<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1997
Commission File Number: 0-20135
INTERMEDIA COMMUNICATIONS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 59-2913586
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3625 Queen Palm Drive
Tampa, Florida 33619
(Address of principal executive offices)
Telephone Number (813) 829-0011
----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
--- ---
As of May 8, 1997, there were 16,308,627 shares of the Registrant's Common
Stock outstanding.
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Page 1 of 19 pages
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INTERMEDIA COMMUNICATIONS INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED):
Condensed Consolidated Statements of Operations -
Three-month periods ended March 31, 1997 and 1996. 3
Condensed Consolidated Balance Sheets - March 31,
1997 and December 31, 1996........................ 4
Condensed Consolidated Statements of Cash Flows -
Three-month periods ended March 31, 1997 and 1996. 5
Notes to Condensed Consolidated Financial 6
Statements .......................................
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............... 9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................... 17
ITEM 2. CHANGES IN SECURITIES............................... 17
ITEM 3. DEFAULT UPON SENIOR SECURITIES ..................... 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 17
ITEM 5. OTHER INFORMATION .................................. 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ................... 17
SIGNATURES .................................................... 19
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERMEDIA COMMUNICATIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
---------------- --------------
<S> <C> <C>
Revenues:
Local network services $ 5,210 $ 3,221
Enhanced data services 11,320 3,556
Interexchange services 25,537 5,310
Integration services 1,871 1,416
---------- ----------
43,938 13,503
Expenses:
Network operations 30,002 7,249
Facilities administration and maintenance 5,635 751
Cost of goods sold 1,270 1,258
Selling, general and administrative 19,526 5,920
Depreciation and amortization 8,294 3,281
---------- ----------
64,727 18,459
---------- ----------
Loss from operations (20,789) (4,956)
Other income (expense):
Interest expense (11,089) (5,382)
Other income 4,474 1,445
---------- ----------
Net loss (27,404) (8,893)
Preferred stock dividends and accretions 3,375 0
---------- ----------
Net loss attributable to common stockholders $ (30,779) $ (8,893)
========== ==========
Net loss per common share ($1.89) ($0.86)
========== ==========
Weighted average number of shares outstanding 16,296,744 10,383,451
========== ==========
</TABLE>
See accompanying notes.
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INTERMEDIA COMMUNICATIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $435,859 $189,546
Short-term investments 5,842 6,041
Restricted investments 27,102 26,675
Accounts receivable, less allowance for
doubtful accounts of $2,547 in 1997 and $1,346 in 1996 21,880 19,272
Prepaid expenses and other current assets 5,515 5,230
-------- --------
Total current assets 496,198 246,764
Restricted investments 10,483 10,481
Telecommunications equipment 274,405 241,481
Less accumulated depreciation (44,827) (37,574)
--------- --------
Telecommunications equipment, net 229,578 203,907
Intangible assets, net 47,058 48,397
Other assets 4,071 3,391
-------- --------
Total assets $787,388 $512,940
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,257 $ 29,895
Other accrued expenses 29,535 10,307
Current portion of long term debt and capital lease obligation 516 532
-------- --------
Total current liabilities 47,308 40,734
Long-term debt and capital lease obligations 363,964 357,975
-------- --------
Total liabilities 411,272 398,709
Series A redeemable exchangeable preferred stock and accrued dividends,
$1.00 par value; 60,000 shares authorized in 1997;
30,000 shares outstanding in 1997. 292,250 -
Stockholders' equity:
Common stock, $.01 par value; 50,000,000 shares authorized in
both 1997 and 1996; 16,307,577 and 16,285,340 shares issued and
outstanding in 1997 and 1996, respectively 163 163
Additional paid-in capital 209,918 212,811
Accumulated deficit (121,921) (91,141)
Deferred compensation (4,294) (7,602)
-------- --------
Total stockholders' equity 83,866 114,231
-------- --------
Total liabilities, redeemable preferred stock and stockholders' equity $787,388 $512,940
======== ========
</TABLE>
See accompanying notes.
