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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 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
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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 November 6, 1997, there were 17,268,057 shares of the Registrant's Common
Stock outstanding.
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INTERMEDIA COMMUNICATIONS INC.
INDEX
PART I. FINANCIAL INFORMATION
PAGE NO.
<TABLE>
<CAPTION>
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED):
Condensed Consolidated Statements of
Operations - Three and nine month
periods ended September 30, 1997 and 1996......... 3
Condensed Consolidated Balance Sheets -
September 30, 1997 and December 31,
1996.............................................. 4
Condensed Consolidated Statements of Cash
Flows - Nine month periods ended
September 30, 1997 and 1996...................... 5
Notes to Condensed Consolidated Financial Statements.. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ............... 10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..................................... 20
ITEM 2. CHANGES IN SECURITIES................................. 20
ITEM 3. DEFAULT UPON SENIOR SECURITIES........................ 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS... 21
ITEM 5. OTHER INFORMATION..................................... 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................... 21
SIGNATURES ...................................................... 23
</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 NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Local network services $ 11,814 $ 3,288 $ 25,457 $ 9,670
Enhanced data services 30,843 10,746 54,831 19,493
Interexchange services 27,637 19,249 80,877 31,806
Integration services 952 697 4,152 3,364
------------ ------------ ------------ ------------
71,246 33,980 165,317 64,333
Expenses:
Network operations 49,032 25,003 116,295 41,554
Facilities administration and maintenance 9,985 2,413 21,409 4,316
Cost of goods sold 503 589 2,537 3,174
Selling, general and administrative 25,004 10,174 64,983 23,884
Depreciation and amortization 16,100 5,255 34,274 12,069
Charge for in-process R&D 60,000 -- 60,000 --
------------ ------------ ------------ ------------
160,624 43,434 299,498 84,997
------------ ------------ ------------ ------------
Loss from operations (89,378) (9,454) (134,181) (20,664)
Other income (expense):
Interest expense (17,689) (10,774) (39,895) (24,179)
Other income 6,736 5,723 16,691 9,201
------------ ------------ ------------ ------------
Loss before extraordinary items (100,331) (14,505) (157,385) (35,642)
Extraordinary loss on early extinguishment of debt (43,834) -- (43,834) --
------------ ------------ ------------ ------------
Net loss (144,165) (14,505) (201,219) (35,642)
Preferred stock dividends and accretions (13,895) -- (27,118) --
------------ ------------ ------------ ------------
Net loss attributable to common stockholders $ (158,060) $ (14,505) $ (228,337) $ (35,642)
============ ============ ============ ============
Loss before extraordinary item, including
preferred stock dividends and accretions $ (6.82) $ (0.90) $ (11.21) $ (2.69)
Extraordinary loss (2.62) 0.00 (2.66) 0.00
============ ============ ============ ============
Net loss per common share $ (9.44) $ (0.90) $ (13.87) $ (2.69)
============ ============ ============ ============
Weighted average number of shares outstanding 16,739,730 16,126,448 16,462,731 13,242,546
============ ============ ============ ============
</TABLE>
See accompanying notes.
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INTERMEDIA COMMUNICATIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 471,101 $ 189,546
Short-term investments 491 6,041
Restricted investments 6,351 26,675
Accounts receivable, less allowance for
doubtful accounts of $3,873 in 1997 and $1,346 in 1996 46,855 19,272
Prepaid expenses and other current assets 4,316 5,230
----------- ---------
Total current assets 529,114 246,764
Restricted investments -- 10,481
Telecommunications equipment 453,545 241,481
Less accumulated depreciation (65,731) (37,574)
----------- ---------
Telecommunications equipment, net 387,814 203,907
Intangible assets, net 162,610 48,397
Other assets 6,647 3,391
----------- ---------
Total assets $ 1,086,185 $ 512,940
=========== =========
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 47,325 $ 29,895
Other accrued expenses 28,258 10,307
Current portion of long term debt and capital lease obligation 3,882 532
----------- ---------
Total current liabilities 79,465 40,734
Long-term debt and capital lease obligations 615,380 357,975
----------- ---------
Total liabilities 694,845 398,709
Series B redeemable exchangeable preferred stock and accrued dividends, $.10
par value; 600,000 shares authorized in 1997; 323,499 shares outstanding in 1997 312,002 --
Series D junior convertible preferred stock and accrued dividends, $1.00
par value; 69,000 shares authorized in 1997; 69,000 shares outstanding in 1997 170,109 --
Stockholders' equity (deficit):
Common stock, $.01 par value; 50,000,000 shares authorized in both 1997
and 1996; 17,087,429 and 16,285,340 shares issued and
outstanding in 1997 and 1996, respectively 171 163
Additional paid-in capital 237,334 212,811
Accumulated deficit (319,478) (91,141)
Deferred compensation (8,798) (7,602)
----------- ---------
Total stockholders' equity (deficit) (90,771) 114,231
----------- ---------
Total liabilities, preferred stock and stockholders' equity (deficit) $ 1,086,185 $ 512,940
=========== =========
</TABLE>
See accompanying notes.
