned its rights and
obligations to ICM with regard to management of the Company's cable systems. The
Partnership Agreement provides that this management relationship continues in
effect with respect to each cable television system owned by the Company,
including the systems purchased by the Company pursuant to the Acquisitions.
ICM-IV is authorized to provide management services that include (i) entering
into contracts and performing the resulting obligations, (ii) managing the
assets of the Company and employing such personnel as may be necessary or
appropriate, (iii) controlling bank accounts and drawing orders for the payment
of money, (iv) collecting income and payments due, (v) keeping the books and
records, and hiring independent certified public accountants, (vi) paying
payables and other expenses, (vii) handling Company claims, (viii) administering
the financial affairs, making tax and accounting elections, filing tax returns,
paying liabilities and distributing profits to ICP-IV's partners, (ix) borrowing
money on behalf of the Company, (x) causing the Company to purchase and maintain
liability insurance, (xi) commencing or defending litigation that pertains to
the Company or any of its assets and investigating potential claims, (xii)
executing and filing fictitious business name statements and similar
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documents, (xiii) admitting additional limited partners and permitting
additional capital contributions as provided in the Partnership Agreement and
admitting an assignee of an existing limited partner's interest to be a
substituted limited partner and (xiv) terminating ICP-IV pursuant to the terms
of the Partnership Agreement.
The term of the Partnership Agreement is until December 31, 2007 unless
earlier dissolved under certain conditions specified in the Partnership
Agreement. For its services under the Partnership Agreement, ICM-IV receives a
fee (the "Management Fee") equal to 1.0% of the total non-preferred Contributed
Equity contributions that have been made to the Company determined as of the
beginning of each calendar quarter in each fiscal year; however, if the
acquisition of a cable television system is made with debt financing of more
than two-thirds of the purchase price of such cable television system, the
Partnership Agreement provides that capital contributions of one-third of such
purchase price will be deemed to have been made and the Management Fee will be
paid on such deemed contributions. When any such debt financing is replaced with
actual non-preferred capital contributions of the partners, the Partnership
Agreement provides that the Management Fee will be based on such actual capital
contributions rather than a deemed contribution for such amount. The Company
believes that the terms in the Partnership Agreement concerning ICM-IV's
management services are more favorable than the terms that could be obtained by
unaffiliated third parties in arm's-length negotiations.
Mr. Hindery is managing general partner of ICM-IV and holds the controlling
interest in ICM-IV.
CERTAIN OTHER RELATED TRANSACTIONS
IPWT. On July 30, 1996 pursuant to the IPWT Contribution Agreement, among
(i) ICP-IV, (ii) IP-I, formerly the 80.1% general partner and 9.9% limited
partner of IPWT and (iii) GECC, formerly the 10.0% limited partner of IPWT and
creditor as to a $55.8 million principal amount of debt owed by IPWT, ICP-IV
acquired the IPWT partnership interests and debt for total consideration of
$72.5 million. GECC transferred to the Company its $55.8 million note and
related interest receivables of approximately $3.4 million owed by IPWT to GECC
in exchange for (i) approximately $22.5 million in cash, (ii) a $25.0 million
Preferred Limited Partner Interest and (iii) a $11.7 million limited partnership
interest in ICP-IV. ICP-IV contributed the acquired partnership interests in
IPWT to the Operating Partnership, which, in turn, contributed a 1.0% limited
partnership interest in IPWT to IP-TN. See "The Acquisitions -- Primary
Acquisitions."
RMH. On July 30, 1996 the Operating Partnership acquired RMH and its
wholly owned subsidiary, RMG, pursuant to a stock purchase agreement between the
Operating Partnership and ICM-V, the general partner of IP-V. Prior to the
acquisition, IP-V owned the outstanding equity of RMH. The total transaction is
valued at approximately $376.3 million. As part of the acquisition of RMH,
TCID-IP V, Inc., which was the limited partner of IP-V and is an affiliate of
TCI, converted its outstanding loan to IP-V into a partnership interest and
received in dissolution thereof $12.0 million in RMH Preferred Stock and
approximately $0.037 million in RMH Class B Common Stock. See "The
Acquisitions -- Primary Acquisitions."
TCI Greenville/Spartanburg. The TCI Entities, which are wholly owned
subsidiaries of TCI, have contributed the Greenville/Spartanburg System to the
Company pursuant to the G/S Contribution Agreement for total consideration of
$238.9 million. The Company subsequently contributed these assets to IP-TN, a
subsidiary of ICP-IV. See "The Acquisitions -- Primary Acquisitions."
IP-I. Pursuant to a letter agreement, ICP-IV has agreed to provide IP-I
tag along rights if ICP-IV sells (i) substantially all of its assets in a single
transaction, or (ii) a portion of its assets constituting an identifiable cable
television system which has its primary headend site within fifty miles of the
primary headend site of a cable television system owned by IP-I, to an entity
not controlled by Leo J. Hindery, Jr.
ICM-IV. Pursuant to the Partnership Agreement, ICM-IV funded its capital
contributions of $3.8 million to ICP-IV with cash of $2.0 million and notes
payable to ICP-IV of $1.8 million. The promissory notes bear interest at a rate
of 8.0% per annum and mature at December 31, 1999.
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CERTAIN OTHER RELATIONSHIPS
The Company is a party to an agreement with SSI, an affiliate of TCI,
pursuant to which SSI provides certain cable programming to the Company at a
rate fixed as a percentage in excess of the rate available to TCI. Management
believes that these rates are at least as favorable as the rates that could be
obtained through arm's-length negotiations with third parties. For the year
ended December 31, 1995 and the six months ended July 30, 1996, the cable
television systems owned by IPWT and RMH paid SSI, in aggregate, approximately
$12.8 million and $8.2 million, respectively.
NationsBanc Capital Markets, Inc., one of the Initial Purchasers, is an
affiliate of NationsBanc Investment Corp. and certain of its affiliates, which
holds a 9.0% non-preferred limited partnership interest in ICP-IV. NationsBanc
Capital Markets, Inc. and its affiliates also provide or have provided banking,
advisory and other financial services for the Company and certain of its
affiliates in the ordinary course of business. Toronto Dominion Securities (USA)
Inc., one of the Initial Purchasers, is an affiliate of Toronto Dominion
Capital, which holds a 3.0% non-preferred limited partnership interest in
ICP-IV.
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THE PARTNERSHIP AGREEMENT
The following is a summary of certain material terms of the Partnership
Agreement. This summary is qualified in its entirety by reference to the full
text of the Partnership Agreement, a complete copy of which is included as an
exhibit to the Registration Statement.
ORGANIZATION
ICP-IV was formed as a limited partnership pursuant to the provisions of
the California Revised Limited Partnership Act, as amended, and a certificate of
limited partnership of ICP-IV was filed with the California Secretary of State
on March 19, 1996. The partners of IP-IV transferred their partnership interests
to ICP-IV in July 1996. The purpose of ICP-IV is to (i) directly or indirectly
make equity and debt investments in, including acting as a general partner
and/or a limited partner of, IP-IV and various operating partnerships, (ii)
operate cable television systems and (iii) engage in all necessary and
appropriate activities and transactions as ICM-IV may deem necessary,
appropriate or advisable other than investing, or maintaining offices outside
of, the United States.
DURATION
Under the Partnership Agreement, ICP-IV will be dissolved upon the earliest
of: (i) December 31, 2007, (ii) the bankruptcy, insolvency or appointment of a
trustee or receiver to manage the affairs of the General Partner, (iii) the
voluntary withdrawal of Mr. Hindery as general partner of ICM-IV if a successor
general partner has not been appointed in accordance with the Partnership
Agreement, (iv) the removal of ICM-IV as general partner of ICP-IV by 70.0% in
interest of the limited partners, unless a successor general partner is
appointed within 60 days, (v) dissolution being required by operation of law or
judicial decree, (vi) the determination to dissolve by the General Partner with
the affirmative consent of 70.0% in interest of the limited partners, (vii)
ICP-IV becoming taxable as a corporation for federal tax purposes or (viii) the
determination by the General Partner that ICP-IV would be required to register
as an investment company under the Investment Company Act, and there is no
reasonably practicable means of avoiding such requirement.
CONTROL OF OPERATIONS; ADVISORY COMMITTEE
The Partnership Agreement provides that the General Partner shall manage
the business affairs of the Company, IP-IV or any operating partnership subject
to the terms and provisions of the Partnership Agreement. The Partnership
Agreement provides for an advisory committee consisting of one designee from
each of the seven limited partners with the largest aggregate interests in
ICP-IV (the "Advisory Committee"). For purposes of the Partnership Agreement,
the determination of aggregate interests in ICP-IV is based on the aggregate
limited partner interests in ICP-IV held by a limited partner and any affiliates
thereof, which aggregate holdings entitle such limited partner and affiliates,
if any, to one representative on the Advisory Committee. The Partnership
Agreement also provides that the General Partner distribute to the Advisory
Committee monthly profit and loss statements of ICP-IV and other monthly
financial statements prepared for management personnel, as well as quarterly
financial statements and the Partnership's annual operating plan. The Advisory
Committee is to meet quarterly and consult with and advise the General Partner
with respect to the business of the Company and perform such other advisory
functions as requested by the General Partner.
PREFERRED LIMITED PARTNER
GECC is the preferred limited partner (the "Preferred Limited Partner")
with respect to a portion of its interest in ICP-IV. References to limited
partners of ICP-IV in this Prospectus include the Preferred Limited Partner
unless otherwise specified. Subject to certain provisions in the Partnership
Agreement, income and gain is allocated first to the Preferred Limited Partner
in the amount of any distributions. The Partnership Agreement provides that
distributions are to be made first to the Preferred Limited Partner in repayment
of its initial contribution of capital ("Capital Contribution") and in an amount
equal to 11.75%, per annum,
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compounded semi-annually, of its Capital Contribution ("Preferred Return") until
the Preferred Limited Partner has received distributions equal to its initial
Capital Contribution and accrued Preferred Return. Likewise, gain recognized
upon the dissolution or sale, exchange or other disposition of all or
substantially all of the assets of the Company is to be allocated first, to the
Preferred Limited Partner, in an amount sufficient to bring the balance in its
capital account to an amount equal to its initial Capital Contribution and
accrued Preferred Return. The Partnership Agreement provides that the Preferred
Limited Partner's interest is to be reduced by an amount necessary to offset any
indemnification obligations of GECC under the IPWT Contribution Agreement. See
"Description of Other Obligations -- Description of Preferred Equity Interests."
GECC, as the Preferred Limited Partner, is not entitled to consent on any
partnership matters unless required by law or the matter requires the unanimous
consent of the limited partners. GECC is not entitled to consent (whether as a
limited partner or a Preferred Limited Partner) on removal of the General
Partner unless the consent is for cause. For such matters, the required consent
shall be 70.0% in interest of the limited partners other than GECC.
LIMITED PARTNERS' RIGHT TO CONSENT
When a consent is required under the Partnership Agreement, each limited
partner is entitled to consent based upon that partner's percentage as set forth
in the Partnership Agreement. The Preferred Limited Partner is not entitled to
consent on any matters except as described above. The limited partners have a
right to consent only with respect to the following matters, which actions may
be taken only with the written consent of ICM-IV: (i) amendment of the
Partnership Agreement pursuant to the terms upon the affirmative consent of
70.0% in interest of the limited partners, (ii) amendment of the allocations and
distributions to the limited partners, other than as permitted by the
Partnership Agreement, upon the affirmative consent of each partner adversely
affected, (iii) admission of a new general partner, where there is an existing
general partner, upon the affirmative consent of 70.0% in interest of the
limited partners, (iv) the approval of a transaction in which the General
Partner or any of its affiliates has an actual or potential conflict of interest
with the Limited Partners or the Partnership, which is not expressly permitted
under the Partnership Agreement, upon the affirmative consent of 70.0% in
interest of the disinterested Limited Partners; provided however, that the
Acquisitions could be consummated without any further consent, (v) continuation
of ICP-IV to effect an orderly dissolution of ICP-IV in accordance with the
Partnership Agreement upon the affirmative consent of 70.0% in interest of the
limited partners, (vi) the agreement to enter into any operating partnership or
make any investments in excess of $15.0 million upon the affirmative consent of
70.0% in interest of the limited partners; provided however, any of the
Acquisitions could be consummated without any further consent, (vii) the merger
of or consolidation of ICP-IV with any other entity upon the affirmative consent
of each partner, (viii) the taking of any act that would make it impossible to
carry on the business of ICP-IV except upon the dissolution of ICP-IV in
accordance with the Partnership Agreement upon the affirmative consent of each
partner, (ix) confessing a judgment in excess of $150,000, or settling a
judgment in excess of $300,000, against ICP-IV, IP-IV or any operating
partnership upon the affirmative consent of each partner, (x) using any funds or
assets of ICP-IV other than for the benefit of ICP-IV upon the affirmative
consent of each partner, (xi) taking any action that would subject the limited
partners to personal liability as a general partner upon the affirmative consent
of each partner, (xii) the making of, execution of, or delivery of any general
assignment for the benefit of ICP-IV's creditors upon the affirmative consent of
each partner, (xiii) any matter in the partnership agreement of IP-IV or of any
operating partnership that requires the consent of the limited partners or of
the limited partner or a general partner other than the managing general partner
of IP-IV or an operating partnership; however, the consent required shall
require the approval of the applicable percentage of limited partners that would
have been required if such consent were required under the Partnership Agreement
or if no percentage is specified, 70.0%, and further, the amount or timing of
any distributions to ICP-IV from any operating entity or IP-IV cannot be changed
in a manner inconsistent with the amount or timing of distributions under the
Partnership Agreement without the unanimous consent of the all of the partners,
(xiv) approval of a transaction with TCI or any of its affiliates in an amount
greater than $500,000, or transactions less than $500,000 that exceed an
aggregate of $2.0 million in any twelve-month period, upon the affirmative
consent of a majority in interest of the limited partners (other than TCI or any
of
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its affiliates); however, purchases of programming and equipment on terms no
less favorable to the Partnership than arm's-length terms and in the ordinary
course of business do not require any approval, and each of the Acquisitions
could be consummated without further consent, (xv) the approval of any waiver of
rights of ICP-IV under the IPWT Contribution Agreement if such waiver would
result in ICP-IV forgoing rights valued in excess of 5.0% of the total
consideration paid by ICP-IV for the contribution of partnership interests and
debt transferred under such agreement and (xvi) the approval of a transaction in
which ICM-IV or any of its affiliates has an actual or potential conflict of
interest with the limited partners or ICP-IV and which is not permitted by the
terms of this Agreement, upon the affirmative consent of 70.0% in interest of
the limited partners; however, any of the Acquisitions could consummated without
any further consent.
The Partnership Agreement provides that, in the event one limited partner
holds 70.0% of the interests of the limited partners, the 70.0% requirement then
increases to 75.0%. For purposes of the Partnership Agreement, a limited
partner's interest in ICP-IV is determined on the basis of such limited
partners' actual capital contributions.
WITHDRAWAL OR REMOVAL OF THE GENERAL PARTNER
The Partnership Agreement provides that, upon withdrawal or removal of
ICM-IV, a successor general partner must be selected by 70.0% in interest of the
limited partners within 60 days or the Company will be dissolved. The
Partnership Agreement further provides that withdrawal of ICM-IV occurs if (i)
Mr. Hindery dies or becomes disabled (unable to perform his duties as general
partner of ICM-IV for nine months) or otherwise ceases to control ICM-IV
directly or indirectly, (ii) bankruptcy, insolvency or appointment of a trustee
to manage the affairs of ICM-IV or Leo J. Hindery, Jr., or dissolution of
ICM-IV, (iii) for any reason that causes ICM-IV to cease to be the General
Partner or (iv) any event that causes ICM-IV to cease to be controlled directly
or indirectly through one or more intermediaries. Removal of ICM-IV on specific
grounds, including for cause, may be initiated by 70.0% in interest of the
limited partners. For this purpose the Partnership Agreement defines "cause" as
a material breach of the General Partner's fiduciary duties to the limited
partners or any act constituting willful misconduct, gross negligence or
reckless disregard of its duties or a material breach of the Partnership
Agreement.
SALE OF THE SYSTEMS
The Partnership Agreement provides that, any time after July 31, 1999,
partners (other than TCI) comprising 20.0% or more of the partnership interests
can petition the General Partner to review, report on and recommend (or not) a
sale of some or all of the Company's cable television systems.
At any time, the General Partner can elect to sell (i) all or substantially
all of the Company's cable television systems subject to obtaining the consent
of the partners (other than TCI) comprising a majority or more of the
partnership interests (other than interests held by TCI), provided that TCI is
to have a "right of first refusal," or (ii) sell some or all of the Company's
cable television systems subject to obtaining the consent of the partners
(including TCI) comprising 70.0% or more of the partnership interests unless the
sale is to TCI in which case the foregoing percentage is 75.0%.
Any time after July 31, 2001, (i) partners (other than TCI, the General
Partner or IP-I), comprising at least a majority of the partnership interests
(other than interests held by TCI, the General Partner or IP-I) can force a sale
of one or both of (x) the Nashville/Mid-Tennessee Cluster and (y) the
Knoxville/East Tennessee Cluster and the Greenville/Spartanburg Cluster,
provided that TCI is to have a "right of first offer," or (ii) partners
(including TCI, the General Partner and IP-I) comprising 70.0% or more of the
partnership interests can force a sale of some or all of the Company's cable
television systems unless the sale is to TCI in which case the foregoing
percentage is 75.0%.
The terms of the Partnership Agreement require that where TCI has a "right
of first offer" as described above, before ICP-IV offers to sell any of its
cable television systems, the General Partner must first deliver a notice to TCI
offering to sell all such assets to TCI and specifying the purchase price and
other terms on which the General Partner proposes to sell such assets to a third
party. Within 30 days after the receipt of such notice, TCI may, by giving
notice to the General Partner, elect to purchase all of such assets for the
purchase
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price and on the other terms specified in such notice and enter into an
agreement binding it to such purchase within 90 days of its election to
purchase. TCI must then purchase the offered assets on the date set for closing
but not more than 360 days after the date of such original notice.
Where TCI has a right of first refusal, if ICP-IV desires to sell any of
its cable systems to a third party pursuant to a bona fide written offer, then
ICP-IV must first offer to sell such cable systems to TCI at the price and on
the offer terms stated in such bona fide written offer. TCI shall have 30 days
from the date of receipt of such offer in which to accept it. If TCI fails to
accept the Partnership's offer within such period, ICP-IV will be free to sell
such cable systems for a period of 360 days after the end of the 30 day right of
refusal period, or such longer or shorter period as may be specified in the
original bona fide offer, but only at the price and on the terms not more
favorable to the purchaser than those contained in the bona fide offer. If TCI
timely accepts ICP-IV's offer, TCI must enter into an agreement binding it to
such purchase within 90 days after its acceptance of such offer and must
purchase such cable systems within 360 days after receipt of ICP-IV's offer, or
such longer or shorter period as may have been specified in the original bona
fide offer.
ASSIGNMENT OF PARTNERSHIP INTERESTS
The Partnership Agreement provides that, no limited partner may sell,
assign, mortgage, encumber, hypothecate or otherwise transfer, whether
voluntarily or involuntarily, any part of its interest in ICP-IV unless the
transferee or assignee meets the suitability requirements originally imposed
under the subscription agreement entered into by such limited partner with
respect to the Partnership Agreement, and such assignment or transfer will not
violate any of the provisions specified in the Partnership Agreement. The
Partnership Agreement also prohibits a transferee or assignee from becoming a
limited partner without the prior written consent of the General Partner which
consent shall not be unreasonably withheld so long as either all of the
transferring partner's interest is transferred or at least a portion of such
interest representing an initial capital contribution of at least $5,000,000 is
transferred.
OUTSIDE ACTIVITIES; INVESTMENT OPPORTUNITIES
The Partnership Agreement provides that, without the consent of 70.0% in
interest of the limited partners, ICM-IV (and its partners, employees, agents
and affiliates, including, but not limited to, Leo J. Hindery, Jr.) may not
begin the offer and sale of interests in other enterprises with the purpose of
investing in cable television systems until the earlier of July 31, 1997 or such
time as 66 2/3% of the committed capital contributions to ICP-IV have been
invested or committed for investment. Without the consent of a majority in
interest of the limited partners, ICM-IV (and its partners, employees, agents
and affiliates, including, but not limited to, Leo J. Hindery, Jr.) may not
begin to actively supervise the investment of capital of such other enterprises
or partnerships until the earlier of July 31, 1997 or such time as 95.0% of the
committed capital contributions to ICP-IV have been invested or committed for
investment.
The terms of the Partnership Agreement require that ICM-IV must first offer
any investment opportunities within the scope of ICP-IV's, IP-IV's and the
operating partnerships' business purpose and for which these entities have
adequate resources to take advantage, to ICP-IV, IP-IV and the operating
partnerships. If, after good faith consideration by ICM-IV, ICP-IV and the
operating partnerships do not invest in or take all of such opportunity, ICM-IV
may give or share such investment opportunity to or with one or more of the
following: any partner, any officer, director, shareholder, partner, employee or
affiliate of a partner, any enterprise or partnership in which ICM-IV has an
interest, or any nonaffiliated person.
Except as set forth in the Partnership Agreement, ICM-IV or its partners,
employees, agents or affiliates are not prohibited from engaging directly or
indirectly in other activities, or from directly or indirectly purchasing,
selling and holding securities or assets in cable television systems or
corporations for their account or for the accounts of others. Under the
Partnership Agreement, any limited partner (and their partners, employees,
agents and affiliates) may engage in any other enterprises, including
enterprises in competition or in conflict with ICP-IV.
Each limited partner has the right to transact business with ICP-IV, IP-IV
or the operating partnerships. Neither ICM-IV nor any of its affiliates may sell
securities or assets to or purchase securities or assets from
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ICP-IV without the unanimous consent of the limited partners; however, the
Acquisitions and the Viacom Nashville Acquisition may be consummated without any
further consent of the limited partners. ICM-IV may, on behalf of ICP-IV or
cable television systems of IP-IV or any operating partnership, enter into cost
and revenue sharing agreements with cable systems adjacent to those owned by
ICP-IV, IP-IV or any operating partnership including those systems purchased by
any enterprise or partnership in which ICM-IV, any affiliate of ICM-IV or ICP-IV
or any partner of ICM-IV has an interest (the "Adjacent Systems"), to operate
the Adjacent Systems as a single system with the cable systems of ICP-IV, IP-IV
or any operating partnership with costs equitably allocated between the various
systems as ICM-IV and the owner or operator of such Adjacent System determine
based on the relative costs associated with such systems and, if determined to
be in the best interests of ICP-IV, IP-IV, the operating partnerships and the
Adjacent Systems, to sell such systems as a single system and allocate the sales
revenues in an appropriate manner based on the relative values of such systems;
however, the terms of any such arrangement must be disclosed to the limited
partners and be equivalent to terms and conditions that would be negotiated at
arm's length.
CONTRACTS WITH ICM-IV, AFFILIATES AND LIMITED PARTNERS
The Partnership Agreement allows ICM-IV, on behalf of ICP-IV, IP-IV or the
operating partnerships, to enter into contracts with itself or any of its
partners, employees, agents or affiliates, including but not limited to IMI. The
Partnership Agreement, however, requires that, except to the extent proceeds
from contracts with ICM-IV, affiliates or limited partners offset but do not
exceed the Management Fee payable under the Partnership Agreement, such
transactions will be on terms no less favorable to ICP-IV than are generally
afforded by unrelated third parties or the approval of 70.0% in interest of the
limited partners must be obtained.
INDEMNIFICATION OF THE PARTNERS
Under the Partnership Agreement ICP-IV indemnifies and holds harmless
ICM-IV, any limited partner, any Advisory Committee member and any partner,
employee or agent of ICM-IV, and any employee or agent of ICP-IV and/or the
legal representatives of any of them, and each other person who may incur
liability as a general partner in connection with the management of ICP-IV or
any entity in which ICP-IV has an investment, against all liabilities and
expenses incurred in connection with any civil action or other proceeding, in
which he or it may be involved or threatened, by reason of being or having been
a general partner, or serving in another capacity, provided that the acts or
omissions alleged upon which the action or threatened action or proceeding is
based were not any matter which constitutes willful misconduct, bad faith, gross
negligence or reckless disregard of the duties of its office, or material breach
of the Partnership Agreement.
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<PAGE> 142
DESCRIPTION OF OTHER OBLIGATIONS
THE BANK FACILITY
On July 30, 1996, the Operating Partnership entered into the Bank Facility
with The Bank of New York Company Inc. ("The Bank of New York"), NationsBank of
Texas, N.A. ("NationsBank of Texas"), and The Toronto-Dominion Bank as arranging
agents and The Bank of New York, as administrative agent. The Bank Facility
provides for an aggregate $475.0 million Revolving Credit Facility and a $220.0
million Term Loan. The Bank Facility was entered into concurrently with, and was
contingent upon (i) the consummation of the Private Offering, (ii) the
contribution of the Contributed Equity, (iii) the conversion of indebtedness of
IP-V into the $12.0 million RMH Redeemable Preferred Stock by TCI, (iv) the
consummation of certain of the Primary Acquisitions, (v) the refinancing and
repayment of all obligations under the Bridge Loan, (vi) the satisfaction of
RMG's obligations to effect the defeasance of the RMG Notes under the terms of
the indentures for the RMG Notes and (vii) the Operating Partnership and its
subsidiaries having a total consolidated leverage ratio not in excess of 7.5:1.
Repayment. Commencing January 1, 1999, (i) availability under the
Revolving Credit Facility will be permanently reduced by the following amounts
(in thousands) and (ii) the Term Loan will be amortized on the corresponding
dates as follows:
<TABLE>
<CAPTION>
REVOLVING CREDIT
FACILITY AMORTIZATION
------------------------
AMOUNT OF OUTSTANDING TERM LOAN
DATE REDUCTION COMMITMENT AMORTIZATION
- -------------------------------------------------- --------- ---------- ------------
(IN
(IN THOUSANDS) THOUSANDS)
<S> <C> <C> <C>
January 1, 1999................................... $ 25,000 $450,000 $ 500
July 1, 1999...................................... 22,500 427,500 500
January 1, 2000................................... 22,500 405,000 500
July 1, 2000...................................... 25,000 380,000 500
January 1, 2001................................... 22,500 357,500 500
July 1, 2001...................................... 37,500 320,000 500
January 1, 2002................................... 35,000 285,000 500
July 1, 2002...................................... 47,500 237,500 500
January 1, 2003................................... 47,500 190,000 500
July 1, 2003...................................... 47,500 142,500 500
January 1, 2004................................... 47,500 95,000 500
July 1, 2004...................................... 95,000 -0- 107,250
January 1, 2005................................... 107,250
------ -------
Total Reductions........................ $475,000 $220,000
====== =======
</TABLE>
Security; Guaranty. The obligations of the Operating Partnership under the
Bank Facility are secured by a first priority pledge of the capital stock and/or
partnership interests of the Operating Partnership and its subsidiaries, a
negative pledge on other assets of the Operating Partnership and its Restricted
Subsidiaries and a pledge of any inter-company notes. The obligations of the
Operating Partnership under the Bank Facility are guaranteed by the Operating
Partnership and its Restricted Subsidiaries.
Interest. At the Operating Partnership's election, the interest rates per
annum applicable to the Revolving Credit Facility and the Term Loan will be a
fluctuating rate of interest measured by reference either to (i) an adjusted
LIBOR plus a borrowing margin or (ii) the base rate of the administrative agent
for the Bank Facility (the "ABR") (which is based on the administrative agent's
published prime rate) plus a borrowing margin. The applicable borrowing margin
for the Revolving Credit Facility will range from LIBOR plus 0.75% to LIBOR plus
1.75% or ABR to ABR plus 0.50%, based upon the Operating Partnership's senior
leverage ratio. The applicable borrowing rate for the Term Loan is LIBOR plus
2.375% or ABR plus 1.125%.
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<PAGE> 143
Fees. The Operating Partnership has agreed to pay certain fees with
respect to the Bank Facility including (i) commitment fees of 0.375% per annum
on the unused portion of the Revolving Credit Facility when the senior leverage
ratio is greater than 4.0:1.0 and 0.25% when the senior leverage ratio is less
than or equal to 4.0:1.0, (ii) upfront facility fees and (iii) agent,
arrangement and other similar fees.
Covenants. The Bank Facility prohibits the Operating Partnership from,
among other things, (i) having a senior leverage ratio at closing in excess of
5.75:1, declining as follows: 5.5:1.0 from January 1, 1997 through December 31,
1997; 5.25:1.0 from January 1, 1998 through June 30, 1998; 5.0:1.0 from July 1,
1998 through June 30, 1999; 4.75:1.0 from July 1, 1999 through December 31,
1999; 4.5:1.0 from January 1, 2000 through June 30, 2000; 4.0:1.0 from July 1,
2000 through June 30, 2001; and 3.75: 1.0 from July 1, 2001 and thereafter, (ii)
having an interest coverage ratio of less than 2.0:1.0 through December 31,
2000, less than 2.25: 1.0 from January 1, 2001 through December 31, 2001 and
less than 2.5:1.0 from January 1, 2002 and thereafter, and (iii) having a ratio
of annualized cash flow to pro forma debt service for any fiscal quarter of less
than 1.10. In addition, the Bank Facility contains certain restrictions on the
Company and its Restricted Subsidiaries with respect to, among other things,
maintenance of ownership, the payment of distributions, the repurchase of stock,
the making of Restricted Payments, the making of investments, the creation of
liens, certain asset sales, guarantees, capital expenditures, management fees,
lines of business, hedging arrangements satisfactory to the Arranging Agents,
transactions with affiliates, the disposition of certain securities of its
Restricted Subsidiaries, and mergers and consolidations. With respect to
restrictions on the payment of distributions, the Bank Facility permits the
Operating Partnership to make distributions to ICP-IV sufficient to pay interest
on the Notes commencing February 1, 2000 provided there is no default or Event
of Default (as defined therein). The Bank Facility also contains customary
events of default, including, but not limited to payment, misrepresentation,
covenant compliance, bankruptcy and judgment. In addition, it will be an event
of default if TCI does not own beneficially 35.0% or more of ICP-IV's
non-preferred partnership interests.
DESCRIPTION OF PREFERRED EQUITY INTERESTS
Preferred Limited Partner Interest. Pursuant to the terms of the IPWT
Contribution Agreement, GECC holds a $25.0 million Preferred Limited Partner
Interest in ICP-IV. Under the terms of the Partnership Agreement, GECC is
entitled, as the Preferred Limited Partner, to a first priority in any
distributions in repayment of its initial capital contribution of $25.0 million,
and a preferred return of 11.75%, per annum, compounded semiannually, of its
capital contribution. ICP-IV does not expect to make distributions on its
preferred equity interest prior to substantial sales of assets. As the Preferred
Limited Partner, GECC is not entitled to consent, except on those matters
required by law or that require unanimous consent of the limited partners of
ICP-IV.
RMG Redeemable Preferred Stock. In conjunction with the acquisition of
RMH, a subsidiary of TCI received $12.0 million in RMH Redeemable Preferred
Stock. The RMH Redeemable Preferred Stock has an annual dividend of 10.0% and
participates in any dividends paid on the common stock based on a rate of 10.0%
of the dividend paid per share on the common stock. The RMH Redeemable Preferred
Stock bears a liquidation preference of $12.0 million plus any accrued but
unpaid dividends at the time of liquidation (the "Liquidation Preference") and
is mandatorily redeemable on September 30, 2006 at the Liquidation Preference.
If RMH does not satisfy its mandatory redemption requirements in full, the
holder of the RMH Redeemable Preferred Stock shall have the right on or after
March 31, 2007 to cause the holder of the RMH Class A Common Stock to purchase
any unredeemed RMH Redeemable Preferred Stock at the Liquidation Preference. RMH
also has the right, but not the obligation, to redeem in whole or in part the
RMH Redeemable Preferred Stock at the Liquidation Preference on or after
September 30, 2001. RMH has merged with and into RMG, with RMG as the surviving
corporation. As a result of the merger the RMH Redeemable Preferred Stock has
been converted into RMG mandatorily redeemable preferred stock with the same
terms.
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<PAGE> 144
DESCRIPTION OF THE NOTES
GENERAL
The Old Notes were issued and the Exchange Notes will be issued pursuant to
the Indenture among ICP-IV, IPCC, and the Bank of New York, N.A., as trustee
(the "Trustee"). The Notes will be secured by a portion of the proceeds of the
Private Offering pursuant to the pledge and escrow agreement, dated as of July
30, 1996 (the "Pledge Agreement"), between ICP-IV and The Bank of New York,
N.A., as collateral agent (the "Collateral Agent"). The Old Notes were issued in
a private transaction that was not subject to the registration requirements of
the Securities Act. See "The Exchange Offer -- Purpose and Effect of the
Exchange Offer."
The terms of the Notes include those stated in the Indenture and the Pledge
Agreement and those made part of the Indenture and the Pledge Agreement by
reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The Notes are subject to all such terms, and Holders of Notes are
referred to the Indenture, the Pledge Agreement and the Trust Indenture Act for
a statement thereof. The following summary of certain provisions of the
Indenture, the Pledge Agreement and the Registration Rights Agreement does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, the Pledge Agreement and the Registration Rights Agreement, including
the definitions therein of certain terms used below. Copies of the Indenture,
the Pledge Agreement and the Registration Rights Agreement are available as set
forth below under "-- Additional Information." The definitions of certain terms
used in the following summary are set forth below under "-- Certain
Definitions."
All of ICP-IV's Subsidiaries (as defined herein) are Restricted
Subsidiaries (as defined herein). Under certain circumstances, ICP-IV will be
able to designate current or future Subsidiaries as Unrestricted Subsidiaries
(as defined herein). See "-- Certain Covenants -- Designation of Restricted and
Unrestricted Subsidiaries." Unrestricted Subsidiaries will not be subject to
many of the restrictive covenants set forth in the Indenture.
RANKING
The Notes will be general obligations of the Issuers ranking senior to all
future subordinated Indebtedness (as defined herein) of ICP-IV, if any, and pari
passu with all future senior unsecured Indebtedness of ICP-IV, if any. The Notes
will not be guaranteed by any of ICP-IV's Subsidiaries.
IPCC has no substantial assets and no operations of any kind and the
Indenture will limit IPCC's ability to acquire or hold any significant assets or
other properties or engage in any business activities. See "-- Certain
Covenants -- Limitation on Conduct of IPCC."
STRUCTURAL SUBORDINATION
ICP-IV's operations are conducted through its direct and indirect
Subsidiaries. As a holding company, ICP-IV has no independent operations and,
therefore, is dependent on the dividends and distributions from its Subsidiaries
and other entities to meet its own obligations, including the Obligations (as
defined herein) under the Notes. Because ICP-IV's Subsidiaries will not
guarantee the payment of principal of and interest on the Notes, the indirect
claims of Holders of the Notes effectively will be subordinated to the claims of
creditors of such Subsidiaries, including all borrowings under the Bank
Facility, which borrowings are secured by substantially all of ICP-IV's assets.
As of September 30, 1996 the total Indebtedness of ICP-IV's Subsidiaries
(including obligations under the Bank Facility) that is structurally senior to
the Notes, on an aggregate basis, was approximately $545.0 million and the total
trade payables and other liabilities of ICP-IV's Subsidiaries was approximately
$60.9 million, including $12.1 million in RMH Redeemable Preferred Stock.
ICP-IV's ability to obtain access to the cash flow of its Subsidiaries will be
severely limited by the provisions of the Bank Facility. See "Risk
Factors -- Holding Company Structure; Structural Subordination."
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<PAGE> 145
PRINCIPAL, MATURITY AND INTEREST
The Notes will be general obligations of ICP-IV, limited in aggregate
principal amount at maturity to $292.0 million and will mature on August 1,
2006. Interest on the Notes will accrue at the rate per annum set forth on the
cover page of this Prospectus and will be payable in cash semi-annually in
arrears on February 1 and August 1 of each year, commencing on February 1, 1997,
to Holders of record on the immediately preceding January 15 and July 15,
respectively. Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest on the Notes will be computed on the basis of a
360-day year consisting of twelve 30-day months. Principal, premium, if any, and
interest and Liquidated Damages, if any, on the Notes will be payable at the
office or agency of ICP-IV maintained for such purpose within the City and State
of New York or, at the option of ICP-IV, payment of interest and Liquidated
Damages, if any, may be made by check mailed to the Holders of the Notes at
their respective addresses set forth in the register of Holders of Notes;
provided that all payments with respect to the Global Note (as defined herein)
and Certificated Securities (as defined herein), the Holders of which have given
wire transfer instructions to ICP-IV at least 10 business days prior to the
applicable payment date, will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
Until otherwise designated by ICP-IV, ICP-IV's office or agency in New York will
be the office of the Trustee maintained for such purpose. The Notes will be
issued in minimum denominations of $1,000 and integral multiples thereof.
SECURITY
ICP-IV purchased and pledged to the Trustee for the benefit of the Holders
of the Notes Pledged Securities consisting of U.S. government securities in the
amount of $88.8 million which is sufficient upon receipt of scheduled interest
and principal payments of such securities, in the opinion of a nationally
recognized firm of independent public accountants selected by ICP-IV, to provide
for payment in full of the first six scheduled interest payments due on the
Notes. The Pledged Securities were pledged by ICP-IV to the Trustee for the
benefit of the Holders of Notes pursuant to the Pledge Agreement and are held by
the Trustee in the Pledge Account (as defined herein). Pursuant to the Pledge
Agreement, immediately prior to an interest payment date on the Notes, ICP-IV
may either deposit with the Trustee from funds otherwise available to ICP-IV
cash sufficient to pay the interest scheduled to be paid on such date or ICP-IV
may direct the Trustee to release from the Pledge Account proceeds sufficient to
pay interest then due. In the event that ICP-IV exercises the former option, the
Pledge Agreement provides that ICP-IV may thereafter direct the Trustee to
release to ICP-IV proceeds or Pledged Securities from the Pledge Account in like
amount. A failure by the Issuers to pay interest on the Notes in a timely manner
through August 1, 1999 will constitute an immediate Event of Default under the
Indenture, with no grace or cure period.
Interest earned on the Pledged Securities will be added to the Pledge
Account. In the event that the funds or Pledged Securities held in the Pledge
Account exceed the amount sufficient, in the opinion of a nationally recognized
firm of independent public accountants selected by ICP-IV, to provide for
payment in full of the first six scheduled interest payments due on the Notes
(or, in the event an interest payment or payments have been made, an amount
sufficient to provide for payment in full of any interest payments remaining, up
to and including the sixth scheduled interest payment), the Trustee is permitted
to release to ICP-IV at ICP-IV's request any such excess amount. The Notes are
secured by a first priority security interest in the Pledged Securities and in
the Pledge Account and, accordingly, the Pledged Securities and the Pledge
Account also secure repayment of the principal amount of the Notes to the extent
of such security. At any time while the Pledge Agreement is in force, the Pledge
Agreement allows ICP-IV to substitute Marketable Securities (as defined in the
Indenture) for the U.S. government securities originally pledged as collateral;
provided, however, that the Marketable Securities so substituted must have a
fair market value (measured at the date of substitution), in the opinion of a
nationally recognized firm of independent public accountants selected by the
Company, at least equal to 125.0% of the amount of any of the first six
scheduled interest payments on the Notes that are unpaid (or the pro rata
portion of such interest payments equal to the percentage of such interest
payments to be secured by such Marketable Securities) as of the date such
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<PAGE> 146
Marketable Securities are proposed to be substituted as security for the
Company's obligation under the Pledge Agreement.
Under the Pledge Agreement, assuming that the Issuers make the first six
scheduled interest payments on the Notes in a timely manner, all of the Pledged
Securities will have been released from the Pledge Account and thereafter the
Notes will be unsecured.
OPTIONAL REDEMPTION
Except as described below, the Notes will not be redeemable at ICP-IV's
option prior to August 1, 2001. Thereafter, the Notes will be subject to
redemption at the option of ICP-IV at any time, in whole or in part, upon not
less than 30 nor more than 60 days' written notice, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the applicable
redemption date, if redeemed during the twelve-month period beginning on August
1 of each of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
------------------------------------------------------------------ ----------
<S> <C>
2001.............................................................. 105.625%
2002.............................................................. 103.750%
2003.............................................................. 101.875%
2004 and thereafter............................................... 100.000%
</TABLE>
In the event of a Public Equity Offering or a Strategic Equity Investment
prior to August 1, 1999, ICP-IV may use the proceeds therefrom to redeem up to
35.0% of the aggregate principal amount of Notes originally issued at a
redemption price equal to 111.25% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, to the date of redemption,
provided, however, that at least 65.0% of the aggregate principal amount of
Notes originally issued remains outstanding following such redemption and,
provided further, that such redemption occurs within 90 days of the closing of
such Public Equity Offering or Strategic Equity Investment.
MANDATORY REDEMPTION
ICP-IV will not be required to make any mandatory redemption or sinking
fund payments with respect to the Notes.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
such Notes for redemption will be made by the Trustee as provided in the
Indenture in compliance with the requirements of the principal national
securities exchange, if any, on which such Notes are listed, or, if such Notes
are not so listed, on a pro rata basis, by lot or by such method as the Trustee
shall deem fair and appropriate; provided that no Notes of $1,000 or less will
be redeemed in part. Notices of redemption will be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each Holder of
Notes to be redeemed at its registered address. If any Note is to be redeemed in
part only, the notice of redemption that relates to such Note will state the
portion of the principal amount thereof to be redeemed. A new Note in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Note. On and after the
redemption date, interest ceases to accrue on the Notes or portions of them
called for redemption.
CHANGE OF CONTROL OFFER
The Indenture provides that, within 30 days of the occurrence of a Change
of Control with respect to the Notes, ICP-IV will notify the Trustee in writing
of such occurrence and will make an offer to purchase (a "Change of Control
Offer") the Notes at a purchase price equal to 101.0% of the principal amount
thereof plus any accrued and unpaid interest and Liquidated Damages thereon, if
any, to the Change of Control
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<PAGE> 147
Payment Date (as defined herein) (the "Change of Control Purchase Price"), in
accordance with the procedures set forth in the Indenture.
Within 50 days of the occurrence of a Change of Control with respect to the
Notes, ICP-IV also will (i) cause a notice of the Change of Control Offer to be
sent at least once to the Dow Jones News Service or similar business news
service in the United States and (ii) send by first-class mail, postage prepaid,
to the Trustee and to each registered Holder of Notes, at his address appearing
in the register of the Notes maintained by the Registrar, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment,
subject to the terms and conditions set forth herein;
(2) the Change of Control Purchase Price and the purchase date (which shall
be a business day no earlier than 30 days and no later than 60 days
after the date on which such notice is mailed) (the "Change of Control
Payment Date");
(3) that any Note not tendered will continue to accrue interest;
(4) that unless ICP-IV defaults in the payment of the Change of Control
Purchase Price, any such Notes accepted for payment pursuant to the
Change of Control Offer will cease to accrue interest after the Change
of Control Payment Date;
(5) that Holders accepting the offer to have their Notes purchased pursuant
to a Change of Control Offer will be required to surrender such Notes
to the paying agent at the address specified in the notice prior to the
close of business on the business day preceding the Change of Control
Payment Date;
(6) that Holders will be entitled to withdraw their acceptance if the
paying agent receives, not later than the close of business on the
third business day preceding the Change of Control Payment Date, a
facsimile transmission or letter setting forth the name of the Holder,
the principal amount of such Notes delivered for purchase, and a
statement that such Holder is withdrawing his election to have such
Notes purchased;
(7) that Holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered, provided that each Note purchased and each
such new Note issued shall be in an original principal amount in
denominations of $1,000 and integral multiples thereof; and
(8) any other procedures that a Holder must follow to accept a Change of
Control Offer or effect withdrawal of such acceptance.
On the Change of Control Payment Date, ICP-IV will (i) accept for payment
the Notes or portions thereof tendered pursuant to the Change of Control Offer,
(ii) deposit with the paying agent money sufficient to pay the purchase price of
all Notes or portions thereof so tendered and (iii) deliver or cause to be
delivered to the Trustee the Notes so accepted together with an Officers'
Certificate (as defined herein) indicating the Notes or portions thereof
tendered to ICP-IV. The paying agent will promptly mail to each Holder of Notes
so accepted payment in an amount equal to the purchase price for such Notes, and
the Trustee will promptly authenticate and mail to such Holder a new Note equal
in principal amount to any unpurchased portion of the Notes surrendered;
provided that each such new Note shall be issued in an original principal amount
in denominations of $1,000 and integral multiples thereof.
The Issuers have agreed to comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to the
covenant described hereunder. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the covenant
described hereunder, the Issuers have agreed to comply with the applicable
securities laws and regulations and will not be deemed to have breached their
obligations under the covenant described hereunder by virtue thereof.
139
<PAGE> 148
ICP-IV will not be required to make a Change of Control Offer upon the
occurrence of a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in the Indenture and purchases all Notes validly tendered
and not withdrawn under such Change of Control Offer.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require ICP-IV to repurchase
or redeem the Notes in the event of a takeover, recapitalization or similar
transaction.
The Bank Facility currently prohibits, and future Indebtedness of ICP-IV or
its Subsidiaries may also prohibit, the repurchase of Notes upon the occurrence
of a Change of Control. Further, the Bank Facility does not permit ICP-IV's
Subsidiaries to pay dividends or distributions to ICP-IV in an amount that would
be sufficient to permit ICP-IV to honor its obligations under the Change of
Control covenant. See "Risk Factors -- Holding Company Structure; Structural
Subordination." Moreover, the exercise by the Holders of the Notes of their
right to require ICP-IV to repurchase the Notes could cause a default under the
terms of the agreements governing other Indebtedness of ICP-IV or its
Subsidiaries, even if the Change of Control itself does not, due to the
financial effect of such repurchase obligation on ICP-IV. Finally, ICP-IV's
ability to pay cash to the Holders of Notes following the occurrence of a Change
of Control may be limited by ICP-IV's then-existing financial resources. There
can be no assurance that sufficient funds will be available when necessary to
make any required repurchases.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of ICP-IV and its Subsidiaries taken as a whole. Although there is
a developing body of case law interpreting the phrase "substantially all," there
is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a Holder of Notes to require ICP-IV to repurchase
such Notes as a result of a sale, lease, transfer, conveyance or other
disposition of less than all of the assets of ICP-IV and its Subsidiaries taken
as a whole to another Person (as defined herein) or group may be uncertain.
CERTAIN COVENANTS
Set forth below are certain covenants contained in the Indenture. The
Indenture provides that if, at any time, (i) the ratings assigned to the Notes
issued under the Indenture by both of the Rating Agencies (as defined herein)
are Investment Grade Ratings and (ii) no Default has occurred and is continuing
under such Indenture, ICP-IV and its Restricted Subsidiaries will thereafter
cease to be subject to the provisions of the Indenture described herein under
the captions "-- Limitation on Restricted Payments," "-- Limitation on
Incurrence of Indebtedness and Issuance of Preferred Equity," "-- Limitation on
Asset Sales," "-- Dividend and Other Payment Restrictions Affecting
Subsidiaries," "-- Limitation on Transactions with Affiliates," "-- Designation
of Restricted and Unrestricted Subsidiaries" and clause (iv) of "-- Merger,
Consolidation and Sale of Assets" (collectively, the "Suspended Covenants"). In
the event that ICP-IV and its Restricted Subsidiaries are not subject to the
Suspended Covenants with respect to the Notes for any period of time as a result
of the preceding sentence and, subsequently, one or both Ratings Agencies
withdraws its ratings or downgrades the ratings assigned to such Notes below the
required Investment Grade Ratings, then ICP-IV and its Restricted Subsidiaries
will thereafter again be subject to the Suspended Covenants for the benefit of
such Notes and compliance with the Suspended Covenants with respect to
Restricted Payments made after the time of such withdrawal or downgrade will be
calculated in accordance with the terms of the covenant described below under
"-- Limitation on Restricted Payments" as if such covenant had been in effect
during the entire period of time from the Issue Date.
Limitation on Restricted Payments. The Indenture provides that ICP-IV will
not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any other payment or
distribution on account of the Equity Interests (as defined herein) of ICP-IV or
any of its Restricted Subsidiaries (including, without limitation, any payment
in connection with any merger or consolidation) or to the direct or indirect
holders of the Equity Interests of ICP-IV or any of its Restricted
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<PAGE> 149
Subsidiaries in their capacity as such, other than dividends or distributions of
Equity Interests (other than Disqualified Stock (as defined herein)) of ICP-IV
or dividends or distributions payable to ICP-IV or any Restricted Subsidiary of
ICP-IV; (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of ICP-IV or any Affiliate of ICP-IV; (iii) make any principal
payment on, or purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness that is subordinated to the Notes, except at final
maturity; (iv) make any Restricted Investment (as defined herein) or (v)
designate any Restricted Subsidiary to be an Unrestricted Subsidiary (all such
payments and other actions set forth in clauses (i) through (v) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(b) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made after the Closing Date (excluding
those permitted by clauses (x), (y) and (z) of the following paragraph)
would exceed, at the date of determination, an amount equal to the sum
of (1) the excess of (A) Cumulative EBITDA (as defined herein) from the
Closing Date (as defined herein) to the end of ICP-IV's most recently
ended full fiscal quarter for which consolidated financial statements
are available, taken as a single accounting period, over (B) the
product of 1.2 times the Company's Cumulative Interest Expense (as
defined herein) from the Closing Date to the end of ICP-IV's most
recently ended full fiscal quarter for which consolidated financial
statements are available, taken as a single accounting period, plus (2)
Capital Stock Proceeds (as defined herein), plus (3) to the extent that
any Restricted Investment that was made after the Closing Date is sold
for cash or otherwise liquidated or repaid for cash, the lesser of (A)
the cash return of capital with respect to such Restricted Investment
(less the cost of disposition, if any) and (B) the initial amount of
such Restricted Investment, plus (4) $10.0 million; and
(c) ICP-IV would, immediately after giving effect to such Restricted
Payment as if the same had occurred at the beginning of the most
recently ended full fiscal quarter of ICP-IV for which consolidated
financial statements are available, have been permitted to incur at
least $1.00 of additional Indebtedness (other than Permitted Debt (as
defined herein)) pursuant to the covenant described below under the
caption "-- Limitation on Incurrence of Indebtedness and Issuance of
Preferred Equity."