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INTERMEDIA COMMUNICATIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ($27,404) ($8,893)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities
Depreciation and amortization, including loan costs 8,679 3,483
Amortization of deferred compensation 472 -
Amortization of discount on notes 5,916 -
Provision for doubtful accounts 1,269 196
Changes in operating assets and liabilities:
Accounts receivable (3,877) (1,340)
Prepaid expenses and other current assets 195 (1,301)
Other assets (1,024) 37
Accounts payable (12,638) 2,202
Other accrued expenses 19,228 6,011
-------- -------
Net cash (used in) provided by operating activities (9,184) 395
INVESTING ACTIVITIES
Purchase of restricted investments (430) (636)
Purchase of business, net of cash acquired (223) -
Maturities of short-term investments 199 -
Purchase of telecommunications equipment (33,110) (17,625)
-------- -------
Net cash used in investing activities (33,564) (18,261)
FINANCING ACTIVITIES
Proceeds from sale of Series A preferred stock, net of
issuance costs 288,875 -
Exercise of stock warrants and options 130 52
Principal payments on long-term debt and capital lease obligation 56 (361)
-------- -------
Net cash provided by (used in) financing activities 289,061 (309)
Increase (decrease) in cash and cash equivalents 246,313 (18,175)
Cash and cash equivalents at beginning of period 189,546 50,997
-------- -------
Cash and cash equivalents at end of period $435,859 $32,822
======== =======
Supplemental disclosures of cash flow information
Interest paid $ 135 $ 167
======== =======
</TABLE>
See accompanying notes.
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INTERMEDIA COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) necessary to present fairly the information set
forth therein have been included. Except as disclosed herein, there
has been no material change in the information disclosed in the notes
to the consolidated financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
Therefore, it is suggested that the accompanying condensed consolidated
financial statements be read in conjunction with the consolidated
financial statements and footnotes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
Operating results for the three-month period ended March 31, 1997 are
not necessarily an indication of the results that may be expected for
the year ending December 31, 1997.
Reclassification
Certain prior year amounts have been reclassified to conform to the
current year presentation.
Pending Accounting Changes
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No, 128, "Earnings Per
Share" ("FASB 128"), which establishes standards for computing and
presenting earnings per share. FASB 128 replaces the presentation of
primary and fully diluted earnings per share with basic and diluted
earnings per share, respectively. Basic earnings per share are
computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period.
Diluted earnings per share are computed similarly to fully diluted
earnings per share. The standard is effective for financial statements
for periods ending after December 15, 1997, with earlier application
not permitted. For the quarter ended March 31, 1996 and March 31,
1997, earnings per share, under FASB 128, would not have been impacted.
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Note 2 Preferred Stock
On March 7, 1997, the Company sold 30,000 shares (aggregate
liquidation preference $300 million) of its Series A Redeemable
Exchangeable Preferred Stock, due 2009, (the "Preferred Stock") in a
private placement transaction. Net proceeds to the Company amounted to
approximately $288.9 million. Dividends on the Preferred Stock
accumulate at a rate of 13 1/2% of the aggregate liquidation
preference thereof and are payable quarterly, in arrears. Dividends are
payable in cash or, at the Company's option, by the issuance of
additional shares of Preferred Stock having an aggregate liquidation
preference equal to the amount of such dividends. The Preferred Stock
is subject to mandatory redemption at its liquidation preference of
$10,000 per share, plus accumulated and unpaid dividends on March 31,
2009. The Preferred Stock will be redeemable at the option of the
Company at any time after March 31, 2002 at rates commencing with
106.75%, declining to 100% on March 31, 2007.
The Company may, at its, option, exchange some or all shares of
the Preferred Stock for the Company's 13 1/2% Senior Subordinated
Debentures, due 2009 (the "Exchange Debentures"). The Exchange
Debentures mature on March 31, 2009. Interest on the Exchange
Debentures is payable semi-annually, and may be paid in the form of
additional Exchange Debentures at the Company's option. Exchange
Debentures will be redeemable by the Company at any time after March
31, 2002 at rates commencing with 106.75%, declining to 100% on March
31, 2007.