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INTERMEDIA COMMUNICATIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(201,219) $ (35,642)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities;
Extraordinary loss on early extinguishment of debt, noncash portion 5,869 --
Depreciation and amortization, including loan costs 35,514 12,178
Gain on sale of telecommunications equipment (12) --
Amortization of deferred compensation 1,095 501
Accretion of discount on notes 27,712 8,583
Provision for doubtful accounts 3,834 714
Charge for in-process R&D 60,000 --
Changes in operating assets and liabilities:
Accounts receivable (25,648) (14,879)
Prepaid expenses and other current assets (1,483) (2,258)
Accounts payable 8,777 11,932
Other accrued expenses 3,685 8,523
--------- ---------
Net cash used in operating activities (81,876) (10,348)
INVESTING ACTIVITIES
Purchase of short-term investments -- (10,291)
Purchase of business, net of cash acquired (150,085) --
Maturities of short-term investments 5,550 --
Maturities of restricted investments 30,805 9,481
Proceeds from sale of telecommunications equipment 44 --
Purchase of telecommunications equipment (178,776) (80,810)
--------- ---------
Net cash used in investing activities (292,462) (81,620)
FINANCING ACTIVITIES
Proceeds from sale of preferred stock, net of
issuance costs 454,992 --
Proceeds from issuance of senior discount notes 362,993 171,226
Proceeds from sale of common stock -- 112,086
Proceeds from exercise of stock warrants and options 2,861 --
Principal payments on long-term debt and capital lease obligation (164,953) (980)
--------- ---------
Net cash provided by financing activities 655,893 282,332
Increase in cash and cash equivalents 281,555 190,364
Cash and cash equivalents at beginning of period 189,546 50,997
--------- ---------
Cash and cash equivalents at end of period $ 471,101 $ 241,361
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 11,759 $ 16,675
========= =========
</TABLE>
See accompanying notes.
5
<PAGE> 6
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. The accompanying condensed
consolidated financial statements should 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 and nine month periods ended September
30, 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.
Recent Pronouncements
Earnings per Share
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 three and nine month periods ended September 30, 1997 and
September 30, 1996, earnings per share, under FASB 128, would not have
been impacted.
Segments
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("FASB 131"), which
supersedes Financial Accounting Standards No. 14. FASB 131 uses a
management approach to report financial and descriptive information
about a Company's operating segments. Operating segments are
revenue-producing components of the enterprise for which separate
financial information is produced internally for the Company's
management. FASB 131 is effective for fiscal years beginning after
December 15, 1997.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("FASB 130"). FASB 130 requires that total comprehensive income
and comprehensive income per share be disclosed with equal prominence
as net income and earnings per share. Comprehensive income is defined
as all changes in stockholders' equity exclusive of transactions with
owners such as capital contributions and dividends. FASB 130 is
effective for fiscal years beginning after December 15, 1997.
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Note 2 Debt
On July 9, 1997, concurrently with the sale of the 6,000,000 Series D
Depositary Shares, (as defined in Note 3), the Company sold $606
million principal amount at maturity of 11 1/4% Senior Discount Notes
due 2007 (the "11 1/4% Notes") in a private placement transaction.
Subsequent thereto, the over-allotment option with respect to the 11
1/4% Notes was exercised and the Company sold an additional $43 million
principal amount at maturity of 11 1/4% Notes. The issue price of the
11 1/4% Notes was $577.48 per $1,000 principal amount at maturity of
the 11 1/4% Notes. Net proceeds to the Company amounted to
approximately $365 million. Cash interest will not accrue on the 11
1/4% Notes prior to July 15, 2002. Commencing January 15, 2003, cash
interest on the 11 1/4% Notes will be payable semi-annually in arrears
on July 15 and January 15 at a rate of 11 1/4% per annum. The 11 1/4%
Notes will be redeemable, at the Company's option at any time on or
after July 15, 2002, and are pari passu with all other senior
indebtedness.