Provided that no Event of Default shall have occurred and be continuing,
the foregoing provisions will not prohibit: (v) quarterly distributions in
respect of partners' income tax liability in an amount not to exceed the Tax
Amount (as defined herein); (w) the payment of any dividend or distribution
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (x) the payment of in-kind dividends on the RMH Redeemable Preferred
Stock in accordance with the terms thereof as in effect on the Closing Date; (y)
the redemption, repurchase, retirement or other acquisition of any Equity
Interests of ICP-IV in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary of ICP-IV) of other
Equity Interests of ICP-IV (other than any Disqualified Stock), provided that
the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition shall be excluded from
clause (b)(2) of the preceding paragraph; and (z) the defeasance, redemption or
repurchase of subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Debt (as defined herein) or the
substantially concurrent sale (other than to a Subsidiary of ICP-IV) of Equity
Interests of ICP-IV (other than Disqualified Stock), provided that the amount of
any such net cash proceeds from sales of Equity Interests that are utilized for
any such redemption, repurchase, retirement or other acquisition shall be
excluded from clause (b)(2) of the preceding paragraph.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors (as defined
herein) set forth in an Officers' Certificate delivered to the Trustee) on the
date of the Restricted Payment of the asset(s) proposed to be transferred by
ICP-IV or such Restricted Subsidiary, as the case may be, pursuant to the
Restricted Payment. Not later than the date of
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making any Restricted Payment, ICP-IV will deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by the covenant described herein
under the caption "Restricted Payments" were computed, which calculations may be
based upon ICP-IV's most recently available financial statements.
Limitation on Incurrence of Indebtedness and Issuance of Preferred
Equity. The Indenture provides that ICP-IV will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt (as defined herein)) and that ICP-IV will
not issue any Disqualified Stock and will not permit any of its Restricted
Subsidiaries to issue any shares of Preferred Equity, except the RMH Redeemable
Preferred Stock in an amount up to $12.0 million as of the date of the
Indenture; provided, however, that ICP-IV or any of its Restricted Subsidiaries
may incur Indebtedness (including Acquired Debt) and ICP-IV may issue
Disqualified Stock if ICP-IV's Leverage Ratio at the time of incurrence of such
Indebtedness or issuance of such Disqualified Stock, as applicable, after giving
pro forma effect to such incurrence or issuance as of such date and to the use
of proceeds therefrom as if the same had occurred at the beginning of the most
recently ended full fiscal quarter of ICP-IV for which consolidated financial
statements are available, would have been no greater than 8.0 to 1.0 if before
January 1, 1998 or 7.5 to 1.0 if on or after January 1, 1998.
The foregoing provisions will not apply to the incurrence of any of the
following Indebtedness (collectively, "Permitted Debt"):
(i) the incurrence by ICP-IV and its Restricted Subsidiaries of
Indebtedness (including all Obligations with respect thereto) under the
Revolving Credit Facility in an aggregate principal amount of up to $475.0
million with letters of credit being deemed to have a principal amount
equal to the maximum potential liability thereunder and less the aggregate
amount of all repayments of principal under the Revolving Credit Facility,
optional or mandatory (other than repayments that are immediately
reborrowed), that have been made since the Closing Date;
(ii) the incurrence by ICP-IV and its Restricted Subsidiaries of the
Notes and the Indebtedness outstanding on the Closing Date, including,
without limitation, the Term Loan;
(iii) the incurrence by ICP-IV or any of its Restricted Subsidiaries
of Permitted Refinancing Debt in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Indenture to be incurred;
(iv) the incurrence by ICP-IV or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among ICP-IV and any of its Restricted
Subsidiaries; provided, however, that (i) if ICP-IV is the obligor on such
Indebtedness, such Indebtedness is expressly subordinate to the payment in
full of all Obligations with respect to all of the Notes and (ii)(A) any
subsequent issuance or transfer of Equity Interests (as defined herein)
that results in any such Indebtedness being held by a Person other than
ICP-IV or a Restricted Subsidiary and (B) any sale or other transfer of any
such Indebtedness to a Person that is not either ICP-IV or a Restricted
Subsidiary shall be deemed, in each case, to constitute an incurrence of
such Indebtedness by ICP-IV or such Restricted Subsidiary, as the case may
be;
(v) the incurrence by ICP-IV or any of its Restricted Subsidiaries of
Hedging Obligations (as defined herein) that are incurred for the purpose
of fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of the Indenture to be
outstanding;
(vi) the incurrence by ICP-IV's Unrestricted Subsidiaries of
Non-Recourse Debt (as defined herein), provided, however, that if any such
Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary,
such event shall be deemed to constitute an incurrence of Indebtedness by a
Restricted Subsidiary of ICP-IV; and
(vii) the incurrence by ICP-IV or any of its Restricted Subsidiaries
of Indebtedness (in addition to Indebtedness permitted by any other clause
of this paragraph) in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding not to exceed $25.0 million.
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Limitation on Asset Sales. The Indenture provides that ICP-IV will not,
and will not permit any Restricted Subsidiary to, make any Asset Sale (as
defined herein) unless: (i) ICP-IV or such Restricted Subsidiary, as the case
may be, receives consideration at the time of such Asset Sale at least equal to
the fair market value (as evidenced by a resolution of ICP-IV's Board of
Directors set forth in an Officers' Certificate delivered to the Trustee) of the
assets, or other property issued or sold or otherwise disposed of in the Asset
Sale; and (ii) at least 75.0% of such consideration is in the form of cash or
Cash Equivalents (as defined herein).
Notwithstanding the immediately preceding paragraph, ICP-IV and its
Restricted Subsidiaries are permitted to consummate an Asset Sale without
complying with such paragraph if (i) ICP-IV or the applicable Restricted
Subsidiary, as the case may be, receives consideration at the time of such Asset
Sale at least equal to the fair market value of the assets or other property
sold, issued or otherwise disposed of (as evidenced by a resolution of ICP-IV's
Board of Directors set forth in an Officers' Certificate delivered to the
Trustee), and (ii) at least 75.0% of the consideration for such Asset Sale
constitutes assets or other property of a kind usable by ICP-IV and its
Restricted Subsidiaries in the business of ICP-IV and its Restricted
Subsidiaries as conducted by ICP-IV and its Restricted Subsidiaries on the
Closing Date; provided that any consideration not constituting assets or
property of a kind usable by ICP-IV and its Restricted Subsidiaries in the
business conducted by them on the date of such Asset Sale received by ICP-IV or
any of its Restricted Subsidiaries in connection with any Asset Sale permitted
to be consummated under this paragraph shall constitute Net Proceeds (as defined
herein) subject to the provisions of the two succeeding paragraphs.
Within 180 days after any Asset Sale, ICP-IV may elect to apply the Net
Proceeds from such Asset Sale to (a) permanently reduce any Indebtedness of any
Restricted Subsidiary of ICP-IV under the Bank Facility and/or (b) commit in
writing to the Trustee to make an investment in or acquire assets or property of
a kind usable by ICP-IV and its Restricted Subsidiaries in the business
conducted by them on the date of such Asset Sale or a business reasonably
related thereto and consummate such investment or acquisition within 360 days
after such Asset Sale, provided, however, that if at any time any non-cash
consideration received by ICP-IV or any Restricted Subsidiary of ICP-IV, as the
case may be, in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash, then such cash will be deemed to constitute Net
Proceeds and will be required to be applied in accordance with clauses (a)
and/or (b) above. Pending the final application of any such Net Proceeds, ICP-IV
may temporarily invest such Net Proceeds in any manner permitted by the
Indenture. Any Net Proceeds from an Asset Sale not applied or invested as
provided in the first sentence of this paragraph will be deemed to constitute
"Excess Proceeds."
The Indenture provides that, as soon as practical, but in no event later
than 180 days after any date that the aggregate amount of Excess Proceeds
exceeds $5.0 million (an "Asset Sale Offer Trigger Date"), ICP-IV will commence
an offer to purchase the maximum principal amount of Notes that may be purchased
out of the Excess Proceeds (an "Asset Sale Offer"). Any Notes to be purchased
pursuant to an Asset Sale Offer will be purchased pro rata based on the
aggregate principal amount of Notes outstanding and all Notes will be purchased
at an offer price in cash in an amount equal to 100.0% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages thereon, if
any, to the date of purchase in accordance with the procedures set forth in the
Indenture. To the extent that any Excess Proceeds remain after completion of an
Asset Sale Offer, ICP-IV may use the remaining amount for general corporate
purposes and the amount of Excess Proceeds will be reset at zero.
The Indenture provides that, within 10 days following any Asset Sale Offer
Trigger Date, ICP-IV will mail to each Holder of Notes at such Holder's
registered address a notice stating: (i) that an Asset Sale Trigger Date has
occurred and that ICP-IV is offering to purchase the maximum principal amount of
Notes that may be purchased out of the Excess Proceeds, at an offer price in
cash in an amount equal to 100.0% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages thereon, if any, to the date of
purchase, which date of purchase (the "Asset Sale Offer Purchase Date") will be
a business day, specified in such notice, that is not earlier than 30 days nor
later than 60 days from the date such notice is mailed; (ii) the amount of
accrued and unpaid interest, if any, as of the Asset Sale Offer Purchase Date;
(iii) that any Note subject to the Asset Sale Offer not tendered will continue
to accrue interest; (iv) that, unless ICP-IV defaults in the payment of the
purchase price for the Notes payable pursuant to the Asset Sale
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Offer, any such Notes accepted for payment pursuant to the Asset Sale Offer will
cease to accrue interest after the Asset Sale Offer Purchase Date; (v) the
procedures, consistent with the Indenture, to be followed by a Holder of Notes
subject to the Asset Sale Offer in order to accept such Asset Sale Offer or to
withdraw such acceptance; and (vi) such other information as may be required by
the Indenture and applicable laws and regulations.
On the Asset Sale Offer Purchase Date, ICP-IV will: (i) accept for payment
the maximum principal amount of Notes or portions thereof tendered pursuant to
the Asset Sale Offer that can be purchased out of the Excess Proceeds; (ii)
deposit with the paying agent the aggregate purchase price of all Notes or
portions thereof accepted for payment; and (iii) deliver or cause to be
delivered to the Trustee all Notes tendered pursuant to the Asset Sale Offer. If
less than all of the Notes tendered pursuant to the Asset Sale Offer are
accepted for payment by ICP-IV for any reason consistent with the Indenture,
selection of the Notes to be purchased by ICP-IV will be in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot
or by such method as the Trustee deems fair and appropriate; provided that Notes
accepted for payment in part will only be purchased in integral multiples of
$1,000. The paying agent will promptly mail to each Holder of Notes or portions
thereof accepted for payment an amount equal to the purchase price for such
Notes and the Trustee will promptly authenticate and mail to any such Holder of
Notes accepted for payment in part a new Note equal in principal amount to any
unpurchased portion of the Notes, and any Note not accepted for payment in whole
or in part will be promptly returned to the Holder of such Note. ICP-IV will
announce the results of the Asset Sale Offer to Holders of the Notes on or as
soon as practicable after the Asset Sale Offer Purchase Date. The Issuers have
agreed to comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act, and any other securities laws or regulations, in
connection with any Asset Sale Offer.
The Bank Facility currently prohibits, and future Indebtedness of ICP-IV or
its Subsidiaries may also prohibit, the repurchase of Notes upon the occurrence
of an Asset Sale. Further, the Bank Facility does not permit ICP-IV's
Subsidiaries to pay dividends to ICP-IV in an amount that would be sufficient to
permit ICP-IV to honor its obligations under the Asset Sale covenant. See "Risk
Factors -- Holding Company Structure; Structural Subordination." Moreover,
ICP-IV's obligation to repurchase Notes under the Asset Sale covenant could
cause a default under the terms of the agreements governing other Indebtedness
of ICP-IV or its Subsidiaries, even if the Asset Sale does not, due to the
financial effect of such repurchase obligation on ICP-IV. Finally, ICP-IV's
ability to pay cash to the Holders of Notes following the occurrence of an Asset
Sale may be limited by ICP-IV's then existing financial resources. There can be
no assurance that sufficient funds will be available when necessary to make any
required repurchases.
Limitation on Liens. The Indenture provides that ICP-IV will not, and will
not permit any of its Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien (as defined herein) (other than Permitted
Liens (as defined herein)) upon any of its Property, or the Property of such
Subsidiaries whether now owned or hereafter acquired, or any interest therein or
any income or profits therefrom, unless it has made or will make effective a
provision whereby all payments due under the Indenture and the Notes will be
secured by such Lien equally and ratably with (or prior to) all other
Indebtedness of ICP-IV or such Subsidiary secured by such Lien for so long as
any such other Indebtedness of ICP-IV or such Subsidiary shall be so secured.
Dividend and Other Payment Restrictions Affecting Subsidiaries. The
Indenture provides that ICP-IV will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to: (i)(a) pay dividends or make any other
distributions to ICP-IV or any of its Restricted Subsidiaries (1) on its Capital
Stock or (2) with respect to any other interest or participation in, or measured
by, its profits, or (b) pay any Indebtedness owed to ICP-IV or any of its
Restricted Subsidiaries; (ii) make loans or advances to ICP-IV or any of its
Restricted Subsidiaries; or (iii) transfer any of its properties or assets to
ICP-IV or any of its Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (a) Indebtedness as in effect on the
Closing Date, (b) the Bank Facility as in effect as of the Closing Date, and any
amendments, modifications, restatements, renewals, increases, supplements,
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refundings, replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive with respect to such
dividend and other payment restrictions than those contained in the Bank
Facility as in effect on the Closing Date, (c) the Indenture and the Notes, (d)
applicable law, (e) any other Indebtedness permitted by the terms of the
Indenture to be incurred, provided that the restrictions contained in the
agreements governing such other Indebtedness are no more restrictive than those
contained in the Bank Facility, (f) customary non-assignment provisions in
leases entered into in the ordinary course of business and consistent with past
practices, or (g) Permitted Refinancing Debt, provided that the restrictions
contained in the agreements governing such Permitted Refinancing Debt are no
more restrictive than those contained in the agreements governing the
Indebtedness being refinanced.
Limitation on Transactions with Affiliates. The Indenture provides that
ICP-IV will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, conduct any business or enter into or suffer to exist
any transaction or series of transactions (including the purchase, sale,
transfer, lease or exchange of any Property or the rendering of any service)
with, or for the benefit of, any Affiliate (an "Affiliate Transaction") unless:
(i) the terms of such Affiliate Transaction are in writing; (ii) such Affiliate
Transaction is in the best interest of ICP-IV or such Restricted Subsidiary, as
the case may be; (iii) such Affiliate Transaction is on terms at least as
favorable to ICP-IV or such Restricted Subsidiary, as the case may be, as those
that could be obtained at the time of such Affiliate Transaction for a similar
transaction in arms-length dealings with a Person who is not such an Affiliate;
(iv) with respect to each Affiliate Transaction involving aggregate payments or
consideration in excess of $5.0 million, ICP-IV delivers to the Trustee an
Officers' Certificate certifying that such Affiliate Transaction was approved by
an Executive Officer (as defined herein) of ICP-IV and that such Affiliate
Transaction complies with clauses (ii) and (iii) of this paragraph; and (v) with
respect to each Affiliate Transaction involving aggregate payments or
consideration in excess of $25.0 million, ICP-IV delivers to the Trustee, in
addition to those documents required by clause (iv) of this paragraph, an
opinion letter from an Independent Appraiser (as defined herein) to the effect
that such Affiliate Transaction is fair to the Holders from a financial point of
view.
Notwithstanding the foregoing limitation, ICP-IV may enter into or suffer
to exist the following: (i) any transaction pursuant to any contract in
existence on the Closing Date in accordance with the terms thereof as in effect
on the Closing Date, including contracts for the acquisition of cable television
programming and renewals, extensions and replacements thereof on terms no less
favorable to ICP-IV and its Restricted Subsidiaries than those in effect on the
Closing Date; (ii) any Restricted Payment permitted to be made pursuant to the
covenant described above under the caption "-- Limitation on Restricted
Payments"; (iii) any transaction or series of transactions between ICP-IV and
one or more of its Restricted Subsidiaries or between two or more of its
Restricted Subsidiaries (provided that no more than 10.0% of the equity interest
in any of such Restricted Subsidiaries is owned by an Affiliate that is not
itself a Restricted Subsidiary); (iv) the payment of compensation (including,
amounts paid pursuant to employee benefit plans) for the personal services of
officers, directors and employees of ICP-IV or any of its Restricted
Subsidiaries, or any consultant or advisor thereto, so long as the Board of
Directors of ICP-IV in good faith shall have approved the terms thereof and
deemed the services theretofore or thereafter to be performed for such
compensation or fees to be fair consideration therefor; (v) any sale of Equity
Interests of ICP-IV; and (vi) the D.D. Cable Transactions.
Designation of Restricted and Unrestricted Subsidiaries. The Indenture
provides that the Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary at any time; provided, however, that immediately
after giving effect to such designation on a pro forma basis as if the same had
occurred at the beginning of the most recently ended full fiscal quarter of
ICP-IV for which consolidated financial statements are available, (i) ICP-IV
would be permitted to incur at least $1.00 of additional Indebtedness (other
than Permitted Debt) pursuant to the covenant described above under the heading
"Limitation on Incurrence of Indebtedness or Issuance of Preferred Stock," (ii)
there exist no Liens (other than Permitted Liens) on the Property of ICP-IV or
its Restricted Subsidiaries and (iii) an Officers' Certificate with respect to
such designation is delivered to the Trustee within 75 days after the end of the
fiscal quarter of ICP-IV in which such designation is made (or, in the case of a
designation made during the last fiscal quarter of ICP-IV's fiscal year, within
120 days after the end of such fiscal year), which Officers'
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Certificate states the effective date of such designation; and provided,
further, that such designation will be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of ICP-IV of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation will only be
permitted if no Default or Event of Default would be in existence following such
designation.
The Board of Directors may designate any Restricted Subsidiary, other than
IPCC, to be an Unrestricted Subsidiary if such designation would not cause a
Default; provided, however, that immediately after giving effect to such
designation on a pro forma basis, ICP-IV would be in compliance with the
covenant described above under the caption "-- Limitation on Restricted
Payments." For purposes of making such determination, all outstanding
Investments by ICP-IV and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated, whether made before or after
the Closing Date, will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments. All
such outstanding Investments will be deemed to constitute Investments in an
amount equal to the greatest of (i) the net book value of such Investments at
the time of such designation, (ii) the fair market value of such Investments at
the time of such designation and (iii) the original fair market value of such
Investments at the time they were made. Such designation will only be permitted
if such Restricted Payment would be permitted at such time and if such
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
Payments for Consent. The Indenture provides that neither ICP-IV nor any
of its Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Note for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of the Indenture or the Notes, unless such consideration
is offered to be paid or is paid to all Holders of the Notes that consent, waive
or agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
Merger, Consolidation and Sale of Assets. The Indenture provides that
ICP-IV may not consolidate with or merge with or into, or convey, sell,
transfer, lease or otherwise dispose of all or substantially all of its assets
(as an entirety or substantially as an entirety in one transaction or a series
of related transactions), to any Person unless: (i) ICP-IV will be the surviving
Person (the "Surviving Person"), or the Surviving Person (if other than ICP-IV)
formed by such consolidation or into which ICP-IV is merged or to which the
assets of ICP-IV are transferred, will be a corporation organized and existing
under the laws of the United States or any State thereof or the District of
Columbia; (ii) the Surviving Person (if other than ICP-IV) will expressly
assume, by supplemental indenture, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all of the obligations of ICP-IV under the
Notes and such supplemental indenture, and the obligations under the Indenture
will remain in full force and effect; (iii) immediately before and immediately
after giving effect to such transaction, no Event of Default shall have occurred
and be continuing; and (iv) immediately after giving effect to such transaction
on a pro forma basis as if the same had occurred at the beginning of the most
recently ended full fiscal quarter of ICP-IV for which consolidated financial
statements are available (including any Indebtedness incurred or anticipated to
be incurred in connection with such transaction or series of transactions), the
Surviving Person would be permitted to incur at least $1.00 of additional
Indebtedness (other than Permitted Debt).
In connection with any consolidation, merger or transfer contemplated by
this provision, ICP-IV will deliver, or cause to be delivered, to the Trustee,
in form and substance reasonably satisfactory to the Trustee, an Officers'
Certificate and an opinion of counsel, each stating that such consolidation,
merger or transfer and the supplemental indenture in respect thereto comply with
this provision and that all conditions precedent in the Indenture provided for
relating to such transaction or transactions have been complied with.
Notwithstanding the foregoing, ICP-IV is permitted to reorganize as a
corporation in accordance with the procedures established in the Indenture,
provided that ICP-IV shall have delivered to the Trustee an opinion of counsel
in the United States reasonably acceptable to the Trustee confirming that such
reorganization is not adverse to Holders of the Notes (it being recognized that
such reorganization shall not be deemed adverse to the Holders of the Notes
solely because (i) of the accrual of deferred tax liabilities resulting from
such reorganization or (ii) the successor or surviving corporation (a) is
subject to income tax as a corporate entity
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or (b) is considered to be an "includible corporation" of an affiliated group of
corporations within the meaning of the Code or any similar state or local law).
Ownership of the Operating Partnership. The Indenture provides that ICP-IV
will continue to own at least 99.99% of the outstanding Equity Interests of the
Operating Partnership or any successor to all or substantially all of the
Operating Partnership's assets.
Limitation on Conduct of IPCC. The Indenture provides that IPCC may not
acquire or hold any significant assets or other properties or engage in any
business activities; provided that IPCC may be a co-obligor with respect to
Indebtedness if ICP-IV is a primary obligor or guarantor with respect to such
Indebtedness and the net proceeds of such Indebtedness are loaned to ICP-IV.
Reports. The Indenture provides that, whether or not required by the rules
and regulations of the Commission, so long as any Notes are outstanding, ICP-IV
will furnish the following to the Trustee and to the Holders of Notes: (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if ICP-IV were
required to file such forms, including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" that describes the financial
condition and results of operations of ICP-IV and its Restricted Subsidiaries
and, with respect to the annual information only, a report thereon by ICP-IV's
certified independent accountants; and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if ICP-IV were required to
file such reports. In addition, whether or not required by the rules and
regulations of the Commission, ICP-IV will file a copy of all such information
and reports with the Commission for public availability (unless the Commission
will not accept such a filing) and make such information available to securities
analysts and prospective investors upon request. In addition, for so long as any
of the Notes remain outstanding, each of the Issuers has agreed to make
available to any prospective purchaser of the Notes or beneficial owner of the
Notes in connection with any sale thereof the information required by Rule
144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT
The Indenture provides that each of the following constitutes an Event of
Default: (i) (a) default in the payment when due of interest on the Notes on any
day on or prior to August 1, 1999, or (b) default for 30 days in the payment
when due of interest on the Notes on any day thereafter; (ii) default in payment
when due of the principal of or premium, if any, on the Notes; (iii) failure by
ICP-IV for 30 days after notice from the Trustee or the Holders of at least
25.0% in principal amount of the then outstanding Notes to comply with any of
its covenants or agreements in the Indenture or the Notes; (iv) default under
any mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness for money borrowed by
ICP-IV or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by ICP-IV or any of its Restricted Subsidiaries), whether such
Indebtedness or guarantee now exists or is created after the Closing Date, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment Default")
or (b) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $10.0 million or more, which Payment Default shall not
be cured or waived, or which acceleration shall not be rescinded or annulled,
within 10 days after written notice thereof; (v) failure by ICP-IV or any of its
Restricted Subsidiaries to pay final judgments aggregating in excess of $10.0
million, which judgments are not paid, discharged or stayed for a period of 30
consecutive days; and (vi) certain events of bankruptcy or insolvency with
respect to ICP-IV or any of its Restricted Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all such Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to ICP-IV or any of its Restricted
Subsidiaries, all outstanding Notes will become due
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and payable without further action or notice. Holders of the Notes may not
enforce the Indenture or the Notes except as provided in the Indenture. Subject
to certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of ICP-IV with the
intention of avoiding payment of the premium that ICP-IV would have had to pay
if ICP-IV then had elected to redeem the Notes pursuant to the optional
redemption provisions of the Indenture, an equivalent premium shall also become
and be immediately due and payable to the extent permitted by law upon the
acceleration of such Notes. If an Event of Default occurs prior to August 1,
2001 by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of ICP-IV with the intention of avoiding the prohibition on redemption of
the Notes prior to August 1, 2001, then the premium specified in the Indenture
shall also become immediately due and payable to the extent permitted by law
upon the acceleration of such Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
The Issuers will be required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and ICP-IV will be required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Issuers may, at their option and at any
time, elect to have all of their obligations discharged with respect to the
outstanding Notes ("Legal Defeasance") except for: (i) the rights of Holders of
outstanding Notes to receive payments in respect of the principal of, premium,
if any, and interest (including Liquidated Damages) on such Notes when such
payments are due from the trust referred to below; (ii) the Issuers' obligations
with respect to the Notes concerning issuing temporary Notes, registration of
Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an
office or agency for payment and money for security payments held in trust; and
(iii) the rights, powers, trusts, duties and immunities of the Indenture. In
addition, the Issuers may, at their option and at any time, elect to have the
obligations of the Issuers released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance"), as the case may be, and
thereafter any omission to comply with such obligations will not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described above under the
caption "Events of Default" will no longer constitute an Event of Default with
respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Issuers must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes cash in U.S. dollars, non-callable Government
Securities (as defined herein), or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest on such outstanding Notes on the stated maturity or on the redemption
date, as the case may be, and the Issuers must specify whether such Notes are
being defeased to maturity or to a particular redemption date; (ii) in the case
of Legal Defeasance, the Issuers shall have delivered to the Trustee an opinion
of counsel in the United States reasonably acceptable to such Trustee confirming
that (a) ICP-IV has received from, or there has been published by, the Internal
Revenue Service a ruling or (b) since the date of the Indenture, there has been
a change in the applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm that, the Holders
of such outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal
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Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Issuers shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to such Trustee confirming that the Holders of such
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred; (iv) no
Default or Event of Default shall have occurred and be continuing on the date of
such deposit (other than a Default or Event of Default resulting from the
borrowing of funds to be applied to such deposit) or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit (or greater period of
time in which any such deposit of trust funds may remain subject to bankruptcy
or insolvency laws insofar as those apply to the deposit by the Issuers); (v)
such Legal Defeasance or Covenant Defeasance will not result in a breach or
violation of, or constitute a default under any material agreement or instrument
(other than the Indenture) to which either Issuer or any of its Restricted
Subsidiaries is a party or by which either Issuer or any of its Restricted
Subsidiaries is bound; (vi) the Issuers must have delivered to the Trustee an
opinion of counsel to the effect that, as of the date of such opinion, (a) the
trust funds will not be subject to rights of holders of Indebtedness other than
the Notes and (b) assuming no intervening bankruptcy of either Issuer between
the date of deposit and the 91st day following the deposit (assuming no Holder
of Notes is an insider of either Issuer) or the day following the end of such
other preference period in effect at the time of such opinion (assuming a Holder
of Notes is an insider of either Issuer), as applicable, following the deposit,
the trust funds will not be subject to the effects of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights generally
under any applicable United States or state law; (vii) each Issuer must deliver
to the Trustee an Officers' Certificate stating that the deposit was not made by
the Issuer with the intent of preferring the Holders of Notes over the other
creditors of either Issuer with the intent of defeating, hindering, delaying or
defrauding creditors of either Issuer or others; and (viii) each Issuer must
deliver to the Trustee an Officers' Certificate and an opinion of counsel, each
stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Issuers may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Issuers are not required to transfer or exchange any Note
selected for redemption. Also, the Issuers are not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the Pledge Agreement or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Notes), and any
existing default or compliance with any provision of the Indenture, the Pledge
Agreement or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes as the case may be,
(including consents obtained in connection with a purchase of, or tender offer
or exchange offer for, such Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver; (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the captions
"-- Change of Control Offer" and "-- Certain
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Covenants -- Limitation on Asset Sales"); (iii) reduce the rate of or change the
time for payment of interest on any Note; (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration); (v) make any Note payable
in money other than that stated in the Notes; (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of Holders of Notes to receive payments of principal of or premium, if any, or
interest on the Notes; (vii) waive a redemption payment with respect to any Note
(other than a payment required by one of the covenants described above under the
captions "-- Change of Control Offer" and "-- Certain Covenants -- Limitation on
Asset Sales"); (viii) release any Collateral from the Lien created by the Pledge
Agreement, except in accordance with the terms thereof; or (ix) make any change
in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Issuers and the Trustee may amend or supplement the Indenture, the Pledge
Agreement or the Notes to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of ICP-IV's obligations to Holders of Notes
in the case of a merger or consolidation, to make any change that would provide
any additional rights or benefits to the Holders of Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, or to
comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should the Trustee become a creditor of ICP-IV, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if the Trustee acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
occurs (which will not be cured), the Trustee will be required, in the exercise
of its power, to use the degree of care of a prudent man in the conduct of his
own affairs. Subject to such provisions, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at the request of
any Holder of Notes, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
BOOK-ENTRY PROCEDURES, DELIVERY AND FORM
All of the Notes to be resold as set forth herein will initially be issued
in the form of one Global Note (the "Global Note"). Such Global Note will be
deposited with, or on behalf of, the Depositary Trust Company (the "Depository")
and registered in the name of Cede & Co., as nominee of the Depositary (such
nominee being referred to herein as a "Global Note Holder").
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only thorough the Depositary's
Participants or the Depositary's Indirect Participants.
ICP-IV expects that pursuant to procedures established by the Depositary
(i) upon deposit of the Global Note, the Depositary will credit the accounts of
Participants designated by the Initial Purchasers with portions
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of the principal amount of the Global Note and (ii) ownership of the Notes
evidenced by the Global Note will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer Notes evidenced by the Global
Note will be limited to such extent. The Old Notes are subject to certain other
restrictions on transferability.
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of any
Notes evidenced by the Global Note. Beneficial owners of Notes evidenced by a
Global Note will not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Issuers nor the Trustee will have any responsibility or liability for any aspect
of the records of the Depositary or for maintaining, supervising or reviewing
any records of the Depositary relating to the Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Notes registered in the name of the Global
Note Holder on the applicable record date will be payable by the Trustee to or
at the direction of the Global Note Holder in its capacity as the registered
Holder under the Indenture. Under the terms of the Indenture, the Issuers and
the Trustee may treat the persons in whose names Notes, including the Global
Note, are registered as the owners thereof for the purpose of receiving such
payments. Consequently, neither the Issuers nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial owners
of Notes (including principal, premium, if any, interest and Liquidated Damages,
if any). The Issuers believe, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants with
such payments, in amounts proportionate to their respective holdings of
beneficial interests in the relevant security as shown on the records of the
Depositary. Payments by the Depositary's Participants and the Depositary's
Indirect Participants to the beneficial owners of Notes will be governed by
standing instructions and customary practice and will be the responsibility of
the Depositary's Participants or the Depositary's Indirect Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for the Notes in the form of definitive certificates ("Certificated
Securities"). Upon any issuance, the Trustee is required to register such
Certificated Securities in the name of, and cause the same to be delivered to,
such person or persons (or the nominee of any thereof). All such certificated
Old Notes would be subject to the legend requirements described in the
Indenture. In addition, if (i) the Issuers notify the Trustee in writing that
the Depositary is no longer willing or able to act as a depositary with respect
to the Notes, and the Issuers are unable to locate a qualified successor within
90 days or (ii) either of the Issuers, at its option, notifies the Trustee in
writing that it elects to cause the issuance of Notes in the form of
Certificated Securities under the Indenture, then, upon surrender by the Global
Note Holder of the Global Note, Notes in such form will be issued to each person
that the Global Note Holder and the Depositary identify as being the beneficial
owner of the related Notes.
Neither the Issuers nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Issuers and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holders or the
Depositary for all purposes.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture, the
Pledge Agreement and the Registration Rights Agreement without charge by writing
to ICP-IV at 235 Montgomery Street, Suite 420, San Francisco, California 94104,
Attn: Edon V. Hartley, Chief Financial Officer and Treasurer.
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Under the terms of the Indenture, under which the Old Notes were issued,
and under which the Exchange Notes are to be issued, each of the Issuers has
agreed that, whether or not it is required to do so by the rules and regulations
of the Commission, for so long as any of the Notes remain outstanding, it will
furnish to the Holders of the Notes and file with the Commission (unless the
Commission will not accept such a filing) annual reports of ICP-IV containing
audited consolidated financial statements, as well as quarterly reports
containing unaudited consolidated financial statements for each of the first
three quarters of each fiscal year. Such reports will contain a management's
discussion and analysis of financial condition and results of operation and each
such annual report will include summary subscriber information. In addition, for
so long as any of the Notes remain outstanding, ICP-IV has agreed to make
available to any prospective purchaser of the Notes or beneficial owner of the
Notes in connection with any sale thereof the information required by Rule
144A(d)(4) under the Securities Act.
The Old Notes and the Exchange Notes will be considered collectively to be
a single class for all purposes under the Indenture, including, without
limitation, waivers, amendments, redemptions and repurchase offers, and for
purposes of this Description of Notes (except as described below under the
caption "Registration Rights; Liquidated Damages") all reference herein to
"Notes" shall be deemed to refer collectively to the Notes and any New Notes,
unless the context otherwise requires.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
On July 19, 1996 the Issuers and the Initial Purchasers entered into the
Registration Rights Agreement. Pursuant to the Registration Rights Agreement,
the Issuers have filed with the Commission at the Company's expense an Exchange
Offer Registration Statement with respect to the Exchange Notes. Upon the
effectiveness of such Exchange Offer Registration Statement, the Issuers will
offer to the Holders of Transfer Restricted Securities (as defined herein) who
are able to make certain representations the opportunity, pursuant to the
Exchange Offer, to exchange their Transfer Restricted Securities for Exchange
Notes. If (i) ICP-IV is not required to file an Exchange Offer Registration
Statement or permitted to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or Commission policy or (ii) any Holder
of Transfer Restricted Securities notifies the Issuers on or prior to the
twentieth business day following consummation of the Exchange Offer that (A) it
is prohibited by law or Commission policy from participating in the Exchange
Offer or (B) it may not resell the Exchange Notes acquired by it in the Exchange
Offer to the public without delivering a prospectus and the prospectus contained
in the Exchange Offer Registration Statement is not appropriate or available for
such resales or (C) it is a broker-dealer and owns Old Notes acquired directly
from the Issuers or an affiliate of the Issuers, the Issuers will file with the
Commission a Shelf Registration Statement to cover resales of the Old Notes by
the Holders thereof who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. The Issuers
will use their best efforts to cause the registration statement to be declared
effective as promptly as possible by the Commission. For purposes of the
foregoing, "Transfer Restricted Securities" means each Old Note until (i) the
date on which such Old Note has been exchanged by a person other than a
broker-dealer for a Exchange Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of an Old Note for an Exchange
Note, the date on which such Exchange Note is sold to a purchaser who receives
from such broker-dealer on or prior to the date of such sale a copy of the
prospectus contained in the Exchange Offer Registration Statement, (iii) the
date on which such Old Note has been effectively registered under the Act and
disposed of in accordance with the Shelf Registration Statement or (iv) the date
on which such Old Note is distributed to the public pursuant to Rule 144 under
the Act.
The Registration Rights Agreement provides that (i) the Issuers will file
an Exchange Offer Registration Statement with the Commission on or prior to 45
days following the original issuance of the Old Notes, (ii) the Issuers will use
their best efforts to have the Exchange Offer Registration Statement declared
effective by the Commission on or prior to 120 days following the original
issuance of the Old Notes, (iii) unless the Exchange Offer would not be
permitted by applicable law or Commission policy, the Issuers will commence the
Exchange Offer and use their best efforts to issue on or prior to 30 days after
the date on which the Exchange Offer Registration Statement was declared
effective by the Commission, Exchange Notes in exchange for all Old Notes
tendered prior thereto in the Exchange Offer and (iv) if obligated to file the
Shelf
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Registration Statement, the Issuers will use their best efforts to file the
Shelf Registration Statement with the Commission on or prior to 30 days after
such filing obligation arises and to cause the Shelf Registration Statement to
be declared effective by the Commission on or prior to 60 days after such
obligation arises.
If (a) the Issuers fail to file any of the Registration Statements required
by the Registration Rights Agreement to be filed on or before the date specified
for such filing, (b) any of such Registration Statements is not declared
effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), or (c) the Issuers fail to
consummate the Exchange Offer within 30 days of the Effectiveness Target Date
with respect to the Exchange Offer Registration Statement, or (d) the Shelf
Registration Statement or the Exchange Offer Registration Statement is declared
effective but thereafter ceases to be effective or usable in connection with
resales of Transfer Restricted Securities during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the Issuers will pay
liquidated damages ("Liquidated Damages") to each Holder of Transfer Restricted
Securities. With respect to the first 90-day period immediately following the
occurrence of such Registration Default, Liquidated Damages will accrue on the
Notes over and above the stated interest (in addition to the accretion of
interest) at a rate of 0.50% of principal amount per annum. The amount of the
Liquidated Damages will increase by an additional 0.25% per annum with respect
to each subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum amount of Liquidated Damages of 1.0% per annum. All
accrued Liquidated Damages will be paid semiannually by ICP-IV in cash to the
Global Note Holder by wire transfer of immediately available funds or by federal
funds check and to Holders of Certificated Securities by mailing checks to their
registered addresses. Following the cure of all Registration Defaults, the
accrual of Liquidated Damages will cease.
Holders of Notes will be required to make certain representations to ICP-IV
(as described in the Registration Rights Agreement) in order to participate in
the Exchange Offer and will be required to deliver information to be used in
connection with the Shelf Registration Statement and to provide comments on the
Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their Old Notes included in the
Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person: (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person; and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10.0% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means: (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback or
similar arrangement) other than in the ordinary course of business; provided
that the sale, lease, conveyance or other disposition of all or substantially
all of the assets of ICP-IV and its Restricted Subsidiaries taken as a whole
will be governed by the provisions of the Indenture described above under the
caption "-- Merger, Consolidation and Sale of Assets" and not by the provisions
of the Asset Sale covenant; and (ii) the issue or sale by ICP-IV or any of its
Restricted Subsidiaries of Equity
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Interests of any of ICP-IV's Subsidiaries, in the case of either clause (i) or
(ii), whether in a single transaction or a series of related transactions (a)
that have a fair market value in excess of $1.0 million or (b) for aggregate net
proceeds in excess of $1.0 million. Notwithstanding the foregoing, none of the
following will be deemed to be an Asset Sale: (x) a transfer of assets by ICP-IV
to a Restricted Subsidiary or by a Restricted Subsidiary to ICP-IV or to another
Restricted Subsidiary; (y) an issuance of Equity Interests by a Restricted
Subsidiary to ICP-IV or to another Restricted Subsidiary; or (z) any Restricted
Payment or Permitted Investment that is permitted by the covenant described
above under the caption "-- Limitation on Restricted Payments."
"Bank Facility" means that certain Bank Facility, dated as of the Closing
Date, by and among the Operating Partnership, as borrower, and The Bank of New
York, NationsBank of Texas and The Toronto Dominion Bank as arranging agents and
The Bank of New York as administrative agent, providing for (i) a term loan of
$220.0 million (the "Term Loan") and (ii) a revolving credit facility for up to
$475.0 million (the "Revolving Credit Facility"), including, in each case, any
related notes, guarantees, collateral documents and other agreements executed in
connection therewith, and in each case as amended, modified, renewed, refunded,
replaced or refinanced from time to time.
"Board of Directors" means (i) for so long as ICP-IV is a partnership, the
managing general partner of ICP-IV and (ii) otherwise, the board of directors of
ICP-IV.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means: (i) in the case of a corporation, corporate stock;
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock; (iii) in the case of a partnership or limited liability
company, partnership interests (whether general or limited) or other membership
interests; and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Capital Stock Proceeds" means an amount equal to the net cash proceeds
received by ICP-IV from the sale of Equity Interests after the Closing Date
(other than (i) Disqualified Stock, (ii) Equity Interests sold to any of
ICP-IV's Subsidiaries and (iii) any Equity Interests issued to finance all or a
portion of the cost of the Viacom Nashville Acquisition).
"Cash Equivalents" means: (i) United States dollars; (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition; (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any lender party to the Bank Facility
or with any domestic commercial bank having capital and surplus in excess of
$500.0 million and a Thomson Bank Watch Rating of "B" or better; (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii)
above; and (v) commercial paper having the highest rating obtainable from
Moody's Investors Service, Inc. or Standard & Poor's Corporation and, in each
case, maturing within six months after the date of acquisition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of ICP-IV and its Restricted Subsidiaries taken
as a whole to any "person" (as such term is used in Section 13(d)(3) of the
Exchange Act) other than the Principals and their Related Parties; (ii) the
adoption of a plan relating to the liquidation or dissolution of ICP-IV; (iii)
the consummation of any transaction (including, without limitation, any merger
or consolidation) the result of which is that any person (as defined above),
other than the Principals and their Related Parties, becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
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Act, except that a person will be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time, upon the happening of
an event or otherwise), directly or indirectly, of Equity Interests of ICP-IV
representing the right to receive more than 50.0% of the income and profits of
ICP-IV; (iv) the consummation of any transaction (including, without limitation,
any merger or consolidation) the result of which is that (a) any of the
Principals or any Related Party or any person (as defined above) that includes
at least one Principal or Related Party, becomes the "beneficial owner" (as such
term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that
a person will be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time, upon the happening of an event or
otherwise), directly or indirectly, of Equity Interests representing the right
to receive more than 50.0% of the income and profits of ICP-IV and (b) there is
a Rating Decline with respect to the Notes; or (v) the first day on which TCI
and its Subsidiaries fail to own, in the aggregate, Equity Interests of ICP-IV
representing the right to receive more than 35.0% of the income and profits of
ICP-IV.
"Code" means the Internal Revenue Code of 1986.
"Collateral" means cash in the Pledge Account, the Pledged Securities and
the proceeds thereof.
"Consolidated Indebtedness" means, with respect to any Person as of any
date of determination, the sum of: (i) the total amount of Indebtedness of such
Person and its Restricted Subsidiaries; plus (ii) the total amount of other
Indebtedness shown on the balance sheet of the primary obligor on such
Indebtedness, to the extent that such Indebtedness has been Guaranteed by such
Person or one or more of its Restricted Subsidiaries; plus (iii) the aggregate
liquidation value of all Disqualified Stock of such Person and all Preferred
Equity of Restricted Subsidiaries of such Person (other than the RMH Redeemable
Preferred Stock), in each case, determined on a consolidated basis in accordance
with GAAP, less (iv) the fair market value of the Pledged Securities then held
by the Trustee as determined in good faith by an Officer of ICP-IV.
"Consolidated Interest Expense" means, with respect to any Person, for any
period, the sum of: (i) the amount of interest in respect of Indebtedness
(including amortization of original issue discount, fees payable in connection
with financings, including commitment, availability and similar fees, and
amortization of debt issuance costs, capitalized interest, non-cash interest
payments on any Indebtedness and the interest portion of any deferred payment
obligation and after taking into account the effect of elections made under, and
the net costs associated with, any Interest Rate Agreement, however denominated,
with respect to such Indebtedness); (ii) the amount of Redeemable Dividends of
such Person; (iii) the amount of Preferred Equity dividends in respect of all
Preferred Equity of Restricted Subsidiaries held by Persons other than the
referent Person or a Restricted Subsidiary thereof, commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing; and (iv) the interest component of rentals in respect of
any Capital Lease Obligation, in each case, that was paid, accrued or scheduled
to be paid or accrued by such Person during such period, determined on a
consolidated basis in accordance with GAAP. For purposes of this definition,
interest on a Capital Lease Obligation will be deemed to accrue at an interest
rate reasonably determined by the referent Person to be the rate of interest
implicit in such Capital Lease Obligation in accordance with GAAP consistently
applied.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the net income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP and prior to
any reduction in respect of dividends or other distributions in respect of any
series of Preferred Equity of such Person, provided that such Consolidated Net
Income shall exclude: (i) the net income or loss of any Person that is not a
Restricted Subsidiary, except that ICP-IV's equity in the net income of any such
Person for such period will be included in such Consolidated Net Income up to
the aggregate amount of cash actually distributed by such Person during such
period to ICP-IV or a Restricted Subsidiary as a dividend or other distribution;
(ii) the net income or loss of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition; (iii) any
after-tax gain or loss realized upon the sale or other disposition of any
property, plant or equipment of ICP-IV or its consolidated Restricted
Subsidiaries that is not sold or otherwise disposed of in the ordinary course of
business and any after-tax gain
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or loss realized upon the sale or other disposition of any Capital Stock of any
Person; (iv) in the case of ICP-IV, the incurrence by ICP-IV of one-time
expenses in order to conform any of the systems acquired pursuant to the
Acquisitions or the Viacom Nashville Acquisition to the MIS systems of ICP-IV,
provided that such one-time expenses with respect to each such acquisition are
incurred within the first twelve months of the completion of such acquisition
and, provided further, that such expenses do not exceed $5.0 million in the
aggregate; and (v) the cumulative effect of a change in accounting principles.
"Cumulative EBITDA" means at any date of determination the cumulative
EBITDA of ICP-IV from and after the Closing Date to the end of the most recently
ended full fiscal quarter of ICP-IV immediately preceding the date of
determination for which consolidated financial statements are available or, if
such cumulative EBITDA for such period is negative, minus the amount by which
such cumulative EBITDA is less than zero.
"Cumulative Interest Expense" means at any date of determination the
aggregate amount of Consolidated Interest Expense paid, accrued or scheduled to
be paid or accrued by ICP-IV from the Closing Date to the end of the most
recently ended full fiscal quarter of ICP-IV immediately preceding the date of
determination for which consolidated financial statements are available,
determined on a consolidated basis in accordance with GAAP.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature.
"EBITDA" means, with respect to any Person for any period, an amount equal
to: (i) the sum (without duplication) of (a) Consolidated Net Income for such
period; plus (b) the provision for taxes for such period based on income or
profits to the extent such income or profits were included in computing
Consolidated Net Income and any provision for taxes utilized in computing net
loss under sub-clause (a) hereof; (c) Consolidated Interest Expense for such
period; (d) depreciation for such period on a consolidated basis; (e)
amortization of intangibles for such period on a consolidated basis; (f) any
other non-cash items reducing Consolidated Net Income for such period; and (g)
any expense resulting from an extraordinary item; minus (ii) (a) all non-cash
items increasing Consolidated Net Income for such period (other than any
non-cash charge that represents an accrual or reserve in respect of a cash
payment in a future period), and (b) any item of revenue or gain attributable to
an extraordinary item, all for such Person and its Subsidiaries determined in
accordance with GAAP consistently applied, except that with respect to ICP-IV
each of the foregoing items will be determined on a consolidated basis with
respect to ICP-IV and its Restricted Subsidiaries only.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500.0 million or its equivalent
in foreign currency, whose debt (or the debt of whose holding company) is rated
"A" (or higher) according to Standard and Poor's Rating Group or "A2" (or
higher) by Moody's Investors Service, Inc. at the time as of which any
investment or rollover therein is made.
"Equity Interests" means, collectively, Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).
"Equity Market Capitalization" means, with respect to any Person, the
aggregate market value of the outstanding Equity Interests (other than Preferred
Equity and excluding any such Equity Interests held in treasury by such Person)
of such Person. For purposes of this definition, the "market value" of any such
Equity Interests will be: (i) the average of the high and low sale prices, or if
no sales are reported, the average of the closing bid and ask prices, as
reported in the composite transactions or the principal national securities
exchange on which such Equity Interest is listed or admitted to trading or, if
such Equity Interest is not listed or admitted to trading on a national
securities exchange, as reported by Nasdaq for each trading day in a
20-consecutive-day period ending not more than 45 days prior to the date such
Person commits to make an
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investment in the Equity Interest of ICP-IV; or (ii) if such Equity Interest is
not listed as admitted for trading on any national securities exchange or
Nasdaq, the fair market value of the common equity capital of such Person as
determined by the written opinion of an investment banking firm of national
standing delivered to the Trustee.
"Executive Officer" means, for any Person, the chief financial officer,
chief operating officer or chief executive officer of such Person.
"fair market value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and a willing buyer under no
compulsion to buy; provided, that with respect to the Pledged Securities, the
fair market value thereof shall be net of the accrued and unpaid interest, if
any, on the Notes.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness, secured or unsecured, contingent or otherwise, that is for
borrowed money (whether or not the recourse of the lender is to the whole of the
assets of such person or only to a portion thereof), or evidenced by bonds,
notes, debentures or similar instruments or representing the balance deferred
and unpaid of the purchase price of any property (excluding any balances that
constitute subscriber advance payments and deposits, accounts payable or trade
payables, and other accrued liabilities arising in the ordinary course of
business) if and to the extent any of the foregoing indebtedness would appear as
a liability upon a balance sheet of such Person prepared in accordance with
GAAP, and shall also include, to the extent not otherwise included: (i) any
Capital Lease Obligations; (ii) Indebtedness of any other Person secured by a
Lien to which the property or assets owned or held by the referent person is
subject, whether or not the obligation or obligations secured thereby shall have
been assumed (the amount of such Indebtedness being deemed to be the lesser of
the value of such property or assets or the amount of the Indebtedness so
secured); (iii) Guarantees of Indebtedness of any other Person; (iv) any
Disqualified Stock; (v) all obligations of such Person in respect of letters of
credit, bankers' acceptance or other similar instruments or credit transactions
(including reimbursement obligations with respect thereto), other than
obligations with respect to letters of credit securing obligations (other than
obligations described in this definition) entered into in the ordinary course of
business of such Person to the extent such letters of credit are not drawn upon
or, if and to the extent drawn upon, such drawing is reimbursed no later than
the third business day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit; (vi) in the case of
ICP-IV, Preferred Equity of its Restricted Subsidiaries; and (vii) obligations
of any such Person under any Hedging Obligation applicable to any of the
foregoing. Notwithstanding the foregoing, Indebtedness shall not include any
interest or accrued interest until due and payable.
"Independent Appraiser" means an investment banking firm of national
standing with non-investment grade debt underwriting experience or any third
party appraiser of national standing; provided, however, that such firm or
appraiser is not an Affiliate of ICP-IV.
"Interest Rate Agreement" means, with respect to any Person, any interest
rate swap agreement, interest rate cap agreement, interest rate collar agreement
or other similar agreement.
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"Investment Grade Rating" means a rating equal to or higher than Baa3 (or
the equivalent) and BBB- (or the equivalent) by Moody's Investors Service, Inc.
(or any successor to the rating agency business thereof) and Standard & Poor's
Rating Group (or any successor to the rating agency business thereof),
respectively.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities by
ICP-IV for consideration consisting of common equity securities of ICP-IV shall
not be deemed to be an Investment. If ICP-IV or any Restricted Subsidiary of
ICP-IV sells or otherwise disposes of any Equity Interests of any direct or
indirect Restricted Subsidiary of ICP-IV such that, after giving effect to any
such sale or disposition, such Person is no longer a Subsidiary of ICP-IV,
ICP-IV shall be deemed to have made an Investment on the date of any such sale
or disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of.
"IPSE" means InterMedia Partners Southeast, a California general
partnership and a Subsidiary of ICP-IV.
"Issue Date" means the date on which the Notes are initially issued.
"Leverage Ratio" means, with respect to any Person as of any date of
determination, the ratio of (i) the Consolidated Indebtedness of such Person as
of such date calculated on a pro forma basis to give effect to the transaction
with respect to which the Leverage Ratio is being calculated, to (ii) the
product of such Person's Pro Forma EBITDA for the most recently ended fiscal
quarter of such Person for which consolidated financial statements are available
multiplied by four.