The Company will be accreting the Preferred Stock to its
liquidation preference through the due date of the Preferred Stock.
The accretion for the 21 day period for which the Preferred Stock was
outstanding during the first quarter of 1997 was immaterial for
recognition.
Note 3 Acquisitions
During June 1996, the Company acquired the Telecommunications
Division of EMI Communications corporation (EMI) in exchange for
937,500 shares of the Company's common stock, valued at approximately
$16.9 million. The acquisition was accounted for by the purchase
method of accounting, with the purchase price allocated to the fair
values of assets acquired, principally telecommunications equipment.
EMI's telecommunications division, headquartered in Syracuse, New York,
is a provider of frame relay based network services and interexchange
private line services primarily in the northeastern United States. EMI
operates owned and leased microwave and fiber optic digital network
capacity in New York, Massachusetts, Vermont, Rhode Island,
Connecticut, New Jersey, Pennsylvania, Maryland and the District of
Columbia and maintains POPs in most major cities in these states.
During December 1996, the Company acquired, in two separate
transactions, certain assets and the related businesses of Universal
Telcom, Inc. (UTT) and NetSolve, Incorporated (NetSolve). The purchase
price for UTT included 31,380 shares of the Company's common stock,
valued at approximately $.9 million, and the assumption of
approximately $2 million of UTT's liabilities. NetSolve was purchased
for cash of $12.8
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million. The acquisitions are accounted for by the purchase
method of accounting, with the purchase price allocated to the fair
value of assets acquired, principally goodwill. The goodwill,
including an additional $.2 million for legal expenses, for these
acquisitions has been adjusted during the first quarter of 1997 due to
the finalization of the purchase price allocation.
The following unaudited pro forma results of operations
presents the consolidated results of operations as if the acquisition
of UTT, NetSolve and EMI had occurred on January 1, 1996, and does not
purport to be indicative of the results that actually would have
occurred if the companies had been acquired as of that date or of
results which may occur in the future.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(IN THOUSANDS) MARCH 31, 1996
--------------
<S> <C>
Revenue $31,121
Net loss (8,366)
Net loss attributable to common stockholders (8,366)
Net loss per share (.74)
</TABLE>
Note 4 Stock Options
During the first quarter of 1997, the Company canceled and
reissued, at a current market price, certain stock options that had
been awarded to executive management in December of 1995 and January of
1996. As a result, previously recorded deferred compensation of
approximately $2.8 million was adjusted back to additional paid-in
capital.
8
<PAGE> 9
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto included herewith, and with
the Company's Management's Discussion and Analysis of Financial Condition and
Results of Operations and audited consolidated financial statements and notes
thereto included in the Company's annual report on Form 10-K for the year ended
December 31, 1996 filed with the Securities and Exchange Commission.
OVERVIEW
Intermedia Communications Inc. (Intermedia or the Company), formerly
Intermedia Communications of Florida, Inc. through May 29, 1996, is a rapidly
growing provider of integrated telecommunications solutions for business,
government, and the telecommunications industry. Headquartered in Tampa,
Florida, Intermedia is the third largest (based on annualized
telecommunications revenues) among providers referred to as Competitive Local
Exchange Carriers (CLECs). Intermedia offers a full suite of local,
long-distance and enhanced data telecommunications services to business and
government end user customers, long distance carriers, Internet service
providers, resellers, and wireless communications companies serving customers
from 23 sales offices located throughout the eastern United States. Intermedia
also provides enhanced data/ATM and Internet services in approximately 2,500
cities nationwide, offering customers seamless end-to-end connectivity
virtually anywhere in the world.
Since its inception in 1987, the Company has experienced substantial
growth. Building from its original base in Florida, Intermedia is now a
provider of integrated telecommunications services to customers that have a
presence in the eastern United States. The Company currently has nine digital,
fiber optic networks and provides end-to-end connectivity throughout the United
States and many international markets. As its networks and service offerings
have expanded, the Company has experienced significant year to year growth in
revenues and customers.