The Company used a portion of the proceeds of the 11 1/4% Notes to
retire or defease (the"Retirement") Intermedia's outstanding 13 1/2%
Senior Notes due 2005 (the "13 1/2% Notes"). The Retirement resulted in
an extraordinary loss, as shown in the accompanying consolidated
statement of operations, of approximately $44 million in the third
quarter of 1997.
Also see note 5, Subsequent Events, for information regarding an
additional issuance of debt securities subsequent to September 30,
1997.
Note 3 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 "Series A Preferred Stock") in a
private placement transaction. Net proceeds to the Company amounted to
approximately $288 million. On June 6, 1997, the company issued 300,000
shares (aggregate liquidation preference $300 million) of its 13 1/2%
Series B Redeemable Exchangeable Preferred Stock due 2009 (the "Series
B Preferred Stock"), which were registered under the Securities Act of
1933, as amended, in exchange for all outstanding shares of the Series
A Preferred Stock pursuant to a registered exchange offer. Dividends on
the Series B 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 B Preferred Stock having an
aggregate liquidation preference equal to the amount of such dividends.
The Series B Preferred Stock is subject to mandatory redemption at its
liquidation preference of $1,000 per share, plus accumulated and unpaid
dividends on March 31, 2009. The Series B 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 B 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 is accreting the Series B Preferred Stock to its
liquidation preference through the due date of the Series B Preferred
Stock. The accretion for the three and nine month periods ended
September 30, 1997 was $226 thousand and $512 thousand, respectively.
The Company elected to issue approximately 13,000 additional shares of
Series B Preferred Stock, in lieu of cash, with an aggregate
liquidation preference of $12.9 million in June 1997, in payment of the
first quarterly dividend (accumulated from March 7, 1997 through June
30, 1997). In September 1997, the Company elected to issue
approximately 11,000 additional shares of Series B Preferred Stock, in
lieu of cash, with an aggregate liquidation preference of $10.6
million, in payment of the second quarterly dividend (accumulated from
July 1, 1997 through September 30, 1997).
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<PAGE> 8
On July 9, 1997, the Company sold 6,000,000 Depositary Shares (the
"Series D Depositary Shares") (aggregate liquidation preference
$150,000,000) each representing a one-hundredth interest in a share of
the Company's 7% Series D Junior Convertible Preferred Stock, (the
"Series D Preferred Stock"), in a private placement transaction.
Subsequent thereto, the over-allotment option with respect to the
Series D Depositary Shares was exercised and the Company sold an
additional 900,000 Series D Depositary Shares (aggregate liquidation
preference of $22,500,000). Net proceeds to the Company amounted to
approximately $167 million. Dividends on the Series D Preferred Stock
will accumulate at a rate of 7% 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 shares of Common
Stock of the Company. The Series D Preferred Stock will be redeemable
at the option of the Company at any time on or after July 19, 2000 at
rates commencing with 104%, declining to 100% on July 19, 2004.
The Series D Preferred Stock is convertible, at the option of the
holder, into Common Stock of the Company at a conversion price of
$38.90 per share of Common Stock, subject to certain adjustments.
The Company is accreting the Series D Depositary Shares to its
liquidation preference through the due date of the Series D Preferred
Stock. The accretion for the three and nine month periods ended
September 30, 1997 was $357 thousand.
Also see note 5, Subsequent Events, for information regarding an
additional issuance of preferred stock subsequent to September 30,
1997.
Note 4 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 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.
On June 24, 1997, the Company purchased from Telco Communications
Group, Inc. ("Telco") five long distance voice switches and ancillary
network equipment located in Atlanta, Chicago, Dallas, Los Angeles and
New York (the "Telco Acquisition"). Three of these switches will be
upgraded to local/long distance voice switches, consistent with the
Company's planned deployment of at least fifteen local/long distance
voice switches by the end of 1997. As part of the Telco Acquisition,
the Company also acquired certain network transport services for a
three year period. The aggregate purchase price of the Telco
Acquisition was approximately $38 million. The company believes that
the Telco Acquisition will allow the Company to more rapidly deploy
local/long distance voice switches in these markets and to do so at a
lower overall cost. In addition, the transport services acquired as
part of the Telco Acquisition will permit the Company to accelerate its
deployment of ATM in its intercity and intracity networks.
Implementation of ATM will facilitate additional enhanced data and
voice services and network efficiencies.