"Lien" means, with respect to any Property of any Person, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such Property (including any Capital Lease
Obligation, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing).
"Marketable Securities" means: (i) Government Securities or, for purposes
of determining whether such Government Securities may serve as substitute
Pledged Securities, Government Securities having a maturity date on or before
the date on which the payments of interest (or principal) on the Notes to which
such Government Securities are pledged occur; (ii) any certificate of deposit
maturing not more than 270 days after the date of acquisition issued by, or time
deposit of, an Eligible Institution; (iii) commercial paper maturing not more
than 270 days after the date of acquisition issued by a corporation (other than
an Affiliate of the Company) with a rating at the time as of which any
investment therein is made, of "A-1" (or higher) according to Standard and
Poor's Rating Group or "P-1" (or higher) according to Moody's Investors Service,
Inc.; (iv) any banker's acceptances or money market deposit accounts issued or
offered by an Eligible Institution; and (v) any fund investing exclusively in
investments of the types described in clauses (i) through (iv) above.
"Net Proceeds" means the aggregate cash proceeds received by ICP-IV or any
of its Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale (including, without limitation, sales commissions and legal,
accounting and investment banking fees) and any relocation expenses incurred as
a result thereof, taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the
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subject of such Asset Sale and any reserve for adjustment in respect of the sale
price of such asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither ICP-IV nor
any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise) or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of ICP-IV or
any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of ICP-IV or
any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means the General Partner, Managing General Partner, President,
Chief Financial Officer, Treasurer or any Executive Vice President or Vice
President of ICP-IV or IPCC, as applicable.
"Officers' Certificate" means a certificate signed by two Officers at least
one of whom shall be the principal executive officer, principal accounting
officer or principal financial officer of ICP-IV or IPCC, as applicable.
"Operating Partnership" means InterMedia Partners IV, L.P., a California
limited partnership and a Subsidiary of ICP-IV.
"Permitted Investments" means: (i) any Investment in ICP-IV or in a
Restricted Subsidiary of ICP-IV; (ii) any Investment in Cash Equivalents; (iii)
any Investment by ICP-IV or any Subsidiary of ICP-IV in a Person, if as a result
of such Investment (a) such Person becomes a Restricted Subsidiary of ICP-IV or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
ICP-IV or a Restricted Subsidiary of ICP-IV; (iv) any Investment in ICM-IV not
to exceed $1.85 million; (v) any Restricted Investment made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant to
and in compliance with the covenant described above under the caption
"-- Certain Covenants -- Limitation on Asset Sales"; and (vi) any Permitted
Joint Venture Investment, provided that after giving pro forma effect to such
Permitted Joint Venture Investment as if the same had occurred at the beginning
of the most recently ended full fiscal quarter of ICP-IV for which consolidated
financial statements are available, ICP-IV would have been able to incur at
least $1.00 of additional Indebtedness (other than Permitted Debt) pursuant to
the covenant described above under the caption "-- Certain
Covenants -- Limitation on Incurrence of Indebtedness and Issuance of Preferred
Equity."
"Permitted Joint Venture Investment" means any Investment by ICP-IV or any
Restricted Subsidiary of ICP-IV in a joint venture or other enterprise if: (i)
substantially all of the income and profits of such joint venture or other
enterprise are derived from operating or owning a license to operate one or more
cable television systems or telephone systems in the United States and any other
activity reasonably related to such activities; (ii) ICP-IV and its Restricted
Subsidiaries have operating control of such joint venture or other enterprise;
and (iii) ICP-IV and its Restricted Subsidiaries own, in the aggregate, Equity
Interests of such joint venture or other enterprise representing the right to
receive more than 40.0% of the income and profits thereof.
"Permitted Liens" means: (i) Liens on the Property of ICP-IV or any of its
Subsidiaries that existed on the Closing Date; (ii) Liens on the Property of
ICP-IV or any of its Subsidiaries under the Bank Facility; (iii) Liens securing
Indebtedness of Subsidiaries permitted by the Indenture to be incurred; (iv)
Liens on the Property of ICP-IV or any of its Subsidiaries for taxes,
assessments or governmental charges or levies on the Property of ICP-IV or any
of its Subsidiaries if the same shall not at the time be delinquent or
thereafter can be paid without penalty, or are being contested in good faith and
by appropriate proceedings; (v) Liens imposed by law, such as carriers',
warehousemen's and mechanics' Liens, and other similar Liens on the
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Property of ICP-IV or any of its Subsidiaries arising in the ordinary course of
business that secure payment of obligations not more than 60 days past due or
are being contested in good faith and by appropriate proceedings; (vi) Liens on
the Property of ICP-IV or any of its Subsidiaries in favor of issuers of
performance bonds and surety or appeal bonds; (vii) Liens on Property at the
time ICP-IV or any of its Subsidiaries acquired such Property, including any
acquisition by means of a merger or consolidation with or into ICP-IV or such
Subsidiary; provided, however, that such Lien shall not have been incurred in
anticipation or in connection with such transaction or series of related
transactions pursuant to which such Property was acquired by ICP-IV or such
Subsidiary; (viii) other Liens on the Property of ICP-IV or any of its
Subsidiaries incidental to the conduct of any of their businesses or the
ownership of or any of their Properties that were not created in connection with
the incurrence of Indebtedness or the obtaining of advances or credit and that
do not in the aggregate materially detract from the value of their respective
Properties or materially impair the use thereof in the operation of their
respective businesses; (ix) pledges or deposits by ICP-IV or any of its
Subsidiaries under workmen's compensation laws, unemployment insurance laws or
similar legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Indebtedness) or leases to which ICP-IV
or any of its Subsidiaries is a party, or deposits to secure public or statutory
obligations of ICP-IV or any of its Subsidiaries, or deposits for the payment of
rent, in each case incurred in the ordinary course of business; (x) utility
easements, building restrictions and such other encumbrances or charges against
real property as are or a nature generally existing with respect to properties
of a similar character; (xi) Liens on assets of Unrestricted Subsidiaries that
secure Non-Recourse Debt of Unrestricted Subsidiaries; and (xii) Liens securing
Indebtedness or other obligations not to exceed $1.0 million in aggregate
principal amount.
"Permitted Refinancing Debt" means any Indebtedness of ICP-IV or any of its
Restricted Subsidiaries issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund other Indebtedness
of ICP-IV or any of its Restricted Subsidiaries; provided that: (i) the
principal amount (or accreted value, if applicable) of such Permitted
Refinancing Debt does not exceed the principal amount (or accreted value, if
applicable) of the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of reasonable expenses incurred in
connection therewith); (ii) such Permitted Refinancing Debt has a period until
its final maturity date no shorter than the final maturity date of, and has a
Weighted Average Life to Maturity no shorter than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Notes, such Permitted Refinancing Debt has a final maturity date later than
the final maturity date of, and is subordinated in right of payment to, such
Notes on terms at least as favorable to the Holders of such Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by (a) ICP-IV or (b) ICP-IV or the Restricted Subsidiary that
was the obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded.
"Person" means any individual, corporation, company (including limited
liability company), partnership, joint venture, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Pledge Account" means an account established with the Collateral Agent
pursuant to the terms of the Pledge Agreement for the deposit of the Pledged
Securities purchased by the Issuers with a portion of the net proceeds from the
Private Offering.
"Preferred Equity" means any Capital Stock of a Person, however designated,
that entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Principals" means Leo J. Hindery, Jr., TCI and TCI's Subsidiaries.
"Pro Forma EBITDA" means, with respect to any Person, for any period, the
EBITDA of such Person for such period as determined on a consolidated basis in
accordance with GAAP consistently applied after giving effect to the following,
as if the same had occurred at the beginning of such period: (i) if, during or
after such period, such Person or any of its Subsidiaries shall have sold or
otherwise disposed of any assets outside
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of the ordinary course of business in any single transaction or series of
related transactions for consideration in excess of $1.0 million, Pro Forma
EBITDA of such Person and its Subsidiaries for such period will be reduced by an
amount equal to the Pro Forma EBITDA (if positive) directly attributable to the
assets that were sold or otherwise disposed of for the period or increased by an
amount equal to the Pro Forma EBITDA (if negative) directly attributable thereto
for such period; and (ii) if, during or after such period, such Person or any of
its Subsidiaries completes an acquisition of any Person or business that
immediately after such acquisition is a Subsidiary of such Person or whose
assets are held directly by such Person or a Subsidiary of such Person, Pro
Forma EBITDA will be computed so as to give pro forma effect to the acquisition
of such Person or business; provided, however, that, with respect to ICP-IV, all
of the foregoing references to "Subsidiary" or "Subsidiaries" are deemed to
refer only to the "Restricted Subsidiaries" of ICP-IV.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including, without limitation, Capital Stock in any other Person
(but excluding Capital Stock or other securities issued by such Person).
"Public Equity Offering" means the consummation of an offering of Equity
Interests (other than Disqualified Stock) by ICP-IV to the public pursuant to a
registration statement filed with the Commission, the net proceeds of which
exceed $25.0 million.
"Rating Agencies" means Standard and Poor's Rating Group, a division of
McGraw Inc., and Moody's Investors Service, Inc., or any successor to the
respective rating agency businesses thereof.
"Rating Date" means the date that is 90 days prior to the earlier of (i) a
Change of Control and (ii) public notice of the occurrence of a Change of
Control or of the intention of ICP-IV to effect a Change of Control.
"Rating Decline" means, with respect to the Notes, the occurrence of the
following on, or within 90 days after, the date of public notice of the
occurrence of a Change of Control or of the intention by ICP-IV to effect a
Change of Control (which period shall be extended so long as the rating of such
Notes is under publicly announced consideration for possible downgrade by either
of the Rating Agencies): (i) in the event the Notes are assigned an Investment
Grade Rating by either of the Rating Agencies on the Rating Date, the rating of
the Notes by both of the Rating Agencies shall be below an Investment Grade
Rating; or (ii) in the event the Notes are rated below an Investment Grade
Rating by both of the Rating Agencies on the Rating Date, the rating of the
Notes by either of the Rating Agencies shall be decreased by one or more
gradations (including gradations within rating categories as well as between
rating categories).
"Redeemable Dividend" means, for any dividend with regard to Disqualified
Stock, the quotient of the dividend divided by the difference between one and
the maximum statutory federal income tax rate (expressed as a decimal number
between 1 and 0) then applicable to the issuer of such Disqualified Stock.
"Related Party" means, with respect to any Principal, (i) any controlling
stockholder, 80.0% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (ii) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (i).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means, with respect to any Person, any Subsidiary
of such Person that is not an Unrestricted Subsidiary.
"Revolving Credit Facility" has the meaning assigned to it in the
definition of "Bank Facility."
"RMH Redeemable Preferred Stock" means the preferred stock of RMH to be
outstanding on the Closing Date and the capital stock of RMG, with substantially
the same terms as the RMH Redeemable Preferred Stock, into which the RMH
Redeemable Preferred Stock will be converted as a result of the merger of RMH
into RMG, together with all additional shares thereof issued in payment of
dividends thereon in accordance with the terms thereof in effect on the Closing
Date.
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"Shelf Registration Statement" means a "shelf" registration statement of
the Issuers, which covers some or all of the Old Notes or Exchange Notes, as
applicable, on an appropriate form under Rule 415 under the Act, or any similar
rule that may be adopted by the Commission, amendments and supplements to such
registration statement, including post effective amendments, in each case
including the prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Strategic Equity Investment" means the issuance and sale of Equity
Interests (other than Disqualified Stock) of ICP-IV for net cash proceeds of at
least $25.0 million to a Person engaged primarily in the business of
transmitting video, voice or data over cable television or telephone facilities
or any business reasonably related thereto that has an Equity Market
Capitalization of at least $750.0 million.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50.0% of the total
voting power of shares of Voting Stock thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person (or a combination thereof) and (ii) any partnership
(a) the sole general partner or the managing general partner of which is such
Person or a Subsidiary of such Person, (b) the only general partners of which
are such Person or of one or more Subsidiaries of such Person (or any
combination thereof) or (c) such Person owns, alone or together with ICP-IV, a
majority of the partnership interests.
"Tax Amount" means, with respect to any Person for any period, the combined
federal, state and local income taxes that would be paid by such Person if it
were a Delaware corporation filing separate tax returns with respect to its
Taxable Income for such Period; provided, however, that in determining the Tax
Amount, the effect thereon of any net operating loss carryforwards or other
carryforwards or tax attributes, such as alternative minimum tax carryforwards,
that would have arisen if such Person were a Delaware corporation shall be taken
into account. Notwithstanding anything to the contrary, Tax Amount shall not
include taxes resulting from such Person's reorganization as or change in the
status to a corporation.
"Tax Distribution" means a distribution in respect of taxes to the partners
of ICP-IV pursuant to clause (v) of the second paragraph of the covenant
described above under the caption "Certain Covenants -- Limitation on Restricted
Payments."
"Taxable Income" means, with respect to any Person for any period, the
taxable income or loss of such Person for such period for federal income tax
purposes; provided, that (i) all items of income, gain, loss or deduction
required to be stated separately pursuant to Section 703(a)(1) of the Code shall
be included in taxable income or loss, (ii) any basis adjustment made in
connection with an election under Section 754 of the Code shall be disregarded
and (iii) such taxable income shall be increased or such taxable loss shall be
decreased by the amount of any interest expense incurred by such Person that is
not treated as deductible for federal income tax purposes by a partner or member
of such Person.
"TCIC" means TCI Communications, Inc.
"TCIC Loan" means that certain $297.0 million nonrecourse bridge loan to
IPSE made by TCI of Houston, Inc. pursuant to the loan agreement, dated May 8,
1996, by and between TCI of Houston, Inc. and IPSE in order to fund 99.0% of the
purchase price of the Prime Houston Systems.
"Term Loan" has the meaning assigned to it in the definition of "Bank
Facility."
"Unrestricted Subsidiary" means any Subsidiary, other than IPCC, that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Resolution of the Board of Directors, but only to the extent that such
Subsidiary: (i) has no Indebtedness other than Non-Recourse Debt; (ii) is not
party to any agreement, contract, arrangement or understanding with ICP-IV or
any Restricted Subsidiary of ICP-IV unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to ICP-IV or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of ICP-IV; (iii) is a Person with respect to which
neither ICP-IV nor any of its Restricted Subsidiaries has any direct or indirect
obligation (a) to subscribe for additional Equity Interests or (b) to maintain
or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; (iv) has not Guaranteed or otherwise
directly or indirectly provided credit support for any
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Indebtedness of ICP-IV or any of its Restricted Subsidiaries; and (v) in the
case of a Subsidiary that is a corporation, such Subsidiary has at least one
director on its board of directors that is not a director or executive officer
of ICP-IV or any of its Restricted Subsidiaries and has at least one executive
officer that is not a director or executive officer of ICP-IV or any of its
Restricted Subsidiaries. Any such designation by the Board of Directors shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by the covenant described above under the
caption "Certain Covenants -- Limitation on Restricted Payments." If, at any
time, any Unrestricted Subsidiary would fail to meet the foregoing requirements
as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of ICP-IV as of such
date (and, if such Indebtedness is not permitted to be incurred as of such date
under the covenant described above under the caption "-- Certain
Covenants -- Limitation on Incurrence of Indebtedness and Issuance of Preferred
Equity," ICP-IV shall be in default of such covenant).
"Viacom Nashville Acquisition" means the acquisition by a subsidiary of
ICP-IV of certain cable television assets in and near Nashville, Tennessee from
TCIC pursuant to an exchange agreement as described elsewhere in this
Prospectus.
"Voting Stock" means, with respect to any specified Person, Capital Stock
with voting power, under ordinary circumstances and without regard to the
occurrence of any contingency, to elect the directors or other managers or
trustees of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion represents the material federal income tax
consequences of exchanging Old Notes for Exchange Notes pursuant to the Exchange
Offer in the view of the Issuers' counsel, Pillsbury, Madison & Sutro LLP. The
discussion is based upon current provisions of the Internal Revenue Code of
1986, as amended, existing and proposed regulations thereunder, and current
administrative rulings and court decisions. All of the foregoing are subject to
change, possibly on a retroactive basis, and no ruling has been or will be
sought from the Internal Revenue Service. This discussion does not address any
of the federal income tax consequences of owning or disposing of Exchange Notes,
nor does it address the applicability or effect of any state, local or foreign
tax laws. Each holder should consult such holder's own tax advisor concerning
the application of federal income tax laws, as well as the laws of any state,
local or foreign taxing jurisdiction, to the holder's particular situation.
Since the terms of the Exchange Notes are identical to those of the Old
Notes, the exchange of Old Notes for Exchange Notes pursuant to the Exchange
Offer should not be treated as a taxable "exchange" for federal income tax
purposes because the Exchange Notes will not differ materially either in kind or
extent from the Old Notes exchanged therefor. As a result, there should be no
federal income tax consequences to holders exchanging Old Notes for Exchange
Notes pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. Each of the
Issuers has agreed that, starting on the Expiration Date and ending on the close
of business on the 180th day following the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition until , 199 , all
dealers effecting transactions in the Exchange Notes may be required to deliver
a prospectus.
The Issuers will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Issuers will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Issuers have agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Notes) other than commissions or concessions of any brokers or
dealers and will indemnify the holders of the Notes (including any broker-
dealers) against certain liabilities, including liabilities under the Securities
Act.
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LEGAL MATTERS
Certain legal matters with respect to the Notes offered hereby will be
passed upon for the Issuers by Pillsbury Madison & Sutro LLP, San Francisco,
California. Certain members of Pillsbury Madison & Sutro LLP own limited
partnership interests in ICM-IV, the general partner of ICP-IV.
EXPERTS
The consolidated balance sheet of InterMedia Capital Partners, IV, L.P. as
of December 31, 1995 included in this Prospectus has been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The balance sheet of InterMedia Capital Management, IV, L.P. as of December
31, 1995 included in this Prospectus has been so included in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The combined financial statements of the Previously Affiliated Entities as
of December 31, 1994 and 1995 and for each of the three years in the period
ended December 31, 1995 included in this Prospectus has been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The consolidated statements of Robin Media Holdings, Inc. as of December
31, 1994 and 1995 and for each of the three years in the period ended December
31, 1995 included in this Prospectus have been so included in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The financial statements of InterMedia Partners of West Tennessee, L.P. as
of December 31, 1994 and 1995 and for each of the three years in the period
ended December 31, 1995 included in this Prospectus has been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The combined financial statements of TeleCable -- South Carolina Group as
of December 31, 1994 and January 26, 1995 and for the year and the twenty-six
days in the period ended January 26, 1995 included in this Prospectus have been
so included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of VSC Cable Inc. as of December 31, 1994 and 1995
and for each of the three years in the period ended December 31, 1995 included
in this Prospectus has been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The financial statements of Warner Cable Communications -- Kingport,
Tennessee Division, a division of Time Warner Entertainment Company, L.P. as of
December 31, 1995 and January 31, 1996 and for the year and the month in the
period ended January 31, 1996 included in this Prospectus have been so included
in reliance on the report of Ernst & Young LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The combined balance sheet of TCI of Greenville, Inc., TCI of Spartanburg,
Inc., and TCI of Piedmont, Inc. (indirect wholly-owned subsidiaries of TCI
Communications, Inc.) as of December 31, 1995, and the related combined
statements of operations and accumulated deficit and cash flows for the period
from January 27, 1995 to December 31, 1995, have been included herein in
reliance upon the report, dated March 1, 1996, of KPMG Peat Marwick LLP,
independent certified public accountants, included herein, and upon the
authority of said firm as experts in accounting and auditing.
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GLOSSARY
The following is a description of certain terms used in this Prospectus.
1984 Cable Act -- The Cable Communications Policy Act of 1984.
1992 Cable Act -- The Cable Television Consumer Protection and Competition
Act of 1992.
1993 Acquisitions -- RMH's acquisitions of cable television systems during
February, March and December 1993 that served, at the time, approximately 1,400,
15,600 and 30,300 basic subscribers, respectively, in the Greenville/Spartanburg
Cluster and Nashville/Mid-Tennessee Cluster.
1995 Combination -- The accounting combination of results of operations for
the Greenville/ Spartanburg System from January 27, 1995 with results of
operations for IPWT and RMH.
1996 Act -- The Telecommunications Act of 1996.
Accredited investor -- An accredited investor (within the meaning of Rule
501(a)(1), (2), (3) or (7) of Regulation D of the Securities Act) able to bear
the economic risk of an investment in the Notes.
Acquisitions -- The Primary Acquisitions and the Miscellaneous Acquisitions
taken together.
ADI -- Area of Dominant Influence.
Administrative Agreements -- Agreements pursuant to which IMI provides
accounting, operational, marketing, engineering, legal, regulatory compliance
and other administrative services to the Company and the Related InterMedia
Entities or their subsidiaries at cost.
Advisory Committee -- The advisory committee of ICP-IV, consisting of one
representative from each of the seven limited partners with the largest
aggregate interests in ICP-IV.
A la carte -- The purchase of individual basic or expanded basic
programming services on a per-channel basis.
Annox System -- The cable television system purchased from Annox by the
Company on January 29, 1996, which served approximately 1,922 basic subscribers
as of September 30, 1996.
Bandwidth -- A general term used to describe the overall capacity of a
communications system or the frequency needed to transmit a given signal.
Bank Facility -- The Revolving Credit Facility for $475.0 million and the
Term Loan for $220.0 million to the Operating Partnership from the Bank of New
York, NationsBank of Texas and The Toronto Dominion Bank as arranging agents and
The Bank of New York as administrative agent. See "Description of Other
Obligations -- The Bank Facility."
Basic penetration -- The measurement of the take-up of basic cable service
expressed by calculating the number of basic subscribers outstanding on such
date as a percentage of the total number of homes passed in the system.
Basic service -- A package of over-the-air broadcast and
satellite-delivered cable television services.
Basic subscriber -- A subscriber to a cable or other television
distribution system who receives the basic level of television service and who
is usually charged a flat monthly rate for a number of channels.
Bridge Loan -- A loan, repaid with the proceeds of the Private Offering,
for up to $130.0 million from The Bank of New York, NationsBank of Texas and
Toronto-Dominion (Texas) Inc. to IP-TN used to fund, among other things, certain
acquisitions and a loan to RMH to pay a $15.0 million interest payment. See
"Description of Other Obligations -- Indebtedness Repaid with the Proceeds of
the Financing Plan."
Cable plant -- A network of co-axial and/or fiber optic cables that
transmit multiple channels carrying images, sound and/or data between a central
facility and an individual customer's television set. Networks may allow one-way
(from a headend to a residence and/or business) or two-way (from a headend to a
residence and/or business with a data return path to the headend) transmission.
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CAGR -- Compound Annual Growth Rate.
Capital Improvement Program -- The Company's plan to comprehensively
upgrade its cable television systems, which is based in large part on TCI's
specifications and which has already commenced in some of the Systems. The
Capital Improvement Program is designed to (i) deploy fiber optic cable, (ii)
consolidate and upgrade headends, (iii) increase the use of addressable
technology, (iv) install two-way transmission capability and (v) introduce
digital compression capability.
Channel capacity -- The number of video programming channels that can be
carried over a communications system.
Clustering -- A general term used to describe the strategy of operating
cable television systems in a specific geographic region, thus allowing for the
achievement of economies of scale and operating efficiencies in such areas as
system management, marketing and technical functions.
Coaxial cable -- Cable consisting of a central conductor surrounded by and
insulated from another conductor. It is the standard material used in
traditional cable systems. Signals are transmitted through it at different
frequencies, giving greater channel capacity than is possible with twisted pair
copper wire, but less than is possible with optical fiber.
Communications Act -- The Communications Act of 1934, as amended.
Company -- InterMedia Capital Partners IV, L.P. ("ICP-IV") and its
subsidiaries.
Completed Acquisitions -- The Company's acquisitions of the Kingsport
System from Time Warner and of the ParCable System from ParCable for an
aggregate purchase price of $92.2 million.
Contributed Equity -- Capital contributions to ICP-IV by its partners.
Cost of service -- A general term used to refer to the regulation of prices
charged to a customer. Existing prices are set and price increases are regulated
by allowing a company to earn a reasonable rate of return, as determined by the
regulatory authority.
CPS -- Cable programming service.
Digital compression -- The conversion of the standard analog video signal
into a digital signal, and the compression of that signal so as to facilitate
multiple channel transmission through a single channel's bandwidth.
Direct broadcast satellite (DBS) -- A service by which packages of
television programming are transmitted to individual homes, each serviced by a
single satellite dish.
DMA -- Designated Market Area, a term developed by A.C. Neilson Company, a
national media ratings service, and used to describe a geographically distinct
market.
DTH -- Low-power, direct-to-the-home satellite service.
EBI -- Effective Buying Income, which is defined as personal income less
personal tax and certain nontax payments, also referred to as "disposable" or
"after tax" income.
Exchange Agreement -- The Exchange Agreement dated December 16, 1995
between IPSE and TCIC, providing for the exchange of the Prime Houston Systems
and the Viacom Nashville System.
Expanded basic service -- A package of satellite-delivered cable
programming services available only for additional subscription over and above
the basic level of television service.
FCC -- Federal Communications Commission.
Financing Plan -- The capitalization of the Company, utilizing funds from
the Private Offering, the Bank Facility and the Contributed Equity.
GAAP -- Generally accepted accounting principles.
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G/S Contribution Agreement -- A contribution agreement dated March 4, 1996
between ICP-IV and the TCI Entities pursuant to which the TCI Entities
transferred their interests in the Greenville/Spartanburg System to the Company
in exchange for consideration valued at $240.0 million (subject to certain
adjustments).
Greenville/Spartanburg Cluster -- Systems serving, as of September 30,
1996, approximately 146,503 basic subscribers in the Greenville/Spartanburg
metropolitan area and in northeastern Georgia.
Greenville/Spartanburg Metropolitan Market -- The five counties
(Greenville, Spartanburg, Cherokee, Union and Pickens) that encompass the
combined metropolitan area of Greenville/Spartanburg, South Carolina.
Greenville/Spartanburg System -- The cable television systems in the
Greenville/Spartanburg Cluster that affiliates of TCI contributed to the
Company.
Headend -- A collection of hardware, typically including satellite
receivers, modulators, amplifiers and video cassette playback machines within
which signals are processed and then combined for distribution within the cable
network.
Homes passed -- Homes that can be connected to a cable distribution system
without further extension of the distribution network.
Indenture -- Indenture under which the Old Notes were issued and the
Exchange Notes will be issued, dated as of July 30, 1996, by and among ICP-IV
and IPCC as issuers and The Bank of New York, N.A. as Trustee.
IPWT Contribution Agreement -- A contribution agreement dated April 30,
1996 between ICP-IV, IP-I and GECC pursuant to which the Company acquired the
partnership interests and debt of IPWT.
Kingsport System -- The cable television system acquired by the Company
from Time Warner in February 1996, which served approximately 31,985 basic
subscribers as of September 30, 1996.
Knoxville/East Tennessee Cluster -- Systems serving, as of September 30,
1996, approximately 97,947 basic subscribers in eastern Tennessee including
suburban Knoxville.
Knoxville Metropolitan Market -- The four counties (Blount, Knox, Loudon
and Sevier) that encompass the Knoxville, Tennessee metropolitan area, and rural
areas west and south of Knoxville.
LAN(s) -- Local area networks used by businesses, government offices or
schools to connect with multiple outside locations.
LEC(s) -- Local exchange carriers, also known as local telephone companies.
MDU(s) -- Multiple dwelling units such as condominiums, apartment
complexes, hospitals, hotels and other commercial complexes.
Miscellaneous Acquisitions -- The Company's acquisitions of the cable
television assets that in aggregate served approximately 5,860 basic subscribers
as of September 30, 1996 in central and eastern Tennessee from Annox, Tellico,
Rochford and Prime Cable.
MMDS -- Multipoint multichannel distribution service. A one-way radio
transmission of television channels over microwave frequencies from a fixed
station transmitting to multiple receiving facilities located at fixed points.
MSA -- Metropolitan Statistical Area.
MSO -- Multiple system operator; a cable television provider that serves
more than one system.
Nashville/Mid-Tennessee Cluster -- The cluster of Systems in Nashville, the
Nashville suburbs and surrounding areas that served approximately 325,703 basic
subscribers as of September 30, 1996.
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Nashville Metropolitan Market -- The seven contiguous counties (Robertson,
Sumner, Wilson, Rutherford, Williamson, Cheatham and Davidson) that encompass
the city of Nashville, Tennessee, and its suburbs.
New Product Tiers ("NPT") -- A general term used to describe unregulated
cable television services.
NVOD -- Near Video on Demand.
OID -- Original issue discount.
Operating Partnership -- InterMedia Partners IV, L.P. ("IP-IV"), a
California limited partnership.
Overbuild -- The construction of a second cable television system in an
area in which such a system had previously been constructed.
OVS -- Open video systems.
ParCable System -- The cable television system acquired by the Company from
ParCable in February 1996, which served approximately 21,823 basic subscribers
as of September 30, 1996.
Partnership Agreement -- The Agreement of Limited Partnership of ICP-IV,
dated as of March 29, 1996.
Pay-per-view -- Payment made for individual movies, programs or events as
opposed to a monthly subscription for a whole channel or group of channels.
PCS -- Personal communications services.
Premium penetration -- The measurement of the take-up of premium cable
service expressed by calculating the number of premium units outstanding on such
a date as a percentage of the total number of basic service subscribers.
Premium service units -- The number of subscriptions to individual cable
programming service available only for additional subscription over and above
the basic or expanded basic levels of television service and paid for on an
individual basis.
Previously Affiliated Entities -- The former owners of IPWT, RMH and the
Greenville/Spartanburg System.
Primary Acquisitions -- Acquisitions of cable television systems by the
Company from Time Warner, ParCable, IPWT, RMH, TCI and Viacom that in aggregate
served approximately 570,153 basic subscribers as of September 30, 1996 in
Tennessee, South Carolina and Georgia.
Prime Cable System -- The cable television system the Company acquired from
Prime Cable and which served approximately 1,115 basic subscribers as of
September 30, 1996.
Related InterMedia Entities -- Refers, collectively, to InterMedia
Partners, a California limited partnership, InterMedia Partners II, L.P.,
InterMedia Partners III, L.P., InterMedia Partners V, L.P., and their
consolidated subsidiaries, that are affiliated with the Company.
Revolving Credit Facility -- A revolving credit facility to the Operating
Partnership under the Bank Facility for up to $475.0 million.
Rochford System -- The cable television system purchased by the Company
from Rochford in July 1996, which served approximately 1,305 basic subscribers
as of September 30, 1996.
SMATV -- Satellite master antenna television system. A video programming
delivery system to multiple dwelling units utilizing satellite transmissions.
Systems -- The cable television operations owned by the Company.
Telephony -- The provision of telephone service.
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Tellico System -- The cable television system purchased by the Company from
Tellico in May 1996, which served approximately 1,518 basic subscribers as of
September 30, 1996.
Term Loan -- A term loan to the Operating Partnership under the Bank
Facility for $220.0 million.
Transactions -- The Acquisitions together with the Financing Plan.
Viacom Nashville Acquisition -- The Company's acquisition of cable
television systems in Nashville, which served approximately 148,849 basic
subscribers as of September 30, 1996, pursuant to an exchange agreement between
IPSE and TCIC.
Viacom Nashville System -- The cable television systems of Viacom in
Nashville, which served approximately 148,849 basic subscribers as of September
30, 1996.
Video dialtone -- A general term used to describe a video programming
delivery system through telephone lines.
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LIST OF ENTITIES
The following is a list of certain entities referred to in this Prospectus.
<TABLE>
<S> <C>
Annox................................... Annox, Inc.
Company................................. ICP-IV and its subsidiaries
GECC.................................... General Electric Capital Corp.
ICM-IV.................................. InterMedia Capital Management IV, L.P.
ICP-IV.................................. InterMedia Capital Partners IV, L.P.(1)
IMI..................................... InterMedia Management, Inc.
IP-I.................................... InterMedia Partners, a California limited
partnership
IP-II................................... InterMedia Partners II, L.P.
IP-III.................................. InterMedia Partners III, L.P.
IP-IV................................... InterMedia Partners IV, L.P.
IP-V.................................... InterMedia Partners V, L.P.
IPCC.................................... InterMedia Partners IV, Capital Corp.(1)
IPSE.................................... InterMedia Partners Southeast
IP-TN................................... InterMedia Partners of Tennessee
IPWT.................................... InterMedia Partners of West Tennessee, L.P.
Operating Partnership................... IP-IV
Prime Cable............................. Prime Cable Partners, Inc.
Related Intermedia Entities............. IP-I, IP-II, IP-III, IP-V and their consolidated
subsidiaries
RMG..................................... Robin Media Group, Inc.
RMH..................................... Robin Media Holdings, Inc.
Rochford................................ Rochford Realty and Construction Company, Inc.
SSI..................................... Satellite Services, Inc.
TCI..................................... Tele-Communications, Inc.
TCI Entities............................ TCI of Greenville, Inc., TCI of Piedmont, Inc., and
TCI of Spartanburg, Inc.
TCIC.................................... TCI Communications, Inc.
TeleCable............................... TeleCable Corporation
Tellico................................. Tellico Cable, Inc.
Time Warner............................. Time Warner Entertainment Co., L.P.
Viacom.................................. Viacom, Inc.
</TABLE>
- ---------------
(1) Registrants.
171
<PAGE> 180
INTERMEDIA CAPITAL PARTNERS IV, L.P.
INDEX TO FINANCIAL STATEMENTS (1)
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
ISSUERS:
INTERMEDIA CAPITAL PARTNERS IV, L.P.
Consolidated Balance Sheet as of September 30, 1996 (unaudited).................... F-3
Consolidated Statement of Operations for the nine months ended September 30, 1996
(unaudited)..................................................................... F-4
Consolidated Statement of Cash Flows for the nine months ended September 30, 1996
(unaudited)..................................................................... F-5
Notes to Consolidated Financial Statements......................................... F-6
INTERMEDIA CAPITAL PARTNERS IV, L.P.
Report of Independent Accountants.................................................. F-15
Consolidated Balance Sheet as of December 31, 1995................................. F-16
Notes to Consolidated Balance Sheet................................................ F-17
GENERAL PARTNER:
INTERMEDIA CAPITAL MANAGEMENT IV, L.P.
Report of Independent Accountants.................................................. F-25
Balance Sheet as of December 31, 1995.............................................. F-26
Notes to Balance Sheet............................................................. F-27
PREDECESSOR BUSINESSES:
PREVIOUSLY AFFILIATED ENTITIES
Report of Independent Accountants.................................................. F-31
Combined Balance Sheets as of December 31, 1994 and 1995 and July 30, 1996
(unaudited)..................................................................... F-32
Combined Statements of Operations for the years ended December 31, 1993, 1994 and
1995 and for the seven months ended July 31, 1995 (unaudited) and the period
from January 1, 1996 to July 30, 1996 (unaudited)............................... F-33
Combined Statement of Changes in Equity for the years ended December 31, 1993, 1994
and 1995, and for the period from January 1, 1996 to July 30, 1996
(unaudited)..................................................................... F-34
Combined Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and for the seven months ended July 31, 1995 (unaudited) and the period
from January 1, 1996 to July 30, 1996 (unaudited)............................... F-35
Notes to Combined Financial Statements............................................. F-36
ROBIN MEDIA HOLDINGS, INC.
Report of Independent Accountants.................................................. F-50
Consolidated Balance Sheets as of December 31, 1994 and 1995 and July 30, 1996
(unaudited)..................................................................... F-51
Consolidated Statements of Operations for the years ended December 31, 1993, 1994
and 1995
and for the seven months ended July 31, 1995 (unaudited) and the period from
January 1, 1996 to July 30, 1996 (unaudited).................................... F-52
Consolidated Statement of Shareholder's Deficit for the years ended December 31,
1993, 1994 and 1995, and for the the period from January 1, 1996 to July 30,
1996 (unaudited)................................................................ F-53
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994
and 1995 and for the seven months ended July 31, 1995 (unaudited) and the period
from January 1, 1996 to July 30, 1996 (unaudited)............................... F-54
Notes to Consolidated Financial Statements......................................... F-55
INTERMEDIA PARTNERS OF WEST TENNESSEE, L.P.
Report of Independent Accountants.................................................. F-64
Balance Sheets as of December 31, 1994 and 1995 and July 30, 1996 (unaudited)...... F-65
Statements of Operations for the years ended December 31, 1993, 1994 and 1995 and
for the seven months ended July 31, 1995 (unaudited) and the period from January
1, 1996 to July 30, 1996 (unaudited)............................................ F-66
Statement of Changes in Partners' Capital for the years ended December 31, 1993,
1994 and 1995, and for the period from January 1, 1996 to July 30, 1996
(unaudited)..................................................................... F-67
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and
for the seven months ended July 31, 1995 (unaudited) and the period from January
1, 1996 to July 30, 1996 (unaudited)............................................ F-68
Notes to Financial Statements...................................................... F-69
</TABLE>
- ---------------
(1)Financial statements of InterMedia Partners IV, Capital Corp. have not been
included because it was formed in April 1996 in contemplation of the Private
Offering and its financial position and results of operations are
insignificant.
F-1
<PAGE> 181
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
TCI OF GREENVILLE, INC., TCI OF SPARTANBURG, INC.
AND TCI OF PIEDMONT, INC.
Independent Auditors' Report....................................................... F-77
Combined Balance Sheets as of December 31, 1995 and July 30, 1996 (unaudited)...... F-78
Combined Statement of Operations and Accumulated Deficit for the period from
January 27, 1995 to December 31, 1995 and for the period from January 27, 1995
to July 31, 1995 (unaudited) and for the period from January 1, 1996 to July 30,
1996 (unaudited)................................................................ F-79
Combined Statements of Cash Flows for the period from January 27, 1995 to December
31, 1995 and for the period from January 27, 1995 to July 31, 1995 (unaudited)
and for the period from January 1, 1996 to July 30, 1996 (unaudited)............ F-80
Notes to Combined Financial Statements............................................. F-81
TELECABLE-SOUTH CAROLINA GROUP
Report of Independent Accountants.................................................. F-85
Combined Statements of Income and Retained Earnings for the year ended December 31,
1994 and for the 26-day period ended January 26, 1995........................... F-86
Combined Balance Sheets as of December 31, 1994 and January 26, 1995............... F-87
Combined Statements of Cash Flows for the year ended December 31, 1994 and for the
26-day period ended January 26, 1995............................................ F-88
Notes to Combined Financial Statements............................................. F-89
OTHER BUSINESSES ACQUIRED:
WARNER CABLE COMMUNICATIONS-KINGSPORT, TENNESSEE DIVISION
Report of Independent Auditors..................................................... F-94
Statements of Assets, Liabilities and Divisional Equity as of December 31, 1995 and
January 31, 1996................................................................ F-95
Statements of Revenues and Expenses and Changes in Divisional Equity for the year
ended December 31, 1995 and for the month ended January 31, 1996................ F-96
Statements of Cash Flows for the year ended December 31, 1995 and for the month
ended January 31, 1996.......................................................... F-97
Notes to Financial Statements...................................................... F-98
VSC CABLE INC.
Statements of Operations and Retained Earnings for the six months ended June 30,
1995 (unaudited) and 1996 (unaudited)........................................... F-101
Balance Sheets as of December 31, 1995 and June 30, 1996 (unaudited)............... F-102
Statements of Cash Flows for the six months ended June 30, 1995 (unaudited) and
1996 (unaudited)................................................................ F-103
Notes to Financial Statements...................................................... F-104
VSC CABLE INC.
Report of Independent Accountants.................................................. F-107
Statements of Operations and Retained Earnings for the years ended December 31,
1993, 1994 and 1995............................................................. F-108
Balance Sheets as of December 31, 1994 and 1995.................................... F-109
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995...... F-110
Notes to Consolidated Financial Statements......................................... F-111
</TABLE>
F-2
<PAGE> 182
INTERMEDIA CAPITAL PARTNERS IV, L.P.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
(UNAUDITED)
ASSETS
Cash.......................................................................... $ 13,521
Accounts receivable, net of allowance for doubtful accounts of $2,528......... 17,788
Escrowed investments held to maturity......................................... 13,854
Receivable from affiliates.................................................... 434
Prepaids...................................................................... 4,056
Inventory..................................................................... 8,979
Other current assets.......................................................... 218
--------
Total current assets................................................ 58,850
Interest receivable on escrowed investments................................... 881
Notes receivable.............................................................. 217
Investments................................................................... 269
Escrowed investments held to maturity......................................... 74,902
Intangible assets, net........................................................ 702,692
Property & equipment, net..................................................... 152,073
Deferred income taxes......................................................... 7,158
Other non-current assets...................................................... 1,103
--------
Total assets........................................................ $ 998,145
========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities...................................... $ 20,943
Payable to affiliate.......................................................... 4,714
Deferred revenue.............................................................. 11,047
Accrued interest.............................................................. 12,102
--------
Total current liabilities........................................... 48,806
Long-term debt................................................................ 837,000
Other non-current liabilities................................................. 70
--------
Total liabilities................................................... 885,876
--------
Commitments and contingencies
Minority interest............................................................. 358
Mandatory redeemable preferred shares......................................... 12,143
PARTNERS' CAPITAL
Preferred limited partnership interest........................................ 24,949
General and limited partners' capital......................................... 76,669
Note receivable from general partner.......................................... (1,850)
--------
Total partners' capital............................................. 99,768
--------
Total liabilities and partners' capital............................. $ 998,145
========
</TABLE>
See accompanying notes to the consolidated financial statements
F-3
<PAGE> 183
INTERMEDIA CAPITAL PARTNERS IV, L.P.
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996
------------------------
<S> <C>
(UNAUDITED)
Basic and cable services............................................... $ 33,370
Pay service............................................................ 7,893
Other service.......................................................... 6,128
--------
47,391
--------
Program fees........................................................... 10,136
Other direct expenses.................................................. 5,731
Depreciation and amortization expense.................................. 26,521
Selling, general and administrative expenses........................... 8,975
Management and consulting fees......................................... 721
--------
52,084
--------
Loss from operations................................................... (4,693)
Other income (expense):
Interest and other income............................................ 4,759
Gain on sale of investments.......................................... 286
Interest expense..................................................... (18,191)
Other income (expense)............................................... (526)
--------
(13,672)
--------
Loss before income taxes............................................... (18,365)
Provision for income taxes............................................. (388)
--------
Net loss before extraordinary items.................................... (18,753)
Extraordinary gain on early extinguishment of debt, net of tax....... 18,483
Minority interest.................................................... (464)
--------
Net income (loss)...................................................... $ (734)
========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 184
INTERMEDIA CAPITAL PARTNERS IV, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996
------------------------
(UNAUDITED)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................. $ (734)
Minority interest.................................... 464
Gain on disposal of fixed assets..................... (7)
Depreciation and amortization........................ 27,403
Gain on sale of investment........................... (286)
Extraordinary gain on early extinguishment of debt... (18,483)
Changes in assets and liabilities:
Accounts receivable............................... (678)
Receivable from affiliates........................ (1,239)
Prepaids.......................................... (3,137)
Inventory......................................... (98)
Interest receivable............................... (886)
Other current assets.............................. 38
Deferred income taxes............................. 388
Other non-current assets.......................... 504
Accounts payable and accrued liabilities.......... 5,222
Payable to affiliate.............................. 2,392
Accrued interest.................................. (2,819)
Deferred revenue.................................. 430
Other non-current liabilities..................... (517)
---------
Cash flows from operating activities................... 7,957
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of cable systems, net of cash acquired..... (413,511)
Purchase of RMG Class A Common Stock................. (329)
Property and equipment............................... (10,910)
Intangible assets.................................... (347)
Notes receivable..................................... (15,247)
Purchases of escrowed investments.................... (88,756)
Proceeds from sale of investment..................... 1,080
---------
Cash flows from investing activities................... (528,020)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from long-term debt....................... 837,000
Repayment of long-term debt.......................... (350,583)
Call premium and other fees on early extinguishment
of debt........................................... (4,716)
Contributed capital.................................. 190,530
Partner distribution................................. (120,755)
Debt issue costs..................................... (16,925)
Syndication costs.................................... (967)
---------
Cash flows from financing activities................... 533,584
---------
Net change in cash..................................... 13,521
---------
Cash, beginning of period
Cash, end of period.................................... $ 13,521
=========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 185
INTERMEDIA CAPITAL PARTNERS IV, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1. THE COMPANY AND BASIS OF PRESENTATION:
InterMedia Capital Partners IV, L.P. ("ICP-IV" or the "Company"), a
California limited partnership, was formed on March 19, 1996, as a successor to
InterMedia Partners IV, L.P. ("IP-IV"), for the purpose of acquiring and
operating cable television systems in three geographic clusters, all located in
the southeastern United States.
As of September 30, 1996, ICP-IV's systems served the following number of
basic subscribers and encompassed the following number of homes passed:
<TABLE>
<CAPTION>
BASIC HOMES
SUBSCRIBERS PASSED
----------- -------
<S> <C> <C>
Nashville/Mid-Tennessee Cluster................ 325,703 507,497
Greenville/Spartanburg Cluster................. 146,503 205,326
Knoxville/East Tennessee Cluster............... 97,947 135,183
------- -------
Total................................ 570,153 848,006
======= =======
</TABLE>
The accompanying unaudited interim consolidated financial statements
include the accounts of ICP-IV and its directly and indirectly, majority-owned
subsidiaries, InterMedia Partners IV, Capital Corp., IP-IV, InterMedia Partners
Southeast ("IPSE"), InterMedia Partners of Tennessee ("IP-TN"), InterMedia
Partners of West Tennessee, L.P. ("IPWT"), and Robin Media Group, Inc. ("RMG").
ICP-IV and its majority-owned subsidiaries are collectively referred to as the
"Company." All significant intercompany accounts and transactions have been
eliminated in consolidation.
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles and
are presented in accordance with the rules and regulations of the Securities and
Exchange Commission applicable to interim financial information. Accordingly,
certain footnote disclosures have been condensed or omitted. In the Company's
opinion, the interim unaudited consolidated financial statements reflect all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the financial position as of September 30, 1996, the
results of operations for the nine months ended September 30, 1996 and cash flow
for the nine months ended September 30, 1996. The results of operations for the
nine months ended September 30, 1996 are not necessarily indicative of results
that can be expected for the year ended December 31, 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
F-6
<PAGE> 186
INTERMEDIA CAPITAL PARTNERS IV, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
2. ACQUISITIONS
On July 30, 1996 and August 1, 1996, the Company borrowed $558,000 under a
new bank term loan and revolving credit agreement (the "Bank Facility"), issued
$292,000 in senior notes (the "Notes"), and received equity contributions from
its partners of $360,000, consisting of: $190,550 in cash; $117,600 representing
the fair market value of cable television properties contributed, net of cash
paid to the contributing partner of $120,755; $13,333 representing the fair
market value of limited partner interests in IPWT, an affiliate; $36,667 in
exchange for notes receivable from IPWT; and $1,850 in the form of a note
receivable from InterMedia Capital Management IV, L.P. ("ICM-IV"), the general
partner of ICP-IV. The Bank Facility, the Notes and the equity contributions are
referred to as the "Financing."
On July 30, 1996, the Company acquired cable television systems serving
approximately 360,400 basic subscribers in Tennessee, South Carolina and Georgia
through the Company's acquisition of controlling equity interests in IPWT and
Robin Media Holdings, Inc. ("RMH"), an affiliate, and through the equity
contribution of certain cable television systems (the "Greenville/Spartanburg
System") to the Company by affiliates of Tele-Communications, Inc. ("TCI").
The Company acquired all of the general and limited partner interests of
IPWT in exchange for a $13,333 limited partner interest in ICP-IV. Concurrently,
General Electric Capital Corporation ("GECC") transferred to ICP-IV its $55,800
note receivable from IPWT and related interest receivable of $3,356, including
contingent interest, in exchange for an $11,667 limited partner interest in
ICP-IV, a $25,000 preferred limited partner interest in ICP-IV and cash of
$22,489.
InterMedia Partners V, L.P. ("IP-V"), a former affiliate, owned all of the
outstanding equity of RMH prior to the Company's acquisition of a majority of
the voting interests in RMH. In conjunction with a recapitalization of RMH,
ICP-IV purchased 3,285 shares of RMH's Class A Common Stock for $330.
Concurrently, a wholly owned subsidiary of TCI converted its outstanding loan to
IP-V into a limited partnership interest and, in dissolution of the IP-V
partnership, received 365 shares of RMH Class B Common Stock valued at $37 and
12,000 shares of RMH Redeemable Preferred Stock valued at $12,000. Upon
completion of the recapitalization, the Company has 60% of the voting interests
of RMH, with TCI owning the remaining 40%. In connection with the acquisition,
the Company assumed approximately $331,450 of long-term debt and $11,565 of
accrued interest, which was repaid with proceeds from the Financing. Upon
consummation of the acquisition, RMH merged into its wholly owned operating
subsidiary RMG. All of the RMH stock just described was converted as a result of
the merger into capital stock of RMG with the same terms.
Affiliates of TCI transferred their interests in the Greenville/Spartanburg
System to the Company in exchange for a 49.0% limited partner interest in ICP-IV
valued at $117,600 and an assumption of $120,755 of debt which was
simultaneously repaid by the Company with proceeds from the Financing. The cash
paid of $120,755 for debt assumed has been recorded as a distribution to TCI in
the accompanying consolidated financial statements.
TCI held substantial direct and indirect ownership interests in each of
RMH, IPWT and the Greenville/Spartanburg System. As a result of TCI's
substantial continuing interest in RMG, IPWT and the Greenville/Spartanburg
System after the Company's acquisitions, the acquired assets of these entities
have been accounted for at their historical basis as of the acquisition date.
Results of operations for these entities have been included in the Company's
consolidated results only from the acquisition date. The historical cost
F-7
<PAGE> 187
INTERMEDIA CAPITAL PARTNERS IV, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
basis of RMH's, IPWT's and the Greenville/Spartanburg System's assets purchased
and liabilities assumed as of July 30, 1996 was as follows:
<TABLE>
<S> <C>
Current assets.......................................... $ 20,149
Property and equipment.................................. 106,205
Franchise rights........................................ 270,593
Goodwill................................................ 59,532
Other non-current assets................................ 8,356
--------
Total assets.................................. $464,835
========
Current liabilities..................................... $ 33,063
Long-term debt.......................................... 546,059
Other non-current liabilities........................... 87
--------
Total liabilities............................. 579,209
--------
Mandatorily redeemable preferred stock.................. 12,000
Minority interest....................................... 37
Total equity............................................ (126,411)
--------
Total liabilities and equity.................. $464,835
========
</TABLE>
On May 8, 1996, IPSE acquired the Houston, Texas cable television assets of
Prime Cable ("the Prime Houston System") with the intent of exchanging with TCI
the Prime Houston System for cable television systems of Viacom serving
approximately 148,800 basic subscribers in metropolitan Nashville, Tennessee
(the "Viacom Nashville System"). The purchase price for the Prime Houston System
of approximately $300,000 was financed entirely with non-recourse debt from TCI
Communications, Inc. ("TCIC"), a wholly owned subsidiary of TCI, and Bank of
America. As was planned, on July 31, 1996, TCI and TCIC consummated the
acquisition of all of Viacom's cable television systems including the Viacom
Nashville System. On August 1, 1996, IPSE acquired the Viacom Nashville System
in exchange for the Prime Houston System and cash equal to the difference
between the fair market values of the systems. The aggregate purchase price of
the Viacom Nashville System pursuant to the exchange was $313,465. TCI managed
the Prime Houston System during the Company's ownership period, and, under the
terms of the exchange agreement, the Company was obligated to sell to TCIC and
TCIC was obligated to purchase the Prime Houston System from the Company for an
amount in cash sufficient to repay the outstanding balances of the TCIC and bank
loans in the event that TCI had been unable to complete the Viacom acquisition
by October 1, 1996. Under the terms of the various agreements with TCIC, the
Company could not dispose of and did not have effective control over the use of
the Prime Houston assets, and there was no economic effect to the Company from
the Prime Houston assets during IPSE's ownership of the Prime Houston System.