Intermedia competes with the Incumbent Local Exchange Carriers (ILECs) and
Interexchange Carriers (IXCs) in its service territory and offers a full range
of voice and data telecommunications services. Intermedia's customers include
a broad range of business and government end users and IXC's. The Company
delivers local network services, including local exchange service, primarily
over digital fiber optic telecommunications networks that it either owns or
leases. In some circumstances, leasing facilities enables the Company to more
rapidly initiate service to customers, reduces the risk of network construction
or acquisition and potentially improves cash flow due to the reduction or
deferment of capital expenditures. The Company also offers enhanced data
services to its customers on an extensive intercity network that connects its
customers, either through its own network or through other carriers, to
locations throughout the country and internationally. This intercity network
combined with the Company's local/long distance voice switches allows the
Company to provide interexchange long distance service domestically and
internationally.
At its inception, Intermedia provided special access and private line
services to IXC's. In 1988, Intermedia was the first telecommunications
provider in Florida to begin providing special access and private line services
to business customers. In 1991, Intermedia began offering
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integration services in response to customer's needs and in 1992, Intermedia
introduced its first enhanced data services to provide flexible capacity and
highly reliable end-to-end data service for its business and government
customers. The Company began offering interexchange long distance service in
December 1994, Internet services in 1995 and local exchange services in 1996.
The pace with which the Company has introduced new service offerings has
enabled it to achieve substantial growth, improve its mix of customers and
diversify its sources of revenue. The Company believes that business and
government customers will continue to account for a substantial share of its
revenue over the next several years, because of Intermedia's ability to offer
such customers integrated, cost-effective telecommunications solutions. The
Company believes that during the first few years of local exchange competition,
the IXC's may enter the market by becoming resellers of the Company's local
services. If the IXC's pursue a reseller strategy, the amount of revenue the
Company realizes from its carriers may increase during this period.
From 1992 through 1995, the company has achieved positive EBITDA and
increased its revenue base substantially. However, as a result of significant
investments in resources necessary to launch local exchange services and expand
enhanced data services, EBITDA decreased as a percentage of revenue and the
Company's EBITDA was negative for 1996 and the first quarter of 1997. This was
due to the significant up front expenses related to the development of its
networks and leased facilities, the revenue from which is expected to be
realized in later periods. The development of the Company's business and the
installation and expansion of its networks have resulted in substantial capital
expenditures and net losses during this period of its operations. Procurement
of rights-of-way, administration and maintenance of facilities, depreciation of
network capital expenditures and sales, general and administrative costs will
continue to represent a large portion of the Company's expenses during its
rapid expansion. In addition, the Company is experiencing rapid growth in
marketing and selling expenses consistent with the addition of new customers
and an increased level of selling and marketing activity. All of the marketing
and selling expenses associated with the acquisition of new customers are
expensed as they are incurred even though these customers are expected to
generate recurring revenue for the Company for several years. The continued
expansion of the Company's networks in anticipation of new customers and the
marketing of services to new and existing customers is therefore adversely
impacting EBITDA of the Company in the near term. The Company anticipates, but
there can be no assurance, that as its customer base grows, incremental
revenues will be greater than incremental operating expenses.
During the remainder of 1997 and beyond, the Company believes that its
growth will be balanced among its local exchange, long distance and enhanced
data services. Based on the Company's analysis of FCC data and its knowledge
of the industry, the Company estimates that the market for local exchange, long
distance and data services was approximately $25 billion in 1996 in the
Company's service territory. As a result of the Company's planned expansion in
1997, the Company expects to be positioned to provide these services in markets
with a total opportunity of approximately $34 billion by the end of 1997.
In order to develop its business more rapidly and efficiently utilize its
capital resources, Intermedia plans to use the existing fiber optic
infrastructure of other providers in addition to using its existing networks.
While the Company will use significant amounts of capital to deploy enhanced
data and voice switches on a demand driven basis in selected markets,
Intermedia
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believes that its substantial existing network capacity should enable it to add
new customers and provide additional services that will result in increased
revenues with lower incremental costs and, correspondingly, over time improve
its EBITDA. For example, selling additional services, such as local exchange
services, to existing or new customers allows the Company to utilize unused
portions of the capacity inherent in its existing fiber optic networks. This
operating leverage increases the utilization of the network with limited
additional capital expenditures. The Company's strategy to offer a full
complement of telecommunications services is designed to enable the Company to
take advantage of the operating leverage of its networks.
The following table presents, for the periods indicated, certain
information derived from the Company's Condensed Consolidated Statements of
Operations, expressed in percentages of revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
Local network services 11.8% 23.9%
Enhanced data services 25.8 26.3
Interexchange services 58.1 39.3
Integration services 4.3 10.5
----- -----
100.0 100.0
Expenses:
Network operations 68.3 53.7
Facilities administration and maintenance 12.8 5.6
Cost of goods sold 2.9 9.3
Selling, general and administrative 44.4 43.8
Depreciation and amortization 18.9 24.3
----- -----
Loss from operations (47.3) (36.7)
Other income (expense):
Interest expense (25.2) (39.9)
Other income 10.2 10.7
----- -----
Net loss (62.3) (65.9)
Preferred stock dividends and accretions (7.7) -
----- -----
Net loss attributable to common stockholders (70.0)% (65.9)%
===== =====
</TABLE>
The following table sets forth other statistical data derived from the
Company's operating records:
<TABLE>
<CAPTION>
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
<S> <C> <C>
Transport services:
Buildings connected 1,157 389
Route miles 679 561
Fiber optic miles 29,841 20,541
Network cities:
in operation 9 9
under development 1 1
Enhanced data services:
</TABLE>
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<TABLE>
<S> <C> <C>
Data switches installed 100 36
Frame relay cities 2,526 695
Nodes in service 12,447 2,713
NNI connections 293 72
Local and Long Distance Services:
Voice switches in operation 6 3
Long distance billable minutes 87,501,080 37,830,864
Access line equivalents 17,385 -
Employees 1,026 387
</TABLE>
Quarter Ended March 31, 1997 Compared to Quarter Ended March 31, 1996:
Revenue
Total revenue increased 225% to $43.9 million for the first quarter of
1997 compared to $13.5 million for the same period in 1996. This increase was
principally through the acquisitions of EMI, UTT and NetSolve, the introduction
of new services and the increased focus of the Company's sales force on
offering a full suite of telecommunications services to an expanding market.
Of the increase, approximately $13.9 million was attributable to the inclusion
of EMI's operating results for the first quarter of 1997.
Local network services revenue increased 62% to $5.2 million for the first
quarter of 1997 compared to $3.2 million for the same period in 1996. This
increase was principally due to the fact that Intermedia generated local
exchange service revenues for the entire quarter in 1997. The Company has
received CLEC certification in 15 states plus the District of Columbia as of
the end of the first quarter of 1997.
Enhanced data services revenue increased 218% to $11.3 million for the
first quarter of 1997 compared to $3.6 million for the same period in 1996.
This increase was principally from the expansion of the Company's enhanced data
network by 64 switches and 9,734 new frame relay nodes since April 1, 1996. In
addition, the number of frame relay cities has increased by 1,831 during the
same time period. Of the increase, approximately $3.9 million was
attributable to the inclusion of EMI's operating results for the first quarter
of 1997.
Interexchange services revenue increased 381% to $25.5 million for the
first quarter of 1997 compared to $5.3 million for the same period in 1996.
This increase was principally from strong growth in long distance switched
revenue and steady growth in interLATA transport. Of the increase,
approximately $10 million was attributable to the inclusion of EMI's operating
results for the first quarter of 1997.
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Integration services revenue increased 32% to $1.9 million for the first
quarter of 1997 compared to $1.4 million for the same period in 1996. This
increase was principally from the Company's increased focus on providing a
total service package for the customer.