Accordingly, the accounts of the Prime Houston System and the related debt and
interest expense have been excluded from the Company's consolidated financial
statements. IPSE's acquisition of the Viacom Nashville System has been accounted
for as a purchase in accordance with Accounting Principles Bulletin No. 16
("APB16") and the Viacom Nashville System's results of operations have been
included in the Company's consolidated results only from August 1, 1996, the
date of the exchange.
During the nine months ended September 30, 1996, the Company acquired other
cable television systems serving approximately 59,700 basic subscribers
primarily in central and eastern Tennessee for an aggregate purchase price of
$102,272 (the "Miscellaneous Acquisitions"). These acquisitions have also been
accounted for as purchases in accordance with APB16. Accordingly, results of
operations of the Miscellaneous Acquisitions have been included in the Company's
consolidated results only from the dates of acquisition.
F-8
<PAGE> 188
INTERMEDIA CAPITAL PARTNERS IV, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Total acquisition costs of the Viacom Nashville System and the
Miscellaneous Acquisitions are as follows:
<TABLE>
<S> <C>
Cash paid to sellers, net of liabilities assumed.......... $414,154
Other acquisition costs................................... 1,583
--------
Total acquisition costs......................... $415,737
========
</TABLE>
The Company's preliminary allocation of acquisition costs for the Viacom
Nashville System and the Miscellaneous Acquisitions, pending receipt of final
appraisals, is as follows:
<TABLE>
<S> <C>
Current assets.......................................... $ 8,430
Property and equipment.................................. 43,200
Franchise rights........................................ 342,194
Goodwill................................................ 31,226
Other non-current assets................................ 376
--------
Total assets.................................. 425,426
--------
Current liabilities..................................... 9,188
Non-current liabilities................................. 501
--------
Total liabilities............................. 9,689
--------
Net assets acquired..................................... $415,737
========
</TABLE>
Had the acquisitions and the Financing been completed as of January 1,
1996, pro forma revenues, net loss before extraordinary gain on early
extinguishment of debt and minority interest and net loss for the nine months
ended September 30, 1996 would have been $169,100, $67,000 and $49,000,
respectively.
3. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
Franchise rights...................................... $ 613,262
Goodwill.............................................. 90,758
Debt issue costs...................................... 16,819
Other................................................. 542
--------
721,381
Accumulated amortization.............................. (18,689)
--------
$ 702,692
========
</TABLE>
F-9
<PAGE> 189
INTERMEDIA CAPITAL PARTNERS IV, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
4. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1996 consist of the following:
<TABLE>
<S> <C>
Land.................................................... $ 1,044
Cable television plant.................................. 127,888
Buildings and improvements.............................. 1,340
Furniture and fixtures.................................. 1,734
Equipment and other..................................... 10,647
Construction in progress................................ 17,633
--------
160,286
Accumulated depreciation................................ (8,213)
--------
$152,073
========
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
Accounts payable...................................... $ 3,915
Accrued program costs................................. 1,817
Accrued franchise fees................................ 3,739
Accrued payroll costs................................. 1,723
Accrued property and other taxes...................... 2,497
Accrued legal fees.................................... 183
Accrued accounting fees............................... 168
Other accrued liabilities............................. 6,901
-------------
$20,943
==========
</TABLE>
6. LONG-TERM DEBT
Long-term debt at September 30, 1996 consists of the following:
<TABLE>
<S> <C>
Bank revolving credit facility, $475,000 commitment as
of September 30, 1996, interest currently at LIBOR
plus 1.625% payable quarterly, matures July 1, 2004... $325,000
Bank term loan; interest at LIBOR plus 2.375% payable
quarterly, matures January 1, 2005.................... 220,000
11 1/4% senior notes, interest payable semi-annually,
due August 1, 2006.................................... 292,000
--------
$837,000
========
</TABLE>
The Company's bank debt is outstanding under a revolving credit facility
and term loan agreement executed by IP-IV and dated July 30, 1996. The revolving
credit facility currently provides for $475,000 of available credit. Starting
January 1, 1999 revolving credit facility commitments will be permanently
reduced semiannually by increments ranging from $22,500 to $47,500 through
maturity on July 1, 2004. The term loan
F-10
<PAGE> 190
INTERMEDIA CAPITAL PARTNERS IV, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
requires semiannual principal payments of $500 starting January 1, 1999 through
January 1, 2004, and final principal payments in two equal installments of
$107,250 on July 1, 2004 and January 1, 2005. Advances under the Bank Facility
are available under interest rate options related to the base rate of the
administrative agent for the Bank Facility ("ABR") or LIBOR. Interest rates on
borrowings under the term loan are at LIBOR plus 2.375% or ABR plus 1.125%.
Interest rates vary on borrowings under the revolving credit facility from LIBOR
plus 0.75% to LIBOR plus 1.75% or ABR to ABR plus 0.50% based on the Company's
ratio of senior debt to annualized quarterly operating cash flow. For purposes
of this computation, senior debt, as defined, excludes the 11.25% senior notes.
The Bank Facility requires quarterly interest payments, or more frequent
interest payments if a shorter period is selected under the LIBOR option, and
quarterly payment of fees on the unused portion of the revolving credit facility
at 0.375% per annum when the senior leverage ratio is greater than 4.0:1.0 and
at 0.25% when the senior leverage ratio is less than or equal to 4.0:1.0. At
September 30, 1996, the interest rate on borrowings outstanding under the
revolving credit facility was 7.25%.
The Company has entered into interest rate swap agreements in the aggregate
notional principal amount of $120,000 to establish long-term fixed interest
rates on its variable senior bank debt. Under the swap agreements, the Company
pays quarterly interest at fixed rates ranging from 6.28% to 6.3225% and
receives quarterly interest payments equal to LIBOR. The differential to be paid
or received in connection with an individual swap agreement is accrued as
interest rates change over the period to which the payments or receipts relate.
The agreements expire between May 1999 and February 2000.
Borrowings under the Bank Facility are secured by the capital stock and
partnership interests of IP-IV's subsidiaries.
The 11 1/4% senior notes will be redeemable at the option of the Company,
in whole or in part, subsequent to August 1, 2001 at specified redemption prices
which will decline in equal annual increments and range from 105.625% beginning
August 1, 2001 to 100.0% of the principal amount beginning August 1, 2004
through the maturity date, plus accrued interest.
As of September 30, 1996, ICP-IV has $89,637 in pledged securities,
including interest which represent sufficient funds to provide for payment in
full of interest on the Notes through August 1, 1999 and that are pledged as
security for repayment of the Notes under certain circumstances. Proceeds from
the pledged securities will be used by ICP-IV to make interest payments on the
Notes through August 1, 1999.
ICP-IV is the issuer of the Notes and, as a holding company, has no direct
operations. The Notes are structurally subordinated to borrowings of IP-IV under
the Bank Facility.
The debt agreements contain certain covenants which restrict the Company's
ability to encumber assets, make investments or distributions, retire
partnership interests, pay management fees currently, incur or guarantee
additional indebtedness and purchase or sell assets. The debt agreements include
financial covenants which require minimum interest and debt coverage ratios and
specify maximum debt to cash flow ratios.
Based on the recent pricing and issuance of the Notes, the carrying amount
of these securities at September 30, 1996 approximates their fair value.
Borrowings under the Bank Facility's are at rates that would be otherwise
currently available to the Company. Accordingly, the carrying amounts of bank
borrowings outstanding as of September 30, 1996 approximate their fair value.
7. MANDATORILY REDEEMABLE PREFERRED STOCK
The RMG Redeemable Preferred Stock has an annual dividend of 10.0% and
participates in any dividends paid on the common stock at 10.0% of the dividend
per share paid on the common stock. The RMG
F-11
<PAGE> 191
INTERMEDIA CAPITAL PARTNERS IV, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Redeemable Preferred Stock bears a liquidation preference of $12,000 plus any
accrued but unpaid dividends at the time of liquidation and is mandatorily
redeemable on September 30, 2006 at the liquidation preference amount. RMG also
has the right, but not the obligation, to redeem in whole or in part the RMG
Redeemable Preferred Stock at the liquidation preference amount on or after
September 30, 2001. The accrued dividend on the RMG Redeemable Preferred Stock
is included in minority interest as a charge against income (loss).
8. CABLE TELEVISION REGULATION
Cable television legislation and regulatory proposals under consideration
from time to time by Congress and various federal agencies have in the past, and
may in the future, materially affect the Company and the cable television
industry.
The cable industry is currently regulated at the federal and local levels
under the Cable Act of 1984, the Cable Act of 1992 (the "1992 Act"), the
Telecommunications Act of 1996 (the "1996 Act") and regulations issued by the
Federal Communications Commission ("FCC") in response to the 1992 Act. FCC
regulations govern the determination of rates charged for basic, expanded basic
and certain ancillary services, and cover a number of other areas including
customer service and technical performance standards, the required transmission
of certain local broadcast stations and the requirement to negotiate
retransmission consent from major network and certain local television stations.
Among other provisions, the 1996 Act will eliminate rate regulation on the
expanded basic tier effective March 31, 1999.
Current regulations issued in connection with the 1992 Act empower the FCC
and/or local franchise authorities to order reductions of existing rates which
exceed the maximum permitted levels and require refunds measured from the date a
complaint is filed in some circumstances or retroactively for up to one year in
other circumstances. Management believes it has made a fair interpretation of
the 1992 Act and related FCC regulations in determining regulated cable
television rates and other fees based on the information currently available.
Many aspects of regulations at the federal and local levels are currently
the subject of judicial review and administrative proceedings. In addition, the
FCC is required to conduct rulemaking proceedings over the next several months
to implement various provisions of the 1996 Act. It is not possible at this time
to predict the ultimate outcome of these reviews or proceedings or their effect
on the Company.
9. COMMITMENTS AND CONTINGENCIES
The Company is committed to provide cable television services under
franchise agreements with remaining terms of up to twenty years. Franchise fees
of up to 5% of gross revenues are payable under these agreements.
Current FCC regulations require that cable television operators obtain
permission to retransmit major network and certain local television station
signals. The Company has entered into long-term retransmission agreements with
all applicable stations in exchange for in-kind and/or other consideration.
The Company is subject to litigation and other claims in the ordinary
course of business. In the opinion of management, the ultimate outcome of any
existing litigation or other claims will not have a material adverse effect on
the Company's financial condition or results of operations.
10. RELATED PARTY TRANSACTIONS
ICM-IV manages the business of ICP-IV and its subsidiaries for a per annum
fee of 1% of the Company's total non-preferred capital contributions, or $3,350,
of which ICM-IV will defer 20% per annum, payable in each following year, in
order to support the Company's bank debt. However, pursuant to ICP-IV's
F-12
<PAGE> 192
INTERMEDIA CAPITAL PARTNERS IV, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Limited Partnership Agreement, ICM-IV's first year management fees of $3,350
were prepaid in July and August 1996.
InterMedia Management, Inc. ("IMI") is wholly owned by the managing general
partner of ICM-IV. IMI has entered into agreements with all of ICP-IV's
subsidiaries to provide accounting and administrative services at cost. IMI also
provides such services to other cable systems which are affiliates of the
Company. During the nine months ended September 30, 1996, administrative fees
charged by IMI were $1,287. Receivables from affiliates represent advances to
IMI net of administration fees charged by IMI and operating expenses paid by IMI
on behalf ICP-IV's subsidiaries.
As an affiliate of TCI, ICP-IV is able to purchase programming services
from a subsidiary of TCI. Management believes that the overall programming rates
made available through this relationship are lower than ICP-IV could obtain
separately. The TCI subsidiary is under no obligation to continue to offer such
volume rates to ICP-IV, and such rates may not continue to be available in the
future should TCI's ownership in ICP-IV significantly decrease or if TCI or the
programmers should otherwise decide not to offer such participation to the
Company. Programming fees charged by the TCI subsidiary for the nine months
ended September 30, 1996 amount to $7,826. Payable to affiliate represents
programming fees payable to the TCI subsidiary of $4,714 at September 30, 1996.
On April 1, 1996, IPTN loaned $15.0 million to RMH. Interest income for the
nine months ended September 30, 1996 includes $445 which IPTN recorded on the
note prior to the Company's purchase of RMH on July 30, 1996. As of September
30, 1996 the note balance outstanding including accrued interest has been
eliminated in consolidation.
11. EXTRAORDINARY GAIN ON EARLY EXTINGUISHMENT OF DEBT
As described in Note 2 -- Acquisitions, in connection with the Company's
acquisition of a majority of the voting interest in RMH, the Company assumed
approximately $331,450 of long-term debt, which was repaid with the proceeds
from the Financing. The repayment of RMH's long-term debt resulted in call
premium and fees associated with the defeasance of the debt. Costs associated
with the prepayment of the debt resulted in an extraordinary loss on early
extinguishment of debt of $2,926, net of tax benefit of $1,790.
Also, in connection with the Company's acquisition of the partner interests
of IPWT, GECC transferred to ICP-IV its note receivable from IPWT and related
interest receivable in exchange for a limited partner and a preferred limited
partner interest in ICP-IV and cash. The settlement of IPWT's long-term note
payable to GECC resulted in an extraordinary gain on early extinguishment of
debt of $21,409, which represented a debt restructuring credit balance as of
July 30, 1996. The debt restructuring credit was created in 1994 upon IPWT's
restructuring of its GECC debt.
F-13
<PAGE> 193
INTERMEDIA CAPITAL PARTNERS IV, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
12. SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
During the nine months ended September 30, 1996, the Company paid interest
of $20,125. Also, during the nine months ended September 30, 1996, cash paid for
income taxes was not material.
As described in Note 2, during the nine months ended September 30, 1996 the
Company acquired several cable television systems located in Tennessee and
Georgia. In conjunction with the acquisitions, assets acquired and liabilities
assumed were as follows:
<TABLE>
<S> <C>
Fair value of assets acquired........................... $416,996
Liabilities assumed, net of current assets.............. (1,259)
Cash acquired in connection in RMH and IPWT
acquisitions.......................................... (2,226)
--------
Net cash paid........................................... $413,511
========
</TABLE>
F-14
<PAGE> 194
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of InterMedia
Capital Partners IV, L.P.
In our opinion, the accompanying consolidated balance sheet presents
fairly, in all material respects, the financial position of InterMedia Capital
Partners IV, L.P. and its subsidiaries at December 31, 1995 in conformity with
generally accepted accounting principles. This consolidated balance sheet is the
responsibility of the Partnership's management; our responsibility is to express
an opinion on this consolidated balance sheet based on our audit. We conducted
our audit of this statement in accordance with generally accepted auditing
standards which require that we plan and perform an audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated balance sheet, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall consolidated balance sheet presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
June 28, 1996
F-15
<PAGE> 195
INTERMEDIA CAPITAL PARTNERS IV, L.P.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
ASSETS
Intangible assets, net........................................................ $ 707
Total assets........................................................ $ 707
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities...................................... $ 265
Payable to affiliates......................................................... 1,067
Total current liabilities........................................... 1,332
Commitments and contingencies
PARTNERS' CAPITAL
General partner............................................................... (7)
Limited partners.............................................................. (618)
Total partners' capital............................................. (625)
Total liabilities and partners' capital............................. $ 707
</TABLE>
See accompanying notes to consolidated balance sheet.
F-16
<PAGE> 196
INTERMEDIA CAPITAL PARTNERS IV, L.P.
NOTES TO CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
1. THE COMPANY AND BASIS OF PRESENTATION
InterMedia Capital Partners IV, L.P., a California limited partnership
("ICP-IV" or the "Partnership"), was formed on March 19, 1996, as a successor to
InterMedia Partners IV, L.P. ("IP-IV" or "Predecessor") for the purpose of
consolidating various cable television systems owned by affiliated entities and
acquiring new cable television systems located in the southeastern United States
(see Note 7 -- Subsequent Events).
InterMedia Capital Management IV, L.P., a California limited partnership
("ICM-IV"), is the 1.1% general partner of ICP-IV. As of June 28, 1996, ICP-IV
has obtained capital commitments from limited and general partners of $360,000,
including commitments to contribute cash, cable television properties and debt
and equity interests in InterMedia Partners of West Tennessee, L.P. ("IPWT"), an
affiliated entity. The limited partner commitments are from various
institutional investors and include a preferred limited partner interest of
$25,000, which General Electric Capital Corporation will receive in exchange for
a portion of its note receivable from IPWT.
The cable television properties (the "Greenville/Spartanburg System") are
to be contributed by affiliates of Tele-Communications, Inc. ("TCI") in exchange
for a 49% limited partner interest in ICP-IV. These properties serve
approximately 115,500 basic subscribers located in the Greenville/Spartanburg,
South Carolina metropolitan area.
The Partnership is in the process of obtaining long-term debt financing.
Proceeds from capital contributions and issuance of the new debt will be used to
repay existing debt incurred subsequent to December 31, 1995 and to fund planned
acquisitions of cable television properties, including the acquisition of a
majority of the outstanding voting interests in Robin Media Holdings, Inc.
("RMH"), an affiliated entity, and the acquisition of IPWT. An affiliate of TCI
holds substantial indirect interests in both RMH and IPWT.
Because of TCI's substantial continuing ownership interests in RMH, IPWT
and the Greenville/Spartanburg System after consummation of the proposed
acquisitions, the transfers of these systems will be accounted for on an
historical cost basis. All other planned acquisitions are from unaffiliated
entities and are expected to be accounted for as purchases at fair market value.
Results of operations for the proposed acquisitions will be included only from
the respective acquisition dates.
ICP-IV is the successor partnership to IP-IV. Upon formation of ICP-IV, the
previous general and limited partners of IP-IV became the general and limited
partners of ICP-IV. Simultaneously, ICP-IV became the 99.99% limited partner of
IP-IV and ICM-IV became the .01% general partner of IP-IV. The accompanying
balance sheet represents the assets, liabilities and equity of the Predecessor
as of December 31, 1995.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated balance sheet includes the accounts of ICP-IV, and its
majority owned subsidiaries. All intercompany accounts and transactions have
been eliminated in consolidation.
Cash equivalents
The Partnership considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Revenue recognition
Cable television service revenue is recognized in the period in which the
services are provided to customers. Deferred revenue represents revenue billed
in advance and deferred until cable service is provided.
F-17
<PAGE> 197
INTERMEDIA CAPITAL PARTNERS IV, L.P.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
(DOLLARS IN THOUSANDS)
Inventory
Inventory consists primarily of supplies and is stated at the lower of cost
or market determined by the first-in, first-out method.
Property and equipment
Additions to property and equipment, including new customer installations,
are recorded at cost. Self constructed fixed assets include materials, labor and
overhead. Costs of disconnecting and reconnecting cable service are expensed.
Expenditures for maintenance and repairs are charged to expense as incurred.
Expenditures for major renewals and improvements are capitalized. Capitalized
plant is written down to recoverable values whenever recoverability through
operations or sale of the system becomes doubtful.
Depreciation is computed using the double-declining balance method over the
following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Cable television plant.............................. 5-10
Buildings and improvements.......................... 10
Furniture and fixtures.............................. 3-7
Equipment and other................................. 3-10
</TABLE>
Intangible assets
The Partnership has franchise rights to operate cable television systems in
various towns and political subdivisions. Franchise rights are being amortized
over the lesser of the remaining lives of the franchises or the base twelve-year
term of ICP-IV which expires on December 31, 2007. Remaining franchise lives
range from one to thirteen years.
Goodwill represents the excess of acquisition cost over the fair value of
net tangible and franchise assets acquired and liabilities assumed and is being
amortized on a straight line basis over the twelve-year term of ICP-IV.
Debt issue costs of $3 are included in intangible assets at December 31,
1995 and are being amortized over the terms of the related debt.
Cost associated with potential acquisitions are initially deferred. For
acquisitions which are completed, related costs are capitalized as part of the
acquisition costs. For those acquisitions not completed, related costs are
expensed in the period the acquisition is abandoned.
Capitalized intangibles are written down to recoverable values whenever
recoverability through operations or sale of the system becomes doubtful. Each
year, the Partnership evaluates the recoverability of the carrying value of its
intangible assets by assessing whether the projected cash flows, including
projected cash flows from sale of the systems, is sufficient to recover the
unamortized costs of these assets.
Long-lived assets and long-lived assets to be disposed of
ICP-IV has adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." ICP-IV reviews property and equipment and intangible assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. No impairment losses have
been recognized by ICP-IV.
F-18
<PAGE> 198
INTERMEDIA CAPITAL PARTNERS IV, L.P.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
(DOLLARS IN THOUSANDS)
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Accrued legal fees...................................... $196
Accrued accounting fees................................. 16
Other accrued liabilities............................... 53
----
$265
====
</TABLE>
Income taxes
No provision or benefit for income taxes is reported in ICP-IV's financial
statements because, as a partnership, the tax effects of ICP-IV's results of
operations accrue to the partners.
Partners' capital
Syndication costs incurred to raise capital have been included in partners'
capital.
Allocation of profits and losses
Profits and losses are allocated in accordance with the provisions of
ICP-IV's partnership agreement, generally as follows:
Losses are allocated first to the partners to the extent of and in
accordance with relative capital contributions; second, to the partners
which loaned money to the Partnership to the extent of and in accordance
with relative loan amounts; and third, to the partners in accordance with
relative capital contributions, except that losses are allocated to the
preferred limited partner to the extent of its capital account balance only
until such balance has been reduced to zero.
Profits are allocated first to the preferred limited partner in an
amount sufficient to yield an 11.75% return compounded semi-annually on its
capital contributions; second, to the partners which loaned money to the
Partnership to the extent of and proportionate to previously allocated
losses relating to such loans; third, among the partners, other than the
preferred limited partner, in accordance with relative capital
contributions, in an amount sufficient to yield a pre-tax return of 15% per
annum on their capital contributions; and fourth, 20% to the general
partner and 80% to the limited and general partners, other than the
preferred limited partner, in accordance with relative capital
contributions.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
F-19
<PAGE> 199
INTERMEDIA CAPITAL PARTNERS IV, L.P.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
(DOLLARS IN THOUSANDS)
3. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Debt issue cost....................................... $ 3
Other................................................. 704
707
Accumulated amortization..............................
$ 707
</TABLE>
4. CABLE TELEVISION REGULATION
Cable television legislation and regulatory proposals under consideration
from time to time by Congress and various federal agencies have in the past, and
may in the future, materially affect the Partnership and the cable television
industry.
The cable industry is currently regulated at the federal and local levels
under the Cable Act of 1984, the Cable Act of 1992 ("the 1992 Act"), the
Telecommunications Act of 1996 ("the 1996 Act") and regulations issued by the
Federal Communications Commission ("FCC") in response to the 1992 Act. FCC
regulations govern the determination of rates charged for basic, expanded basic
and certain ancillary services, and cover a number of other areas including
customer service and technical performance standards, the required transmission
of certain local broadcast stations and the requirement to negotiate
retransmission consent from major network and certain local television stations.
Among other provisions, the 1996 Act will eliminate rate regulation on the
expanded basic tier effective March 31, 1999.
Current regulations issued in connection with the 1992 Act empower the FCC
and/or local franchise authorities to order reductions of existing rates which
exceed the maximum permitted levels and require refunds measured from the date a
complaint is filed in some circumstances or retroactively for up to one year in
other circumstances. Management believes it has made a fair interpretation of
the 1992 Act and related FCC regulations in determining regulated cable
television rates and other fees based on the information currently available.
Many aspects of regulation at the federal and local levels are currently
the subject of judicial review and administrative proceedings. In addition, the
FCC is required to conduct rulemaking proceedings over the next several months
to implement various provisions of the 1996 Act. It is not possible at this time
to predict the ultimate outcome of these reviews or proceedings or their effect
on the Partnership.
5. COMMITMENTS AND CONTINGENCIES
The Partnership is committed to provide cable television services under
franchise agreements with remaining terms of up to thirteen years. Franchise
fees of up to 5% of gross revenues are payable under these agreements.
Current FCC regulations require that cable television operators obtain
permission to retransmit major network and certain local television station
signals. The Partnership has entered into long-term retransmission agreements
with all applicable stations in exchange for in-kind and/or other consideration.
F-20
<PAGE> 200
INTERMEDIA CAPITAL PARTNERS IV, L.P.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
(DOLLARS IN THOUSANDS)
The Partnership is subject to litigation and other claims in the ordinary
course of business. In the opinion of management, the ultimate outcome of any
existing litigation or other claims will not have a material adverse effect on
the Partnership's financial condition or results of operations.
6. RELATED PARTY TRANSACTIONS
InterMedia Capital Management ("ICM"), InterMedia Capital Management III,
L.P. ("ICM-III") and ICM-IV have the same managing general partner and certain
limited partners in common. Payable to affiliates at December 31, 1995 include
$223 of amounts outstanding to ICM for costs paid by ICM on behalf of the
Partnership. The payable to ICM will be paid upon closing of the planned
financing (see Note 7).
ICM-IV will manage the business of the Partnership and its majority owned
investees for a per annum fee of 1% of the Partnership's total capital
contributions. The first year's management fee was paid in advance. In
subsequent years, 80% of the management fee will be paid quarterly in advance
and the remaining 20% will be deferred until each subsequent year in support of
the Partnership's long-term debt.
InterMedia Partners III, L.P. ("IP-III") has ICM-III as its general partner
and has certain limited partners in common with ICP-IV. Payable to affiliates at
December 31, 1995 includes $224 of deferred acquisition costs and $605 of
syndication costs paid by IP-III on behalf of ICP-IV. These costs relate to
acquisitions that previously were to be consummated by IP-III and are now
expected to be consummated by ICP-IV and to equity commitments that have been
transferred from IP-III to ICP-IV. The payables will be paid upon closing of the
planned financing (see Note 7).
InterMedia Management, Inc. ("IMI") is wholly owned by the managing general
partner of ICM-IV. IMI provides accounting and administrative services at cost
to all of ICP-IV's operating entities. IMI also provides such services to other
cable systems which are affiliates of the Partnership. Payable to affiliates at
December 31, 1995 include $15 for administration fees charged by IMI and
operating expenses paid by IMI on behalf of ICP-IV. IMI charges are paid in cash
on a monthly basis.
As an affiliate of TCI, ICP-IV is able to purchase programming services
from a subsidiary of TCI. Management believes that the overall programming rates
made available through this relationship are lower than ICP-IV could obtain
separately. The TCI subsidiary is under no obligation to continue to offer such
volume rates to ICP-IV, and such rates may not continue to be available in the
future should TCI's ownership in ICP-IV significantly decrease or if TCI or the
programmers should otherwise decide not to offer such participation to ICP-IV.
Programming fees are paid to TCI in cash on a monthly basis.
7. SUBSEQUENT EVENTS
Subsequent to December 31, 1995, the Partnership acquired several cable
television systems (the "Completed Acquisitions") which serve approximately
56,300 basic subscribers primarily in Tennessee for total acquisition costs of
$98,598 (unaudited). The acquisitions have been accounted for as purchases and
the results of operations of the acquired systems have been included in the
consolidated financial statements of the Partnership only from their respective
acquisition dates. The Partnership's preliminary allocation of the
F-21
<PAGE> 201
INTERMEDIA CAPITAL PARTNERS IV, L.P.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
(DOLLARS IN THOUSANDS)
acquisition costs of these systems, pending receipt of final appraisals, to
tangible and intangible assets are as follows (unaudited):
<TABLE>
<S> <C>
Cash paid on closing.................................. $ 98,074
Other acquisition costs............................... 524
------------
Total acquisition costs............................... 98,598
Liabilities assumed................................... 57
Costs assigned to tangible assets..................... (15,451)
------------
Costs attributed to intangible assets................. $ 83,204
==========
</TABLE>
The acquired systems had total revenues of $18,928 (unaudited) and net
income of $4,786 (unaudited) for the year ended December 31, 1995.
The unaudited pro forma combined condensed balance sheet of the Partnership
and the acquired entities as of December 31, 1995 after giving effect to certain
pro forma adjustments is as follows:
<TABLE>
<S> <C>
ASSETS
Current assets........................................ $ 2,623
Intangible assets..................................... 84,212
Property and equipment................................ 15,451
------------
Total assets................................ $102,286
==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities................................... $ 3,411
Long-term debt........................................ 99,500
------------
Total liabilities........................... 102,911
Total partners' capital............................... (625)
------------
Total liabilities and partners' capital..... $102,286
==========
</TABLE>
The unaudited pro forma combined results of operations of the Partnership
and the acquired entities for the year ended December 31, 1995 after giving
effect to certain pro forma adjustments and as if the acquisitions had occurred
on January 1, 1995 are as follows:
<TABLE>
<S> <C>
Revenues.............................................. $ 18,928
==========
Net loss.............................................. $(10,172)
==========
</TABLE>
In addition to the Completed Acquisitions, on May 8, 1996, InterMedia
Partners Southeast, L.P. ("IPSE"), a subsidiary of the Partnership, acquired
certain cable television systems in the Houston, Texas area (the "Prime Houston
System") from affiliates of Prime Cable, Inc. for approximately $300 million.
IPSE funded this acquisition by obtaining a $297 million nonrecourse loan from
TCI and a $3 million nonrecourse loan from Bank of America ("BA"). Both loans
mature on December 31, 1996 and are secured by IPSE's investment in the Prime
Houston Systems. Pursuant to an assignment and assumption agreement with TCI
dated December 18, 1995, IPSE plans to exchange the Prime Houston System for a
TCI system of similar value. In the event that the exchange is not completed by
October 1, 1996, TCI will be obligated to purchase the Prime Houston System from
IPSE.
Given that IPSE's obligations under the TCI and BA loans are nonrecourse,
and, under the terms of the various agreements with TCI, the Company does not
have effective control over the use of the Prime Houston assets, the Prime
Houston Systems' financial statements have not been included in unaudited pro
forma
F-22
<PAGE> 202
INTERMEDIA CAPITAL PARTNERS IV, L.P.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
(DOLLARS IN THOUSANDS)
combined condensed balance sheets or the unaudited pro forma combined results of
operations. Management believes the Partnership bears no substantive financial
risk during this temporary ownership and does not expect to recognize any
revenues or expenses in relation thereto.
Interim Debt Agreement:
On January 29, 1996, InterMedia Partners of Tennessee ("IPTN"), a
wholly-owned subsidiary of ICP-IV, entered into a bank revolving loan agreement
(the "Bridge Loan"). The Bridge Loan provides for borrowings up to $130,000 and
will terminate on September 30, 1996. The Bridge Loan has been or will be used
to fund (i) the Completed Acquisitions, (ii) additional acquisitions with an
aggregate purchase price of approximately $5,500, (iii) a $15,000 loan by IPTN
to Robin Media Holdings, Inc., an affiliated entity, and (iv) an amount for
general corporate purposes.
At June 30, 1996, $114,000 (unaudited) was outstanding under the Bridge
Loan. Borrowings under the bridge loan generally bear interest at the bank's
reference rate plus 1% or at LIBOR plus 2.25%. Interest periods corresponding to
interest rate options are generally specified as one, two or three months for
LIBOR loans. The loan agreement requires quarterly interest payments, or more
frequent interest payments if a shorter period is selected under the LIBOR
option. The Bridge Loan is guaranteed by ICP-IV and secured by the assets and
limited partnership interests in ICP-IV. Additionally, under the terms of the
Bridge Loan, the lenders have the right to require ICP-IV's partners to make
their respective capital contributions.
The Bridge Loan requires IPTN to pay a commitment fee of 0.5% per year,
payable quarterly, on the unused portion of available credit.
During the term of the Bridge Loan, ICP-IV is prohibited from entering into
any acquisition agreements other than those discussed herein, without consent
from the lenders. The Bridge Loan contains certain restrictive covenants,
including prohibitions on further indebtedness, maintenance of certain financial
ratios and restrictions on mergers, transactions with affiliates and sales of
assets.
As discussed below, management is in the process of obtaining long-term
financing which, in part, will be used to repay amounts outstanding under the
Bridge Loan due on September 30, 1996. In the event that planned financing is
not completed by the Bridge Loan due date, management believes that existing
capital commitments and the borrowing capacity of the Partnership, after giving
effect to the Completed Acquisitions, will be sufficient to repay amounts
outstanding under the Bridge Loan.
Planned Acquisitions:
The Partnership has entered into agreements to acquire additional cable
television systems serving approximately 514,000 subscribers located in
Tennessee, South Carolina and Georgia. The estimated fair value of the cable
television system assets to be acquired is $1,004,000. The acquisitions are
subject to certain third party and government approvals (see Note 9).
Planned Financing:
The Partnership is in the process of obtaining additional financing through
a bank term loan and revolving credit agreement for borrowings up to $695,000
and the issuance of $292,000 in senior notes (see Note 9).
8. EMPLOYEE BENEFIT PLAN
The Partnership and its subsidiaries participate in the InterMedia Partners
Tax Deferred Savings Plan which covers all full-time employees who have
completed at least one year of employment with the Partnership or an acquired
business. The plan provides for a base employee contribution of 1% and a
F-23
<PAGE> 203
INTERMEDIA CAPITAL PARTNERS IV, L.P.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
(DOLLARS IN THOUSANDS)
maximum of 15% of compensation. The Partnership's matching contributions under
the plan are at the rate of 50% of the employee's contribution, up to a maximum
of 3% of compensation.
9. EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF ACCOUNTANTS' REPORT
On July 30, 1996 and August 1, 1996, the Partnership obtained additional
financing through a bank term loan and revolving credit agreement for borrowings
up to $695,000 and the issuance of $292,000 in senior notes. Also in July and
August 1996, the Partnership completed its planned acquisitions of cable
television systems serving approximately 514,000 subscribers (see Note 7).
F-24
<PAGE> 204
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of InterMedia
Capital Management IV, L.P.
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of InterMedia Capital Management IV,
L.P. at December 31, 1995, in conformity with generally accepted accounting
principles. This balance sheet is the responsibility of the Partnership's
management; our responsibility is to express an opinion on this balance sheet
based on our audit. We conducted our audit of this statement in accordance with
generally accepted auditing standards, which require that we plan and perform an
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 financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
June 28, 1996
F-25
<PAGE> 205
INTERMEDIA CAPITAL MANAGEMENT IV, L.P.
BALANCE SHEET
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Intangible assets.................................................................. $ 1
-------
Total assets..................................................................... $ 1
=======
LIABILITIES AND PARTNERS' CAPITAL
Payable to affiliates.............................................................. $ 1
-------
Total liabilities and partners' capital.......................................... $ 1
=======
</TABLE>
See accompanying notes to the balance sheet.
F-26
<PAGE> 206
INTERMEDIA CAPITAL MANAGEMENT IV, L.P.
NOTES TO BALANCE SHEET
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
1. THE COMPANY AND BASIS OF PRESENTATION
InterMedia Capital Management IV, L.P. ("ICM-IV" or the "Partnership"), a
California limited partnership, was organized on October 24, 1994 to manage the
business of InterMedia Capital Partners IV, L.P. ("ICP-IV"), a California
limited partnership formed for the purpose of consolidating various cable
television systems owned by affiliated entities and acquiring new cable
television systems located in the southeastern United States (see Note
5 -- Subsequent Events). ICM-IV is the general partner of ICP-IV and will
receive a per annum management fee of one percent of ICP-IV's contributed
capital.
Leo J. Hindery, Jr. and InterMedia Management, Inc. are the general
partners owning an 89% interest in the Partnership. All of the outstanding
common stock of InterMedia Management, Inc. is held by Leo J. Hindery, Jr. The
general partners of ICM-IV have not committed, nor do they intend to fund cash
flow deficits or furnish other financial assistance, and neither ICM-IV nor
ICP-IV believes there is a reasonable possibility that the general partners of
ICM-IV will fund deficits or furnish assistance.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Intangibles
Intangibles represent organization costs incurred in the formation of the
Partnership. Organization costs will be amortized on a straight-line basis over
the twelve year term of the Partnership.
Income taxes
No provision or benefit for income taxes is reported in the Partnership's
financial statements because, as a partnership, the tax effects of the
Partnership's results of operations accrue to the partners.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Allocation of profits and losses
In accordance with the terms of ICM-IV's partnership agreement, profits and
losses are allocated among the partners in accordance with their respective
percentage interests, except when the limited partners' capital accounts would
become negative. In that event, such losses are allocated to the general
partners in accordance with their respective percentage interests. Subsequent
profits are allocated first among the partners to offset previously allocated
losses and then among the partners in accordance with their respective
percentage interests.
3. RELATED PARTY TRANSACTIONS
The Partnership's payable to affiliate balance at December 31, 1995
represents amounts outstanding to InterMedia Partners III, L.P. ("IP-III") for
organization costs paid by IP-III on behalf of the Partnership.
4. EQUITY INVESTEE
The Partnership is the 1.1% general partner of ICP-IV. As of June 28, 1996,
ICP-IV has obtained capital commitments from limited and general partners of
$360,000, including commitments to contribute cash, cable television properties
and debt and equity interests in InterMedia Partners of West Tennessee, L.P.
("IPWT"), an affiliated entity. ICP-IV's commitments are from various
institutional investors and include a preferred
F-27
<PAGE> 207
INTERMEDIA CAPITAL MANAGEMENT IV, L.P.
NOTES TO BALANCE SHEET (CONTINUED)
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
limited partner interest of $25,000, which General Electric Capital Corporation
will receive in exchange for a portion of its note receivable from IPWT.
The cable television properties (the "Greenville/Spartanburg System") are
to be contributed by affiliates of Tele-Communications, Inc. ("TCI") in exchange
for a 49% limited partner interest in ICP-IV. These properties serve
approximately 115,500 basic subscribers located in the Greenville/Spartanburg,
South Carolina metropolitan area.
ICP-IV is in the process of obtaining long-term debt financing. Proceeds
from capital contributions and issuance of the new debt will be used to repay
existing debt incurred subsequent to December 31, 1995 and to fund planned
acquisitions of cable television properties, including the acquisition of a
majority of the outstanding voting interests in Robin Media Holdings, Inc.
("RMH"), an affiliated entity, and the acquisition of IPWT. An affiliate of TCI
holds substantial indirect interests in both RMH and IPWT.
Because of TCI's substantial continuing ownership interests in RMH, IPWT
and the Greenville/Spartanburg System after consummation of the proposed
acquisitions, the transfers of these systems will be accounted for on an
historical cost basis. All other planned acquisitions are from unaffiliated
entities and are expected to be accounted for as purchases at fair market value.
Results of operations for the proposed acquisitions will be included only from
the respective acquisition dates.
ICP-IV is the successor partnership to InterMedia Partners IV, L.P.
("IP-IV"). Upon formation of ICP-IV, the general and limited partners of IP-IV
became the general and limited partners of ICP-IV. Simultaneously, ICP-IV became
the 99.99% limited partner of IP-IV and ICM-IV became the .01% general partner
of IP-IV. This investment is accounted for under the equity method. The
following major components of ICP-IV's consolidated balance sheet represents the
assets, liabilities and equity of IP-IV as of December 31, 1995:
<TABLE>
<S> <C>
Intangible assets.......................................... $ 707
------
TOTAL ASSETS............................................. $ 707
======
Account payable and accrued liabilities.................... $ 265
Payable to affiliates...................................... 1,067
------
TOTAL LIABILITIES........................................ 1,332
------
Partners' capital.......................................... (625)
------
TOTAL LIABILITIES AND PARTNERS' CAPITAL.................. $ 707
======
</TABLE>
ICP-IV's profits and losses are allocated in accordance with the provisions
of ICP-IV's partnership agreement, generally as follows:
Losses are allocated first to the partners to the extent of and in
accordance with relative capital contributions; second, to the partners which
loaned money to the Partnership to the extent of and in accordance with relative
loan amounts; and third, to the partners in accordance with relative capital
contributions, except that losses are allocated to the preferred limited partner
to the extent of its capital account balance only until such balance has been
reduced to zero.
Profits are allocated first to the preferred limited partner in an amount
sufficient to yield an 11.75% return compounded semi-annually on its capital
contributions; second, to the partners which loaned money to the Partnership to
the extent of and proportionate to previously allocated losses relating to such
loans; third, among the partners, other than the preferred limited partner, in
accordance with relative capital contributions, in an amount sufficient to yield
a pre-tax return of 15% per annum on their capital contributions; and fourth;
20% to ICM-IV and 80% to ICM-IV and the limited partners, other than the
preferred limited partner, in accordance with relative capital contributions.
F-28
<PAGE> 208
INTERMEDIA CAPITAL MANAGEMENT IV, L.P.
NOTES TO BALANCE SHEET (CONTINUED)
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
5. SUBSEQUENT EVENTS OF INVESTEE
On January 26, 1996, InterMedia Partners of Tennessee ("IPTN"), a
wholly-owned subsidiary of ICP-IV, entered into a bank revolving credit
agreement (the "Bridge Loan"). The Bridge Loan provides for borrowings up to
$130,000 and will terminate on September 30, 1996. The Bridge Loan is guaranteed
by ICM-IV and ICP-IV and secured by the assets and limited partnership interests
in ICM-IV and ICP-IV. At June 30, 1996, $114,000 (unaudited) was outstanding
under the Bridge Loan.
ICP-IV management is in the process of obtaining long-term financing which,
in part, will be used to repay amounts outstanding under the Bridge Loan due on
September 30, 1996. In the event that planned financing is not completed by the
Bridge Loan due date, ICP-IV management believes that existing capital
commitments and the borrowing capacity of ICP-IV, after giving effect to the
completed acquisitions, will be sufficient to repay amounts outstanding under
the Bridge Loan.
Subsequent to December 31, 1995, ICP-IV acquired several cable television
systems (the "Completed Acquisitions") which serve approximately 56,300 basic
subscribers, primarily in Tennessee, for total acquisitions costs of $98,598
(unaudited). The acquisitions will be accounted for as purchases. Accordingly,
results of operations of the acquired systems will be included in the
consolidated financial statements of ICP-IV only from their respective
acquisition dates. The acquired systems had total revenues of $18,928
(unaudited) and net income of $4,786 (unaudited) for the year ended December 31,
1995.
The unaudited pro forma combined condensed balance sheet of ICP-IV and the
acquired entities as of December 31, 1995 after giving effect to certain pro
forma adjustments is as follows:
<TABLE>
<S> <C>
ASSETS
Current assets.......................................... $ 2,623
Intangible assets....................................... 84,212
Property and equipment.................................. 15,451
--------
Total assets.......................................... $102,286
========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities..................................... $ 3,411
Long-term debt.......................................... 99,500
--------
Total liabilities..................................... 102,911
Total partners' capital................................. (625)
--------
Total liabilities and partners' capital............... $102,286
========
</TABLE>
The unaudited pro forma combined results of operations of ICP-IV and the
acquired entities for the year ended December 31, 1995 after giving effect to
certain pro forma adjustments and as if the acquisition had occurred on January
1, 1995 are as follows:
<TABLE>
<S> <C>
Revenues.................................................. $ 18,928
========
Net loss.................................................. $(10,172)
========
</TABLE>
In addition to the Completed Acquisitions, on May 8, 1996, InterMedia
Partners Southeast, L.P. ("IPSE"), a subsidiary of ICP-IV, acquired certain
cable television systems in the Houston, Texas area (the "Prime Houston
Systems") from affiliates of Prime Cable, Inc. for approximately $300,000.
IPSE funded this acquisition by obtaining a $297 million nonrecourse loan from
TCI and a $3 million nonrecourse loan from Bank of America ("BA"). Both loans
mature on December 31, 1996 and are secured
F-29
<PAGE> 209
INTERMEDIA CAPITAL MANAGEMENT IV, L.P.
NOTES TO BALANCE SHEET (CONTINUED)
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
by IPSE's investment in the Prime Houston Systems. Pursuant to an assignment and
assumption agreement with TCI dated December 18, 1995, IPSE plans to exchange
the Prime Houston System with a TCI system of similar value. In the event that
the exchange is not completed by October 1, 1996, TCI will be obligated to
purchase the Prime Houston System from IPSE.
Given that IPSE's obligations under the TCI and BA loans are nonrecourse
and its ownership of the Prime Houston is expected to be temporary, the Prime
Houston Systems' financial statements have not been included in unaudited pro
forma combined condensed balance sheets or the unaudited pro forma combined
results of operations. Management believes ICP-IV bears no substantive financial
risk during this temporary ownership and does not expect to recognize any
revenues or expenses in relation thereto.
Planned Acquisitions:
ICP-IV has entered into agreements to acquire additional cable television
systems serving approximately 514,000 subscribers located in Tennessee, South
Carolina and Georgia. The estimated fair value of the cable television system
assets to be acquired is $1,004,000. The acquisitions are subject to certain
third party and government approvals (see Note 6).
Planned Financing:
ICP-IV is in the process of obtaining additional financing through a bank
term loan and revolving credit agreement for borrowings up to $695,000 and the
issuance of $292,000 in senior notes (see Note 6).
6. EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF ACCOUNTANTS' REPORT
On July 30, 1996 and August 1, 1996, ICP IV obtained additional financing
through a bank term loan and revolving credit agreement for borrowings up to
$695,000 and the issuance of $292,000 in senior notes. Also in July and August
1996, ICP IV completed its planned acquisitions of cable television systems
serving approximately 514,000 subscribers (see Note 5).
F-30
<PAGE> 210
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of InterMedia
Capital Partners IV, L.P.
In our opinion, based upon our audits and the report of other auditors, the
accompanying combined balance sheets and the related combined statements of
operations, of changes in equity and of cash flows present fairly, in all
material respects, the combined financial position of the Previously Affiliated
Entities, which are comprised of Robin Media Holdings, Inc., InterMedia Partners
of West Tennessee, L.P., TCI of Greenville, Inc., TCI of Spartanburg, Inc. and
TCI of Piedmont, Inc., at December 31, 1995 and 1994, except TCI of Greenville,
Inc., TCI of Spartanburg, Inc. and TCI of Piedmont, Inc. which are included at
December 31, 1995 and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995, except TCI of
Greenville, Inc., TCI of Spartanburg, Inc. and TCI of Piedmont, Inc. which are
included from January 27, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the combined
financial statements of TCI of Greenville, Inc., TCI of Spartanburg, Inc. and
TCI of Piedmont, Inc., which statements reflect total assets of $361,812,000 at
December 31, 1995 and total revenues of $47,214,000 for the period from January
27, 1995 to December 31, 1995. Those statements were audited by other auditors
whose report thereon has been furnished to us, and our opinion expressed herein,
insofar as it relates to the amounts included for TCI of Greenville, Inc., TCI
of Spartanburg, Inc. and TCI of Piedmont, Inc., is based solely on the report of
the other auditors. 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 and the report of other auditors provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
June 28, 1996
F-31
<PAGE> 211
PREVIOUSLY AFFILIATED ENTITIES
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JULY 30,
1994 1995 1996
--------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents................................. $ 3,250 $ 4,883 $ 2,226
Accounts receivable, net of allowance for doubtful
accounts of $382, $853 and $818......................... 5,575 8,330 8,675
Receivable from affiliates................................ 383 303 535
Prepaids.................................................. 352 391 485
Inventory................................................. 1,719 2,940 5,230
Other current assets...................................... 93 223 221
--------- -------- --------
Total current assets............................ 11,372 17,070 17,372
Intangible assets, net.................................... 189,562 468,713 443,392
Property and equipment, net............................... 67,098 102,668 109,916
Investments............................................... 435 795 795
Note receivable........................................... 5,569
Deferred income taxes..................................... 5,756
Other assets.............................................. 1,022 1,248 1,639
--------- -------- --------
Total assets.................................... $ 275,058 $590,494 578,870
========= ======== ========
LIABILITIES AND EQUITY
Cash Overdraft............................................ $ $ $ 35
Current portion of long-term debt......................... 3,882 4,043
Accounts payable and accrued liabilities.................. 5,462 10,692 10,747
Deferred revenue.......................................... 3,800 3,963 4,061
Payable to affiliates..................................... 2,441 2,124 1,398
Accrued interest.......................................... 9,634 10,086
--------- -------- --------
Total current liabilities....................... 25,219 30,908 16,241
Accrued interest.......................................... 14,987
Long-term debt............................................ 399,618 407,176 408,659
Note payable to affiliate................................. 15,445
Deferred income taxes..................................... 17,198 115,161 106,275
--------- -------- --------
Total liabilities............................... 442,035 553,245 561,607
--------- -------- --------
Commitments and contingencies
Equity.................................................... (166,977) 37,249 17,263
--------- -------- --------
Total liabilities and equity.................... $ 275,058 $590,494 $578,870
========= ======== ========
</TABLE>
See accompanying notes to the combined financial statements.
F-32
<PAGE> 212
PREVIOUSLY AFFILIATED ENTITIES
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE YEAR ENDED SEVEN MONTHS JANUARY 1,
DECEMBER 31, ENDED JULY 1996 TO
---------------------------------- 31, JULY 30,
1993 1994 1995 1995 1996
-------- -------- -------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic and cable services......... $ 43,138 $ 52,829 $ 85,632 $ 48,904 $ 56,658
Pay services..................... 8,699 12,043 23,942 13,266 14,185
Other services................... 5,848 8,177 19,397 10,408 10,297
-------- -------- -------- -------- --------
57,685 73,049 128,971 72,578 81,140
-------- -------- -------- -------- --------
Program fees..................... 9,376 13,189 24,684 13,923 17,080
Other direct expenses............ 7,801 9,823 16,851 9,499 10,000
Depreciation and amortization.... 66,940 68,216 70,154 41,141 36,507
Selling, general and
administrative expenses........ 12,414 15,852 30,509 16,164 19,698
Management and consulting fees... 465 585 815 530 398
-------- -------- -------- -------- --------
96,996 107,665 143,013 81,257 83,683
-------- -------- -------- -------- --------
Loss from operations............. (39,311) (34,616) (14,042) (8,679) (2,543)
-------- -------- -------- -------- --------
Other income (expense):
Interest and other income...... 8,898 1,442 1,172 888 179
Gain (loss) on disposal of
fixed assets................ (1,967) (1,401) (63) 39 (14)
Interest expense............... (44,760) (44,278) (48,835) (28,157) (47,545)
Other expense.................. (508) (194) (644) (656) (93)
-------- -------- -------- -------- --------
(38,337) (44,431) (48,370) (27,886) (47,473)
-------- -------- -------- -------- --------
Loss before income tax benefit... (77,648) (79,047) (62,412) (36,565) (50,016)
Income tax benefit............... 21,656 19,020 17,502 (8,642) 14,744
-------- -------- -------- -------- --------
Net loss......................... $(55,992) $(60,027) $(44,910) $(27,923) $ (35,272)
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to the combined financial statements.