Operating Expenses
Total operating expenses increased 251% to $64.7 million for the first
quarter of 1997 compared to $18.5 million for the same period in 1996. The
increase was principally from the costs associated with the significant
expansion of the Company's owned and leased networks and the continued
expansion in personnel to sustain and support the Company's growth. Of the
increase, approximately $11.9 million was attributable to the inclusion of
EMI's operating results for the first quarter of 1997.
Network operations expenses increased 314% to $30 million for the first
quarter of 1997 compared to $7.2 million for the same period in 1996. This
increase was principally from the increases in leased network capacity that is
associated with the growth of local network service, enhanced data service and
interexchange service revenues. Of the increase, approximately $7.2 million
was attributable to the inclusion of EMI's operating results for the first
quarter of 1997.
Facilities administration and maintenance expenses increased 650% to $5.6
million for the first quarter of 1997 compared to $.8 million for the same
period in 1996. Of the increase, approximately $1.2 million was attributable to
the inclusion of EMI's operating results for the first quarter of 1997. In
addition, the increase resulted from the expansion of the Company's owned and
leased network capacity, increases in maintenance expense due to the network
expansion and increased payroll expenses related to hiring additional
engineering and operations staff to support and service the expanding network.
Selling, general and administrative expenses increased 230% to $19.5
million for the first quarter of 1997 compared to $5.9 million for the same
period in 1996. This increase was principally from the Company's continued
growth and represented a major increase in the sales, marketing, management
information services and customer service personnel, one time expenditures for
employee recruitment, relocation, training and increased commissions relating
to the rise in revenues for these periods. Of the increase, approximately $2.4
million was attributable to the inclusion of EMI's operating results for the
first quarter of 1997.
Depreciation and amortization expenses increased 153% to $8.3 million for
the first quarter of 1997 compared to $3.3 million for the same period in 1996.
This increase was principally from additions to telecommunications equipment
placed in service during 1996 and the first quarter of 1997, relating to
ongoing network expansion.
Interest Expense
Interest expense increased 106% to $11.1 million for the first quarter of
1997 compared to $5.4 million for the same period in 1996. This increase
resulted from interest expense on the May 1996 issuance of $330 million
principal amount of 12.5% Senior Discount Notes.
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Other Income
Other income increased 210% to $4.5 million for the first quarter of 1997
compared to $1.4 million for the same period in 1996. This increase was the
result of interest earned on the cash available from the excess proceeds
relating to the May 1996 issuance of $330 million principal amount of 12.5%
Senior Discount Notes, the May 1996 issuance of 4,674,503 common shares, par
value $.01 per share, at $26.00 per share and the March 1997 issuance of 30,000
shares (aggregate liquidation preference $300 million) of the Company's 13
1/2% Series A Redeemable Exchangeable Preferred Stock.
Net Loss
Net loss increased 208% to $27.4 million for the first quarter of 1997
compared to $8.9 million for the same period in 1996. This increase was due
primarily to the increased operating expenses resulting from the expansion of
the network and increased interest costs.
Preferred Stock Dividends and Accretions
Preferred stock dividends and accretions resulted from the March 1997 issuance
of 30,000 shares (aggregate liquidation preference $300 million) of the
Company's 13 1/2% series A Redeemable Exchangeable Preferred Stock. The
accretion for the 21 day period for which the Preferred Stock was outstanding
during the first quarter of 1997 was immaterial for recognition.
EBITDA
EBITDA decreased 635% to $(12.5) million for the first quarter of 1997
compared to $(1.7) million for the same period in 1996. This decline was the
result of the acceleration in the deployment of Intermedia's capital expansion
plan which significantly increased growth oriented expenses, such as increases
in sales, customer service and market development costs, prior to realizing
revenues associated with these expenditures.
Liquidity and Capital Resources
The Company's operations have required substantial capital investment for
the purchase of telecommunications equipment and the design, construction and
development of the Company's networks. Capital expenditures for the Company
were $17.6 million and $33.1 million for the quarters ended March 31, 1996 and
1997, respectively. The Company expects that it will continue to have
substantial capital requirements in connection with the (i) expansion and
improvement of the Company's existing networks, (ii) design, construction and
development of new networks, (iii) connection of additional buildings and
customers to the Company's networks, (iv) purchase of switches necessary for
local exchange services and expansion of interexchange services and (v)
development of the Company's enhanced data services.
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The Company has funded a substantial portion of these expenditures through
the public sale of debt and equity securities and, to a lesser extent,
privately placed debt.
The substantial capital investment required to build the Company's network
has resulted in negative cash flow from operations after consideration of
investing activities over the last five year period. This negative cash flow
after investing activities was a result of the requirement to build a
substantial portion of the Company's network in anticipation of connecting
revenue generating customers. The Company expects to continue to produce
negative cash flow after investing activities for the next several years due to
the expansion activities associated with the development of the Company's
networks. Until sufficient cash flow after investing activities is generated
from operations, the Company will be required to utilize its current and future
capital resources to meet its cash flow requirements, including the issuance of
additional debt and/or equity securities.
In response to the new pro-competitive telecommunications environment, the
Company has accelerated and expanded its capital deployment plan to allow for
an increased level of demand-driven spending necessary to more rapidly exploit
the market opportunity in the local exchange market. The Company expects to
expend substantial amounts to upgrade its existing networks in order to switch
traffic within the local service area in those states where it is currently
permitted to provide such services. The Company is certified as a CLEC in 15
states and the District of Columbia, allowing the Company to provide local
exchange services in those markets, and has CLEC certification applications
pending in 19 states. In addition, the Company expects to expend capital
toward the further development of the Company's enhanced data service and
interchange service offerings.
The Company currently estimates that it will require approximately $150
million to fund anticipated capital requirements during the remainder of 1997,
which it expects to fund from its available cash.
On March 7, 1997, the Company sold 30,000 shares (aggregate liquidation
preference $300,000,000) of the Series A Preferred Stock in a private placement
transaction. Net proceeds to the Company amounted to approximately
$288,875,000. Dividends on the Series A Preferred Stock accumulate at a rate
of 13 1/2% of the aggregate liquidation preference thereof and are payable
quarterly, in arrears. Dividends are payable in cash or, at the Company's
option, by the issuance of additional shares of Series A Preferred Stock having
an aggregate liquidation preference equal to the amount of such dividends. The
Series A Preferred Stock is subject to mandatory redemption at its liquidation
preference of $10,000 per share, plus accumulated and unpaid dividends on March
31, 2009. The Series A Preferred Stock will be redeemable at the option of the
Company at any time after March 31, 2002 at rates commencing with 106.75%,
declining to 100% on March 31, 2007.
The Company may, at its, option, exchange some or all shares of the Series
A Preferred Stock for the Company's 13 1/2% Senior Subordinated Debentures,
due 2009 (the "Exchange Debentures"). The Exchange Debentures mature on March
31, 2009. Interest on the Exchange Debentures is payable semi-annually, and
may be paid in the form of additional Exchange Debentures at the Company's
option. Exchange Debentures will be redeemable by the Company
15
<PAGE> 16
at any time after March 31, 2002 at rates commencing with 106.75%, declining to
100% on March 31, 2007.
The Company expects that its available cash will be sufficient to fund its
accelerated and expanded capital deployment plan through 1998. The Company
expects to require additional financing to continue its capital deployment plan
beyond 1998. The Company may obtain additional funding through the sale of
public or private debt and/or equity securities or through securing a bank
credit facility. There can be no assurance as to the availability or the terms
upon which such financing might be available. Moreover, the Company's existing
debt instruments and the Series A Preferred Stock impose certain restrictions
upon the Company's ability to incur additional indebtedness or issue additional
preferred stock.