F-33
<PAGE> 213
PREVIOUSLY AFFILIATED ENTITIES
COMBINED STATEMENT OF CHANGES IN EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Balance at December 31, 1992...................................................... $(73,808)
Net loss.......................................................................... (55,992)
--------
Balance at December 31, 1993...................................................... (129,800)
Capital contributions to InterMedia Partners of West Tennessee, L.P............... 22,850
Net loss.......................................................................... (60,027)
--------
Balance at December 31, 1994...................................................... (166,977)
January 27, 1995 combining with TCI of Greenville, Inc., TCI of Spartanburg, Inc.
and TCI of Piedmont, Inc........................................................ 249,136
Net loss.......................................................................... (44,910)
--------
Balance at December 31, 1995...................................................... 37,249
Contribution to TCI of Greenville, Inc., TCI of Spartanburg, Inc. and
TCI of Piedmont, Inc. (unaudited)............................................... 15,286
Net loss (unaudited).............................................................. (35,272)
--------
Balance at July 30, 1996 (unaudited).............................................. $ 17,263
========
</TABLE>
See accompanying notes to the combined financial statements.
F-34
<PAGE> 214
PREVIOUSLY AFFILIATED ENTITIES
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE YEAR ENDED SEVEN MONTHS JANUARY 1,
DECEMBER 31, ENDED 1996 TO
------------------------------ JULY 31, JULY 30,
1993 1994 1995 1995 1996
-------- -------- -------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................ $(55,992) $(60,027) $(44,910) $(27,923) $ (35,272)
Adjustments to reconcile net loss to
cash flows from operating activities:
Depreciation and amortization........ 67,122 68,644 70,278 41,291 36,585
Loss on sale of note receivable...... 376 258
Loss (gain) on disposal of fixed
assets............................. 1,967 1,401 63 (22)
Gain on sale of investment........... (4,338)
Deferred income taxes................ (21,656) (19,020) (17,601) (8,642) (14,642)
Changes in assets and liabilities:
Accounts receivable................ (1,836) (455) (282) 1,130 (345)
Receivable from affiliates......... (4,370) 8,148 80 (126) (232)
Interest receivable................ (1,617) (726) 2,569 2,566 --
Prepaids........................... 331 7 (39) (200) (94)
Inventory.......................... (306) (216) (1,221) 186 (2,290)
Other assets....................... (289) 177 (212) (122) (165)
Accounts payable and accrued
liabilities..................... 1,289 116 2,589 167 55
Cash Overdraft..................... 35
Deferred revenue................... 633 202 163 155 98
Payable to affiliates.............. (3,406) 1,531 (317) (717) (726)
Accrued interest................... 10,282 106 (3,429) 440 2,986
-------- -------- -------- -------- --------
Cash flows from operating activities...... (12,186) (112) 8,107 8,441 (14,007)
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..... (11,334) (12,432) (26,301) (9,745) (18,587)
Proceeds from the sale of property and
equipment............................ 44
Investments............................. 18,317 (414) (360) (240)
Collections and proceeds from sale of
notes receivable..................... 40,459 17,764 2,624 2,625
Other assets and intangibles............ 64 (47) (621) (496) (149)
Purchases of cable television systems... (78,344)
-------- -------- -------- -------- --------
Cash flows from investing activities...... (30,838) 4,871 (24,614) (7,856) (18,736)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Activity on revolving credit note
payable.............................. 13,000 (2,600) 11,600 1,600 (200)
Note payable to affiliate............... 15,000
Repayment on long-term debt............. (22,073)
Capital contributions................... 20,050 6,484 (999) 15,286
Debt issue costs........................ (308) (161) (18) (573)
-------- -------- -------- -------- --------
Cash flows from financing activities...... 12,692 (4,784) 18,066 28 30,086
-------- -------- -------- -------- --------
Net change in cash and cash equivalents... (30,332) (25) 1,559 613 (2,657)
Cash and cash equivalents, beginning of
period.................................. 33,607 3,275 3,324 3,324 4,883
-------- -------- -------- -------- --------
Cash and cash equivalents, end of
period.................................. $ 3,275 $ 3,250 $ 4,883 $ 3,937 $ 2,226
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to the combined financial statements.
F-35
<PAGE> 215
PREVIOUSLY AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
The combined financial statements include the financial statements of Robin
Media Holdings, Inc. ("Holdings"), InterMedia Partners of West Tennessee, L.P.
("IPWT") and TCI of Greenville, Inc., TCI of Spartanburg, Inc. and TCI of
Piedmont, Inc. (collectively "TCI Greenville/Spartanburg"). Holdings, IPWT, and
TCI Greenville/Spartanburg are collectively referred to as the "Previously
Affiliated Entities." TeleCommunications, Inc. ("TCI") holds substantial direct
and indirect ownership interests in each of the entities that comprise the
Previously Affiliated Entities. The individual financial statements of the
Previously Affiliated Entities have been combined on a historical cost basis for
the years presented as if they had always been members of the same operating
group, except for the financial statements of TCI Greenville/Spartanburg, which
have been included from January 27, 1995, the date of acquisition by TCI. The
Previously Affiliated Entities own and operate cable television systems located
in Tennessee, South Carolina and Georgia.
The financial position and results of operations of the Previously
Affiliated Entities are being presented on a combined basis because of TCI's
substantial continuing ownership interests in the Previously Affiliated Entities
after the proposed acquisitions of the Previously Affiliated Entities by
InterMedia Capital Partners IV, L.P. ("ICP-IV") (see Note 17).
As disclosed in Note 4, certain accounting policies of Holdings and IPWT
are different from those of TCI Greenville/Spartanburg.
The combined Balance Sheet as of July 30, 1996, the combined Statements of
Operations for the seven month period ended July 31, 1995 and the period from
January 1, 1996 to July 30, 1996 and the combined Statements of Cash Flows for
the seven month period ended July 31, 1995 and the period from January 1, 1996
to July 30, 1996 have been prepared by the Partnership without audit. In the
opinion of Management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position at July 30, 1996
and the results of operations and cash flows for the seven months ended July 31,
1995 and the period from January 1, 1996 to July 30, 1996 have been made.
ROBIN MEDIA HOLDINGS, INC.
Holdings is a Nevada corporation which was organized on August 27, 1991. On
April 30, 1992, Holdings commenced operations with the acquisition of all the
outstanding common stock of Robin Media Group, Inc. ("RMG") from Jack Kent Cooke
Incorporated. Holdings is wholly owned by InterMedia Partners V, L.P. ("IP-V"),
a California limited partnership. TCI is a limited partner in IP-V. Holdings is
solely a holding company with no operations. Holdings' only asset is its
investment in RMG and it had no liabilities prior to April 1, 1996 (see Note 2).
The acquisition of RMG was structured as a leveraged transaction and a
significant portion of the assets acquired are intangible assets which are being
amortized over one to ten years. Therefore, as was planned, RMG has incurred
substantial book losses which have resulted in a net shareholder's deficit.
INTERMEDIA PARTNERS OF WEST TENNESSEE, L.P.
IPWT is a California limited partnership which was formed on April 11, 1990
for the purpose of investing in and operating cable television properties.
Under the terms of the original partnership agreement, InterMedia Partners
("IP"), a California limited partnership ("IP"), was the sole general partner,
owning an 89% interest in IPWT. The limited partners were IP and Robin Cable
Systems of Tucson, an Arizona limited partnership ("Robin-Tucson"), holding
interests in the Partnership of 10% and 1%, respectively. TCI is a limited
partnership in IP.
F-36
<PAGE> 216
PREVIOUSLY AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
On September 11, 1990 IPWT acquired the Western Tennessee properties of
U.S. Cable Partners, LP and its affiliates. Funding for this acquisition was
provided by General Electric Capital Corporation ("GECC") in the form of a
senior subordinated loan.
On October 3, 1994, IP sold its interests in Robin-Tucson to an affiliate
of TCI. IP contributed additional capital of $20,050 to IPWT from the net sales
proceeds and IPWT repaid $30,375 of the senior subordinated loan to GECC
including accrued interest. Under IPWT's Amended and Restated Agreement of
Limited Partnership entered into on October 3, 1994, GECC converted $2,800 of
its loan into a limited partnership interest in IPWT and restructured the
remaining balance of the loan (see Note 9). Under the amended partnership
agreement IP has an 80.1% general partner interest and a 9.9% limited partner
interest, and GECC has a 10% limited partner interest. Losses incurred prior to
October 3, 1994 were reallocated between the general and limited partners based
upon the change in ownership percentage resulting from the restructuring.
IPWT's acquisition of the West Tennessee cable television properties was
structured as a leveraged transaction and a significant portion of the assets
acquired were intangible assets which are being amortized over one to ten years.
Therefore, as was planned, IPWT has incurred substantial book losses, resulting
in negative partners' capital.
TCI OF GREENVILLE, INC., TCI OF SPARTANBURG, INC. AND TCI OF PIEDMONT, INC.
TCI Greenville/Spartanburg is an indirectly wholly owned subsidiary of TCI
Communications, Inc. ("TCIC") which is a wholly owned subsidiary of TCI.
TCI Greenville/Spartanburg was acquired by TCI from TeleCable Corporation
on January 27, 1995 and subsequently contributed to TCIC. These combined
financial statements include TCI Greenville/Spartanburg's assets, liabilities
and equity at December 31, 1995 and its results of operations for the period
from January 27, 1995, the date of TCI's acquisition, to December 31, 1995.
2. FINANCING PLAN
On April 1, 1996 Holdings obtained from ICP-IV, an affiliated entity, a
$15,000 loan which matures on September 30, 1996. Proceeds from the loan were
used to fund an additional equity contribution to RMG. RMG's debt agreements
contain restrictive covenants which preclude RMG from paying dividends or making
any distributions to Holdings. Because of these restrictions, Holdings will not
be able to repay the loan when due without additional funding from outside
sources.
IP-V has entered into an agreement with ICP-IV to sell, after
recapitalizing Holdings, a portion of its equity interest in Holdings. ICP-IV is
in the process of obtaining its initial equity contributions and debt financing.
Upon funding ICP-IV plans to make an intercompany loan to Holdings in an amount
sufficient for Holdings and RMG to repay all principal and interest outstanding
on its existing debt (see Note 18).
F-37
<PAGE> 217
PREVIOUSLY AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. ACQUISITIONS
During 1993 Holdings consummated the following acquisitions of cable
television properties:
<TABLE>
<CAPTION>
TOTAL
ACQUISITION ACQUISITION
CABLE TELEVISION ASSETS DATE COST
- ------------------------------------------------------------- ------------------ -----------
<S> <C> <C>
Royston, Georgia cable television assets of
Tritek -- Southern Communications, Ltd..................... February 26, 1993 $ 1,791
Middle Tennessee cable television assets of Daniels
Communications Partners Limited............................ March 22, 1993 23,499
Middle Tennessee cable television assets of American Cable TV
Investors 3................................................ December 1, 1993 53,054
-------
$78,344
=======
</TABLE>
The acquisitions of cable television properties noted above were accounted
for as purchases and results of operations have been included only since the
dates of acquisition. Holdings' costs to acquire these properties have been
allocated to tangible and intangible assets as follows:
<TABLE>
<S> <C>
Cash paid on closing...................................... $ 78,016
Other acquisition costs................................... 328
--------
Total acquisition costs................................... 78,344
Liabilities assumed....................................... 1,607
Costs assigned to tangible assets......................... (24,073)
--------
Costs attributable to intangible assets................... $ 55,878
========
</TABLE>
Had the 1993 acquisitions been completed as of January 1, 1993, revenues
and net loss for Holdings for the year ended December 31, 1993 would have been
$56,437 and $44,148, respectively, (unaudited).
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of combination
The combined financial statements include the accounts of Holdings, IPWT
and, from January 27, 1995, TCI Greenville/Spartanburg. All intercompany
accounts and transactions between Holdings and IPWT have been eliminated. There
are no intercompany accounts or transactions with TCI Greenville/Spartanburg.
Cash equivalents
The Previously Affiliated Entities consider all highly liquid investments
with original maturities of three months or less to be cash equivalents.
Revenue recognition
Cable television service revenue is recognized in the period in which
services are provided to customers. Deferred revenue represents revenue billed
in advance and deferred until cable service is provided.
Inventory
Inventory consists primarily of supplies and is stated at the lower of cost
or market determined by the first-in, first-out method.
F-38
<PAGE> 218
PREVIOUSLY AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Property and equipment
Additions to property and equipment, including new customer installations,
are recorded at cost. Self-constructed fixed assets include materials, labor and
overhead. Costs of disconnecting and reconnecting cable service are expensed.
Expenditures for maintenance and repairs are charged to expense as incurred.
Expenditures for major renewals and improvements are capitalized. Holdings and
IPWT include gains and losses from disposals and retirements in earnings. TCI
Greenville/Spartanburg recognizes gains and losses only in connection with sales
of properties in their entirety. At the time of ordinary retirements, sales or
other dispositions of property, TCI Greenville/Spartanburg charges the original
cost and cost of removal of such property, net of any realized salvage value, to
accumulated depreciation. Capitalized plant is written down to recoverable
values whenever recoverability through operations or sale of a system becomes
doubtful.
Depreciation is computed using the double-declining balance method over the
following estimated useful lives for Holdings and IPWT:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Cable television plant....................................... 5-10
Buildings and improvements................................... 10
Furniture and fixtures....................................... 3-7
Equipment and other.......................................... 3-10
</TABLE>
Depreciation for TCI Greenville/Spartanburg is computed on a straight-line
basis using estimated useful lives of 3 to 15 years for cable distribution
systems and 3 to 40 years for buildings and support equipment.
Intangible assets
The Previously Affiliated Entities have franchise rights to operate cable
television systems in various towns and political subdivisions. Holdings' and
IPWT's franchise rights are being amortized on a straight-line basis over the
lesser of the remaining lives of the franchises or the base ten-year term of the
IP-V or IP partnership agreements (see Note 12). TCI Greenville/Spartanburg
amortizes franchise rights on a straight-line basis over 40 years. Remaining
franchise lives range from one to twenty-four years.
Goodwill represents the excess of acquisition cost over the fair value of
net tangible and franchise assets acquired and liabilities assumed for Holdings
and IPWT and is being amortized on a straight-line basis over the ten-year term
of IP-V and IP, respectively.
Debt issue costs are being amortized over the terms of the related debt.
Debt issue costs of $492 and $510 are stated net of accumulated amortization of
$124 and $248 at December 31, 1994 and 1995, respectively.
Capitalized intangibles are written down to recoverable values whenever
recoverability through operations or sale of the system becomes doubtful. Each
year, the Previously Affiliated Entities evaluate the recoverability of the
carrying value of intangible assets by assessing whether the projected cash
flows, including projected cash flows from sale of the systems, is sufficient to
recover the unamortized cost of these assets.
F-39
<PAGE> 219
PREVIOUSLY AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
------ -------
<S> <C> <C>
Accounts payable.............................. $ 549 $ 463
Accrued program costs......................... 345 358
Accrued franchise fees........................ 1,571 3,545
Other accrued liabilities..................... 2,997 6,326
------ -------
$5,462 $10,692
====== =======
</TABLE>
Income taxes
Holdings and TCI Greenville/Spartanburg account for income taxes in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." The asset and liability approach used in SFAS 109
requires the recognition of deferred tax assets and liabilities for the tax
consequences of temporary differences by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
A tax sharing agreement (the "Tax Sharing Agreement") among TCIC and
certain other subsidiaries of TCI was implemented effective July 1, 1995. The
Tax Sharing Agreement formalizes certain elements of the pre-existing tax
sharing arrangement and contains additional provisions regarding the allocation
of certain consolidated income tax attributes and the settlement procedures with
respect to the intercompany allocation of current tax attributes. Accordingly,
all tax attributes generated by TCIC's operations (which include TCI
Greenville/Spartanburg) after the effective date including, but not limited to,
net operating losses, tax credits, deferred intercompany gains, and the tax
basis of assets are inventoried and tracked for the entities comprising TCIC.
For the period January 27, 1995 to December 31, 1995, TCI
Greenville/Spartanburg was included in the consolidated federal income tax
return of TCI. The income tax benefit for TCI Greenville/Spartanburg is based on
those items in the consolidated calculation applicable to TCI
Greenville/Spartanburg. For tax reporting purposes, the basis in the underlying
assets of TCI Greenville/Spartanburg were carried over at their historical
basis.
No provision or benefit for income taxes is recorded for IPWT because, as a
Partnership, the tax effects of IPWT's results of operations accrue to the
partners. IPWT is registered with the Internal Revenue Service as a tax shelter
under Internal Revenue Code Section 6111(b).
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
F-40
<PAGE> 220
PREVIOUSLY AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Franchise rights....................................... $251,176 $578,445
Goodwill and other intangible assets................... 103,770 104,260
-------- --------
354,946 682,705
Accumulated amortization............................... (165,384) (213,992)
-------- --------
$189,562 $468,713
======== ========
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Land................................................... $ 539 $ 1,118
Cable television plant................................. 101,370 148,960
Buildings and improvements............................. 838 866
Furniture and fixtures................................. 1,476 1,683
Equipment and other.................................... 6,044 10,810
Construction in progress............................... 2,590 4,140
-------- --------
112,857 167,577
Accumulated depreciation............................... (45,759) (64,909)
-------- --------
$ 67,098 $102,668
======== ========
</TABLE>
7. INVESTMENTS
Holdings has a 49% limited partnership interest in InterMedia Partners II,
L.P. ("IP-II"), an affiliated entity, which is accounted for under the equity
method. Holdings' original investment in IP-II was reduced to zero in 1992 as a
result of its equity in the net loss of IP-II. Holdings received distributions
from IP-II of $417 and $406 for the years ended December 31, 1994 and 1995,
respectively, which are included in interest and other income in the
accompanying Combined Statements of Operations.
Holdings has a 15% limited partner interest in AVR of Tennessee, L.P.,
doing business as Hyperion of Tennessee, which is accounted for under the cost
method. During 1994 and 1995, Holdings contributed $435 and $360, respectively,
to Hyperion of Tennessee. Holdings is committed to fund additional capital
contributions to Hyperion of Tennessee of $755 and to make term loan advances to
Hyperion of Tennessee. The term loan advances are required to fund leasing
arrangements for access to fiber optic distribution owned by the respective
partners. Management does not believe commitments for the term loan advances
will be significant.
On October 6, 1993, Holdings' investment in a preferred limited partner
interest, acquired prior to Holdings' acquisition of RMG, was redeemed by the
investee for $18,338, resulting in a gain of $4,338.
F-41
<PAGE> 221
PREVIOUSLY AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
8. NOTES RECEIVABLE
Notes receivable were issued to Holdings in connection with previous sales
of cable television systems. In June 1995, Holdings sold its only remaining note
receivable including related accrued interest. At the time of the sale the note
had a balance of $5,980 which included $411 of interest earned in 1995. The sale
of the note resulted in a loss of $376 which is included in other expense.
9. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
HOLDINGS:
Revolving credit note payable, $30,000 commitment,
interest at LIBOR plus 1.5% payable quarterly,
due February 28, 1997........................... $ 13,000 $ 25,000
11 1/8% senior subordinated notes, interest payable
semi-annually, due April 1, 1997................ 271,400 271,400
11 5/8% subordinated debentures, interest payable
semi-annually, due April 1, 1999................ 35,050 35,050
IPWT:
GECC revolving credit; $7,000 commitment; interest
payable quarterly at prime plus 1% or LIBOR plus
2% per annum; matures June 30, 2001............. 2,400 2,000
GECC term loans payable; interest payable quarterly
at 7% per annum on $27,000 and at prime plus 1%
or LIBOR plus 2% per annum on $27,000; matures
June 30, 2001................................... 54,000 54,000
Debt restructuring credit.......................... 27,650 23,769
-------- --------
403,500 411,219
Less current portion............................... 3,882 4,043
-------- --------
$399,618 $407,176
======== ========
</TABLE>
HOLDINGS
RMG's bank revolving credit agreement provides $30,000 of available
credit and expires on February 28, 1997. Borrowings under the revolving
credit agreement generally bear interest either at the bank's reference
rate plus 0.5% or at LIBOR plus 1.5% and are secured by the stock of RMG.
Interest on outstanding borrowings is payable quarterly. At December 31,
1995, the interest rate on the revolving credit agreement was 7.5%.
The revolving credit agreement requires RMG to pay a commitment fee of
0.375% per year, payable quarterly, on the unused portion of available
credit. In addition, the agreement contains certain restrictive covenants,
including limitations on the payment of dividends.
The 11 1/8% senior subordinated notes (the "Notes") are redeemable at
the option of RMG, in whole or in part, at a current redemption price of
101.0% of the principal amount, together with accrued interest. The
redemption price will decline to 100% of the principal amount at April 1,
1997.
F-42
<PAGE> 222
PREVIOUSLY AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
The 11 5/8% subordinated debentures (the "Debentures") are redeemable
at the option of RMG, in whole or in part, at a current redemption price of
101.4% of the principal amount, together with accrued interest. The
redemption price will decline to 100% of the principal amount at April 1,
1997.
The Debentures and the Notes are subordinated to the bank debt, and
the Debentures are subordinated to the Notes. The indentures with respect
to the Notes and the Debentures contain restrictive covenants on RMG,
including limitations on dividends, additional debt and mergers and
acquisitions.
Based on quoted market prices from recent limited trading of the Notes
and Debentures, their fair value approximates their recorded value.
Management also believes that the fair value of the bank debt outstanding
at variable interest rates approximates its recorded value.
IPWT
On October 3, 1994, in connection with IP's sale of Robin-Tucson, IPWT
restructured its subordinated loan payable to GECC. Under the terms of the
restructuring, GECC reduced the face amount of the debt outstanding to
$59,000. Because the total estimated future payments on the restructured
debt exceeded the carrying amount of the debt at the time of restructuring,
no gain has been recognized on the debt restructuring and no adjustments
have been made to the carrying amount of IPWT's debt. The difference of
$28,570 between the $59,000 refinanced and the amount of the note at the
time of the restructuring was recorded as a debt restructuring credit. A
portion of future debt service payments will be recorded as reductions of
the remaining debt restructuring credit of $23,769 at December 31, 1995.
At December 31, 1995, $56,000 is outstanding under the Amended and
Restated Loan Agreement with GECC which provides for a revolving credit
facility in the amount of $7,000 and term loans in the aggregate amount of
$54,000. Borrowings outstanding under the revolving credit facility and the
term loans generally bear interest either at the prime rate plus 1% or
LIBOR plus 2% and mature on June 30, 2001. On $27,000 of borrowings
outstanding under the term loans, the interest rate is fixed at 7% per
annum until October 3, 1997 when such borrowings become available under the
variable interest rate options just described.
Interest periods corresponding to interest rate options are generally
specified as one, two or three months for LIBOR loans. The loan agreement
requires quarterly interest payments, or more frequent interest payments if
a shorter period is selected under the LIBOR option, and quarterly payments
of .5% per annum on the unused commitment.
The loan agreement provides for contingent interest payments generally
at 11.11% of excess cash flow, as defined. Contingent interest payments may
be required upon sale of either the West Tennessee system or the
partnership interest in IPWT. No contingent interest has been accrued as of
December 31, 1995 (see Note 17) (see Note 18).
Excess cash flow for each year, after provision for contingent
interest payments, if any, must be used to prepay borrowings under the loan
agreement. Optional prepayments under the term loan permanently reduce
borrowings outstanding and may be made without penalty. Amounts outstanding
under the revolving credit facility and the term loan are secured by the
assets of IPWT.
IPWT has approximately $29,000 of debt outstanding at variable
interest rates. Management believes that the fair value of this debt
approximates its recorded value. Management estimates that the fair value
of fixed rate debt outstanding of $27,000 under the GECC term loan is
approximately $25,900.
F-43
<PAGE> 223
PREVIOUSLY AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Holdings' and IPWT's debt agreements include covenants which restrict
the borrowers' ability to encumber assets, make investments or
distributions, retire partnership interests, pay management fees currently,
incur or guarantee additional indebtedness and purchase or sell assets. The
debt agreements include financial covenants which require minimum interest
and debt coverage ratios, require minimum cash flows and specify maximum
debt to cash flow ratios.
Annual maturities of long-term debt at December 31, 1995 of the
Previously Affiliated Entities are as follows:
<TABLE>
<S> <C>
1996............................................... $ 4,043
1997............................................... 300,532
1998............................................... 4,423
1999............................................... 39,552
2000............................................... 4,469
Thereafter......................................... 58,200
--------
$411,219
========
</TABLE>
10. EQUITY
The combined equity of the Previously Affiliated Entities of $(166,977) and
$37,249, at December 31, 1994 and 1995, respectively, consists of the following
components:
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
HOLDINGS: STOCK CAPITAL DEFICIT TOTAL
- ----------------------------------------------- ------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1992................... $100 $ 10,498 $ (38,529) $ (27,931)
Net loss....................................... (39,866) (39,866)
---- -------- --------- ---------
Balance at December 31, 1993................... 100 10,498 (78,395) (67,797)
Net loss....................................... (46,588) (46,588)
---- -------- --------- ---------
Balance at December 31, 1994................... 100 10,498 (124,983) (114,385)
Net loss....................................... (37,729) (37,729)
---- -------- --------- ---------
Balance at December 31, 1995................... $100 $ 10,498 $(162,712) (152,114)
==== ======== =========
---------
</TABLE>
<TABLE>
<CAPTION>
GENERAL LIMITED
IPWT: PARTNER PARTNER TOTAL
- ----------------------------------------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1992................... $ (40,831) $ (5,046) (45,877)
Net loss....................................... (14,352) (1,774) (16,126)
-------- --------- ---------
Balance at December 31, 1993................... (55,183) (6,820) (62,003)
Additional capital contributions............... 17,844 5,006 22,850
Adjustment to reallocate losses in connection
with the debt restructuring.................. 5,519 (5,519)
Net loss....................................... (10,765) (2,674) (13,439)
-------- --------- ---------
Balance at December 31, 1994................... (42,585) (10,007) (52,592)
Net loss....................................... (2,293) (569) (2,862)
-------- --------- ---------
Balance at December 31, 1995................... $ (44,878) $ (10,576) (55,454)
======== =========
---------
</TABLE>
F-44
<PAGE> 224
PREVIOUSLY AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TCIC ACCUMULATED
TCI GREENVILLE/SPARTANBURG: INVESTMENT DEFICIT TOTAL
- ----------------------------------------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at January 27, 1995.................... $ 242,652 $ 242,652
Increase in TCIC contribution.................. 6,484 6,484
Net loss....................................... (4,319) (4,319)
-------- --------- ---------
Balance at December 31, 1995................... $ 249,136 $ (4,319) 244,817
======== =========
---------
Total combined equity at December 31, 1995... $ 37,249
=========
</TABLE>
On May 26, 1995, Holdings' Board of Directors approved (i) an increase in
the number of authorized shares of Holdings' common stock to 100,000,000 shares;
(ii) the issuance of up to 10,000,000 shares of Preferred Stock, par value of
$.01 per share, the rights, preferences and privileges of which to be determined
by the Board of Directors; and (iii) a 100,000 to 1 stock split in the form of a
stock dividend. As a result of the above actions, all share data included above
has been retroactively restated to give effect to these actions. At December 31,
1995, 10,000,000 shares of common stock were issued and outstanding and no
preferred stock was issued or outstanding.
11. CABLE TELEVISION REGULATION
Cable television legislation and regulatory proposals under consideration
from time to time by Congress and various federal agencies have in the past, and
may in the future, materially affect the Previously Affiliated Entities and the
cable television industry.
The cable industry is currently regulated at the federal and local levels
under the Cable Act of 1984, the Cable Act of 1992 (the "1992 Act"), the
Telecommunications Act of 1996 (the "1996 Act") and regulations issued by the
Federal Communications Commission ("FCC") in response to the 1992 Act. FCC
regulations govern the determination of rates charged for basic, expanded basic
and certain ancillary services, and cover a number of other areas including
customer service and technical performance standards, the required transmission
of certain local broadcast stations and the requirement to negotiate
retransmission consent from major network and certain local television stations.
Among other provisions, the 1996 Act will eliminate rate regulation on the
expanded basic tier effective March 31, 1999.
Current regulations issued in connection with the 1992 Act empower the FCC
and/or local franchise authorities to order reductions of existing rates which
exceed the maximum permitted levels and to require refunds received from the
date a complaint is filed in some circumstances or retroactively for up to one
year in other circumstances. Management believes it has made a fair
interpretation of the 1992 Act and related FCC regulations in determining
regulated cable television rates and other fees based on the information
currently available. However, complaints have been filed with the FCC on rates
for certain franchises and certain local franchise authorities have challenged
existing and prior rates. Further complaints and challenges could be
forthcoming, some of which could apply to revenue recorded in 1995. Management
believes, however, that the effect, if any, of these complaints and challenges
will not be material to the Previously Affiliated Entities' financial position
or results of operations.
Many aspects of regulation at the federal and local level are currently the
subject of judicial review and administrative proceedings. In addition, the FCC
is required to conduct rulemaking proceedings over the next several months to
implement various provisions of the 1996 Act. It is not possible at this time to
predict the ultimate outcome of these reviews or proceedings or their effect on
the Previously Affiliated Entities.
F-45
<PAGE> 225
PREVIOUSLY AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
12. COMMITMENTS AND CONTINGENCIES
The Previously Affiliated Entities are committed to provide cable
television services under franchise agreements with remaining terms of up to
twenty-four years. Franchise fees of up to 5% of gross revenues are payable
under these agreements.
Current FCC regulations require that cable television operators obtain
permission to retransmit major network and certain local television station
signals. The Previously Affiliated Entities have entered into long-term
retransmission agreements with all applicable stations in exchange for in-kind
and/or other consideration.
The Previously Affiliated Entities are subject to litigation and other
claims in the ordinary course of business. In the opinion of management, the
ultimate outcome of any existing litigation or other claims will not have a
material adverse effect on the Previously Affiliated Entities' financial
condition or results of operations.
The Previously Affiliated Entities have entered into pole rental agreements
and lease certain of their facilities and equipment under non-cancelable
operating leases. Minimum rental commitments at December 31, 1995 for the next
five years and thereafter under these leases are as follows:
<TABLE>
<S> <C>
1996................................................ $ 695
1997................................................ 439
1998................................................ 161
1999................................................ 133
2000................................................ 125
Thereafter.......................................... 483
------
$2,036
======
</TABLE>
Rent expense, including pole rental agreements, was $1,756, $1,999, and
$2,856 for the years ended December 31, 1993, 1994 and 1995, respectively.
13. RELATED PARTY TRANSACTIONS
IP-V manages the business of Holdings for an annual management fee paid in
cash in equal monthly installments. The annual management fee was $465 for each
of the years ended December 31, 1993 and 1994. Effective July 1, 1995, the
annual fee decreased to $200, resulting in fees of $333 for the full year of
1995. Management fees payable of $77 and $40 are included in payable to
affiliates at December 31, 1994 and 1995, respectively.
InterMedia Capital Management, a California limited partnership ("ICM"), is
the general partner of IP. Beginning October 1994, ICM managed the business of
IPWT for an annual fee of $482 of which 20% is deferred until each subsequent
year in support of IPWT's long-term debt. The remaining 80% is paid in cash in
equal monthly installments. Included in payable to affiliates at December 31,
1994 and 1995 are $24 and $96, respectively, relating to the ICM annual fee.
InterMedia Management, Inc. ("IMI") is wholly owned by the managing general
partner of ICM and InterMedia Capital Management V, L.P., the general partners
of IP-V. IMI has entered into agreements with Holdings and IPWT to provide
accounting and administrative services at cost. During the years ended December
31, 1993, 1994 and 1995, administrative fees charged by IMI and paid in cash on
a monthly basis were $1,501, $2,566 and $3,009, respectively. Included in
receivables from affiliates are advances to IMI net of administrative fees
charged by IMI and operating expenses paid by IMI on behalf of Holdings and
IPWT.
F-46
<PAGE> 226
PREVIOUSLY AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
IPWT payables to IP of $1,375 and $943 were outstanding at December 31,
1994 and 1995, respectively, primarily related to professional fees incurred by
IP on behalf of IPWT in connection with the acquisition of the West Tennessee
cable television system in 1990. IP will be given a partnership interest in
ICP-IV, as defined herein, in exchange for its investment in IPWT including its
receivable of $943 (see note 11).
TCI and certain subsidiaries provide certain corporate general and
administrative services and are responsible for TCI Greenville/Spartanburg's
operations. Costs related to these services were allocated on a basis that is
intended to approximate TCI's incremental cost. The amount presented in the
combined statement of operations as management fees represents the allocated
expenses from January 27, 1995 to December 31, 1995. The amounts allocated by
TCI are not necessarily representative of the costs that TCI
Greenville/Spartanburg would have incurred as stand-alone systems.
As affiliates of TCI, the Previously Affiliated Entities are able to
purchase programming services from a subsidiary of TCI. Management believes that
the overall programming rates made available through this relationship are lower
than the Previously Affiliated Entities could obtain separately. The TCI
subsidiary is under no obligation to continue to offer such volume rates to the
Previously Affiliated Entities, and such rates may not continue to be available
in the future should TCI's ownership in the Previously Affiliated Entities
significantly decrease or if TCI or the programmers should otherwise decide not
to offer such participation to the Previously Affiliated Entities. TCI is also
an owner of ICP-IV, therefore the proposed transaction with ICP-IV is not
expected to affect the programming fees charged to the Previously Affiliated
Entities by the TCI affiliates (see Note 17). Programming fees charged by the
TCI subsidiary for the years ended December 31, 1993, 1994 and 1995 amounted to
$8,022, $11,127 and $19,545, respectively. Programming fees are paid to TCI in
cash on a monthly basis. Payable to affiliates includes programming fees payable
to the TCI subsidiary by Holdings and IPWT of $963 and $1,045 at December 31,
1994 and 1995, respectively.
TCI Greenville/Spartanburg's contributed equity includes TCIC's funding of
current operations, as well as its initial contribution of capital. Interest
expense of $11,839 allocated by TCIC is based on actual interest costs incurred
by TCIC and, therefore, does not necessarily reflect the interest expense that
TCI Greenville/Spartanburg would have incurred on a stand alone basis. In
addition, certain of TCIC's debt is currently secured by the cash flows of
certain of its subsidiaries including TCI Greenville/Spartanburg.
Included in interest income is $2,182 of interest on Holdings' notes
receivable from affiliates in 1993.
14. INCOME TAXES
The benefit for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Deferred federal tax benefit.............. $18,537 $16,192 $16,258
Deferred state tax benefit................ 3,119 2,828 1,244
------ ------ ------
$21,656 $19,020 $17,502
====== ====== ======
</TABLE>
F-47
<PAGE> 227
PREVIOUSLY AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Deferred income taxes relate to temporary differences as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Property and equipment................................. $ 12,757 $ 13,876
Intangible assets...................................... 17,082 125,762
Other.................................................. 638
------- --------
29,839 140,276
------- --------
Loss carryforwards..................................... (11,559) (23,570)
Other.................................................. (1,082) (1,545)
------- --------
(12,641) (25,115)
------- --------
$ 17,198 $115,161
======= ========
</TABLE>
At December 31, 1995, Holdings had net operating loss carryforwards for
federal income tax purposes aggregating $69,325 which expire through 2010.
Holdings is a loss corporation as defined in Section 382 of the Internal Revenue
Code. Therefore, if certain substantial changes in the Holdings' ownership
should occur, there could be a significant annual limitation on the amount of
loss carryforwards which can be utilized (see Note 17).
Holdings' management has not established a valuation allowance to reduce
the deferred tax assets related to its unexpired net operating loss
carryforwards. Due to an excess of appreciated asset value over the tax basis of
Holdings' net assets, management believes it is more likely than not that the
deferred tax assets related to the unexpired net operating losses will be
realized.
A reconciliation of the tax benefit computed at the statutory federal rate
and the tax benefit reported in the accompanying statements of operations is as
follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Tax benefit at federal statutory rate......................... $27,177 $27,666 $21,844
Effect of non-taxable partnership loss........................ (5,644) (4,703) (1,001)
State taxes, net of federal benefit........................... 2,027 1,737 1,140
Goodwill amortization......................................... (3,355) (3,222) (2,914)
Other non-deductible expenses................................. (631)
Tax reserves and other........................................ 2,082 (2,458) (1,567)
------- ------- -------
$21,656 $19,020 $17,502
======= ======= =======
</TABLE>
15. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
During the years ended December 31, 1993, 1994 and 1995, the Previously
Affiliated Entities paid interest of approximately $34,296, $43,744 and $40,301,
respectively.
In conjunction with Holdings' acquisitions of cable television systems
during 1993, as described in Note 1, assets acquired and liabilities assumed
were as follows:
<TABLE>
<S> <C>
Fair value of assets acquired............................. $ 79,951
Cash paid................................................. (78,344)
--------
Liabilities assumed....................................... $ 1,607
========
</TABLE>
16. EMPLOYEE BENEFIT PLAN
Holdings and IPWT participate in the InterMedia Partners Tax Deferred
Savings Plan, which covers all full-time employees who have completed at least
one year of employment. Such Plan provides for a base
F-48
<PAGE> 228
PREVIOUSLY AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
employee contribution of 1% and a maximum of 15% of compensation. Matching
contributions under such Plan are at the rate of 50% of the employee's
contributions, up to a maximum of 3% of compensation.
17. SUBSEQUENT EVENTS
ICP-IV is a newly created, affiliated entity, formed for the purpose of
acquiring cable television systems and consolidating various cable television
systems owned by other entities affiliated with the Previously Affiliated
Entities. ICP-IV has entered into contribution and purchase agreements with IP
and GECC, IPWT's parents; IP-V, Holdings' parent; and TCIC, TCI
Greenville/Spartanburg's parent. The agreements provide for (i) IP's and GECC's
contribution of their partnership interests in IPWT to ICP-IV in exchange for
limited partner interests in ICP-IV, (ii) IP-V's partial sale of Holdings to
ICP-IV, and (iii) TCIC's contribution of the assets of TCI
Greenville/Spartanburg to ICP-IV in exchange for a limited partner interest in
ICP-IV. The transactions contemplated by these agreements are expected to close
during the third quarter of 1996. Upon IP's and GECC's contribution of their
partnership interests in IPWT to ICP-IV, conditions will be met for an accrual
of approximately $3,000 of contingent interest under the terms of the loan
agreement with GECC and recognition of the remaining debt restructuring credit
as an extraordinary gain (see Note 9).
Because of TCI's continuing interest in Holdings, management does not
expect that the recapitalization of Holdings and the partial sale of the
recapitalized equity to ICP-IV will impair Holdings' ability to utilize its net
operating loss carryforwards.
18. EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF ACCOUNTANTS' REPORT
In July and August, 1996, ICP IV closed the transactions contemplated by
the purchase and contribution agreements described in Note 17. As a result,
conditions have been met for the accrual by IPWT of approximately $3,000 of
contingent interest subsequently paid to GECC. In addition, ICP IV has made an
intercompany loan to RMH in an amount sufficient to repay all principal and
interest on its existing debt. Upon funding of the loan on July 30, 1996, RMH
repaid all amounts due on its outstanding debt. Accordingly, all outstanding
debt and related accrued interest as of July 30, 1996 have been presented as
non-current liabilities.
On August 1, 1996, Holdings sold a portion of its limited partner interest
in Hyperion of Tennessee which resulted in a gain of $286. Subsequent to the
sale, Holdings retained a 0.01% limited partner interest in Hyperion of
Tennessee. Holdings' commitments to fund additional capital contributions and
provide term loans to Hyperion of Tennessee have been reduced in proportion to
the reduction in its limited partner interest.
F-49
<PAGE> 229
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder
of Robin Media Holdings, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of shareholder's deficit and of
cash flows present fairly, in all material respects, the financial position of
Robin Media Holdings, Inc. and its subsidiary at December 31, 1995 and 1994 and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, 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.
PRICE WATERHOUSE LLP
San Francisco, California
June 28, 1996
F-50
<PAGE> 230
ROBIN MEDIA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JULY 30,
1994 1995 1996
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................... $ 2,352 $ 1,832 $ 1,492
Accounts receivable, net of allowance for doubtful
accounts of $343, $392 and $206....................... 4,251 4,835 5,287
Receivable from affiliates.............................. 420 387 454
Prepaids................................................ 316 373 430
Inventory............................................... 1,505 2,751 5,030
Other current assets.................................... 93 223 221
--------- --------- ---------
Total current assets.......................... 8,937 10,401 12,914
Intangible assets, net.................................. 169,099 134,020 115,945
Property and equipment, net............................. 54,105 53,864 60,091
Investments............................................. 435 795 795
Note receivable......................................... 5,569
Deferred tax asset...................................... 5,756
Other assets............................................ 978 1,120 1,543
--------- --------- ---------
Total assets.................................. $ 239,123 $ 200,200 $ 197,044
========= ========= =========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Accounts payable and accrued liabilities................ $ 4,330 $ 5,817 $ 5,779
Deferred revenue........................................ 2,956 3,114 3,185
Payable to affiliates................................... 928 968 1,111
Accrued interest........................................ 8,646 9,043
--------- --------- ---------
Total current liabilities..................... 16,860 18,942 10,075
Accrued interest........................................ 11,621
Note payable to affiliate............................... 15,445
Long-term debt.......................................... 319,450 331,450 331,450
Deferred income taxes................................... 17,198 1,922
--------- --------- ---------
Total liabilities............................. 353,508 352,314 368,591
--------- --------- ---------
Commitments and contingencies
Shareholder's deficit:
Preferred stock, $.01 par value; 10,000,000 shares
authorized, none issued
Common stock, $.01 par value; 100,000,000 shares
authorized, 10,000,000 shares issued and
outstanding........................................ 100 100 100
Additional paid-in capital............................ 10,498 10,498 10,498
Accumulated deficit................................... (124,983) (162,712) (182,145)
--------- --------- ---------
(114,385) (152,114) (171,547)
--------- --------- ---------
Total liabilities and shareholder's deficit... $ 239,123 $ 200,200 $ 197,044
========= ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-51
<PAGE> 231
ROBIN MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
SEVEN FROM
FOR THE YEAR ENDED MONTHS JANUARY
DECEMBER 31, ENDED 1, 1996
---------------------------------- JULY 31, TO JULY
1993 1994 1995 1995 30, 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic and cable services............ $ 33,247 $ 42,910 $ 49,325 $ 28,371 $ 31,427
Pay services........................ 6,895 10,036 11,438 6,361 6,640
Other services...................... 4,397 6,347 6,050 3,487 3,703
-------- -------- -------- -------- --------
44,539 59,293 66,813 38,219 41,770
-------- -------- -------- -------- --------
Program fees........................ 7,099 10,667 12,620 7,183 8,231
Other direct expenses............... 6,168 7,887 8,358 4,887 5,267
Depreciation and amortization....... 55,316 57,562 47,514 28,132 24,854
Selling, general and administrative
expenses.......................... 9,397 12,623 14,904 8,389 8,871
Management and consulting fees...... 465 465 333 249 117
-------- -------- -------- -------- --------
78,445 89,204 83,729 48,840 47,340
-------- -------- -------- -------- --------
Loss from operations................ (33,906) (29,911) (16,916) (10,621) (5,570)
-------- -------- -------- -------- --------
Other income (expense):
Interest and other income......... 8,864 1,386 1,090 870 176
Gain (loss) on disposal of fixed
assets......................... (1,637) (1,344) (73) 22 (14)
Interest expense.................. (34,335) (35,545) (36,462) (21,412) (21,642)
Other expense..................... (508) (194) (644) (689) (163)
-------- -------- -------- -------- --------
(27,616) (35,697) (36,089) (21,209) (21,643)
-------- -------- -------- -------- --------
Loss before income tax benefit...... (61,522) (65,608) (53,005) (31,830) (27,213)
Income tax benefit.................. 21,656 19,020 15,276 7,806 7,780
-------- -------- -------- -------- --------
Net loss............................ $(39,866) $(46,588) $(37,729) $(24,024) $(19,433)
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-52
<PAGE> 232
ROBIN MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDER'S DEFICIT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1992................... $100 $ 10,498 $ (38,529) $ (27,931)
Net loss....................................... (39,866) (39,866)
---- ------- --------- ---------
Balance at December 31, 1993................... 100 10,498 (78,395) (67,797)
Net loss....................................... (46,588) (46,588)
---- ------- --------- ---------
Balance at December 31, 1994................... 100 10,498 (124,983) (114,385)
Net loss....................................... (37,729) (37,729)
---- ------- --------- ---------
Balance at December 31, 1995................... 100 10,498 (162,712) (152,114)
Net loss (unaudited)........................... (16,545) (19,433)
---- ------- --------- ---------
Balance at July 30, 1996 (unaudited)........... $100 $ 10,498 $(179,257) $(171,547)
==== ======= ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-53
<PAGE> 233
ROBIN MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE YEAR ENDED SEVEN MONTHS JANUARY 1,
DECEMBER 31, ENDED 1996 TO
------------------------------ JULY 31, JULY 30,
1993 1994 1995 1995 1996
-------- -------- -------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................ $(39,866) $(46,588) $(37,729) $(24,024) $ (19,433)
Adjustments to reconcile net loss to
cash flows from operating activities:
Depreciation and amortization........ 55,316 57,674 47,614 28,743 24,919
Loss on sale of note receivable...... 376 258 --
Loss (gain) on disposal of fixed
assets............................. 1,637 1,344 73 (22) --
Gain on sale of investment........... (4,338)
Deferred income taxes................ (21,656) (19,020) (15,276) (7,806) (7,678)
Changes in assets and liabilities:
Accounts receivable................ (1,200) 129 (584) 259 (452)
Receivable from affiliates......... (135) (345) 33 (74) (67)
Interest receivable................ (1,617) (726) 2,569 2,566 --
Prepaids........................... 106 11 (57) (156) (57)
Inventory.......................... (275) (204) (1,246) 168 (2,279)
Other current assets............... (287) 194 (130) (79) (197)
Accounts payable and accrued
liabilities..................... 971 126 1,487 181 (38)
Deferred revenue................... 92 161 158 144 71
Payable to affiliates.............. (3,255) 334 40 (321) 143
Accrued interest 41 38 397 2,868 3,023
-------- -------- -------- -------- --------
Cash flows from operating activities...... (14,466) (6,872) (2,275) 2,705 (2,045)
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..... (9,236) (11,156) (11,877) (5,591) (13,146)
Investments............................. 18,338 (435) (360) (240)
Collections of and proceeds from sale of
notes receivable..................... 40,459 17,764 2,624 2,625
Other assets and intangibles............ 64 (47) (621) (495) (149)
Purchases of cable television systems... (78,344)
-------- -------- -------- -------- --------
Cash flows from investing activities...... (28,719) 6,126 (10,234) (3,701) (13,295)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Activity on revolving credit note
payable.............................. 13,000 12,000 1,000 --
Note payable to affiliate............... 15,000
Debt issue costs........................ (308) (11) (566) --
-------- -------- -------- -------- --------
Cash flows from financing activities...... 12,692 11,989 434 15,000
-------- -------- -------- -------- --------
Net change in cash and cash equivalents... (30,493) (746) (520) (562) (340)
Cash and cash equivalents, beginning of
period.................................. 33,591 3,098 2,352 2,352 1,832
-------- -------- -------- -------- ---------
Cash and cash equivalents, end of
period.................................. $ 3,098 $ 2,352 $ 1,832 $ 1,790 $ 1,492
======== ======== ======== ======== =========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-54
<PAGE> 234
ROBIN MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. THE COMPANY AND BASIS OF PRESENTATION
Robin Media Holdings, Inc., a Nevada corporation (the "Company"), was
organized on August 27, 1991. On April 30, 1992, the Company commenced
operations with the acquisition of all the outstanding common stock of Robin
Media Group, Inc. ("RMG") from Jack Kent Cooke Incorporated. The Company is
wholly owned by InterMedia Partners V, L.P. ("IP-V"), a California limited
partnership. The Company's only asset is its investment in RMG and it had no
liabilities prior to April 1, 1996 (see Note 2). Therefore, the Company's
consolidated balance sheets for all periods presented reflect only RMG's assets
and liabilities and its consolidated statements of operations reflect only the
results of RMG's operations. RMG owns and operates cable television systems in
Tennessee and Georgia.
The Company's acquisition of RMG was structured as a leveraged transaction
and a significant portion of the assets acquired are intangible assets which are
being amortized on a straight-line basis over one to ten years. Therefore, as
was planned, the Company has incurred substantial book losses which have
resulted in a net shareholder's deficit. Of the cumulative pre-tax losses of
$232,240 since May 1, 1992, non-cash charges have aggregated $208,313. These
charges consist of $41,512 of depreciation of property and equipment, $161,901
of amortization of intangible assets, predominantly related to franchise rights
and goodwill, and $4,900 of equity in net loss of investments accounted for
under the equity method.
The Consolidated Balance Sheet as of July 30, 1996, the Consolidated
Statements of Operations for the seven month period ended July 31, 1995 and the
period from January 1, 1996 to July 30, 1996 and the Consolidated Statements of
Cash Flows for the seven month period ended July 31, 1995 and the period from
January 1, 1996 to July 30, 1996 have been prepared by the Company without
audit. In the opinion of Management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position at
July 30, 1996 and the results of operations and cash flows for the seven months
ended July 31, 1995 and the period from January 1, 1996 to July 30, 1996 have
been made.
2. FINANCING PLAN
As discussed in Note 17, on April 1, 1996, the Company obtained from
InterMedia Capital Partners IV, L.P. ("ICP-IV"), an affiliated entity, a $15,000
loan which matures on September 30, 1996. Proceeds from the loan were used to
fund an additional equity contribution to RMG. RMG's debt agreements contain
restrictive covenants which preclude RMG from paying dividends or making any
distributions to the Company. Because of these restrictions, the Company will
not be able to repay the loan when due without additional funding from outside
sources.
IP-V has entered into an agreement with ICP-IV to sell, after
recapitalizing the Company, a portion of its equity interest in the Company.
ICP-IV is in the process of obtaining its initial equity contributions and debt
financing. Upon funding ICP-IV plans to make an intercompany loan to the Company
in an amount sufficient for the Company and RMG to repay all principal and
interest outstanding on its existing debt (see Note 18).