The Company has from time to time held, and continues to hold, preliminary
discussions with (i) potential strategic investors (i.e. investors in the same
or a related business) who have expressed an interest in making an investment
in or acquiring the Company, (ii) potential joint venture partners looking
toward formation of strategic alliances that would expand the reach of the
Company's network or services without necessarily requiring an additional
investment in the Company and (iii) companies that represent potential
acquisition opportunities for the Company. There can be no assurance that any
agreement with any potential strategic investor, joint venture partner or
acquisition target will be reached nor does management believe that any thereof
is necessary to successfully implement its strategic plans.
Impact of Inflation
Inflation has not had a significant impact on the Company's operations
over the past 3 years.
The information set forth above in "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" include forward-looking
statements that involve numerous risks and uncertainties. The Company's actual
results could differ materially from those anticipated in such forward-looking
statements as a result of certain factors, including those set forth in the
section entitled "Risk Factors" in the Company's Annual Report on From 10-K for
the year ended December 31, 1996.
16
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 2. Changes in Securities
On March 7, 1997, Intermedia consummated a private placement
(the "Private Placement") of 30,000 shares of its 13 1/2% Series A
Redeemable Exchangeable Preferred Stock due 2009, liquidation
preference $10,000 per share (the "Series A Preferred Stock"), to
"qualified institutional buyers" (as defined in Rule 144A under the
Securities Act of 1933, as amended (the "Act")) (the "Purchasers") to
generate gross proceeds to the Company of $300,000,000, including an
aggregate of $11,125,000 of underwriting discounts and commissions.
The shares of Series A Preferred Stock were issued to the Purchasers
pursuant to an exemption from registration provided by Rule 144A
under the Act. In connection with the Private Placement, the
Purchasers and the Company entered into a Registration Rights
Agreement, whereby the Company agreed to file a registration
statement with respect to an offer to exchange the Series A Preferred
Stock for a new issue of preferred stock of the Company registered
under the Act, with terms substantially identical to those of the
Series A Preferred Stock. Each of the Purchasers represented to the
Company, among other things, that it is a qualified institutional
buyer and is aware that the sale is being made in reliance on Rule
144A, and it is acquiring the Series A Preferred Stock for its own
account or for the account of another qualified institutional buyer.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule (For SEC Use Only)
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the first
quarter of 1997:
The Company filed a Current Report on Form 8-K on February 24,
1997, reporting under Item 5 an announcement concerning the
Company's intent to raise capital through the private placement of
preferred stock and the Company's accelerated expansion plans.
17
<PAGE> 18
The Company filed a Current Report on Form 8-K on March 14, 1997,
reporting under Item 5 the completion of its private placement of
preferred stock.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 13, 1997
INTERMEDIA COMMUNICATIONS INC.
(Registrant)
/s/ Robert M. Manning
-----------------------------------------
Robert M. Manning
Senior Vice President and Chief Financial
Officer
/s/ Jeanne M. Walters
-----------------------------------------
Jeanne M. Walters
Controller and Chief Accounting Officer
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INTERMEDIA COMMUNICATIONS INC FOR THE PERIOD ENDED
MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 435,859
<SECURITIES> 43,427
<RECEIVABLES> 21,880
<ALLOWANCES> 2,547
<INVENTORY> 0
<CURRENT-ASSETS> 496,198
<PP&E> 274,405
<DEPRECIATION> 44,827
<TOTAL-ASSETS> 787,388
<CURRENT-LIABILITIES> 47,308
<BONDS> 364,480
292,250<F1>
0
<COMMON> 163
<OTHER-SE> 83,703
<TOTAL-LIABILITY-AND-EQUITY> 787,388
<SALES> 1,871
<TOTAL-REVENUES> 43,938
<CGS> 1,270
<TOTAL-COSTS> 64,727
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,089
<INCOME-PRETAX> (27,404)
<INCOME-TAX> 0
<INCOME-CONTINUING> (27,404)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,779)<F2>
<EPS-PRIMARY> (1.89)
<EPS-DILUTED> (1.89)
<FN>
<F1>PREFERRED MANDATORY INCLUDES ACCRUED DIVIDENDS.
<F2>NET INCOME REPRESENTS NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
</FN>
</TABLE>