3. ACQUISITIONS
During 1993 RMG consummated the following acquisitions of cable television
properties:
<TABLE>
<CAPTION>
TOTAL
ACQUISITION
CABLE TELEVISION ASSETS ACQUISITION DATE COST
----------------------------------------------- ------------------ -----------
<S> <C> <C>
Royston, Georgia cable television assets of
Tritek--Southern Communications, Ltd......... February 26, 1993 $ 1,791
Middle Tennessee cable television assets of
Daniels Communications Partners Limited...... March 22, 1993 23,499
Middle Tennessee cable television assets of
American Cable TV Investors 3................ December 1, 1993 53,054
-------
$78,344
=======
</TABLE>
F-55
<PAGE> 235
ROBIN MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
The acquisitions of cable television properties noted above were accounted
for as purchases and results of operations have been included only since the
dates of acquisition. RMG's costs to acquire these properties have been
allocated to tangible and intangible assets as follows:
<TABLE>
<S> <C>
Cash paid on closing............................................... $78,016
Other acquisition costs............................................ 328
-------
Total acquisition costs............................................ 78,344
Liabilities assumed................................................ 1,607
Costs assigned to tangible assets.................................. (24,073)
-------
Costs attributable to intangible assets............................ $55,878
=======
</TABLE>
Had the 1993 acquisitions been completed as of January 1, 1993, revenues
and net loss for the year ended December 31, 1993 would have been $56,437 and
$44,148, respectively, (unaudited).
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary RMG. All intercompany accounts and transactions
have been eliminated.
Cash equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Revenue recognition
Cable television service revenue is recognized in the period in which
services are provided to customers. Deferred revenue represents revenue billed
in advance and deferred until cable service is provided.
Inventory
Inventory consists primarily of supplies and is stated at the lower of cost
or market determined by the first-in, first-out method.
Property and equipment
Additions to property and equipment, including new customer installations,
are recorded at cost. Self-constructed fixed assets include materials, labor and
overhead. Costs of disconnecting and reconnecting cable service are expensed.
Expenditures for maintenance and repairs are charged to expense as incurred.
Expenditures for major renewals and improvements are capitalized. Gains and
losses from disposals and retirements are included in earnings. Capitalized
plant is written down to recoverable values whenever recoverability through
operations or sale of the system becomes doubtful.
F-56
<PAGE> 236
ROBIN MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Depreciation is computed using the double-declining balance method over the
following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Cable television plant............................... 5-10
Buildings and improvements........................... 10
Furniture and fixtures............................... 3-7
Equipment and other.................................. 3-10
</TABLE>
Intangible assets
RMG has franchise rights to operate cable television systems in various
towns and political subdivisions.
Franchise rights are being amortized on a straight-line basis over the lesser of
the remaining lives of the franchises or the base ten-year term of IP-V which
expires on December 31, 2002. Remaining franchise lives range from one to
seventeen years.
Goodwill represents the excess of acquisition cost over the fair value of
net tangible and franchise assets acquired and liabilities assumed and is being
amortized on a straight-line basis over the ten-year term of IP-V.
Capitalized intangibles are written down to recoverable values whenever
recoverability through operations or sale of the system becomes doubtful. Each
year, the Company evaluates the recoverability of the carrying value of its
intangible assets by assessing whether the projected cash flows, including
projected cash flows from sale of the systems, is sufficient to recover the
unamortized cost of these assets.
Debt issue costs are being amortized over the term of the related debt.
Debt issue costs of $347 and $358 are stated net of accumulated amortization of
$119 and $231 at December 31, 1994 and 1995, respectively.
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Accounts payable........................................... $ 477 $ 179
Accrued program costs...................................... 260 315
Accrued franchise fees..................................... 1,346 1,615
Other accrued liabilities.................................. 2,247 3,708
------ ------
$4,330 $5,817
====== ======
</TABLE>
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Long-lived assets and long-lived assets to be disposed of
RMH has adopted Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." RMH reviews property and
F-57
<PAGE> 237
ROBIN MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
equipment and intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. No impairment losses have been recognized by RMH.
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Franchise rights....................................... $202,566 $202,573
Goodwill............................................... 92,515 92,978
Other.................................................. 350 370
-------- --------
295,431 295,921
Accumulated amortization............................... (126,332) (161,901)
-------- --------
$169,099 $134,020
======== ========
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Land................................................... $ 401 $ 407
Cable television plant................................. 73,135 81,667
Buildings and improvements............................. 644 659
Furniture and fixtures................................. 1,211 1,391
Equipment and other.................................... 4,301 5,251
Construction in progress............................... 2,517 4,035
--------- ---------
82,209 93,410
Accumulated depreciation............................... (28,104) (39,546)
--------- ---------
$ 54,105 $ 53,864
========= =========
</TABLE>
7. INVESTMENTS
RMG has a 49% limited partnership interest in InterMedia Partners II, L.P.
("IP-II"), an affiliated entity, which is accounted for under the equity method.
RMG's original investment in IP-II was reduced to zero in 1992 as a result of
its equity in the net loss of IP-II. The Company received distributions from
IP-II of $417 and $406 for the years ended December 31, 1994 and 1995,
respectively, which are included in interest and other income in the
accompanying Consolidated Statements of Operations.
RMG has a 15% limited partner interest in AVR of Tennessee, L.P., doing
business as Hyperion of Tennessee, which is accounted for under the cost method.
During 1994 and 1995, RMG contributed $435 and $360, respectively, to Hyperion
of Tennessee. RMG is committed to fund additional capital contributions to
Hyperion of Tennessee of $755 and to make term loan advances to Hyperion of
Tennessee. The term loan advances are required to fund leasing arrangements for
access to fiber optic distribution owned by the respective partners. Management
does not believe commitments for the term loan advances will be significant.
On October 6, 1993, RMG's investment in a preferred limited partner
interest, acquired prior to the Company's acquisition of RMG, was redeemed by
the investee for $18,338, resulting in a gain of $4,338.
F-58
<PAGE> 238
ROBIN MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
8. NOTES RECEIVABLE
Notes receivable were issued to RMG in connection with previous sales of
cable television systems. In June 1995, RMG sold its only remaining note
receivable including related accrued interest. At the time of the sale the note
had a balance of $5,980 which included $411 of interest earned in 1995. The sale
of the note resulted in a loss of $376 which is included in other expense.
9. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Revolving credit note payable, $30,000 commitment,
interest at LIBOR plus 1.5% payable quarterly,
due February 28, 1997................................ $ 13,000 $ 25,000
11 1/8% senior subordinated notes, interest payable
semi-annually, due April 1, 1997..................... 271,400 271,400
11 5/8% subordinated debentures, interest payable
semi-annually, due April 1, 1999..................... 35,050 35,050
-------- --------
$319,450 $331,450
======== ========
</TABLE>
RMG's bank revolving credit agreement provides $30,000 of available credit
and expires on February 28, 1997. Borrowings under the revolving credit
agreement generally bear interest either at the bank's reference rate plus 0.5%
or at LIBOR plus 1.5% and are secured by the stock of RMG. Interest on
outstanding borrowings is payable quarterly. At December 31, 1995, the interest
rate on the revolving credit agreement was 7.5% (see Note 18).
The revolving credit agreement requires RMG to pay a commitment fee of
0.375% per year, payable quarterly, on the unused portion of available credit.
In addition, the agreement contains certain restrictive covenants on the Company
and RMG, including limitations on the payment of dividends. RMG's obligations
under the credit agreement are guaranteed by the Company.
The 11 1/8% senior subordinated notes (the "Notes") are redeemable at the
option of RMG, in whole or in part, at a current redemption price of 101.0% of
the principal amount, together with accrued interest. The redemption price will
decline to 100% of the principal amount at April 1, 1997 (see Note 18).
The 11 5/8% subordinated debentures (the "Debentures") are redeemable at
the option of RMG, in whole or in part, at a current redemption price of 101.4%
of the principal amount, together with accrued interest. The redemption price
will decline to 100% of the principal amount at April 1, 1997 (see Note 18).
The Debentures and the Notes are subordinated to the bank debt, and the
Debentures are subordinated to the Notes. The indentures with respect to the
Notes and the Debentures contain restrictive covenants on RMG, including
limitations on dividends, additional debt and mergers and acquisitions.
Annual maturities of long-term debt at December 31, 1995 are as follows:
<TABLE>
<S> <C>
1997.............................................. $296,400
1998..............................................
1999.............................................. 35,050
--------
$331,450
========
</TABLE>
F-59
<PAGE> 239
ROBIN MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Based on quoted market prices from recent limited trading of the Notes and
Debentures, their fair value approximates their recorded value. Management also
believes that the fair value of the bank debt outstanding at variable interest
rates approximates its recorded value.
10. COMMON STOCK
On May 26, 1995, the Company's Board of Directors approved (i) an increase
in the number of authorized shares of the Company's common stock to 100,000,000
shares; (ii) the issuance of up to 10,000,000 shares of Preferred Stock, par
value of $.01 per share, the rights, preferences and privileges of which are to
be determined by the Board of Directors; and (iii) a 100,000 to 1 stock split in
the form of a stock dividend. As a result of the above actions, all share and
per share data included in the consolidated financial statements has been
retroactively restated to give effect to these actions.
11. CABLE TELEVISION REGULATION
Cable television legislation and regulatory proposals under consideration
from time to time by Congress and various federal agencies have in the past, and
may in the future, materially affect RMG and the cable television industry.
The cable industry is currently regulated at the federal and local levels
under the Cable Act of 1984, the Cable Act of 1992 ("the 1992 Act"), the
Telecommunications Act of 1996 ("the 1996 Act") and regulations issued by the
Federal Communications Commission ("FCC") in response to the 1992 Act. FCC
regulations govern the determination of rates charged for basic, expanded basic
and certain ancillary services, and cover a number of other areas including
customer service and technical performance standards, the required transmission
of certain local broadcast stations and the requirement to negotiate
retransmission consent from major network and certain local television stations.
Among other provisions, the 1996 Act will eliminate rate regulation on the
expanded basic tier effective March 31, 1999.
Current regulations issued in connection with the 1992 Act empower the FCC
and/or local franchise authorities to order reductions of existing rates which
exceed the maximum permitted levels and require refunds measured from the date a
complaint is filed in some circumstances or retroactively for up to one year in
other circumstances. Management believes it has made a fair interpretation of
the 1992 Act and related FCC regulations in determining regulated cable
television rates and other fees based on the information currently available.
However, complaints have been filed with the FCC on rates for certain franchises
and certain local franchise authorities have challenged existing and prior
rates. Further complaints and challenges could be forthcoming, some of which
could apply to revenue recorded in 1995. Management believes, however, that the
effect, if any, of these complaints and challenges will not be material to the
Company's financial position or results of operations.
Many aspects of regulation at the federal and local level are currently the
subject of judicial review and administrative proceedings. In addition, the FCC
is required to conduct rulemaking proceedings over the next several months to
implement various provisions of the 1996 Act. It is not possible at this time to
predict the ultimate outcome of these reviews or proceedings or their effect on
the Company.
12. COMMITMENTS AND CONTINGENCIES
RMG is committed to provide cable television services under franchise
agreements with remaining terms of up to seventeen years. Franchise fees of up
to 5% of gross revenues are payable under these agreements.
Current FCC regulations require that cable television operators obtain
permission to retransmit major network and certain local television station
signals. RMG has entered into long-term retransmission agreements with all
applicable stations in exchange for in-kind and/or other consideration.
F-60
<PAGE> 240
ROBIN MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
The Company is subject to litigation and other claims in the ordinary
course of business. In the opinion of management, the ultimate outcome of any
existing litigation or other claims will not have a material adverse effect on
the Company's financial condition or results of operations.
RMG has entered into pole rental agreements and leases certain of its
facilities and equipment under noncancelable operating leases. Minimum rental
commitments at December 31, 1995 for the next five years and thereafter under
these leases are as follows:
<TABLE>
<S> <C>
1996................................................ $ 537
1997................................................ 334
1998................................................ 118
1999................................................ 114
2000................................................ 110
Thereafter.......................................... 458
------
$1,671
======
</TABLE>
Rent expense, including pole rental agreements, was $1,339, $1,612, and
$1,821 for the years ended December 31, 1993, 1994 and 1995, respectively.
13. RELATED PARTY TRANSACTIONS
IP-V manages the business of RMG for an annual management fee paid in cash
in equal monthly installments. During 1993 and 1994, the annual management fee
was $465. Effective July 1, 1995, the annual fee decreased to $200, resulting in
fees of $333 for the full year of 1995. Management fees payable of $77 and $40
are included in payable to affiliates at December 31, 1994 and 1995,
respectively.
InterMedia Management, Inc. ("IMI") is wholly owned by the managing general
partner of InterMedia Capital Management V, L.P. IMI has entered into an
agreement with RMG to provide accounting and administrative services at cost.
During the years ended December 31, 1993, 1994 and 1995, administrative fees
charged by IMI and paid in cash on a monthly basis were $1,109, $2,000 and
$2,385, respectively. Receivables from affiliates represent advances to IMI net
of administration fees charged by IMI and operating expenses paid by IMI on
behalf of RMG.
As an affiliate of TCI, RMG is able to purchase programming services from a
subsidiary of TCI. Management believes that the overall programming rates made
available through this relationship are lower than RMG could obtain separately.
The TCI subsidiary is under no obligation to continue to offer such volume rates
to RMG, and such rates may not continue to be available in the future should
TCI's ownership in RMG significantly decrease or if TCI or the programmers
should otherwise decide not to offer such participation to RMG (see Note 17).
Programming fees charged by the TCI subsidiary for the years ended December 31,
1993, 1994 and 1995 amounted to $5,979, $8,977 and $10,206, respectively.
Programming fees are paid to TCI in cash on a monthly basis. Payable to
affiliates includes programming fees payable to the TCI subsidiary of $784 and
$836 at December 31, 1994 and 1995, respectively.
Included in interest income is $2,182 of interest on notes receivable from
affiliates in 1993.
Also see Note 17 -- Subsequent Events.
F-61
<PAGE> 241
ROBIN MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
14. INCOME TAXES
The benefit for income taxes consists of the following:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Deferred federal tax benefit.................. $18,537 $16,192 $14,324
Deferred state tax benefit.................... 3,119 2,828 952
------- ------- -------
$21,656 $19,020 $15,276
======= ======= =======
</TABLE>
Deferred income taxes relate to temporary differences as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Property and equipment............................... $ 12,757 $ 10,461
Intangible assets.................................... 17,082 16,412
-------- --------
29,839 26,873
-------- --------
Loss carryforwards................................... (11,559) (23,570)
Other................................................ (1,082) (1,381)
-------- --------
(12,641) (24,951)
-------- --------
$ 17,198 $ 1,922
======== ========
</TABLE>
At December 31, 1995, the Company had net operating loss carryforwards for
federal income tax purposes aggregating $69,325 which expire through 2010. The
Company is a loss corporation as defined in section 382 of the Internal Revenue
Code. Therefore, if certain substantial changes in the Company's ownership
should occur, there could be a significant annual limitation on the amount of
loss carryforwards which can be utilized (see Note 17).
The Company's management has not established a valuation allowance to
reduce the deferred tax assets related to its unexpired net operating loss
carryforwards. Due to an excess of appreciated asset value over the tax basis of
the Company's net assets, management believes it is more likely than not that
the deferred tax assets related to the unexpired net operating losses will be
realized.
A reconciliation of the tax benefit computed at the statutory federal rate
and the tax benefit reported in the accompanying statements of operations is as
follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
-------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Tax benefit at federal statutory rate....... $21,533 $22,963 $18,552
State taxes, net of federal benefit......... 2,027 1,737 950
Goodwill amortization....................... (3,355) (3,222) (2,914)
Other non-deductible expenses............... (631)
Tax reserves and other...................... 2,082 (2,458) (1,312)
------- ------- -------
$21,656 $19,020 $15,276
======= ======= =======
</TABLE>
F-62
<PAGE> 242
ROBIN MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
15. SUPPLEMENTAL INFORMATION TO CONSOLIDATED STATEMENTS OF CASH FLOWS
During the years ended December 31, 1993, 1994 and 1995, the Company paid
interest of approximately $34,294, $35,395 and $35,965, respectively.
In conjunction with acquisitions of cable television systems during 1993,
assets acquired and liabilities assumed were as follows:
<TABLE>
<S> <C>
Fair value of assets acquired........................... $ 79,951
Cash paid............................................... (78,344)
--------
Liabilities assumed..................................... $ 1,607
========
</TABLE>
16. EMPLOYEE BENEFIT PLAN
The Company participates in the InterMedia Partners Tax Deferred Savings
Plan, which covers all full-time employees who have completed at least one year
of employment. Such Plan provides for a base employee contribution of 1% and a
maximum of 15% of compensation. The Company's matching contributions under the
Plan are at the rate of 50% of the employee's contributions, up to a maximum of
3% of compensation.
17. SUBSEQUENT EVENTS
ICP-IV is a newly created, affiliated entity, formed for the purpose of
acquiring cable television systems and consolidating various cable television
systems owned by other affiliated entities. ICP-IV is in the process of
obtaining its initial equity contributions and debt financing. ICP-IV has
entered into a purchase agreement with IP-V to purchase a portion of the
Company. The transaction contemplated by this agreement is expected to close
during the third quarter of 1996.
Because of TCI's continuing interest in Holdings, management does not
expect that the partial sale of Holdings to ICP-IV will impair Holding's ability
to utilize its net operating loss carryforwards (see Note 14) or to take
advantage of the favorable programming rates available through its relationship
with TCI (see Note 13).
On April 1, 1996, the Company obtained a $15,000 loan from ICP-IV, which is
due September 30, 1996. The loan proceeds were used to fund an additional equity
contribution to RMG, which it used to pay interest on its Notes and Debentures
on April 1, 1996.
18. EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF ACCOUNTANTS' REPORT
On July 30, 1996, ICP IV purchased a portion of the Company and has made an
intercompany loan to the Company in an amount sufficient to repay all principal
and interest on the Company's outstanding debt. Upon funding on July 30, 1996 of
the loan, the Company repaid all amounts due on its outstanding debt.
Accordingly, all outstanding debt and related accrued interest as of July 30,
1996 have been presented as non-current liabilities (see Note 17).
On August 1, 1996, the Company sold a portion of its limited partner
interest in Hyperion of Tennessee which resulted in a gain of $286. Subsequent
to the sale, the Company retained a 0.01% limited partner interest in Hyperion
of Tennessee. The Company's commitments to fund additional capital contributions
and provide term loans to Hyperion of Tennessee have been reduced in proportion
to the reduction in its limited partner interest.
F-63
<PAGE> 243
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of InterMedia Partners
of West Tennessee, L.P.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in partners' capital and of cash flows present fairly,
in all material respects, the financial position of InterMedia Partners of West
Tennessee, L.P. at December 31, 1995 and 1994, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Partnership'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.
PRICE WATERHOUSE LLP
San Francisco, California
April 15, 1996
F-64
<PAGE> 244
INTERMEDIA PARTNERS OF WEST TENNESSEE, L.P.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JULY 30,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents................................. $ 898 $ 1,115 $ 734
Accounts receivable, net of allowance for doubtful
accounts of $39, $33 and $49............................ 1,324 924 811
Receivable from affiliates................................ 63 24 81
Prepaids.................................................. 36 18 55
Inventory................................................. 214 189 200
------- ------- -------
Total current assets............................ 2,535 2,270 1,881
Intangible assets, net.................................... 20,463 14,930 12,457
Property and equipment, net............................... 12,993 11,344 10,644
Other assets.............................................. 44 46 46
------- ------- -------
Total assets.................................... $ 36,035 $ 28,590 $ 25,028
======= ======= =======
LIABILITIES AND PARTNERS' CAPITAL
Current portion of long-term debt......................... $ 3,882 $ 4,043 $
Accounts payable and accrued liabilities.................. 1,132 1,119 2,116
Deferred revenue.......................................... 844 849 876
Payable to affiliates..................................... 1,613 1,264 287
Accrued interest.......................................... 988 1,043 --
------- ------- -------
Total current liabilities....................... 8,459 8,318 3,279
Accrued interest.......................................... 3,366
Long-term debt............................................ 80,168 75,726 77,209
------- ------- -------
Total liabilities............................... 88,627 84,044 83,854
------- ------- -------
Commitments and contingencies
PARTNERS' CAPITAL
General partner........................................... (42,585) (44,878) (47,603)
Limited partner........................................... (10,007) (10,576) (11,223)
------- ------- -------
Total partners' capital................................... (52,592) (55,454) (58,826)
------- ------- -------
Total liabilities and partners' capital......... $ 36,035 $ 28,590 $ 25,028
======= ======= =======
</TABLE>
See accompanying notes to the financial statements.
F-65
<PAGE> 245
INTERMEDIA PARTNERS OF WEST TENNESSEE, L.P.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
SEVEN FROM
MONTHS JANUARY
FOR THE YEAR ENDED ENDED 1, 1996
DECEMBER 31, JULY TO JULY
--------------------------------- 31, 30,
1993 1994 1995 1995 1996
-------- -------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic and cable services............... $ 9,891 $ 9,919 $10,830 $ 6,309 $ 6,783
Pay services........................... 1,804 2,007 2,263 1,300 1,289
Other services......................... 1,451 1,830 1,851 1,083 1,008
-------- -------- ------- ------- ------
13,146 13,756 14,944 8,692 9,080
-------- -------- ------- ------- ------
Program fees........................... 2,277 2,522 2,980 1,740 1,896
Other direct expenses.................. 1,633 1,936 1,897 1,078 1,199
Depreciation and amortization.......... 11,624 10,654 8,501 5,980 3,947
Selling, general and administrative
expenses............................. 3,017 3,229 3,504 2,089 2,110
Management and consulting fees......... 120 482 281 281
-------- -------- ------- ------- ------
18,551 18,461 17,364 11,168 9,433
-------- -------- ------- ------- ------
Loss from operations................... (5,405) (4,705) (2,420) (2,476) (353)
-------- -------- ------- ------- ------
Other income (expense):
Interest and other income............ 3
Gain (loss) on disposal of fixed
assets............................ (330) (57) 10 18
Interest expense..................... (10,425) (8,733) (534) (329) (3,092)
Other income......................... 34 56 82 50 70
-------- -------- ------- ------- ------
(10,721) (8,734) (442) (261) (3,019)
-------- -------- ------- ------- ------
Net loss............................... $(16,126) $(13,439) $(2,862) $(2,737) $(3,372)
======== ======== ======= ======= ======
Net loss allocation
General partner...................... $(14,352) $(10,765) $(2,293) $(2,190) $(2,698)
Limited partner...................... (1,774) (2,674) (569) (547) (674)
-------- -------- ------- ------- ------
$(16,126) $(13,439) $(2,862) $(2,737) $(3,372)
======== ======== ======= ======= ======
</TABLE>
See accompanying notes to the financial statements.
F-66
<PAGE> 246
INTERMEDIA PARTNERS OF WEST TENNESSEE, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNER TOTAL
-------- -------- --------
<S> <C> <C> <C>
Balance at December 31, 1992............................... $(40,831) $ (5,046) $(45,877)
Net loss................................................... (14,352) (1,774) (16,126)
-------- -------- --------
Balance at December 31, 1993............................... (55,183) (6,820) (62,003)
Additional capital contributions........................... 17,844 5,006 22,850
Adjustment to reallocate losses in connection
with the debt restructuring (see Note 5)................. 5,519 (5,519)
Net loss................................................... (10,765) (2,674) (13,439)
-------- -------- --------
Balance at December 31, 1994............................... (42,585) (10,007) (52,592)
Net loss................................................... (2,293) (569) (2,862)
-------- -------- --------
Balance at December 31, 1995............................... (44,878) (10,576) (55,454)
Net loss (unaudited)....................................... (2,701) (671) (3,372)
-------- -------- --------
Balance at July 30, 1996 (unaudited)....................... $(47,579) $(11,247) $(58,826)
======== ======== ========
</TABLE>
See accompanying notes to the financial statements.
F-67
<PAGE> 247
INTERMEDIA PARTNERS OF WEST TENNESSEE, L.P.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
SEVEN FROM
FOR THE YEAR ENDED MONTHS JANUARY 1,
DECEMBER 31, ENDED 1996 TO
--------------------------------- JULY 31, JULY 30,
1993 1994 1995 1995 1996
-------- -------- ------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................. $(16,126) $(13,439) $(2,862) $ (2,737) $ (3,372)
Adjustments to reconcile net loss to
cash flows from operating
activities:
Depreciation and amortization..... 11,806 10,970 8,525 5,519 3,960
Loss (gain) on disposal of fixed
assets.......................... 330 57 (10)
Changes in assets and liabilities:
Accounts receivable............. (636) (584) 400 445 113
Receivable from affiliates...... (4,235) 8,493 39 (52) (57)
Prepaids........................ 225 (4) 18 (44) (37)
Inventory....................... (31) (12) 25 18 (11)
Other assets.................... (2) (17) (2) -- --
Accounts payable and accrued
liabilities.................. 318 (10) (13) (223) 997
Deferred revenue................ 541 41 5 11 27
Payable to affiliates........... (151) 1,197 (349) (396) (977)
Accrued interest and debt
restructuring credit......... 10,241 68 (3,826) (2,428) (37)
-------- -------- ------- ------- -------
Cash flows from operating activities... 2,280 6,760 1,950 113 606
-------- -------- ------- ------- -------
Cash flows from investing activities:
Purchases of property and
equipment......................... (2,098) (1,276) (1,370) (854) (787)
Proceeds from sale of property and
equipment......................... 44
Other assets......................... (21) 21 (1)
-------- -------- ------- ------- -------
Cash flows from investing activities... (2,119) (1,255) (1,326) (855) (787)
-------- -------- ------- ------- -------
Cash flows from financing activities:
Activity on revolving credit note
payable........................... (2,600) (400) 600 (200)
Debt issue costs..................... (161) (7) (7)
Repayment on long-term debt.......... (22,073)
Capital contributions................ 20,050
-------- -------- ------- ------- -------
Cash flows from financing activities... (4,784) (407) 593 (200)
-------- -------- ------- ------- -------
Net change in cash and cash
equivalents.......................... 161 721 217 (149) (381)
Cash and cash equivalents, beginning of
period............................... 16 177 898 898 1,115
-------- -------- ------- ------- -------
Cash and cash equivalents, end of
period............................... $ 177 $ 898 $ 1,115 $ 749 $ 734
======== ======== ======= ======= =======
</TABLE>
See accompanying notes to the financial statements.
F-68
<PAGE> 248
INTERMEDIA PARTNERS OF WEST TENNESSEE, L.P.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. THE COMPANY AND BASIS OF PRESENTATION
InterMedia Partners of West Tennessee, L.P. (the "Partnership"), a
California limited partnership, was formed on April 11, 1990 for the purpose of
investing in and operating cable television properties. The Company owns and
operates cable television properties located in Tennessee.
Under the terms of the original partnership agreement, InterMedia Partners,
a California limited partnership ("IP"), was the sole general partner, owning an
89% interest in the Partnership. The limited partners were IP and Robin Cable
Systems of Tucson, an Arizona limited partnership ("Robin-Tucson"), holding
interests in the Partnership of 10% and 1%, respectively.
On September 11, 1990 the Partnership acquired the Western Tennessee
properties of U.S. Cable Partners, LP and its affiliates. Funding for this
acquisition was provided by General Electric Capital Corporation ("GECC") in the
form of a senior subordinated loan.
On October 3, 1994, IP sold its interest in Robin-Tucson to an affiliate of
Tele-Communications, Inc. ("TCI"). IP contributed additional capital of $20,050
from the net sales proceeds and the Partnership repaid $30,375 of the senior
subordinated loan to GECC including accrued interest. Under an Amended and
Restated Agreement of Limited Partnership entered into on October 3, 1994, GECC
converted $2,800 of its loan into a limited partnership interest in the
Partnership, and restructured the remaining balance of the loan (see Note 5).
Under the revised partnership agreement IP has an 80.1% general partner and 9.9%
limited partner interest, and GECC has a 10% limited partner interest. Losses
incurred prior to October 3, 1994 were reallocated between the general and
limited partners based upon the change in ownership percentage resulting from
the restructuring.
The Partnership's acquisition of the West Tennessee cable television
properties was structured as a leveraged transaction and a significant portion
of the assets acquired were intangible assets which are being amortized over one
to ten years. Therefore, as was planned, the Partnership has incurred
substantial book losses, resulting in negative partners' capital. Of the
cumulative losses since inception of $78,304, non-cash charges aggregated
$67,123. These charges consisted of $45,549 of amortization of intangibles,
predominantly related to franchise rights, $21,140 of depreciation of property
and equipment, and $434 of loss on disposal of fixed assets. While the
Partnership expects to incur significant book losses during 1996 and beyond,
management believes cash flows from operations and presently available borrowing
arrangements will be adequate to meet funding requirements.
The Balance Sheet as of July 30, 1996, the Statements of Operations for the
seven month period ended July 31, 1995 and the period from January 1, 1996 to
July 30, 1996 and the Statements of Cash Flows for the seven month period ended
July 31, 1995 and the period from January 1, 1996 to July 30, 1996 have been
prepared by the Partnership without audit. In the opinion of Management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position at July 30, 1996 and the results of
operations and cash flows for the seven months ended July 31, 1995 and the
period from January 1, 1996 to July 30, 1996 have been made.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash equivalents
The Partnership considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
F-69
<PAGE> 249
INTERMEDIA PARTNERS OF WEST TENNESSEE, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Revenue recognition
Cable television service revenue is recognized in the period in which
services are provided to customers. Deferred revenue represents revenue billed
in advance and deferred until cable service is provided.
Inventory
Inventory consists primarily of supplies and is stated at the lower of cost
or market determined by the first-in, first-out method.
Property and equipment
Additions to property and equipment, including new customer installations,
are recorded at cost. Self-constructed fixed assets include materials, labor and
overhead. Costs of disconnecting and reconnecting cable service are expensed.
Expenditures for maintenance and repairs are charged to expense as incurred.
Expenditures for major renewals and improvements are capitalized. Gains and
losses from disposals and retirements are included in earnings. Capitalized
plant is written down to recoverable values whenever recoverability through
operations or sale of the system becomes doubtful.
Depreciation is computed using the double-declining balance method over the
following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Cable television plant................................ 5-10
Buildings and improvements............................ 10
Furniture and fixtures................................ 3-7
Equipment and other................................... 3-10
</TABLE>
Intangible assets
The Partnership has franchise rights to operate cable television systems in
various towns and political subdivisions. Franchise rights are being amortized
on a straight-line basis over the lesser of the remaining lives of the
franchises or the base ten-year term of the IP partnership agreement which
expires in July 1998. Remaining franchise lives range from one to nineteen
years.
Goodwill represents the excess of acquisition cost over the fair value of
net tangible and franchise assets acquired and liabilities assumed and is being
amortized on a straight-line basis over the ten-year term of IP.
Capitalized intangibles are written down to recoverable values whenever
recoverability through operations or sale of the system becomes doubtful. Each
year, the Partnership evaluates the recoverability of the carrying value of its
intangible assets by assessing whether the projected cash flows, including
projected cash flows from sale of the systems, is sufficient to recover the
unamortized cost of these assets.
Debt issue costs are being amortized over the terms of the related debt.
Debt issue costs of $145 and $152 are stated net of accumulated amortization of
$5 and $29 at December 31, 1994 and 1995, respectively.
Long-lived assets and long-lived assets to be disposed of
The Partnership has adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." The Partnership reviews property and equipment and
intangible assets for impairment whenever events or changes in circumstances
F-70
<PAGE> 250
INTERMEDIA PARTNERS OF WEST TENNESSEE, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
indicate that the carrying amount of an asset may not be recoverable. No
impairment losses have been recognized by the Partnership.
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Accounts payable........................................... $ 72 $ 14
Accrued program costs...................................... 85 43
Accrued franchise fees..................................... 225 208
Other accrued liabilities.................................. 750 854
------ ------
$1,132 $1,119
====== ======
</TABLE>
Income taxes
No provision or benefit for income taxes is reported in the accompanying
financial statements because, as a partnership, the tax effects of the
Partnership's results of operations accrue to the partners. The Partnership is
registered with the Internal Revenue Service as a tax shelter under Internal
Revenue Code Section 6111(b).
Allocation of profits and losses
In accordance with the terms of the Partnership's partnership agreement,
profits and losses generally are allocated proportionately with each partner's
percentage interest in the Partnership. The percentage interest of the general
partner is 80.1%, and that of the limited partners is 19.9%.
Reclassifications
Certain amounts in the 1993 and 1994 financial statements have been
reclassified to conform to the 1995 presentation.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
F-71
<PAGE> 251
INTERMEDIA PARTNERS OF WEST TENNESSEE, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Franchise rights..................................... $ 48,610 $ 48,610
Goodwill and other assets............................ 10,905 10,912
-------- --------
59,515 59,522
Accumulated amortization............................. (39,052) (44,592)
-------- --------
$ 20,463 $ 14,930
======== ========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Land................................................. $ 138 $ 138
Cable television plant............................... 28,235 28,742
Buildings and improvements........................... 194 207
Furniture and fixtures............................... 265 292
Equipment and other.................................. 1,743 1,971
Construction in progress............................. 73 105
-------- --------
30,648 31,455
Accumulated depreciation............................. (17,655) (20,111)
-------- --------
$ 12,993 $ 11,344
======== ========
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
GECC revolving credit; $7,000 commitment; interest payable quarterly at
prime plus 1% or LIBOR plus 2% per annum; matures June 30, 2001...... $ 2,400 $ 2,000
GECC term loan payable; interest payable quarterly at 7% per annum on
$27,000 and at prime plus 1% or LIBOR plus 2% per annum on $27,000;
matures June 30, 2001................................................ 54,000 54,000
Debt restructuring credit.............................................. 27,650 23,769
-------
Total debt and debt restructuring credit............................... 84,050 79,769
Less current portion................................................... 3,882 4,043
------- -------
$80,168 $75,726
======= =======
</TABLE>
F-72
<PAGE> 252
INTERMEDIA PARTNERS OF WEST TENNESSEE, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Annual maturities of long-term debt for the next five years and thereafter
are as follows:
<TABLE>
<S> <C>
1996..................................................... $ 4,043
1997..................................................... 4,132
1998..................................................... 4,423
1999..................................................... 4,502
2000..................................................... 4,469
Thereafter............................................... 58,200
-------
$79,769
=======
</TABLE>
On October 3, 1994, in connection with the sale of Robin-Tucson, the
Partnership restructured its subordinated loan payable to GECC. Under the terms
of the restructuring, GECC reduced the face amount of the debt outstanding to
$59,000. Because the total estimated future payments on the restructured debt
exceeded the carrying amount of the debt at the time of restructuring, no gain
has been recognized on the debt restructuring and no adjustments have been made
to the carrying amount of the Partnership's debt. The difference of $28,570
between the $59,000 refinanced and the amount of the note at the time of the
restructuring was recorded as a debt restructuring credit. A portion of future
debt service payments will be recorded as reductions of the remaining debt
restructuring credit of $23,769 at December 31, 1995.
At December 31, 1995, $56,000 is outstanding under the Amended and Restated
Loan Agreement with GECC which provides for a revolving credit facility in the
amount of $7,000 and term loans in the aggregate amount of $54,000. Borrowings
outstanding under the revolving credit facility and the term loans generally
bear interest either at the prime rate plus 1% or LIBOR plus 2% and mature on
June 30, 2001. On $27,000 of borrowings outstanding under the term loans, the
interest rate is fixed at 7%, per annum until October 3, 1997 when such
borrowings become available under the variable interest rate options just
described.
Interest periods corresponding to interest rate options are generally
specified as one, two or three months for LIBOR loans. The loan agreement
requires quarterly interest payments, or more frequent interest payments if a
shorter period is selected under the LIBOR option, and quarterly payments of .5%
per annum on the unused commitment.
The loan agreement provides for contingent interest payments generally at
11.11% of excess cash flow, as defined. Contingent interest payments may be
required upon sale of either the West Tennessee system or the partnership
interest in the Partnership. No contingent interest has been accrued as of
December 31, 1995 (see Note 11) (see Note 12).
Excess cash flow for each year, after provision for contingent interest
payments, if any, must be used to prepay borrowings under the loan agreement.
Optional prepayments under the term loan permanently reduce borrowings
outstanding and may be made without penalty. Amounts outstanding under the
revolving credit facility and the term loan are secured by the assets of the
Partnership.
The loan agreements include covenants which restrict the borrower's ability
to encumber assets, make investments or distributions, retire partnership
interests, pay management fees currently, incur or guarantee additional
indebtedness and purchase or sell assets. The loan agreements include financial
covenants which require minimum interest and debt coverage ratios, require
minimum cash flows and specify maximum debt to cash flow ratios.
The Partnership has approximately $29,000 of debt outstanding at variable
interest rates. Management believes that the fair value of this debt
approximates its recorded value. Management estimates that the fair value of
fixed rate debt outstanding of $27,000 under the GECC term loan is approximately
$25,900.
F-73
<PAGE> 253
INTERMEDIA PARTNERS OF WEST TENNESSEE, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. CABLE TELEVISION REGULATION
Cable television legislation and regulatory proposals under consideration
from time to time by Congress and various federal agencies have in the past, and
may in the future, materially affect the Partnership and the cable television
industry.
The cable industry is currently regulated at the federal and local levels
under the Cable Act of 1984, the Cable Act of 1992 ("the 1992 Act"), the
Telecommunications Act of 1996 ("the 1996 Act") and regulations issued by the
Federal Communications Commission ("FCC") in response to the 1992 Act. FCC
regulations govern the determination of rates charged for basic, expanded basic
and certain ancillary services, and cover a number of other areas including
customer service and technical performance standards, the required transmission
of certain local broadcast stations and the requirement to negotiate
retransmission consent from major network and certain local television stations.
Among other provisions, the 1996 Act will eliminate rate regulation on the
expanded basic tier effective March 31, 1999.
Current regulations issued in connection with the 1992 Act empower the FCC
and/or local franchise authorities to order reductions of existing rates which
exceed the maximum permitted levels and require refunds measured from the date a
complaint is filed in some circumstances or retroactively for up to one year in
other circumstances. Management believes it has made a fair interpretation of
the 1992 Act and related FCC regulations in determining regulated cable
television rates and other fees based on the information currently available. No
complaints have been filed with the FCC on rates for expanded basic services and
local franchise authorities have not challenged existing and prior rates.
Complaints and challenges could be forthcoming, some of which could apply to
revenue recorded in 1995. Management believes, however, that the effect, if any,
of such complaints and challenges will not be material to the Partnership's
financial position or results of operations.
Many aspects of regulation at the federal and local level are currently the
subject of judicial review and administrative proceedings. In addition, the FCC
is required to conduct rulemaking proceedings over the next several months to
implement various provisions of the 1996 Act. It is not possible at this time to
predict the ultimate outcome of these reviews or proceedings or their effect on
the Partnership.
7. COMMITMENTS AND CONTINGENCIES
The Partnership is committed to provide cable television services under
franchise agreements with remaining terms of up to twenty-four years. Franchise
fees of up to 5% of gross revenues are payable under these agreements.
Current FCC regulations require that cable television operators obtain
permission to retransmit major network and certain local television station
signals. The Partnership has entered into long-term retransmission agreements
with all applicable stations in exchange for in-kind and/or other consideration.
The Partnership is subject to litigation and other claims in the ordinary
course of business. In the opinion of management, the ultimate outcome of any
existing litigation or other claims will not have a material adverse effect on
the Partnership's financial condition or results of operations.
F-74
<PAGE> 254
INTERMEDIA PARTNERS OF WEST TENNESSEE, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
The Partnership has entered into pole rental agreements and leases certain
of its facilities and equipment under non-cancelable operating leases. Minimum
rental commitments at December 31, 1995 for the next five years and thereafter
under these leases are as follows:
<TABLE>
<S> <C>
1996.......................................................... $ 63
1997.......................................................... 41
1998.......................................................... 25
1999.......................................................... 19
2000.......................................................... 15
Thereafter.................................................... 25
----
$188
====
</TABLE>
Rent expense, including pole rental agreements, was $417, $387 and $525 for
the years ended December 31, 1993, 1994 and 1995, respectively.
8. RELATED PARTY TRANSACTIONS
InterMedia Capital Management, a California limited partnership ("ICM"), is
the general partner of IP. Beginning October 1994, ICM managed the business of
the Partnership for an annual fee of $482 of which 20% is deferred until each
subsequent year in support of the Partnership's long-term debt. The remaining
80% is paid in cash in equal monthly installments. Included in payable to
affiliates at December 31, 1994 and 1995 are $24 and $96, respectively, relating
to the ICM annual fee.
InterMedia Management, Inc. ("IMI") is wholly owned by the managing general
partner of ICM. IMI has entered into an agreement with the Partnership to
provide accounting and administrative services at cost. During the years ended
1993, 1994 and 1995, administrative fees charged by IMI were $392, $566 and
$625, respectively. Receivables from affiliates represent advances to IMI net of
administrative fees charged by IMI and operating expenses paid by IMI on behalf
of the Partnership. IMI charges are paid in cash on a monthly basis.
As an affiliate of TCI, the Partnership is able to purchase programming
services from a subsidiary of TCI. Management believes that the overall
programming rates made available through this relationship are lower than the
Partnership could obtain separately. The TCI subsidiary is under no obligation
to continue to offer such volume rates to the Partnership, and such rates may
not continue to be available in the future should TCI's ownership in the
Partnership significantly decrease or if TCI or the programmers should otherwise
decide not to offer such participation to the Partnership (see Note 11).
Programming fees charged by the TCI subsidiary for the years ended December 31,
1993, 1994 and 1995 amounted to $2,043, $2,150 and $2,573, respectively.
Programming fees are paid to TCI in cash on a monthly basis. Payable to
affiliates includes programming fees payable to the TCI subsidiary of $179 and
$209 at December 31, 1994 and 1995, respectively.
Payables to IP of $1,375 and $943 were outstanding at December 31, 1994 and
1995, respectively, primarily related to professional fees incurred by IP on
behalf of IPWT in connection with the acquisition of the West Tennessee cable
television system in 1990. IP will be given a partnership interest in ICP-IV, as
described herein, in exchange for its investment in the Partnership including
its receivable of $943 (see Note 11).
9. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
During the years ended December 31, 1993, 1994 and 1995, the Partnership
paid interest of approximately $2, $8,349 and $4,336, respectively.
F-75
<PAGE> 255
INTERMEDIA PARTNERS OF WEST TENNESSEE, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
10. EMPLOYEE BENEFIT PLAN
The Partnership participates in the InterMedia Partners Tax Deferred
Savings Plan, which covers all full-time employees who have completed at least
one year of employment. Such Plan provides for a base employee contribution of
1% and a maximum of 15% of compensation. The Partnership's matching
contributions under such Plan are at the rate of 50% of the employee's
contributions, up to a maximum of 3% of compensation.
11. SUBSEQUENT EVENT
IP and GECC are currently negotiating an agreement to contribute the
Partnership to InterMedia Capital Partners IV, L.P. ("ICP-IV") in exchange for
limited partnership interests in ICP-IV. ICP-IV is a newly created, affiliated
entity, formed for the purpose of acquiring cable television systems and
consolidating various cable television systems owned by entities affiliated with
IP. Consummation of the transaction is expected during the third quarter of
1996. Upon completion of the transaction, conditions will be met for an accrual
of approximately $3,000 of contingent interest under the terms of the loan
agreement with GECC and recognition of the remaining debt restructuring credit
as an extraordinary gain (see Note 5). Because TCI will also be an owner of
ICP-IV, the contributions of the Partnership to ICP-IV are not expected to
affect the favorable rates available to the Partnership through its relationship
with TCI (see Note 8).
12. EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF ACCOUNTANTS' REPORT
On July 30, 1996, IP and GECC contributed their partner interests in the
Partnership to ICP IV. As a result, conditions have been met for the accrual of
approximately $3,000 of contingent interest. Accordingly, all outstanding debt
and related accrued interest as of July 30, 1996 have been presented as
non-current liabilities.
F-76
<PAGE> 256
INDEPENDENT AUDITORS' REPORT
The Board of Directors
TCI of Greenville, Inc.,
TCI of Spartanburg, Inc., and
TCI of Piedmont, Inc.:
We have audited the accompanying combined balance sheet of TCI of
Greenville, Inc., TCI of Spartanburg, Inc., and TCI of Piedmont, Inc. (the
"Systems") (indirect wholly-owned subsidiaries of TCI Communications, Inc.) as
of December 31, 1995, and the related combined statements of operations and
accumulated deficit and cash flows for the period from January 27, 1995 to
December 31, 1995. These combined financial statements are the responsibility of
the Systems' management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of TCI of Greenville,
Inc., TCI of Spartanburg, Inc., and TCI of Piedmont, Inc. as of December 31,
1995, and the results of their operations and their cash flows for the period
from January 27, 1995 to December 31, 1995 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
March 1, 1996
F-77
<PAGE> 257
TCI OF GREENVILLE, INC.,
TCI OF SPARTANBURG, INC., AND
TCI OF PIEDMONT, INC.
(INDIRECT WHOLLY-OWNED SUBSIDIARIES OF TCI COMMUNICATIONS, INC.)
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JULY 30, DECEMBER 31,
1996 1995
-------- -----------
(UNAUDITED)
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Cash................................................................... $ -- $ 1,936
Trade and other receivables, net of allowance for doubtful accounts
of $316,000 and $426,000............................................. 2,577 2,571
Property and equipment, at cost:
Land................................................................. 574 573
Cable distribution systems........................................... 41,446 38,551
Support equipment and buildings...................................... 5,173 3,588
-------- --------
47,193 42,712
Less accumulated depreciation........................................ (8,012) (5,252)
-------- --------
39,181 37,460
-------- --------
Franchise costs........................................................ 327,262 327,262
Less accumulated amortization........................................ (12,272) (7,499)
-------- --------
314,990 319,763
-------- --------
Other assets........................................................... 50 82
-------- --------
$356,798 $361,812
======== ========
LIABILITIES AND PARENT'S INVESTMENT
Cash overdraft......................................................... $ 35 $ --
Accounts payable....................................................... 165 270
Accrued liabilities (note 2)........................................... 2,687 3,486
Deferred income taxes (note 4)......................................... 106,275 113,239
-------- --------
Total liabilities............................................ 109,162 116,995
-------- --------
Parent's investment:
Due to TCI Communications, Inc. (TCIC) (note 3)...................... 264,422 249,136
Accumulated deficit.................................................. (16,786) (4,319)
-------- --------
247,636 244,817
-------- --------
$356,798 $361,812
======== ========
Commitments and contingencies (note 5)
</TABLE>
See accompanying notes to combined financial statements.
F-78
<PAGE> 258
TCI OF GREENVILLE, INC.,
TCI OF SPARTANBURG, INC., AND
TCI OF PIEDMONT, INC.
(INDIRECT WHOLLY-OWNED SUBSIDIARIES OF TCI COMMUNICATIONS, INC.)
COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 27, PERIOD FROM
PERIOD FROM 1995 TO JANUARY 27 TO
JANUARY 1, 1996 JULY 31, DECEMBER 31,
TO JULY 30, 1996 1995 1995
----------------- ------------ -------------
(UNAUDITED) (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Basic and cable services........................ $ 18,448 $ 14,224 $ 25,477
Pay services.................................... 6,256 5,605 10,241
Other services.................................. 5,586 5,838 11,496
------- ------ --------
30,290 25,667 47,214
Operating costs and expenses:
Program fees (note 3)........................... 6,953 5,000 9,084
Other direct expenses........................... 3,534 3,534 6,596
Selling, general and administrative............. 7,612 4,972 10,483
Allocated general and administrative costs (note
3)........................................... 1,105 714 1,618
Amortization.................................... 4,772 3,321 7,499
Depreciation.................................... 2,934 3,708 6,640
------- ------ --------
26,910 21,249 41,920
------- ------ --------
Operating income........................ 3,380 4,418 5,294
Interest expense to TCIC (note 3)................. (22,811) (6,416) (11,839)
------- ------ --------
Loss before income tax benefit.......... (19,431) (1,998) (6,545)
Income tax benefit (note 4)....................... 6,964 836 2,226
------- ------ --------
Net loss................................ (12,467) (1,162) (4,319)
Accumulated deficit:
Beginning of period............................. (4,319) -- --
------- ------ --------
End of period................................... $(16,786) $ (1,162) $ (4,319)
======= ====== ========
</TABLE>
See accompanying notes to combined financial statements.
F-79
<PAGE> 259
TCI OF GREENVILLE, INC.,
TCI OF SPARTANBURG, INC., AND
TCI OF PIEDMONT, INC.
(INDIRECT WHOLLY-OWNED SUBSIDIARIES OF TCI COMMUNICATIONS, INC.)
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 27, PERIOD FROM
PERIOD FROM 1995 TO JANUARY 27 TO
JANUARY 1, 1996 TO JULY 31, DECEMBER 31,
JULY 30, 1996 1995 1995
------------------ ----------- -------------
(UNAUDITED) (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $(12,467) $(1,162) $ (4,319)
Adjustments to reconcile net loss to net cash
provided
by operating activities:
Depreciation and amortization................ 7,706 7,029 14,139
Deferred tax benefit......................... (6,964) (836) (2,325)
Changes in assets and liabilities:
Change in receivables, net................. (6) 426 (98)
Change in other assets..................... 32 (43) (80)
Change in cash overdraft................... 35 -- --
Change in accounts payable................. (105) (29) 150
Change in accrued liabilities.............. (799) 238 965
------- ------- --------
Net cash provided by (used in) operating
activities............................ (12,568) 5,623 8,432
------- ------- --------
Cash flows used in investing activities --
Capital expended for property and equipment..... (4,654) (3,300) (13,054)
------- ------- --------
Cash flows from financing activities --
Increase (decrease) in due to TCIC.............. 15,286 (999) 6,484
------- ------- --------
Net increase (decrease) in cash.............. (1,936) 1,324 1,862
Cash at beginning of period....................... 1,936 74 74
------- ------- --------
Cash at end of period............................. $ -- $ 1,398 $ 1,936
======= ======= ========
</TABLE>
See accompanying notes to combined financial statements.
F-80
<PAGE> 260
TCI OF GREENVILLE, INC.,
TCI OF SPARTANBURG, INC., AND
TCI OF PIEDMONT, INC.
(INDIRECT WHOLLY-OWNED SUBSIDIARIES OF TCI COMMUNICATIONS, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
The combined financial statements include the operations, assets and
liabilities of TCI of Greenville, Inc., TCI of Spartanburg, Inc., and TCI of
Piedmont, Inc. (the "Systems") which are indirect wholly-owned subsidiaries of
TCI Communications, Inc. ("TCIC" or "Parent") which is a subsidiary of
Tele-Communications, Inc. ("TCI"). The Systems develop and operate cable
television systems in South Carolina.
The Systems were acquired by TCI from TeleCable Corporation at the close of
business on January 26, 1995 and subsequently contributed to TCIC
($242,591,000). These combined financial statements include the Systems' results
of operations for the period from January 27, 1995 to December 31, 1995.
It is contemplated that during 1996, TCIC will contribute the Systems to a
newly formed limited partnership in exchange for an interest in InterMedia
Partners IV, L.P., ("IP-IV"). See note 6.
(B) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, including acquisition costs
allocated to tangible assets acquired. Construction costs, including interest
during construction and applicable overhead, are capitalized. Interest
capitalized for the period from January 27, 1995 to December 31, 1995 was not
material.
Depreciation is computed on a straight-line basis using estimated useful
lives of 3 to 15 years for cable distribution systems and 3 to 40 years for
support equipment and buildings.
Repairs and maintenance are charged to operations, and renewals and
additions are capitalized. At the time of ordinary retirements, sales, or other
dispositions of property, the original cost and cost of removal of such property
are charged to accumulated depreciation, and salvage, if any, is credited
thereto. Gains or losses are only recognized in connection with the sales of
properties in their entirety.
(C) FRANCHISE COSTS
Franchise costs include the difference between the cost of acquiring the
Systems and amounts allocated to the tangible assets. Franchise costs are
amortized on a straight-line basis over 40 years.
(D) INCOME TAXES
A tax sharing agreement (the "Tax Sharing Agreement") among TCIC and
certain other subsidiaries of TCI was implemented effective July 1, 1995. The
Tax Sharing Agreement formalizes certain elements of the pre-existing tax
sharing arrangement and contains additional provisions regarding the allocation
of certain consolidated income tax attributes and the settlement procedures with
respect to the intercompany allocation of current tax attributes. The Tax
Sharing Agreement encompasses U.S. Federal, state, local, and foreign tax
consequences and relies upon the U.S. Internal Revenue Code of 1986 as amended,
and any applicable state, local, and foreign tax law and related regulations.
Beginning on the July 1, 1995 effective date, TCIC was responsible to TCI for
its share of current consolidated income tax liabilities. TCI was responsible to
TCIC to the extent that TCIC's income tax attributes generated after the
effective date are utilized by TCI to reduce its consolidated income tax
liabilities. Accordingly, all tax attributes generated by TCIC's operations
(which include the Systems) after the effective date including, but not limited
to, net operating losses, tax credits,
F-81
<PAGE> 261
TCI OF GREENVILLE, INC.,
TCI OF SPARTANBURG, INC., AND
TCI OF PIEDMONT, INC.
(INDIRECT WHOLLY-OWNED SUBSIDIARIES OF TCI COMMUNICATIONS, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
deferred intercompany gains, and the tax basis of assets are inventoried and
tracked for the entities comprising TCIC.
(E) ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities 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.
(F) UNAUDITED FINANCIAL INFORMATION
In the opinion of management, the unaudited financial statements reflect
all adjustments necessary to present fairly the combined financial position of
the Systems at July 30, 1996 and the results of operations and cash flows for
the period from January 1, 1996 to July 30, 1996 and the period from January 27,
1995 to July 31, 1995.
2. ACCRUED LIABILITIES
Accrued liabilities consists of the following at December 31, 1995 (amounts
in thousands):
<TABLE>
<S> <C>
Franchise fees payable...................................... $1,722
Property taxes payable...................................... 745
Salaries and benefits payable............................... 263
Sales taxes payable......................................... 187
Other....................................................... 569
-------
$3,486
=======
</TABLE>
3. TRANSACTIONS WITH RELATED PARTIES
Certain subsidiaries of TCIC provide certain corporate general and
administrative services and are responsible for the Systems' operations and
construction. Costs related to these services were allocated to TCIC's
subsidiaries on a per subscriber and gross revenue basis that is intended to
approximate TCI's proportionate cost of providing such services and are
presented in the combined statement of operations and accumulated deficit as
allocated general and administrative costs. The amounts allocated by TCIC are
not necessarily representative of the costs that the Systems would have incurred
on a stand-alone basis.
During the period from January 27, 1995 to December 31, 1995 the
Systems purchased, at TCIC's cost, certain pay television and other
programming through another TCIC subsidiary. Charges for such programming
were $6,766,000 for the period from January 27, 1995 to December 31, 1995
and are included in program fees.
The amount due to TCIC includes TCIC's funding of current operations
as well as the initial contribution of the Systems. The amount of interest
expense allocated by TCIC is based on the actual interest costs incurred by
TCIC and therefore, it does not necessarily reflect the interest expense
that each subsidiary would have incurred on a stand alone basis. In
addition, certain of TCIC's debt is secured by the assets of certain of its
subsidiaries, including the Systems.
F-82
<PAGE> 262
TCI OF GREENVILLE, INC.,
TCI OF SPARTANBURG, INC., AND
TCI OF PIEDMONT, INC.
(INDIRECT WHOLLY-OWNED SUBSIDIARIES OF TCI COMMUNICATIONS, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES
From January 27, 1995 to December 31, 1995, the Systems were included in
the consolidated Federal income tax return of TCI. Income tax benefit for the
Systems is based on those items in the consolidated calculation applicable to
the Systems. The income tax benefit during this period represents an
apportionment of tax expense or benefit (other than deferred taxes) among
subsidiaries of TCIC in relation to their respective amounts of taxable earnings
or losses. The payable arising from the allocation of taxes for the period has
been recorded as an increase to the due to TCIC account. For Federal income tax
purposes, the tax basis in the assets of the Systems were carried over at their
historical tax basis.
The Systems recognize deferred tax assets and liabilities for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Income tax benefit (expense) for the period from January 27, 1995 to
December 31, 1995 consists of (amounts in thousands):
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
<S> <C> <C> <C>
Intercompany tax allocation...................... $ (87) $2,021 $1,934
State and local.................................. (12) 304 292
---- ----- ------
$ (99) 2,325 2,226
==== ===== ======
</TABLE>
Income tax benefit attributable to earnings differs from the amount
computed by applying the Federal income tax rate of 35% as a result of the
following (amounts in thousands):
<TABLE>
<S> <C>
Computed "expected" tax benefit............................. $2,291
State and local income taxes, net of Federal income tax
benefit................................................... 190
Other....................................................... (255)
------
$2,226
======
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1995 are presented below (amounts in thousands):
<TABLE>
<S> <C>
Deferred tax assets, primarily related to accounts
receivable.............................................. $ 164
Deferred tax liabilities:
Franchise costs......................................... 109,350
Property and equipment.................................. 3,415
Other................................................... 638
--------
Gross deferred tax liabilities....................... 113,403
--------
Net deferred tax liabilities......................... $113,239
========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
As a result of the Cable Television Consumer Protection and Competition Act
of 1992 (the "1992 Cable Act"), the Systems' basic and tier service rates and
its equipment and installation charges (the "Regulated
F-83
<PAGE> 263
TCI OF GREENVILLE, INC.,
TCI OF SPARTANBURG, INC., AND
TCI OF PIEDMONT, INC.
(INDIRECT WHOLLY-OWNED SUBSIDIARIES OF TCI COMMUNICATIONS, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Services") are subject to the jurisdiction of local franchising authorities and
the FCC. Basic and tier service rates are evaluated against competitive
benchmark rates as published by the FCC, and equipment and installation charges
are based on actual costs.
The Systems believe that they have complied in all material respects with
the provisions of the 1992 Cable Act, including its rate setting provisions.
However the Systems' rates for Regulated Services are subject to review by the
FCC, if a complaint has been filed, or the appropriate franchise authority, if
such authority has been certified. If, as a result of the review process, a
system cannot substantiate its rates, it could be required to retroactively
reduce its rates to the appropriate benchmark and refund the excess portion of
rates received. Any refunds of the excess portion of tier service rates would be
retroactive to the date of complaint. Any refunds of the excess portion of all
other Regulated Service rates would be retroactive to the later of September 1,
1993 or one year prior to the certification date of the applicable franchise
authority. The amount of refunds, if any, which could be payable by the Systems
in the event that the Systems' rates are successfully challenged by franchising
authorities or the FCC is not considered to be material.
The Systems have entered into pole rental agreements and use other
equipment under lease arrangements. Rental expense under these arrangements was
$510,000 for the period from January 27, 1995 to December 31, 1995. Future
minimum lease payments under noncancelable operating leases are as follows
(amounts in thousands):
<TABLE>
<S> <C>
1996................................................... $95
1997................................................... 64
1998................................................... 18
</TABLE>
6. SUBSEQUENT EVENT -- UNAUDITED
On July 30, 1996, TCI consummated an agreement with IP-IV to contribute the
Systems into a newly-formed limited partnership in exchange for a 49% limited
partnership interest in IP-IV. Management of the Systems' operations was assumed
by InterMedia Capital Management IV, L.P., the general partner of IP-IV as of
that date.
F-84
<PAGE> 264
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of
TeleCable of Piedmont, Inc.,
TeleCable of Spartanburg, Inc. and
TeleCable of Greenville, Inc.
(collectively TeleCable -- South Carolina Group)
In our opinion, the accompanying combined balance sheets and the related
combined statements of income and retained earnings and of cash flows present
fairly, in all material respects, the combined financial position of
TeleCable -- South Carolina Group at January 26, 1995 and December 31, 1994 and
the results of its operations and its cash flows for the 26-day period ended
January 26, 1995 and the year ended December 31, 1994 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of TeleCable -- South Carolina Group'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.
As discussed in Note 1, TeleCable Corporation, parent company of the
TeleCable -- South Carolina Group entities, merged with and into TCI
Communications, Inc., a wholly owned subsidiary of Tele-Communications, Inc., on
January 26, 1995, in accordance with the related Agreement and Plan of Merger
dated August 8, 1994. The accompanying financial statements include the accounts
of TeleCable -- South Carolina Group at their historical basis immediately
preceding the merger and do not include any adjustments to record the new
owner's basis.
PRICE WATERHOUSE LLP
San Francisco, California
March 8, 1996
F-85
<PAGE> 265
TELECABLE -- SOUTH CAROLINA GROUP
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
26 DAY PERIOD
YEAR ENDED ENDED
DECEMBER 31, JANUARY 26,
1994 1995
------------- -------------
<S> <C> <C>
Basic and expanded cable services................................. $26,034 $ 1,835
Pay services...................................................... 11,046 783
Other services.................................................... 8,819 499
------- -------
45,899 3,117
------- -------
Program fees...................................................... 14,076 795
Other direct expenses............................................. 9,929 720
Depreciation and amortization..................................... 7,332 618
Selling, general and administrative expenses...................... 8,069 589
------- -------
39,406 2,722
------- -------
Income from operations.......................................... 6,493 395
------- -------
Other income (expense):
Interest income................................................. 1,278
Interest expense................................................ (2,150) (161)
------- -------
(872) (161)
Income before provision for income taxes........................ 5,621 234
Income tax expense................................................ 2,118 88
------- -------
Net income...................................................... 3,503 146
Retained earnings, beginning of the period........................ 10,967 14,470
------- -------
Retained earnings, end of the period.............................. $14,470 $14,616
======= =======
</TABLE>
See notes to combined financial statements.
F-86
<PAGE> 266
TELECABLE -- SOUTH CAROLINA GROUP
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 26,
1994 1995
------------- ------------
<S> <C> <C>
Cash and cash equivalents........................................... $ 320 $ 74
Accounts receivable, net of allowance for doubtful accounts of
$195 and $199..................................................... 2,493 2,545
Prepaid expenses and other assets................................... 94 76
Inventory........................................................... 74 75
------- -------
Total current assets...................................... 2,981 2,770
Intangible assets, net of accumulated amortization of $8,435 and
$8,499............................................................ 2,807 2,743
Property and equipment, net......................................... 44,301 44,132
Receivable from affiliates.......................................... 16,344
Other assets........................................................ 36 36
------- -------
Total assets.............................................. $66,469 $ 49,681
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable trade.............................................. $ 120 $ 120
Accrued liabilities................................................. 3,340 2,554
Deferred revenue.................................................... 50 72
Notes and other payables to affiliates.............................. 20,467 4,280
------- -------
Total current liabilities................................. 23,977 7,026
Deferred income taxes............................................... 7,553 7,570
Other liabilities................................................... 74 74
------- -------
Total liabilities......................................... 31,604 14,670
------- -------
Commitments and contingencies
Shareholder's equity................................................ 34,865 35,011
------- -------
Total liabilities and shareholder's equity................ $66,469 $ 49,681
======= =======
</TABLE>
See notes to combined financial statements.
F-87
<PAGE> 267
TELECABLE -- SOUTH CAROLINA GROUP
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
26 DAY
YEAR PERIOD
ENDED ENDED
DECEMBER 31, JANUARY 26,
1994 1995
------------ -----------
<S> <C> <C>
Cash flows from operating activities
Net income........................................................ $ 3,503 $ 146
Adjustments to reconcile net income to cash provided by (used for)
operating activities:
Depreciation................................................... 6,561 554
Amortization................................................... 771 64
Deferred income taxes.......................................... 468 17
(Increase) decrease in current assets:
Accounts receivable.......................................... (1,096) (52)
Income taxes receivable...................................... (437) 12
Prepaid expenses............................................. 133 6
Inventory.................................................... 44 (1)
Increase (decrease) in current liabilities:
Accounts payable and accrued liabilities..................... 787 (786)
Deferred revenue............................................. (7) 22
-------- -----
Net cash provided by (used for) operating activities...... 10,727 (18)
-------- -----
Cash flows from investing activities:
Purchases of property and equipment............................... (11,032) (385)
-------- -----
Net cash used for investing activities.................... (11,032) (385)
-------- -----
Cash flows from financing activities:
Receipts (payments) of amounts due from (to) affiliates, net...... (94) 157
-------- -----
Net cash provided by (used for) financing activities...... (94) 157
-------- -----
Net decrease in cash and cash equivalents........................... (399) (246)
Cash and cash equivalents at beginning of period.................... 719 320
-------- -----
Cash and cash equivalents at end of period.......................... $ 320 $ 74
======== =====
Supplemental disclosure of cash flow information:
Cash paid for income taxes........................................ $ 602 $ --
======== =====
</TABLE>
See notes to combined financial statements.
F-88
<PAGE> 268
TELECABLE -- SOUTH CAROLINA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND MERGER WITH TCI COMMUNICATIONS, INC.
The accompanying combined financial statements include the accounts of
TeleCable of Piedmont, Inc., TeleCable of Spartanburg, Inc. and TeleCable of
Greenville, Inc., which collectively represent the combined South Carolina cable
television and advertising operations of TeleCable Corporation ("TeleCable") and
are referred to herein as the TeleCable -- South Carolina Group and/or the
Combined Group.
On January 26, 1995, pursuant to the Agreement and Plan of Merger dated
August 8, 1994, TeleCable and its subsidiaries merged with and into TCI
Communications, Inc. ("TCIC"), a wholly owned subsidiary of Tele-Communications,
Inc. ("TCI") (the Merger), with TCIC as the surviving corporation of the Merger.
Upon consummation of the Merger, TeleCable ceased to exist as a separate
corporation.
The accompanying combined financial statements have been prepared to
present financial position and results of operations of the TeleCable -- South
Carolina Group on a historical basis of accounting and do not reflect TCIC's
basis in the assets and liabilities of the TeleCable -- South Carolina Group.
Under a proposed agreement, TCI will contribute the TeleCable -- South Carolina
Group to a new entity in exchange for cash and a limited partnership interest in
the new entity during 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Combined Group considers all highly liquid debt instruments, with an
original maturity of three months or less, to be cash equivalents.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
Property, plant and equipment are recorded at cost and depreciated over
their estimated useful lives using accelerated and straight-line methods for tax
and financial reporting purposes, respectively. The asset cost and related
accumulated depreciation are eliminated from the accounts when assets are fully
depreciated.
Maintenance, repairs and minor renewals are charged to operations as
incurred. Major renewals and betterments are capitalized.
Estimated lives used to compute depreciation are:
<TABLE>
<S> <C>
Distribution plant and other equipment.................. 8-12 years
Building and improvements............................... 8-25 years
Vehicles................................................ 5 years
</TABLE>
INTANGIBLE ASSETS
Costs associated with developing and acquiring cable television franchises
are capitalized and amortized on a straight-line basis over the term of the
franchises. Remaining terms of the Combined Group's franchises are 6 to 12
years.
INCOME TAXES
The Combined Group follows Statement of Financial Accounting Standards No.
109 (FAS 109), "Accounting for Income Taxes," which uses an asset and liability
method to recognize the deferred income tax effects of transactions which are
reported in different periods for financial reporting and income tax return
purposes. Under this approach, deferred income tax balance sheet amounts are
measured using currently enacted tax rates applied to the differences between
the carrying amounts of assets and liabilities for financial
F-89
<PAGE> 269
TELECABLE -- SOUTH CAROLINA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
reporting purposes and their related tax basis. The deferred income tax
provision is the difference between such beginning and ending deferred income
tax balance sheet amounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements. Such estimates affect the reported amounts of revenues and expenses
during current and subsequent reporting periods, and actual results could differ
from such estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments including cash and cash
equivalents, accounts receivable, accounts payable and short-term debt
approximated fair value at January 26, 1995 and December 31, 1994 because of the
short maturity of these instruments.
3. INCOME TAXES
For federal tax purposes, the results of operations of TeleCable -- South
Carolina Group are included in the TeleCable consolidated federal income tax
filings. TeleCable allocates current and deferred taxes to the Combined Group
under the separate return method as prescribed by FAS 109. Current federal
income tax expense flows through the payable to affiliate.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
26-DAY PERIOD
YEAR ENDED ENDED
DECEMBER 31, JANUARY 26,
1994 1995
------------- --------------
<S> <C> <C>
Current
Federal............................... $ 1,429 $ 62
State................................. 221 9
------ ---
1,650 71
------ ---
Deferred:
Federal............................... 405 15
State................................. 63 2
------ ---
468 17
------ ---
$ 2,118 $ 88
====== ===
</TABLE>
Deferred tax liabilities (assets) relate to the following:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 26,
1994 1995
------------- -----------
<S> <C> <C>
Property and equipment.................... $ 7,636 $ 7,640
Intangible assets......................... 361 363
Other, net................................ (444) (433)
------ ------
$ 7,553 $ 7,570
====== ======
</TABLE>
F-90
<PAGE> 270
TELECABLE -- SOUTH CAROLINA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
The provision for income taxes differs from the amount of income tax
computed by applying the statutory federal tax rate to income before income
taxes as follows:
<TABLE>
<CAPTION>
26-DAY PERIOD
YEAR ENDED ENDED
DECEMBER 31, JANUARY 26,
1994 1995
------------- --------------
<S> <C> <C>
Income tax computed at 34%...................... $ 1,911 $ 80
State income taxes, net of federal tax
benefit....................................... 185 8
Other........................................... 22
------ ---
$ 2,118 $ 88
====== ===
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 26,
1994 1995
------------- ------------
<S> <C> <C>
Distribution, plant and equipment................. $ 78,783 $ 79,163
Land, buildings and improvements.................. 2,081 2,081
Vehicles.......................................... 1,749 1,754
-------- --------
82,613 82,998
Less -- accumulated depreciation.................. (38,312) (38,866)
-------- --------
$ 44,301 $ 44,132
======== ========
</TABLE>
Depreciation expense was $6,561 and $554 for the year ended December 31,
1994 and the 26-day period ended January 26, 1995, respectively.
5. COMMITMENTS AND CONTINGENCIES
The Company leases utility poles and certain other facilities used in their
operations. Total rent expense was $550 for the year ended December 31, 1994 and
$45 for the 26-day period ended January 26, 1995.
6. CABLE TELEVISION REGULATION
Cable television legislation and regulatory proposals under consideration
from time to time by Congress and various federal agencies have in the past, and
may in the future, materially affect the Company and the cable television
industry.
The cable industry is currently regulated at the federal and local levels
under the Cable Act of 1984, the Cable Act of 1992 ("the 1992 Act"), the
Telecommunications Act of 1996 ("the 1996 Act") and regulations issued by the
Federal Communications Commission ("FCC") in response to the 1992 Act. FCC
regulations govern the determination of rates charged for basic, expanded basic
and certain ancillary services, and cover a number of other areas including
customer service and technical performance standards, the required transmission
of certain local broadcast stations and the requirement to negotiate
retransmission consent from major network and certain local television stations.
Among other provisions, the 1996 Act will eliminate rate regulation on the
expanded basic tier effective March 31, 1999.
Current regulations issued in connection with the 1992 Act empower the FCC
and/or local franchise authorities to order reductions of existing rates which
exceed the maximum permitted levels and require refunds measured from the date a
complaint is filed in some circumstances or retroactively for up to one year
F-91
<PAGE> 271
TELECABLE -- SOUTH CAROLINA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
in other circumstances. Management believes it has made a fair interpretation of
the 1992 Act and related FCC regulations in determining regulated cable
television rates and other fees based on the information currently available.
However, complaints have been filed with the FCC on rates for certain franchises
and certain local franchise authorities have challenged existing and prior
rates. Further complaints and challenges could be forthcoming, some of which
could apply to revenue recorded in 1995. Management believes, however, the
effect, if any, of these complaints and challenges will not be material to the
Company's financial position or results of operations.
Many aspects of regulation at the federal and local level are currently the
subject of judicial review and administrative proceedings. In addition, the FCC
is required to conduct rulemaking proceedings over the next several months to
implement various provisions of the 1996 Act. It is not possible at this time to
predict the ultimate outcome of these review or proceedings or their effect on
the Company.
7. RELATED PARTY TRANSACTIONS
Included in notes and other payables to affiliates are notes payable to
Televester, Inc., a wholly-owned subsidiary of TeleCable which total $20,467 and
$3,048 at December 31, 1994 and January 26, 1995, respectively. The notes bear
interest at prime plus 2%, compounded quarterly, and are payable on demand.
The receivable from affiliate at December 31, 1994 and payable to affiliate
at January 26, 1995 represent a net receivable/payable as a result of daily cash
management transactions and other operating activities between the Combined
Group and TeleCable. The Combined Group charges/pays interest on the
receivable/payable at prime. Certain programming fee discounts granted to
TeleCable for volume purchases are recorded at the corporate level and
therefore, have not been allocated to the Combined Group.
During the 26-day period ended January 26, 1995, the Company exchanged
$17,554 of its receivable from affiliate to satisfy one of the notes payable to
Televester, Inc.
8. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 26,
1994 1995
------------ -----------
<S> <C> <C>
Accrued franchise taxes............................... $1,623 $ 736
Accrued real estate and personal property taxes....... 754 818
Accrued payroll....................................... 466 411
Other................................................. 497 589
------------ -----------
$3,340 $ 2,554
========== ========
</TABLE>
F-92
<PAGE> 272
TELECABLE -- SOUTH CAROLINA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
9. SHAREHOLDER'S EQUITY
Shareholder's equity for each of the entities included in these combined
financial statements is as follows:
<TABLE>
<CAPTION>
JANUARY 26, 1995
-----------------------------------------------
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- -------- --------
<S> <C> <C> <C> <C>
TeleCable of Piedmont, Inc........................ $1 $ $ (4,500) $ (4,499)
TeleCable of Spartanburg, Inc..................... -- 11,031 3,904 14,935
TeleCable of Greenville, Inc...................... -- 9,363 15,212 24,575
------ -------- -------- ----------
$1 $ 20,394 $ 14,616 $ 35,011
====== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------------------------------
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- -------- --------
<S> <C> <C> <C> <C>
TeleCable of Piedmont, Inc........................ $1 $ $ (4,573) $ (4,572)
TeleCable of Spartanburg, Inc..................... -- 11,031 3,924 14,955
TeleCable of Greenville, Inc...................... -- 9,363 15,119 24,482
------ -------- -------- ----------
$1 $ 20,394 $ 14,470 $ 34,865
====== =========== =========== ===========
</TABLE>
10. RETIREMENT PLANS
EMPLOYEE SAVINGS PLAN
TeleCable sponsors an employee savings plan which covers substantially all
employees of the Combined Group. TeleCable makes annual contributions of an
amount which, when added to forfeitures, equals 50% of employee contributions up
to 4% of compensation. The total expenses for the Combined Group were $100 for
the year ended December 31, 1994 and $9 for the 26-day period ended January 26,
1995
DEFINED BENEFIT PLAN
The Combined Group participated in the TeleCable defined benefit pension
plan covering substantially all employees. The plan provides retirement benefits
to eligible employees based primarily on years of service and career
compensation. TeleCable's annual funding policy was to contribute no less than
the minimum required by the Employee Retirement Income Security Act of 1974 and
no more than the maximum which can be deducted under relevant IRS regulations.
Separate information regarding the defined benefit plan is not available at the
subsidiary level.
For financial reporting purposes, pension expense allocated to the Combined
Group was $119 for the year ended December 31, 1994. In conjunction with the
Merger, the benefits under the defined benefit plan were frozen January 26,
1995. There was no pension expense for the 26-day period ended January 26, 1995.
The weighted average discount rate used to measure the projected benefit
obligation was 7.0% at December 31, 1994. In addition, the rate of increase in
future compensation levels was 4.5% at December 31, 1994. The weighted-average
expected long-term rate of return on assets was 8.0% for 1994.
F-93
<PAGE> 273
REPORT OF INDEPENDENT AUDITORS
Time Warner Entertainment Company, L.P.
Stamford, Connecticut
We have audited the accompanying statements of assets, liabilities and
divisional equity of Warner Cable Communications -- Kingsport, Tennessee
Division, a division of Time Warner Entertainment Company, L.P., as of January
31, 1996 and December 31, 1995, and the related statements of revenues and
expenses and changes in divisional equity and cash flows for the month ended
January 31, 1996 and the year ended December 31, 1995. These financial
statements are the responsibility of the Division's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets, liabilities and divisional equity of Warner
Cable Communications -- Kingsport, Tennessee Division, a division of Time Warner
Entertainment Company, L.P., at January 31, 1996 and December 31, 1995, and its
revenues and expenses and changes in divisional equity and cash flows for the
month ended January 31, 1996 and the year ended December 31, 1995, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Denver, Colorado
May 11, 1996
F-94
<PAGE> 274
WARNER CABLE COMMUNICATIONS -- KINGSPORT, TENNESSEE DIVISION
A DIVISION OF TIME WARNER ENTERTAINMENT COMPANY, L.P.
STATEMENT OF ASSETS, LIABILITIES AND DIVISIONAL EQUITY
ASSETS
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31,
1996 1995
------------ -------------
<S> <C> <C>
Cash.............................................................. $ 143,807 $ 104,400
Accounts receivable, net of allowance for doubtful accounts of
$55,004 and $46,841 at January 31, 1996 and December 31, 1995,
respectively.................................................... 732,070 945,566
Prepaid expenses.................................................. 1,262 5,814
Inventory......................................................... 10,476 12,168
---------- ----------
Total current assets.............................................. 887,615 1,067,948
Property, plant and equipment, at cost:
Land, building and improvements................................... 183,309 183,309
Distribution system............................................... 13,644,838 13,672,378
Vehicles and other equipment...................................... 956,326 956,326
Construction in progress.......................................... 19,217 1,720
---------- ----------
14,803,690 14,813,733
Less accumulated depreciation..................................... (7,663,043) (7,604,199)
---------- ----------
Net property, plant and equipment................................. 7,140,647 7,209,534
Intangible assets, less accumulated amortization of
$1,180,777 and $1,180,248 as of January 31, 1996
and December 31, 1995, respectively............................. 93,594 94,123
Other assets...................................................... 12,906 13,606
---------- ----------
$ 8,134,762 $ 8,385,211
========== ==========
LIABILITIES AND DIVISIONAL EQUITY
Accounts payable.................................................. $ 70,993 $ 149,380
Deferred revenue.................................................. 393,792 411,952
Subscriber advance payments....................................... 207,309 270,881
Accrued franchise fees............................................ 176,400 213,199
Other accrued liabilities......................................... 659,808 696,075
---------- ----------
Total current liabilities......................................... 1,508,302 1,741,487
Divisional equity:
Accumulated earnings.............................................. 14,276,472 14,084,350
Less accumulated payments to Time Warner Entertainment
Company, L.P.................................................... (7,650,012) (7,440,626)
---------- ----------
Total divisional equity........................................... 6,626,460 6,643,724
---------- ----------
$ 8,134,762 $ 8,385,211
========== ==========
</TABLE>
See accompanying notes.
F-95
<PAGE> 275
WARNER CABLE COMMUNICATIONS -- KINGSPORT, TENNESSEE DIVISION
A DIVISION OF TIME WARNER ENTERTAINMENT COMPANY, L.P.
STATEMENT OF REVENUES AND EXPENSES AND CHANGES IN DIVISIONAL EQUITY
<TABLE>
<CAPTION>
MONTH ENDED YEAR ENDED
JANUARY 31, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
REVENUES:
Basic service..................................................... $ 736,157 $ 8,427,035
Pay service....................................................... 99,919 1,192,580
Other service..................................................... 100,932 1,294,804
----------- -----------
937,008 10,914,419
EXPENSES:
Programming....................................................... 211,329 2,219,227
Other direct expenditures......................................... 133,164 1,425,956
Selling, general and administrative............................... 223,194 2,057,796
Depreciation and amortization..................................... 87,243 1,086,516
----------- -----------
654,930 6,789,495
----------- -----------
Operating income.................................................. 282,078 4,124,924
Interest expense.................................................. 89,956 856,287
----------- -----------
Net revenues over expenses........................................ 192,122 3,268,637
Accumulated earnings at beginning of period....................... 14,084,350 10,815,713
Less accumulated payments to Time Warner Entertainment Company,
L.P. at beginning of period..................................... (7,440,626) (4,247,376)
----------- -----------
Net divisional equity at beginning of period...................... 6,643,724 6,568,337
Payments to Time Warner Entertainment Company, L.P., net.......... (209,386) (3,193,250)
----------- -----------
Net divisional equity at end of period............................ $ 6,626,460 $ 6,643,724
=========== ===========
</TABLE>
See accompanying notes.
F-96
<PAGE> 276
WARNER CABLE COMMUNICATIONS -- KINGSPORT, TENNESSEE DIVISION
A DIVISION OF TIME WARNER ENTERTAINMENT COMPANY, L.P.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
MONTH ENDED YEAR ENDED
JANUARY 31, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net revenues over expenses......................................... $ 192,122 $ 3,268,637
Adjustments to reconcile net revenues over expenses to net cash
provided by operating activities:
Depreciation and amortization...................................... 87,243 1,086,516
Changes in cash due to:
Accounts receivable, prepaid expenses, inventory and other
assets........................................................... 220,440 (232,171)
Accounts payable................................................... (78,387) (63,126)
Deferred revenue................................................... (18,160) 36,371
Subscriber advance payments........................................ (63,572) 52,816
Accrued franchise fees............................................. (36,799) 14,533
Accrued liabilities................................................ (36,267) 145,766
--------- -----------
Net cash provided by operating activities.......................... 266,620 4,309,342
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net.................... (17,827) (1,107,827)
Refranchising cost................................................. -- 233
--------- -----------
Net cash used in investing activities.............................. (17,827) (1,107,594)
FINANCING ACTIVITIES
Net payments to Time Warner Entertainment Company, L.P............. (209,386) (3,193,250)
--------- -----------
Net increase in cash............................................... 39,407 8,498
Cash at beginning of period........................................ 104,400 95,902
--------- -----------
Cash at end of period.............................................. $ 143,807 $ 104,400
========= ===========
</TABLE>
See accompanying notes.
F-97
<PAGE> 277
WARNER CABLE COMMUNICATIONS -- KINGSPORT, TENNESSEE DIVISION
A DIVISION OF TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1996 AND DECEMBER 31, 1995
1. DESCRIPTION OF BUSINESS
Warner Cable Communications -- Kingsport, Tennessee Division (the
Division), a division of Time Warner Entertainment Company, L.P. (TWE), is
principally engaged in the cable television business. Such operations consist
primarily of selling video programming which is distributed to subscribers for a
monthly fee through a network of coaxial cables. The Division operates in
several cities and surrounding areas under nonexclusive franchise agreements.
Franchise fees of up to 5% of either gross revenues or gross receipts are
payable under these agreements. The agreements are as follows:
<TABLE>
<CAPTION>
FRANCHISING AREA FRANCHISE AGREEMENT EXPIRATION
----------------------------------- ------------------------------
<S> <C>
City of Kingsport.................. 7/09/07
Sullivan County.................... 8/07/95
Town of Church Hill................ 7/30/02
Town of Mt. Carmel................. 12/27/04
</TABLE>
The Division has operated under a verbally extended franchise agreement for
Sullivan County since August 7, 1995.
The Division has no separate legal status or existence. The Division's
resources and existence are at the disposal of TWE management, subject to
contractual commitments by TWE to perform in accordance with certain long-term
contracts within the present divisional structure. The Division's assets are
legally available for the satisfaction of debts of TWE, not solely those
appearing in the accompanying statements, and its debts may result in claims
against assets not appearing therein. The Division is one of several divisions
and affiliates of TWE, and transactions and the terms thereof may be arranged by
and among members of the affiliated group.
Cable television is regulated by the federal government, some state
governments and most local governments. Existing federal regulations, copyright
licensing, and state and local franchise requirements currently are the subject
of a variety of judicial proceedings, legislative hearings and administrative
and legislative proposals which could change, in varying degrees, the manner in
which cable television systems operate. Neither the outcome of these proceedings
nor their impact on the cable television industry or the Division can be
predicted at this time.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The financial statements have been prepared in accordance with generally
accepted accounting principles which require the use of management's estimates
and assumptions. Actual results could differ from these estimates.
PROPERTY, PLANT AND EQUIPMENT
Depreciation is provided on the straight-line basis over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Building and improvements............................... 10-25 years
Distribution system..................................... 3-15 years
Vehicles and other equipment............................ 3-10 years
</TABLE>
F-98
<PAGE> 278
WARNER CABLE COMMUNICATIONS -- KINGSPORT, TENNESSEE DIVISION
A DIVISION OF TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996 AND DECEMBER 31, 1995
FRANCHISE COSTS
The Division has deferred costs incurred to acquire the franchise.
Amortization of these costs is provided on the straight-line basis over the
terms of the franchise agreement.
REVENUE RECOGNITION
Substantially all revenue is recognized when service is provided, with
appropriate provision for uncollectible accounts.
DEFERRED REVENUE
Deferred revenue represents subscriber monthly fees billed in advance.
INCOME TAXES
As a U.S. partnership, TWE is not subject to federal and state income
taxation. As a result, a provision for income taxes has not been included in the
financial statements.
3. RELATED PARTY TRANSACTIONS
Interest is allocated to the Division from TWE. The amount is computed by
multiplying the Division's estimated debt based on average divisional equity
balances by the TWE average effective interest rate. The TWE average effective
interest rate for the month ended January 31, 1996 and the year ended December
31, 1995 was 7.7%. Interest allocated to the Division aggregated $89,956 and
$856,287 for the month ended January 31, 1996 and the year ended December 31,
1995, respectively.
The Division records charges for a portion of TWE's selling, general and
administrative expenses ($63,536 and $856,114 for the month ended January 31,
1996 and the year ended December 31, 1995, respectively), which are allocated by
TWE to its divisions and affiliates based upon subscriber levels.
The statement of revenues and expenses and changes in divisional equity
includes charges for programming and promotional services provided by Home Box
Office and other affiliates of TWE. These charges are based upon customary
rates.
4. LEASES
Rent expense for all operating leases, principally pole attachments and
office rent, for the month ended January 31, 1996 and the year ended December
31, 1995, amounted to $25,466 and $248,233, respectively. The Division has no
significant noncancelable rental commitments.
5. BENEFIT PLANS
The Division participates in a noncontributory defined benefit pension plan
(the Pension Plan) which is maintained by TWE and covers substantially all
employees. Benefits under the Pension Plan are determined based on formulas
which reflect the employees' years of service and average compensation for the
highest five consecutive years of the last ten years of service. Total pension
cost for the month ended January 31, 1996 and the year ended December 31, 1995
was $6,148 and $49,871, respectively.
Prior to April 1, 1995, the Division participated in a defined contribution
plan maintained by TWE (The Time Warner Cable Employees' Savings Plan).
Effective April 1, 1995, this plan was amended, restated and
F-99
<PAGE> 279
WARNER CABLE COMMUNICATIONS -- KINGSPORT, TENNESSEE DIVISION
A DIVISION OF TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996 AND DECEMBER 31, 1995
renamed the Cable Employees' Savings Plan (the Savings Plan). The Savings Plan
covers substantially all employees. The Division's contributions to the Savings
Plan can amount to up to 6.67% of the employee's eligible compensation during
the plan year. The plan sponsor has the right in any year to set the maximum
amount of the Division's contribution. Defined contribution plan expense totaled
$3,120 and $28,729 for the month ended January 31, 1996 and the year ended
December 31, 1995, respectively.
6. SALE OF THE DIVISION
Effective at the close of business on January 31, 1996, TWE sold all of the
assets of the Division for $62,000,000.
F-100
<PAGE> 280
VSC CABLE INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED; DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
---------------------
1995 1996
------- -------
<S> <C> <C>
Basic and cable services............................................... $18,168 $20,527
Pay services........................................................... 5,373 6,025
Other services (Note 3)................................................ 6,293 6,741
------- -------
Total revenue................................................ 29,834 33,293
------- -------
Program fees (Note 3).................................................. 6,595 7,872
Other direct expenses.................................................. 4,188 4,546
Selling, general and administrative expenses (Note 2).................. 7,785 8,882
Depreciation and amortization.......................................... 4,605 5,657
------- -------
Total operating expenses..................................... 23,173 26,957
------- -------
Operating income....................................................... 6,661 6,336
Other expenses:
Interest expense (Note 2)............................................ (2,458) (2,436)
Other expense, net................................................... (61) (41)
------- -------
Income before income taxes............................................. 4,142 3,859
Provision for income taxes............................................. (2,319) (2,125)
------- -------
Net income............................................................. 1,823 1,734
------- -------
Retained earnings, beginning of period................................. 14,670 18,463
------- -------
Retained earnings, end of period....................................... $16,493 $20,197
======= =======
</TABLE>
See accompanying notes to financial statements.
F-101
<PAGE> 281
VSC CABLE INC.
BALANCE SHEETS
(UNAUDITED; DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------- ----------
<S> <C> <C>
ASSETS
Accounts receivable, net of allowance for doubtful accounts of $271
(1995) and $265 (1996) (Note 3)................................... $ 2,463 $ 2,081
Prepaid expenses.................................................... 219 312
------- -------
Total current assets...................................... 2,682 2,393
------- -------
Property and equipment:
Land.............................................................. 1,301 1,434
Buildings......................................................... 2,636 2,658
Distribution systems.............................................. 69,919 82,133
Equipment and other............................................... 24,335 24,407
------- -------
98,191 110,632
Less accumulated depreciation..................................... (35,933) (40,676)
------- -------
Net property and equipment................................ 62,258 69,956
Intangible assets, less accumulated amortization of $15,189 (1995)
and
$16,092 (1996).................................................... 52,258 51,558
------- -------
Total assets.............................................. $ 117,198 $123,907
======= =======
LIABILITIES AND OWNER'S EQUITY
Accounts payable.................................................... $ 1,350 $ 1,439
Accrued product costs (Note 3)...................................... 1,215 1,277
Accrued compensation................................................ 405 320
Accrued taxes....................................................... 475 408
Accrued rental expense.............................................. 565 507
Deferred revenue (Note 3)........................................... 120 130
Other current liabilities........................................... 237 282
------- -------
Total current liabilities................................. 4,367 4,363
------- -------
Deferred lease revenue (Note 3)..................................... 345 480
Deferred income taxes............................................... 6,849 7,942
------- -------
Total liabilities......................................... 11,561 12,785
------- -------
Commitments and contingencies (Note 4)
Owner's equity:
Common stock; no par value; 1,000 shares authorized, issued and
outstanding................................................... 1 1
Viacom International Inc. investment and advances.............. 87,173 90,924
Retained earnings.............................................. 18,463 20,197
------- -------
Total liabilities and owner's equity...................... $ 117,198 $123,907
======= =======
</TABLE>
See accompanying notes to financial statements.
F-102
<PAGE> 282
VSC CABLE INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED; DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1995 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income......................................................... $ 1,823 $ 1,734
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................... 4,605 5,657
Change in assets and liabilities:
Decrease in accounts receivable............................... 502 382
Increase (decrease) in current liabilities.................... 1,073 (4)
Increase in deferred income taxes............................. 6,226 1,093
Other, net.................................................... (120) 38
-------- --------
Net cash flow from operating activities.................... 14,109 8,900
-------- --------
INVESTING ACTIVITIES:
Capital expenditures............................................... (10,470) (12,480)
Other, net......................................................... 210 (171)
-------- --------
Net cash flow used in investing activities................. (10,260) (12,651)
-------- --------
FINANCING ACTIVITIES:
Distributions from (to) Viacom International Inc................... (3,849) 3,751
-------- --------
Net cash flow from (used in) financing activities.......... (3,849) 3,751
-------- --------
Change in cash..................................................... $ -- $ --
======== ========
</TABLE>
See accompanying notes to financial statements.
F-103
<PAGE> 283
VSC CABLE INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED; DOLLARS IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION:
Until August 1, 1996, VSC Cable Inc. ("VSC"), doing business as Viacom
Cable, was a wholly owned subsidiary of Tele-Vue Systems, Inc., which was a
wholly owned subsidiary of Viacom International Inc. Viacom International Inc.
provided cable television service through VSC within the Metropolitan Government
of Nashville and Davidson County, the Cities of Goodlettsville and Brentwood,
and Williamson County, Tennessee.
On October 13, 1995, a subsidiary of Tele-Communications, Inc. ("TCI Sub")
(as buyer) and Prime Cable of Fort Bend and Prime Cable Income Partners, LP (as
sellers) executed asset and stock purchase and sale agreements providing for the
sale of certain cable television systems serving the greater Houston
Metropolitan Area for a total base purchase price of $301 million, subject to
adjustments. On December 18, 1995, TCI Sub assigned all of its rights, remedies,
title and interest in, to and under such agreements to a majority-owned investee
of InterMedia Partners Southeast IV, LP ("IMP"). On May 8, 1996, IMP consummated
the transactions under the Houston purchase agreements. On August 1, 1996, IMP's
majority-owned investee swapped its Houston cable system for VSC. The swap is
intended to qualify as a like-kind exchange under Section 1031 of the Internal
Revenue Code.
On July 24, 1995, Viacom Inc. ("Viacom"), Viacom International Inc. (after
giving effect to the First Distribution as defined below, "VII Cable"), a wholly
owned subsidiary of Viacom, and Viacom International Services Inc. ("New VII"),
a wholly owned subsidiary of VII Cable, entered into certain agreements (the
"Transaction Agreements") with Tele-Communications, Inc. ("TCI") and TCI Sub,
providing for, among other things, the conveyance of Viacom International Inc.'s
non-cable assets and liabilities to New VII, the distribution of all of the
common stock of New VII to Viacom (the "First Distribution"), the Exchange Offer
(as defined below) and the issuance to TCI Sub of all of the Class B Common
Stock of VII Cable. On June 24, 1996, Viacom commenced an exchange offer
pursuant to which Viacom shareholders had the option to exchange shares of
Viacom Class A or Class B Common Stock for a total of 6,257,961 shares of VII
Cable Class A Common Stock (the "Exchange Offer"). The Exchange Offer expired on
July 22, 1996, with a final exchange ratio of .4075 shares of VII Cable Class A
Common Stock for each share of Viacom Common Stock accepted for exchange.
Prior to the consummation of the Exchange Offer, Viacom International Inc.
entered into a $1.7 billion credit agreement. Proceeds from such credit
agreement were transferred by Viacom International Inc. to New VII as part of
the First Distribution. On July 31, 1996, TCI Sub, through a capital
contribution of $350 million in cash, purchased all of the shares of Class B
Common Stock of VII Cable immediately following the consummation of the Exchange
Offer. At that time, VII Cable was renamed TCI Pacific Communications, Inc. and
the VII Cable Class A Common Stock shares were converted into shares of
cumulative redeemable exchangeable preferred stock (the "Preferred Stock")
having an annual dividend of 5% of its $100 par value. The Preferred Stock will
be exchangeable after the fifth anniversary of issuance at the holders' option
for TCI Class A Common Stock.
National Amusements, Inc., which owns approximately 25% of Viacom Inc.
Class A and Class B Common Stock on a combined basis as of June 30, 1996, did
not participate in the Exchange Offer.
For the purposes of these financial statements, the statements of
operations and balance sheets have been presented in the customary reporting
format of IMP, and as a result, the classifications used in the statements of
operations and balance sheets are different from the classifications used in the
VSC audited financial statements submitted annually to the Metropolitan
Government of Nashville and Davidson County. In the opinion of management, the
accompanying unaudited financial statements reflect all adjustments, consisting
of only normal and recurring adjustments, necessary for a fair statement of the
financial position, results of operations and cash flows of VSC. These unaudited
financial statements should be read in conjunction with
F-104
<PAGE> 284
VSC CABLE INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED; DOLLARS IN THOUSANDS)
the audited financial statements of VSC for the three years ended December 31,
1995. These financial statements are not necessarily indicative of results that
would have occurred if VSC had been a separate stand-alone entity during the
periods presented or of future results of VSC.
NOTE 2 -- EXPENSES ALLOCATED TO VSC:
Viacom International Inc. funds the working capital requirements of its
businesses based upon a centralized cash management system. Viacom International
Inc. investment and advances includes any payables and receivables due to/from
Viacom International Inc. resulting from cash paid or received on behalf of VSC
and other intercompany activity.
To reflect the services provided to VSC, common benefits derived from
incurred costs and the utilization of borrowed funds to finance capital
expenditures and operations, the accompanying financial statements include
allocations for certain corporate administrative expenses and interest. Such
allocations, as a matter of practice, are not recorded in the accounting records
of VSC. Management believes that the methodologies used to allocate these
charges are reasonable. Allocations for administrative expenses and interest
(including interest subsequently capitalized) are summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
-----------------
1995 1996
------ ------
<S> <C> <C>
Administrative expenses.................................. $1,094 $1,336
Interest................................................. 2,673 2,617
</TABLE>
For the purposes of these financial statements, allocations of
administrative services are based on VSC's and Viacom International Inc.'s
operating results. The allocation of interest is based on a percentage of VSC's
average net assets to Viacom International Inc.'s average net assets.
NOTE 3 -- OTHER RELATED PARTY TRANSACTIONS:
VSC, through the normal course of business, is involved in transactions
with companies owned by or affiliated with Viacom International Inc. VSC has
agreements to distribute television programs of such companies, including
Showtime Networks Inc., MTV Networks Inc., Comedy Central, USA Networks, Sci-Fi
Channel, and Viewer's Choice. The agreements require VSC to pay license fees
based primarily upon the number of customers receiving the service. Program
license fees incurred under these agreements for the six months ended June 30,
1995 and 1996 were $1,955 and $2,570, respectively, and are included in program
fees. Related party liabilities, included in accrued product costs, were $434
and $408 at December 31, 1995 and June 30, 1996, respectively.
On November 15, 1993, Viacom Telecom Inc., a wholly owned subsidiary of
Tele-Vue Systems, Inc. entered into a limited partnership, AVR of Tennessee, LP
(the "Partnership"), for the purposes of providing voice, data and video access
services for long-distance carriers, and for commercial, governmental and other
non-residential users in and around Nashville, Tennessee. As a result of the
formation of the Partnership, Viacom International Inc. is committed to
construct the facilities required to conduct the Partnership business within its
cable television franchise area. VSC leases the primary transmission facilities
to the Partnership under noncancellable operating leases at rates calculated to
recover actual construction and financing costs. Lease access revenues for the
six months ended June 30, 1995 and 1996 were $93 and $188, respectively, and are
included in other services. Deferred lease access revenues were $435 and $610 at
December 31, 1995 and June 30, 1996, respectively. Of these amounts, $90 and
$130 were included as deferred revenue in current liabilities at December 31,
1995 and June 30, 1996, respectively. Receivables from the Partnership were $281
and $70 at December 31, 1995 and June 30, 1996, respectively.
F-105
<PAGE> 285
VSC CABLE INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED; DOLLARS IN THOUSANDS)
NOTE 4 -- COMMITMENTS AND CONTINGENCIES:
In response to the Cable Television Consumer Protection and Competition Act
of 1992 (the "Cable Act"), the Federal Communications Commission (the "FCC")
issued regulations (the "Rate Regulations") with an effective date of September
1, 1993, to govern the basic service tier, cable programming service tiers
("CPST"), leasing of certain customer equipment, and cable service installation
rates of cable systems not subject to effective competition (collectively the
"Combined Rates"). The FCC significantly amended the Rate Regulations on March
30, 1994. The Rate Regulations cover a significant portion of VSC's cable
television revenues and a variety of other less significant matters. The Rate
Regulations empower the FCC and/or local franchise authorities to order
reductions of existing rates which exceed the maximum permitted levels and to
require refunds measured from the date a complaint is filed in some
circumstances or retroactively for up to one year in other circumstances. Even
though the Rate Regulations have been effective since September 1, 1993, many of
the rules have been subjected to only limited regulatory interpretation by the
FCC. Also, there are a number of pending and threatened judicial challenges to
various provisions of the Cable Act and related Rate Regulations.
Management believes it has made a reasonable interpretation of the Cable
Act and related Rate Regulations in determining the Combined Rates based on the
information currently available. Complaints have been filed with the FCC on
VSC's rates for certain franchises and certain local franchise authorities have
challenged the existing and prior rates. Additionally, in November 1994 the FCC
issued an opinion and order which would require a refund of a portion of the
CPST rates from February 1994 to May 1994. VSC filed an appeal to the FCC on
this order. Further challenges could be forthcoming, some of which would also
apply to revenue recorded for the six months ended June 30, 1996 and prior.
Management believes that based on its interpretation of the Cable Act and
related Rate Regulations, any liabilities in regard to existing and prior rates
will not have a material effect on VSC's financial condition, results of
operations or cash flows.
On February 8, 1996, the Telecommunications Act of 1996 (the "Act") was
signed into law. The Act eases regulation of the cable and telephone businesses
while opening each of them to increased competition. The Act deregulates the
CPST after March 31, 1999. It expands the existing definition of "effective
competition" which, when it occurs with respect to a particular cable system,
results in the deregulation of that cable system's rates. The Act repeals the
statutory ban against telephone companies and certain utility companies from
providing video programming in their own service areas as either cable systems,
common carriers or newly created "open video systems". Additionally, the Act
substantially preempts state and local regulations barring cable operators and
others from providing local telephone services and requires telephone companies
to negotiate with new telephone service providers with respect to the
interoperationality of each of their systems.
The Cable Act and related FCC regulations require cable television system
operators to obtain permission to retransmit television signals from local
commercial broadcast stations electing retransmission consent status.
Accordingly, VSC has entered into retransmission consent agreements with all
applicable stations.
VSC and Viacom International Inc. are involved in various claims and
lawsuits arising in the ordinary course of business, none of which, in the
opinion of management, will have a material adverse effect on VSC's financial
position, results of operations or cash flows.
In the ordinary course of business, VSC enters into long-term affiliation
agreements with programming services which require that VSC continues to carry
and pay for programming and meet certain performance requirements.
VSC is committed to providing cable television services under franchise
agreements with remaining terms of up to 14 years. Franchise fees of up to 5%
are payable on revenues as defined in these agreements.
F-106
<PAGE> 286
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Viacom International Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations and retained earnings and of cash flows present fairly, in all
material respects, the financial position of VSC Cable Inc. (a wholly-owned
subsidiary of Viacom International Inc.) at December 31, 1994 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
Viacom International Inc.'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.
As discussed in the notes to the financial statements, effective January 1,
1993, VSC Cable Inc. adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes."
PRICE WATERHOUSE LLP
San Jose, California
April 5, 1996
F-107
<PAGE> 287
VSC CABLE INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Basic and cable services...................................... $35,683 $33,498 $37,243
Pay services.................................................. 9,389 9,623 11,575
Other services (Note 4)....................................... 8,347 11,527 13,224
------- ------- -------
Total revenue....................................... 53,419 54,648 62,042
------- ------- -------
Program fees (Note 4)......................................... 8,375 9,624 13,894
Other direct expenses......................................... 8,032 8,355 8,954
Selling, general and administrative expenses (Note 3)......... 16,141 16,598 16,144
Depreciation and amortization (Note 2)........................ 8,010 8,368 9,655
------- ------- -------
Total operating expenses............................ 40,558 42,945 48,647
------- ------- -------
Operating income.............................................. 12,861 11,703 13,395
Interest expense (Note 3)..................................... (3,043) (3,599) (4,819)
Other expense, net............................................ (75) (91) (124)
------- ------- -------
Total other expenses................................ (3,118) (3,690) (4,943)
------- ------- -------
Income before income taxes.................................... 9,743 8,013 8,452
Provision for income taxes (Note 5)........................... (282) (1,705) (4,659)
------- ------- -------
Net income.................................................... 9,461 6,308 3,793
------- ------- -------
Retained earnings (accumulated deficit), beginning of year.... (1,099) 8,362 14,670
------- ------- -------
Retained earnings, end of year................................ $ 8,362 $14,670 $18,463
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-108
<PAGE> 288
VSC CABLE INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
ASSETS
Accounts receivable, net of allowance for doubtful accounts of $190
(1994)
and $271 (1995) (Note 4)............................................. $ 2,078 $ 2,463
Prepaid expenses....................................................... 200 219
-------- --------
Total current assets......................................... 2,278 2,682
-------- --------
Property and equipment:
Land................................................................. 1,300 1,301
Buildings............................................................ 2,637 2,636
Distribution systems................................................. 55,536 69,919
Equipment and other.................................................. 18,677 24,335
-------- --------
78,150 98,191
Less accumulated depreciation........................................ 29,650 35,933
-------- --------
Net property and equipment................................... 48,500 62,258
Intangible assets, less accumulated amortization of $13,408 (1994)
and $15,189 (1995)................................................... 53,359 52,258
Other assets........................................................... 50 --
-------- --------
Total assets................................................. $104,187 $117,198
======== ========
LIABILITIES AND OWNER'S EQUITY
Accounts payable....................................................... $ 707 $ 1,350
Accrued product costs (Note 4)......................................... 929 1,215
Accrued compensation................................................... 461 405
Accrued taxes (Note 5)................................................. 1,178 475
Accrued rental expense................................................. -- 565
Deferred revenue (Note 4).............................................. 76 120
Other current liabilities.............................................. 145 237
-------- --------
Total current liabilities.................................... 3,496 4,367
-------- --------
Deferred lease revenue (Note 4)........................................ 190 345
Deferred income taxes (Note 5)......................................... 1,019 6,849
-------- --------
Total liabilities............................................ 4,705 11,561
-------- --------
Commitments and contingencies (Note 6)
Owner's equity:
Common stock; no par value; 1,000 shares authorized, issued and
outstanding....................................................... 1 1
Viacom International Inc. investment and advances.................... 84,811 87,173
Retained earnings.................................................... 14,670 18,463
-------- --------
Total liabilities and owner's equity......................... $104,187 $117,198
======== ========
</TABLE>
See accompanying notes to financial statements.
F-109
<PAGE> 289
VSC CABLE INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income............................................... $ 9,461 $ 6,308 $ 3,793
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 8,010 8,368 9,655
Increase in property and equipment resulting from
change in accounting principle (Note 2)............. (2,905) -- --
Change in assets and liabilities:
Increase in accounts receivable..................... (531) (345) (385)
Increase in current liabilities..................... 970 275 871
Increase in deferred income taxes................... -- 1,019 5,830
Other, net.......................................... 29 137 165
-------- -------- --------
Net cash flow from operating activities.......... 15,034 15,762 19,929
-------- -------- --------
Investing activities:
Capital expenditures..................................... (9,688) (22,827) (22,958)
Other, net............................................... (347) 1,012 667
-------- -------- --------
Net cash flow used in investing activities....... (10,035) (21,815) (22,291)
-------- -------- --------
Financing activities:
Distributions from (to) Viacom International Inc......... (4,999) 6,053 2,362
-------- -------- --------
Net cash flow from (used in) financing
activities..................................... (4,999) 6,053 2,362
-------- -------- --------
Change in cash........................................... $ -- $ -- $ --
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-110
<PAGE> 290
VSC CABLE INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION:
VSC Cable Inc. (VSC), doing business as Viacom Cable, is a wholly-owned
subsidiary of Tele-Vue Systems, Inc., which is a wholly-owned subsidiary of
Viacom International Inc. Viacom International Inc. provides cable television
service through VSC within the Metropolitan Government of Nashville and Davidson
County, the Cities of Goodlettsville and Brentwood, and Williamson County,
Tennessee.
Substantially all of VSC's revenues are earned from subscriber fees for
primary and premium subscription services, the rental of converters and remote
control devices, and installation fees. Additional revenues are derived from the
sale of advertising, pay-per-view programming fees, payments received from
revenue-sharing arrangements in respect of products sold through home shopping
services, and the leasing of fiber optic capacity in the franchise area to a
partnership (in which Viacom International Inc. has an equity interest) engaged
in the provision of competitive access telephone services.
On October 13, 1995, a subsidiary of Tele-Communications, Inc. (TCI Sub)
(as buyer) and Prime Cable of Fort Bend and Prime Cable Income Partners, LP (as
sellers) executed asset and stock purchase and sale agreements providing for the
sale of certain cable television systems serving the greater Houston
Metropolitan Area for a total base purchase price of $301 million, subject to
adjustments. On December 18, 1995, TCI Sub assigned all of its rights, remedies,
title and interest in, to and under such agreements to a majority-owned investee
of Intermedia Partners IV, LP (IMP). After consummation of the Exchange Offer
(as defined herein), IMP's majority-owned investee intends to swap its Houston
cable system for VSC. The swap is intended to qualify as a like-kind exchange
under Section 1031 of the Internal Revenue Code.
On July 24, 1995, Viacom Inc. (Viacom), Viacom International Inc. (after
giving effect to the First Distribution as defined below, VII Cable), a
wholly-owned subsidiary of Viacom, and Viacom International Services Inc. (New
VII), a wholly-owned subsidiary of VII Cable, entered into certain agreements
(the Transaction Agreements) with Tele-Communications, Inc. (TCI) and TCI Sub,
providing for, among other things, the conveyance of Viacom International Inc.'s
non-cable assets and liabilities to New VII, the distribution of all of the
common stock of New VII to Viacom (the First Distribution), the Exchange Offer
(as defined below) and the issuance to TCI Sub of all of the Class B Common
Stock of VII Cable. Viacom will commence an exchange offer (the Exchange Offer)
pursuant to which Viacom shareholders may exchange shares of Viacom Class A or
Class B Common Stock for shares of VII Cable Class A Common Stock. The First
Distribution will not occur until the date of consummation of the Exchange
Offer.
Prior to the consummation of the Exchange Offer, Viacom International Inc.
will enter into a $1.7 billion credit agreement. Proceeds from such credit
agreement will be transferred by Viacom International Inc. to New VII as part of
the First Distribution. Viacom also entered into a definitive agreement with TCI
under which TCI Sub, through a capital contribution of $350 million in cash,
will purchase all of the shares of Class B Common Stock of VII Cable immediately
following the consummation of the Exchange Offer. At that time, the shares of
Class A Common Stock of VII Cable will convert into shares of cumulative
redeemable exchangeable preferred stock (the Preferred Stock). The Preferred
Stock will be exchangeable after the fifth anniversary of issuance at the
holders' option for TCI Class A Common Stock.
National Amusements, Inc. (NAI), which owns approximately 25% of Viacom
Class A and Class B Common Stock on a combined basis, will not participate in
the Exchange Offer. The Exchange Offer and related transactions are subject to
several conditions, including regulatory approvals, receipt of a tax ruling and
consummation of the Exchange Offer.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
F-111
<PAGE> 291
VSC CABLE INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
reported amounts of revenues and expenses during the reporting period. Actual
results could subsequently differ from those estimates.
For the purposes of these financial statements, the statements of
operations and balance sheets have been presented in the customary reporting
format of IMP, and as a result, the classifications used in the statement of
operations and balance sheets are different from the classifications used in the
VSC financial statements submitted to the Metropolitan Government of Nashville
and Davidson County. These financial statements are not necessarily indicative
of results that would have occurred if VSC had been a separate stand-alone
entity during the periods presented or of future results of VSC.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REVENUE RECOGNITION
Cable television service revenue is recognized in the period in which
services are provided to customers.
Lease access revenue (see Note 4) is recognized over the life of the lease.
PROVISION FOR DOUBTFUL ACCOUNTS
The provision for doubtful accounts charged to expense was $1,282 (1993),
$990 (1994) and $1,303 (1995).
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Inventory, which consists
primarily of construction material, is stated at the lower of weighted average
cost or market. Construction-in-progress and inventory are included in equipment
and other. VSC capitalizes interest costs associated with certain qualifying
assets. The total amount of interest costs capitalized was $36 (1993), $170
(1994) and $437 (1995). Repairs and maintenance are charged to operations, and
renewals and additions are capitalized. Normal retirements of distribution
system components are charged at cost to accumulated depreciation with no effect
on income. For all other retirements or dispositions, the cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in income.
Depreciation expense is computed using the straight-line method over
estimated useful lives of 9 to 15 years for distribution systems, 3 to 10 years
for machinery and equipment and 28 to 30 years for buildings. Depreciation
expense was $6,236 (1993), $6,687 (1994) and $7,874 (1995).
INTANGIBLE ASSETS
Intangible assets primarily consist of the cost of acquired businesses in
excess of the fair value of tangible assets and liabilities acquired
attributable to the NAI leveraged buyout of Viacom International Inc. in June
1987. Such assets are amortized on a straight-line basis over an estimated
useful life of 40 years. In addition, VSC has franchise rights to operate cable
television systems in various towns and political subdivisions within its
service areas. The cost of successful franchise applications are capitalized and
amortized over the life of the related franchise agreement. Franchise lives
generally range from 6 to 15 years with various dates of expiration. VSC
evaluates the realizability of intangibles on an ongoing basis in light of
changes in business conditions, events or circumstances that may indicate the
potential impairment of intangible assets. The remainder of intangible assets,
consisting of covenants not to compete and rights of entry, are being amortized
using the straight-line method over 3 to 20 years.
F-112
<PAGE> 292
VSC CABLE INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
INCOME TAXES
VSC is included in the consolidated federal tax returns filed by Viacom.
Viacom does not allocate income taxes to its subsidiaries; however, for
financial reporting purposes, VSC provides for income taxes as if a separate
federal tax return were filed. VSC files a separate tax return for state
purposes.
The current income tax liabilities for the periods presented have been
satisfied by Viacom. In connection with the transactions described in Note 1,
Viacom has agreed to indemnify VSC against income tax assessments, if any,
arising from federal, state or local tax audits for periods in which VSC was a
member of Viacom's consolidated tax group.
During the first quarter of 1993, VSC adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes" on a
prospective basis. SFAS 109 requires, among other things, that deferred income
taxes be provided for temporary differences between the financial reporting
basis and the tax basis of VSC's assets and liabilities. Additionally, SFAS 109
establishes criteria for determining whether a valuation allowance should be
established for any deferred tax assets for which realization is uncertain. On
the implementation of SFAS 109, assets acquired in prior years' business
combinations had to be adjusted from net of tax amounts to pre-tax amounts. The
effect of this adjustment was to gross-up property and equipment and record a
deferred tax liability of $2,905 as of January 1, 1993. The implementation of
SFAS 109 had no effect on net income.
VSC has restated retained earnings at January 1, 1993 to reverse benefits
taken in prior years for the utilization of net operating loss carryforwards and
other tax credits derived from pre-acquisition operations. These benefits have
been used to reduce goodwill associated with the Viacom acquisition of VSC. This
resulted in a reduction in retained earnings and intangible assets at January 1,
1993 of $3,495.
RECENT ACCOUNTING PRONOUNCEMENT
During 1995, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which VSC will
be required to adopt in 1996. SFAS 121 establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangibles to be disposed of. VSC has evaluated the impact
of SFAS 121 and it will not have a significant effect on VSC's financial
position or results of operations.
NOTE 3 -- EXPENSES ALLOCATED TO VSC:
Viacom International Inc. funds the working capital requirements of its
businesses based upon a centralized cash management system. Viacom International
Inc. investment and advances includes any payables and receivables due to/from
Viacom International Inc. resulting from cash paid or received on behalf of VSC
and other intercompany activity.
To reflect the services provided to VSC, common benefits derived from
incurred costs and the utilization of borrowed funds to finance capital
expenditures and operations, the accompanying financial statements include
allocations for certain corporate administrative expenses and interest. Such
allocations, as a matter of practice, are not recorded in the accounting records
of VSC. Management believes that the methodologies
F-113
<PAGE> 293
VSC CABLE INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
used to allocate these charges are reasonable. Allocations for administrative
expenses and interest (including interest subsequently capitalized) are
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Administrative expenses.......................... $3,560 $3,270 $2,220
Interest......................................... 3,079 3,748 5,256
</TABLE>
For the purposes of these financial statements, allocations of
administrative services are based on VSC's and Viacom International Inc.'s
operating results. The allocation of interest is based on a percentage of VSC's
average net assets to Viacom International Inc.'s average net assets.
NOTE 4 -- OTHER RELATED PARTY TRANSACTIONS:
VSC, through the normal course of business, is involved in transactions
with companies owned by or affiliated with Viacom International Inc. VSC has
agreements to distribute television programs of such companies, including
Showtime Networks Inc., MTV Networks Inc., Comedy Central, USA Networks, Sci-Fi
Channel, Viewer's Choice and Lifetime (prior to its sale by Viacom on April 1,
1994). The agreements require VSC to pay license fees based primarily upon the
number of customers receiving the service. Program license fees incurred under
these agreements were $2,638 (1993), $3,372 (1994), and $4,431 (1995), and are
included in program fees. Related party liabilities, included in accrued product
costs, were $308 and $434 at December 31, 1994 and 1995, respectively.
On November 15, 1993, Viacom Telecom Inc., a wholly-owned subsidiary of
Tele-Vue Systems, Inc. entered into a limited partnership, AVR of Tennessee, LP
(the Partnership), for the purposes of providing voice, data and video access
services for long-distance carriers, and for commercial, governmental and other
non-residential users in and around Nashville, Tennessee. As a result of the
formation of the Partnership, Viacom International Inc. is committed to
construct the facilities required to conduct the Partnership business within its
cable television franchise area. VSC leases the primary transmission facilities
to the Partnership under noncancellable operating leases at rates calculated to
recover actual construction and financing costs. Lease access revenue was $0
(1993), $82 (1994) and $285 (1995), and is included in other services. Deferred
lease access revenue was $234 and $435 at December 31, 1994 and 1995,
respectively. Of these amounts, $44 and $90 were included as deferred revenue in
current liabilities at December 31, 1994 and 1995, respectively. Receivables
from the Partnership were $332 and $281 at December 31, 1994 and 1995,
respectively.
NOTE 5 -- INCOME TAXES:
Components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1993 1994 1995
---- ------ ------
<S> <C> <C> <C>
Federal:
Current...................................... $282 $ 198 $2,076
Deferred..................................... -- 910 2,012
State and local:
Current...................................... -- 488 458
Deferred..................................... -- 109 113
---- ------ ------
Total provision for income taxes............... $282 $1,705 $4,659
==== ====== ======
</TABLE>
F-114
<PAGE> 294
VSC CABLE INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
A reconciliation of the U.S. Federal statutory tax rate to VSC's effective
tax rate on income before income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Statutory U.S. tax rate............................. 35.0% 35.0% 35.0%
Amortization of goodwill............................ 5.7 7.8 7.4
State and local taxes, net of federal tax benefit... -- 4.8 4.4
Effect of increase (decrease) in the valuation
allowance......................................... (41.3) (27.8) 2.1
Alternative minimum tax............................. 2.9 2.5 6.6
Other, net.......................................... .6 (1.0) (.4)
----- ----- -----
Effective tax rate........................ 2.9% 21.3% 55.1%
===== ===== =====
</TABLE>
The following is a summary of the deferred tax accounts in accordance with
SFAS 109:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
------- ------
<S> <C> <C>
Current deferred tax assets:
Other, net............................................ $ -- $ (177)
Valuation allowance................................... -- 177
------- ------
Net current deferred tax assets......................... -- --
------- ------
Noncurrent deferred tax (assets) liabilities:
Fixed asset basis differences......................... 6,133 7,228
Investment tax credit carryforwards................... (3,706) --
Net operating loss carryforwards...................... (1,002) --
Amortization.......................................... (410) (425)
Other, net............................................ 4 46
------- ------
Net noncurrent deferred tax liabilities................. 1,019 6,849
------- ------
Deferred tax liabilities................................ $ 1,019 $6,849
======= ======
</TABLE>
A deferred tax asset valuation allowance was recorded at December 31, 1995
due to uncertainties surrounding the realization of deferred tax assets. In
addition, the deferred tax asset related to the investment tax credit was
transferred to Viacom during 1995 to reflect the utilization of this tax
attribute by the consolidated group.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES:
Minimum annual rental commitments at December 31, 1995 under noncancellable
operating leases are as follows:
<TABLE>
<S> <C>
1996.......................................................... $111
1997.......................................................... 84
1998.......................................................... 37
1999.......................................................... 21
2000.......................................................... 8
2001 and thereafter........................................... 17
----
$278
====
</TABLE>
F-115
<PAGE> 295
VSC CABLE INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Rent expense was $981 (1993), $921 (1994) and $1,049 (1995).
In response to the "Cable Television Consumer Protection and Competition
Act of 1992" (the Cable Act), the Federal Communications Commission (the FCC)
issued regulations (the Rate Regulations) with an effective date of September 1,
1993, to govern the basic service tier, cable programming service tiers (CPST),
leasing of certain customer equipment, and cable service installation rates of
cable systems not subject to effective competition (collectively the Combined
Rates). The FCC significantly amended the Rate Regulations on March 30, 1994.
The Rate Regulations cover a significant portion of VSC's cable television
revenues and a variety of other less significant matters. The Rate Regulations
empower the FCC and/or local franchise authorities to order reductions of
existing rates which exceed the maximum permitted levels and to require refunds
measured from the date a complaint is filed in some circumstances or
retroactively for up to one year in other circumstances. Even though the Rate
Regulations have been effective since September 1, 1993, many of the rules have
been subjected to only limited regulatory interpretation by the FCC. Also, there
are a number of pending and threatened judicial challenges to various provisions
of the Cable Act and related Rate Regulations.
Management believes it has made a reasonable interpretation of the Cable
Act and related Rate Regulations in determining the Combined Rates based on the
information currently available. Complaints have been filed with the FCC on
VSC's rates for certain franchises and certain local franchise authorities have
challenged the existing and prior rates. Additionally, in November 1994 the FCC
issued an opinion and order which would require a refund of a portion of the
CPST rates from February 1994 to May 1994. VSC filed an appeal to the FCC on
this order. Further challenges could be forthcoming, some of which would also
apply to revenue recorded in 1995 and prior. Management believes that, based on
its interpretation of the Cable Act and related Rate Regulations, any
liabilities in regard to existing and prior rates will not have a material
effect on VSC's financial condition, results of operations or cash flows.
On February 8, 1996, the "Telecommunications Act of 1996" (the Act) was
signed into law. The Act eases regulation of the cable and telephone businesses
while opening each of them to increased competition. The Act deregulates the
CPST after March 31, 1999. It expands the existing definition of "effective
competition" which, when it occurs with respect to a particular cable system,
results in the deregulation of that cable system's rates. The Act repeals the
statutory ban against telephone companies and certain utility companies from
providing video programming in their own service areas as either cable systems,
common carriers or newly created "open video systems". Additionally, the Act
subsequently preempts state and local regulations barring cable operators and
others from providing local telephone services and requires telephone companies
to negotiate with new telephone service providers with respect to the
interoperationality of each of their systems.
The Cable Act and related FCC regulations require cable television system
operators to obtain permission to retransmit television signals from local
commercial broadcast stations electing retransmission consent status.
Accordingly, VSC has entered into retransmission consent agreements with all
applicable stations.
VSC and Viacom International Inc. are involved in various claims and
lawsuits arising in the ordinary course of business, none of which, in the
opinion of management, will have a material adverse effect on VSC's financial
position, results of operations or cash flows.
In the ordinary course of business, VSC enters into long-term affiliation
agreements with programming services which require that VSC continues to carry
and pay for programming and meet certain performance requirements.
VSC is committed to providing cable television services under franchise
agreements with remaining terms of up to 14 years. Franchise fees of up to 5%
are payable on revenues as defined in these agreements.
F-116
<PAGE> 296
VSC CABLE INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 7 -- PENSION PLANS:
Viacom has contributory and noncontributory pension plans covering
substantially all of its employees, including the employees assigned to VSC.
Viacom's policy is to fund amounts in accordance with the Employee Retirement
Income Security Act of 1974. The benefits are based primarily on years of
service and employees' pay near retirement. Employees are vested after five
years of service. VSC is charged for pension expense by Viacom as an element of
a composite fringe benefit charge. Information on the amount of the actuarial
present value of vested and nonvested accumulated plan obligations, the plan's
net assets, the net pension cost, and the assumed rates of return is not
provided as such information is not maintained separately for employees of
Viacom operating divisions. The obligations for pension benefits earned prior to
the consummation of the Exchange Offer will be retained by Viacom. All employees
of VSC will be fully vested upon the Exchange Offer.
F-117
<PAGE> 297
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE ISSUERS OR THE INITIAL
PURCHASERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION WHERE, OR TO
ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE ISSUERS SINCE THE
DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................... 1
Summary Supplemental Historical and
Pro Forma Financial Data............ 15
Summary Historical Financial and
Operating Data...................... 17
Risk Factors.......................... 26
The Exchange Offer.................... 32
Use of Proceeds....................... 40
Capitalization........................ 40
Pro Forma Financial Information....... 41
Selected Financial Information and
Operating Data...................... 50
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 58
The Acquisitions...................... 91
Business.............................. 94
Legislation and Regulation............ 109
Management............................ 121
Principal Security Holders............ 125
Certain Relationships and Related
Transactions........................ 126
The Partnership Agreement............. 129
Description of Other Obligations...... 134
Description of the Notes.............. 136
Certain Federal Income Tax
Consequences........................ 164
Plan of Distribution.................. 164
Legal Matters......................... 165
Experts............................... 165
Glossary.............................. 166
Index to Financial Statements......... F-1
- ---------------------------------------------
- ---------------------------------------------
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
LOGO
$292,000,000
INTERMEDIA CAPITAL
PARTNERS IV, L.P.
INTERMEDIA PARTNERS IV,
CAPITAL CORP.
OFFER TO EXCHANGE THEIR
11 1/4% SENIOR NOTES
DUE 2006
FOR
11 1/4% SENIOR NOTES
DUE 2006
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933
------------------------
PROSPECTUS
------------------------
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 298
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits IPCC's board of
directors to indemnify any person against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with any threatened, pending or completed action, suit or
proceeding in which such person is made a party by reason of his being or having
been a director, officer, employee or agent of IPCC, in terms sufficiently broad
to permit such indemnification under certain circumstances for liabilities
(including reimbursement for expenses incurred) arising under the Securities Act
of 1933, as amended (the "Act"). The statute provides that indemnification
pursuant to its provisions is not exclusive of other rights of indemnification
to which a person may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise.
IPCC's Certificate of Incorporation provides for indemnification of its
directors, officers, employees and other agents to the maximum extent permitted
by law.
Article 6 of ICP-IV's Agreement of Limited Partnership provides as follows:
ARTICLE 6 --CONFLICTS OF INTEREST; INDEMNIFICATION; EXCULPATION
6.3 Indemnification of the Partners. The Partnership shall indemnify
and hold harmless the General Partner, any Limited Partner, any Advisory
Committee member and any partner, employee or agent of the General Partner,
any Limited Partner or any Advisory Committee member and any employee or
agent of the Partnership and/or the legal representatives of any of them,
and each other person who may incur liability as a general partner in
connection with the management of the Partnership or any corporation or
other entity in which the Partnership has an investment, against all
liabilities and expenses (including amounts paid in satisfaction of
judgments, in compromise, and as counsel fees) reasonably incurred by him
or it in connection with the defense or disposition of any civil action,
suit or other proceeding, in which he or it may be involved or with which
he or it may be threatened, while a general partner or serving in such
other capacity or thereafter, by reason of its being or having been a
general partner, or by serving in such other capacity, except with respect
to any matter which constitutes willful misconduct, bad faith, gross
negligence or reckless disregard of the duties of its office, or material
breach of this Agreement. The Partnership shall advance, in the sole
discretion of the General Partner, to the General Partner, any Limited
Partner, any Advisory Committee member and any partner, employee or agent
of the General Partner, any Limited Partner, any Advisory Committee member
or the Partnership reasonable attorneys' fees and other costs and expenses
incurred in connection with the defense of any such action or proceeding.
The General Partner hereby agrees, and each employee or agent of the
General Partner and the Partnership shall agree in writing prior to any
such advancement, that in the event he or it receives any such advance,
such indemnified party shall reimburse the Partnership for such fees, costs
and expenses to the extent that it shall be determined that he or it was
not entitled to indemnification under this Section. The rights accruing to
a General Partner, any Limited Partner and each partner, employee or agent
of the General Partner, any Limited Partner or the Partnership under this
paragraph shall not exclude any other right to which it or they may be
lawfully entitled; provided, that any right of indemnity or reimbursement
granted in this paragraph or to which any indemnified party may be
otherwise entitled may only be satisfied out of the assets of the
Partnership, and no withdrawn General Partner, and no Limited Partner,
shall be personally liable with respect to any such claim for indemnity or
reimbursement. Notwithstanding any of the foregoing to the contrary, the
provisions of this Section 6.3 shall not be construed so as to provide for
the indemnification of the General Partner, any Limited Partner, and
Advisory Committee member or any employee or agent of the General Partner,
any Limited Partner or Advisory Committee member for any liability to the
extent (but only to the extent) that such indemnification would be in
violation of applicable law or such liability may not be waived, modified
or limited under applicable law, but shall be construed so as to effectuate
the provisions of this Section 6.3 to the fullest extent permitted by law.
II-1
<PAGE> 299
The Company has obtained directors and officers' liability insurance that
may cover, among other things, liabilities under the federal securities laws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
-------- ------------------------------------------------------------------------------
<C> <S>
*1.1 Purchase Agreement, dated as of July 19, 1996 by and among InterMedia Capital
Partners IV, L.P., InterMedia Partners IV, Capital Corp., NationsBanc Capital
Markets, Inc. and Toronto Dominion Securities (USA) Inc. (Annexes omitted. The
Registrants agree to furnish a copy of any annex to the Commission upon
request.)
*2.1 Asset Purchase and Sale Agreement dated as of October 25, 1995 by and between
ParCable, Inc. and InterMedia Partners of Tennessee, L.P. and amendment
thereto. (Exhibits and schedules omitted. The Registrants agree to furnish a
copy of any exhibit or schedule to the Commission upon request).
*2.2 Asset Purchase Agreement dated October 18, 1995 between Time Warner
Entertainment Company, L.P. and InterMedia Partners of Tennessee, L.P. and
amendment thereto. (Exhibits and schedules omitted. The Registrants agree to
furnish a copy of any exhibit or schedule to the Commission upon request).
*2.3 Stock Purchase Agreement dated as of July 26, 1996 between InterMedia Capital
Management V, L.P. and InterMedia Partners IV, L.P.
*2.4 Contribution Agreement dated as of April 30, 1996 by and between InterMedia
Capital Partners IV, L.P., InterMedia Partners and General Electric Capital
Corporation and amendments thereto. (Schedules omitted. The Registrants agree
to furnish a copy of any schedule to the Commission upon request.)
*2.5 Contribution Agreement dated as of March 4, 1996 by and between InterMedia
Partners IV, L.P., TCI of Greenville, Inc., TCI of Piedmont, Inc. and TCI of
Spartanburg, Inc. and amendments thereto. (Exhibits and schedules omitted. The
Registrants agree to furnish a copy of any exhibit or schedule to the
Commission upon request).
*2.6 Exchange Agreement dated as of December 18, 1995 by and between TCI
Communications, Inc. and InterMedia Partners Southeast and amendment thereto.
(Exhibits and schedules omitted. The Registrants agree to furnish a copy of
any exhibit or schedule to the Commission upon request).
*3.1 Certificate of Incorporation of InterMedia Partners IV, Capital Corp.
*3.2 Bylaws of InterMedia Partners IV, Capital Corp.
*3.3 Agreement of Limited Partnership of InterMedia Capital Partners IV, L.P. dated
as of March 19, 1996 by and among InterMedia Capital Management IV, L.P. and
the various limited partners. (Exhibits omitted. The Registrants agree to
furnish a copy of any exhibit to the Commission upon request.)
*4.1 Registration Rights Agreement dated as of July 19, 1996 by and among
InterMedia Capital Partners IV, L.P., InterMedia Partners IV, Capital Corp.,
NationsBanc Capital Markets, Inc. and Toronto Dominion Securities (USA) Inc.
*4.2 Indenture dated as of July 30, 1996 by and among InterMedia Capital Partners
IV, L.P., InterMedia Partners IV, Capital Corp. and The Bank of New York, as
trustee, including the form of Global Note.
</TABLE>
II-2
<PAGE> 300
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
-------- ------------------------------------------------------------------------------
<C> <S>
*4.3 Pledge and Escrow Agreement dated as of July 30, 1996 by and among InterMedia
Capital Partners IV, L.P., InterMedia Partners IV, Capital Corp., NationsBanc
Capital Markets, Inc. and The Bank of New York, as trustee and as collateral
agent. (Annex I omitted. The Registrants agree to furnish a copy of Annex I to
the Commission upon request.)
*4.4 Form of Senior Notes (included in Exhibit 4.2).
5.1 Opinion of Pillsbury Madison & Sutro LLP as to the securities to be issued.
8.1 Opinion of Pillsbury Madison & Sutro LLP as to tax matters.
*10.1 Revolving Credit and Term Loan Agreement dated as of July 30, 1996 among
InterMedia Partners IV, L.P. and The Bank of New York, as Administrative
Agent, and The Bank of New York, NationsBank of Texas, N.A., Toronto Dominion
(Texas), Inc., as Arranging Agents, and NationsBank of Texas, N.A. and Toronto
Dominion (Texas), Inc., as Syndication Agents, and the Financial Institution
Parties thereto.
*10.2 Security and Hypothecation Agreement dated as of July 30, 1996 by InterMedia
Partners of West Tennessee, L.P. in favor of The Bank of New York in its
capacity as Agent for the benefit of the Lenders. (InterMedia Partners IV,
L.P., InterMedia Capital Partners IV, L.P., InterMedia Partners of Tennessee,
InterMedia Partners Southeast, Robin Media Holdings, Inc. and Robin Media
Group each have entered into agreements which are substantially identical in
all material respects to Exhibit 10.2).
*10.3 General Guarantee dated July 30, 1996 by and among InterMedia Partners of West
Tennessee, L.P. in favor of The Bank of New York, as agent to the financial
institutions. (InterMedia Capital Partners IV, L.P., InterMedia Partners
Southeast, InterMedia Partners of Tennessee, Robin Media Holdings, Inc. and
Robin Media Group each have entered into agreements which are substantially
identical in all material respects to Exhibit 10.3).
**10.4 Satellite Services, Inc. Programming Supply Agreement dated January 28, 1996,
by and between Satellite Services, Inc. and InterMedia Partners IV, L.P.
*10.5 Administration Agreement dated as of March 19, 1996 by and among InterMedia
Management, Inc., InterMedia Capital Partners IV, L.P. and InterMedia Partners
IV, L.P.
*10.6 Administration Agreement dated as of July 30, 1996 by and between InterMedia
Management, Inc. and InterMedia Partners Southeast.
*10.7 Administration Agreement dated as of January 19, 1995 by and between
InterMedia Management, Inc. and InterMedia Partners of Tennessee.
*10.8 Administration Agreement dated as of April 30, 1992 by and between InterMedia
Management, Inc. and Robin Media Group, Inc.
*10.9 Amended and Restated Administration Agreement dated as of December 27, 1990 by
and between InterMedia Management, Inc. and InterMedia Partners of West
Tennessee, L.P.
*10.10 Management Agreement dated as of July 30, 1996 by and between InterMedia
Capital Management IV, L.P. and InterMedia Partners of West Tennessee, L.P.
*10.11 Management Agreement dated as of July 30, 1996 by and between InterMedia
Capital Management IV, L.P. and Robin Media Group, Inc.
***11.1 Computation of Ratios.
*21.1 List of Subsidiaries of InterMedia Capital Partners IV, L.P.
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Price Waterhouse LLP
23.3 Consent of Ernst & Young LLP
</TABLE>
II-3
<PAGE> 301
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
-------- ------------------------------------------------------------------------------
<C> <S>
23.4 Consent of KPMG Peat Marwick LLP
23.5 Consent of Pillsbury Madison & Sutro LLP (included in Exhibits 5.1 and 8.1)
*24.1 Power of Attorney (included on pages II-6 and II-7)
*25.1 Statement of Eligibility under the Trust Indenture Act of 1939 on Form T-1 of
The Bank of New York
***27.1 Schedule of Financial Data for InterMedia Capital Partners IV, L.P.
***27.2 Schedule of Financial Data for the Previously Affiliated Entities
*99.1 Form of Letter of Transmittal
*99.2 Form of Exchange Agent Agreement
*99.3 Form of Guaranteed Delivery Procedures
</TABLE>
- ---------------
* Incorporated by reference to the same exhibit number to Registrants' Form S-4
Registration Statement, File No. 333-11893.
** Confidential portions have been omitted pursuant to Rule 406 and filed
separately with the Commission.
*** Incorporated by reference to the same exhibit number to Registrants'
Amendment No. 1 to Form S-4 Registration Statement, File No. 333-11893.
(b) Financial Statement Schedules of ICP-IV and IPCC.
All schedules are omitted because they are not applicable or the required
information is shown in the respective financial statements or notes thereto.
ITEM 22. UNDERTAKINGS
(1) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(2) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(3) The undersigned registrants hereby undertake: (i) to file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement: (A) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933; (B) to reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the registration statement (notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement); and (C) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; (ii) that,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; and (iii) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE> 302
(4) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE> 303
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrants
have duly caused this Amendment to Registration Statement to be signed on their
behalf by the undersigned, thereunto duly authorized, in the City of San
Francisco, State of California, on December 9, 1996.
INTERMEDIA PARTNERS IV, CAPITAL CORP.
By /s/ LEO J. HINDERY, JR.
------------------------------------
Leo J. Hindery, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ -------------------
<C> <S> <C>
/s/ LEO J. HINDERY, JR. President (principal executive December 9, 1996
- ------------------------------------------ officer) and Sole Director
Leo J. Hindery, Jr.
/*/ EDON V. HARTLEY Chief Financial Officer and December 9, 1996
- ------------------------------------------ Treasurer (principal financial
Edon V. Hartley officer)
/*/ THOMAS R. STAPLETON Vice President (principal December 9, 1996
- ------------------------------------------ accounting officer)
Thomas R. Stapleton
*By /s/ LEO J. HINDERY, JR.
- ------------------------------------------
Attorney-in-fact
</TABLE>
II-6
<PAGE> 304
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrants
have duly caused this Amendment to Registration Statement to be signed on their
behalf by the undersigned, thereunto duly authorized, in the City of San
Francisco, State of California, on December 9, 1996.
INTERMEDIA CAPITAL PARTNERS IV, L.P.
By: InterMedia Capital Management IV,
L.P., its General Partner
By: InterMedia Management, Inc., its
General Partner
By: /s/ LEO J. HINDERY, JR.
------------------------------------
Leo J. Hindery, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ -------------------
<C> <S> <C>
/s/ LEO J. HINDERY, JR. President, Chief Executive December 9, 1996
- ------------------------------------------ Officer and Sole Director of
Leo J. Hindery, Jr. InterMedia Management, Inc.
(principal executive officer)
/*/ EDON V. HARTLEY Chief Financial Officer of December 9, 1996
- ------------------------------------------ InterMedia Management, Inc.
Edon V. Hartley (principal financial officer)
/*/ THOMAS R. STAPLETON Vice President of InterMedia December 9, 1996
- ------------------------------------------ Management, Inc. (principal
Thomas R. Stapleton accounting officer)
*By /s/ LEO J. HINDERY, JR.
- ------------------------------------------
Attorney-in-fact
</TABLE>
II-7
<PAGE> 305
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGES
-------- ----------------------------------------------------------------- --------------
<C> <S> <C>
*1.1 Purchase Agreement, dated as of July 19, 1996 by and among
InterMedia Capital Partners IV, L.P., InterMedia Partners IV,
Capital Corp., NationsBanc Capital Markets, Inc. and Toronto
Dominion Securities (USA) Inc. (Annexes omitted. The Registrants
agree to furnish a copy of any annex to the Commission upon
request.)........................................................
*2.1 Asset Purchase and Sale Agreement dated as of October 25, 1995 by
and between ParCable, Inc. and InterMedia Partners of Tennessee,
L.P. and amendment thereto. (Exhibits and schedules omitted. The
Registrants agree to furnish a copy of any exhibit or schedule to
the Commission upon request).....................................
*2.2 Asset Purchase Agreement dated October 18, 1995 between Time
Warner Entertainment Company, L.P. and InterMedia Partners of
Tennessee, L.P. and amendment thereto. (Exhibits and schedules
omitted. The Registrants agree to furnish a copy of any exhibit
or schedule to the Commission upon request)......................
*2.3 Stock Purchase Agreement dated as of July 26, 1996 between
InterMedia Capital Management V, L.P. and InterMedia Partners IV,
L.P..............................................................
*2.4 Contribution Agreement dated as of April 30, 1996 by and between
InterMedia Capital Partners IV, L.P., InterMedia Partners and
General Electric Capital Corporation and amendments thereto.
(Schedules omitted. The Registrants agree to furnish a copy of
any schedule to the Commission upon request.)....................
*2.5 Contribution Agreement dated as of March 4, 1996 by and between
InterMedia Partners IV, L.P., TCI of Greenville, Inc., TCI of
Piedmont, Inc. and TCI of Spartanburg, Inc. and amendments
thereto. (Exhibits and schedules omitted. The Registrants agree
to furnish a copy of any exhibit or schedule to the Commission
upon request)....................................................
*2.6 Exchange Agreement dated as of December 18, 1995 by and between
TCI Communications, Inc. and InterMedia Partners Southeast and
amendment thereto. (Exhibits and schedules omitted. The
Registrants agree to furnish a copy of any exhibit or schedule to
the Commission upon request).....................................
*3.1 Certificate of Incorporation of InterMedia Partners IV, Capital
Corp.............................................................
*3.2 Bylaws of InterMedia Partners IV, Capital Corp...................
*3.3 Agreement of Limited Partnership of InterMedia Capital Partners
IV, L.P. dated as of March 19, 1996 by and among InterMedia
Capital Management IV, L.P. and the various limited partners.
(Exhibits omitted. The Registrants agree to furnish a copy of any
exhibit to the Commission upon request.).........................
*4.1 Registration Rights Agreement dated as of July 19, 1996 by and
among InterMedia Capital Partners IV, L.P., InterMedia Partners
IV, Capital Corp., NationsBanc Capital Markets, Inc. and Toronto
Dominion Securities (USA) Inc. ..................................
*4.2 Indenture dated as of July 30, 1996 by and among InterMedia
Capital Partners IV, L.P., InterMedia Partners IV, Capital Corp.
and The Bank of New York, as trustee, including the form of
Global Note......................................................
</TABLE>
<PAGE> 306
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGES
-------- ----------------------------------------------------------------- --------------
<C> <S> <C>
*4.3 Pledge and Escrow Agreement dated as of July 30, 1996 by and
among InterMedia Capital Partners IV, L.P., InterMedia Partners
IV, Capital Corp., NationsBanc Capital Markets, Inc. and The Bank
of New York, as trustee and as collateral agent. (Annex I
omitted. The Registrants agree to furnish a copy of Annex I to
the Commission upon request.)....................................
*4.4 Form of Senior Notes (included in Exhibit 4.2)...................
5.1 Opinion of Pillsbury Madison & Sutro LLP as to the securities to
be issued........................................................
8.1 Opinion of Pillsbury Madison & Sutro LLP as to tax matters.......
*10.1 Revolving Credit and Term Loan Agreement dated as of July 30,
1996 among InterMedia Partners IV, L.P. and The Bank of New York,
as Administrative Agent, and The Bank of New York, NationsBank of
Texas, N.A., Toronto Dominion (Texas), Inc., as Arranging Agents,
and NationsBank of Texas, N.A. and Toronto Dominion (Texas),
Inc., as Syndication Agents, and the Financial Institution
Parties thereto..................................................
*10.2 Security and Hypothecation Agreement dated as of July 30, 1996 by
InterMedia Partners of West Tennessee, L.P. in favor of The Bank
of New York in its capacity as Agent for the benefit of the
Lenders. (InterMedia Partners IV, L.P., InterMedia Capital
Partners IV, L.P., InterMedia Partners of Tennessee, InterMedia
Partners Southeast, Robin Media Holdings, Inc. and Robin Media
Group each have entered into agreements which are substantially
identical in all material respects to Exhibit 10.2)..............
*10.3 General Guarantee dated July 30, 1996 by and among InterMedia
Partners of West Tennessee, L.P. in favor of The Bank of New
York, as agent to the financial institutions. (InterMedia Capital
Partners IV, L.P., InterMedia Partners Southeast, InterMedia
Partners of Tennessee, Robin Media Holdings, Inc. and Robin Media
Group each have entered into agreements which are substantially
identical in all material respects to Exhibit 10.3)..............
**10.4 Satellite Services, Inc. Programming Supply Agreement dated
January 28, 1996, by and between Satellite Services, Inc. and
InterMedia Partners IV, L.P. ....................................
*10.5 Administration Agreement dated as of March 19, 1996 by and among
InterMedia Management, Inc., InterMedia Capital Partners IV, L.P.
and InterMedia Partners IV, L.P. ................................
*10.6 Administration Agreement dated as of July 30, 1996 by and between
InterMedia Management, Inc. and InterMedia Partners Southeast....
*10.7 Administration Agreement dated as of January 19, 1995 by and
between InterMedia Management, Inc. and InterMedia Partners of
Tennessee........................................................
*10.8 Administration Agreement dated as of April 30, 1992 by and
between InterMedia Management, Inc. and Robin Media Group,
Inc. ............................................................
*10.9 Amended and Restated Administration Agreement dated as of
December 27, 1990 by and between InterMedia Management, Inc. and
InterMedia Partners of West Tennessee, L.P. .....................
*10.10 Management Agreement dated as of July 30, 1996 by and between
InterMedia Capital Management IV, L.P. and InterMedia Partners of
West Tennessee, L.P. ............................................
</TABLE>
<PAGE> 307
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGES
-------- ----------------------------------------------------------------- --------------
<C> <S> <C>
*10.11 Management Agreement dated as of July 30, 1996 by and between
InterMedia Capital Management IV, L.P. and Robin Media Group,
Inc. ............................................................
***11.1 Computation of Ratios............................................
*21.1 List of Subsidiaries of InterMedia Capital Partners IV, L.P. ....
23.1 Consent of Price Waterhouse LLP..................................
23.2 Consent of Price Waterhouse LLP..................................
23.3 Consent of Ernst & Young LLP.....................................
23.4 Consent of KPMG Peat Marwick LLP.................................
23.5 Consent of Pillsbury Madison & Sutro LLP (included in Exhibits
5.1 and 8.1).....................................................
*24.1 Power of Attorney (included on pages II-6 and II-7)..............
*25.1 Statement of Eligibility under the Trust Indenture Act of 1939 on
Form T-1 of The Bank of New York.................................
***27.1 Schedule of Financial Data for InterMedia Capital Partners IV,
L.P. ............................................................
***27.2 Schedule of Financial Data for the Previously Affiliated
Entities.........................................................
*99.1 Form of Letter of Transmittal....................................
*99.2 Form of Exchange Agent Agreement.................................
*99.3 Form of Guaranteed Delivery Procedures...........................
</TABLE>
- ---------------
* Incorporated by reference to the same exhibit number to Registrants' Form
S-4 Registration Statement File No. 333-11893.
** Confidential portions have been omitted pursuant to Rule 406 and filed
separately with the Commission.
*** Incorporated by reference to the same exhibit number to Registrants'
Amendment No. 1 to Form S-4 Registration Statement, File No. 333-11893.
<PAGE> 1
EXHIBIT 5.1
PILLSBURY MADISON & SUTRO LLP
235 Montgomery Street
San Francisco, California 94104 (415) 983-1000
December 9, 1996
InterMedia Capital Partners IV, L.P.
InterMedia Partners IV, Capital Corp.
235 Montgomery Street
Suite 420
San Francisco, CA 94104
Ladies and Gentlemen:
This opinion is being delivered in connection with the proposed joint and
several offer to exchange (the "Exchange Offer") by InterMedia Capital Partners
IV, L.P. ("ICP-IV") and InterMedia Partners IV, Capital Corp. ("IPCC," and
together with ICP-IV, the "Issuers") their 11-1/4 Senior Notes Due 2006 (the
"Exchange Notes") for any and all of their 11-1/4 Senior Notes Due 2006 (the
"Old Notes"). The Exchange Notes are to be issued pursuant to a Registration
Statement on Form S-4 (the "Registration Statement"), Registration No.
333-11893, filed by the Issuers with the Securities and Exchange Commission
under the Securities Act of 1933. The Exchange Notes will be issued under an
Indenture, dated as of July 30, 1996 (the "Indenture"), among ICP-IV, IPCC and
the Bank of New York, N.A. as Trustee (the "Trustee"), in substantially the form
filed as Exhibit 4.4.
We are of the opinion that, when (a) the Indenture, under which the
Exchange Notes will be issued has been qualified under the Trust Indenture Act
of 1939, as amended, (b) the Exchange Notes have been executed by the Issuers
and authenticated by the Trustee in accordance with the terms of the Indenture
and (c) the Exchange Notes have been delivered in exchange for the Old Notes in
the manner and for the consideration stated in the Registration Statement and
the Indenture, the Exchange Notes will be legally issued and binding obligations
of each of ICP-IV and IPCC.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Registration Statement and in the Prospectus included therein.
/s/ PILLSBURY MADISON & SUTRO LLP
<PAGE> 1
EXHIBIT 8.1
PILLSBURY MADISON & SUTRO LLP
235 Montgomery Street
San Francisco, California 94104 (415) 983-1000
December 9, 1996
InterMedia Capital Partners IV, L.P.
InterMedia Partners IV, Capital Corp.
235 Montgomery Street
Suite 420
San Francisco, CA 94104
Ladies and Gentlemen:
This opinion is being delivered in connection with the proposed joint and
several offer to exchange (the "Exchange Offer") by InterMedia Capital Partners
IV, L.P. ("ICP-IV") and InterMedia Partners IV, Capital Corp. ("IPCC," and
together with ICP-IV, the "Issuers") their 11-1/4 Senior Notes Due 2006 (the
"Exchange Notes") for any and all of their 11-1/4 Senior Notes Due 2006 (the
"Old Notes"). The Exchange Notes are to be issued pursuant to a Registration
Statement on Form S-4 (the "Registration Statement"), Registration No.
333-11893, filed by the Issuers with the Securities and Exchange Commission
under the Securities Act of 1933. The Exchange Notes will be issued under an
Indenture, dated as of July 30, 1996 (the "Indenture"), among ICP-IV, IPCC and
the Bank of New York, N.A. as Trustee (the "Trustee"), in substantially the form
filed as Exhibit 4.4.
It is our opinion that the discussion set forth under the caption
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES" in the Registration Statement
describes the material federal income tax consequences relevant to holders
exchanging Old Notes for Exchange Notes pursuant to the Exchange Offer.
We hereby consent to the filing of this opinion as Exhibit 8.1 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Registration Statement and in the Prospectus included therein.
/s/ PILLSBURY MADISON & SUTRO LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 2 of the Registration Statement on Form S-4 of InterMedia Capital
Partners IV, L.P. and InterMedia Partners IV, Capital Corp. of our reports dated
June 28, 1996 relating to the consolidated balance sheet of InterMedia Capital
Partners IV, L.P., the balance sheet of InterMedia Capital Management IV, L.P.,
the combined financial statements of the Previously Affiliated Entities, and the
consolidated financial statements of Robin Media Holdings, Inc.; of our report
dated April 5, 1996 relating to the financial statements of InterMedia Partners
of West Tennessee, L.P. and of our report dated March 8, 1996 relating to the
combined financial statements of TeleCable - South Carolina Group which appear
in such Prospectus. We also consent to the references to us under the heading
"Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
- ------------------------------
PRICE WATERHOUSE LLP
San Francisco, California
December 9, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 2 of the Registration Statement on Form S-4 of InterMedia Capital
Partners IV, L.P. and InterMedia Partners IV, Capital Corp. of our report dated
April 5, 1996, relating to the financial statements of VSC Cable Inc. (a wholly
owned subsidiary of Viacom International Inc.) which appears in such Prospectus.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ PRICE WATERHOUSE LLP
- ------------------------------
PRICE WATERHOUSE LLP
San Jose, California
December 9, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report on Warner Cable Communications - Kingsport, Tennessee
Division, a division of Time Warner Entertainment Company, L.P., dated May 11,
1996 in the Registration Statement (Form S-4 Amendment 2) and related Prospectus
of InterMedia Capital Partners IV, L.P. and InterMedia Partners IV, Capital
Corp. for the registration of $292,000,000 11 1/4% Senior Notes due 2006.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Denver, Colorado
December 6, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
TCI of Greenville, Inc.,
TCI of Spartanburg, Inc., and
TCI of Piedmont, Inc.:
We consent to the inclusion in the Amendment No. 2 of the registration
statement on Form S-4 of InterMedia Capital Partners IV, L.P. and InterMedia
Partners IV, Capital Corp. of our report, dated March 1, 1996, relating to
the combined balance sheet of TCI of Greenville, Inc., TCI of Spartanburg,
Inc., and TCI of Piedmont, Inc. (indirect wholly-owned subsidiaries of TCI
Communications, Inc.) as of December 31, 1995, and the related combined
statements of operations and accumulated deficit and cash flows for the
period from January 27, 1995 to December 31, 1995, and to the reference to
our firm under the heading "Experts" in the registration statement.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Denver, Colorado
December 6, 1996