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<PAGE> 9
During July 1997, Intermedia acquired DIGEX, Incorporated ("DIGEX"), a
leading nationwide business Internet services provider. Aggregate cash
consideration for the acquisition was approximately $155 million and
was funded with the Company's existing cash reserves. The acquisition
was accounted for by the purchase method of accounting, with the
purchase price allocated to the fair value of assets acquired and
liabilities assumed. For purpose of the financial statements as of
September 30, 1997 and for the periods then ended, certain aspects of
the purchase price allocation, related to duplicate network facilities
and differing lease market rates, were accounted for on a preliminary
basis pending the receipt by the Company of additional information and
the performance of certain evaluations. Such information and
evaluations are anticipated to be completed in the fourth quarter. In
addition, the Company obtained an independent valuation related to
fixed assets, developed and in-process technology, and other
identifiable intangible assets. Based upon this valuation, the amount
allocated to purchased research and development ($60 million) is
recorded as a one-time charge to earnings in the accompanying
consolidated statements of operations.
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 DIGEX on January
1, 1997. These proforma results do 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>
Nine Months Ended September 30,
(In thousands) 1997 1996
--------------- ----------------
<S> <C> <C>
Revenue $184,963 $90,215
Net loss (223,355) (36,873)
Net loss attributable
to common stockholders (250,473) (36,873)
Net loss per common share (15.21) (2.78)
</TABLE>
Note 5 Subsequent Events
On October 30, 1997, the Company sold 7,000,000 Depositary Shares (the
"Series E Depositary Shares") (aggregate liquidation preference $175,000,000)
each representing a one-hundredth interest in a share of the Company's 7% Series
E Junior Convertible Preferred Stock, (the "Series E Preferred Stock"), in a
private placement transaction. Subsequent thereto, the over-allotment option
with respect to the Series E Depositary Shares was exercised and the Company
sold an additional 1,000,000 Series E Depositary Shares (aggregate liquidation
preference of $25,000,0000). Net proceeds to the Company amounted to
approximately $193.8 million. Dividends on the Series E Preferred Stock will
accumulate at a rate of 7% 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 shares of Common Stock of the Company. The
Series E Preferred Stock will be redeemable at the option of the Company at any
time on or after October 18, 2000 at rates commencing with 104%, declining to
100% on October 18, 2004.
The Series E Depositary Shares will be convertible at any time after
December 29, 1997, at the option of the holder into Common Stock of the Company
at a conversion price of $60.47 per share of Common Stock, subject to certain
adjustments.
Concurrently with the sale of the Series E Depositary Shares, the
Company sold $250 million principal amount of 8 7/8% Senior Notes due 2007 (the
"8 7/8% Notes") in a private placement transaction. Net proceeds to the Company
amounted to approximately $243 million. Cash interest on the 8 7/8% Notes will
be payable semi-annually in arrears on May 1 and November 1 at a rate of 8 7/8%
per annum. The 8 7/8% Notes will be redeemable, at the Company's option at any
time on or after November 1, 2002, and are pari passu with all other senior
indebtedness.
The proceeds of the Series E Depositary Shares will be used to finance
the continued expansion of the Company's telecommunications networks, including
but not limited to, network electronics, such as local/long distance voice and
data switches, and for general corporate purposes, including working capital.
The net proceeds from the offering of the 8 7/8% Notes will be used to fund up
to 80% of the cost of acquisition or construction by the Company of
telecommunications-related assets.
9
<PAGE> 10
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 43 sales offices located throughout the eastern United States. Intermedia
also provides enhanced data/ATM and Internet services in approximately 3,787
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 ten 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 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
carriers may increase during this period.
From 1992 through 1995, the Company had 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 three quarters 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
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<PAGE> 11
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.
On June 24, 1997, the Company purchased from Telco Communications
Group, Inc. ("Telco") five long distance voice switches and ancillary network
equipment located in Atlanta, Chicago, Dallas, Los Angeles and New York (the
"Telco Acquisition"). Three of these switches will be upgraded to local/long
distance voice switches, consistent with the Company's planned deployment of at
least fifteen local/long distance voice switches by the end of 1997. As part of
the Telco Acquisition, the Company also acquired certain network transport
services for a three year period. The aggregate purchase price of the Telco
Acquisition was approximately $38 million, which was substantially included in
the Company's planned expenditures for 1997. The company believes that the
Telco Acquisition will allow the Company to more rapidly deploy local/long
distance voice switches in these markets and to do so at a lower overall cost.
In addition, the transport services acquired as part of the Telco Acquisition
will permit the Company to accelerate its deployment of ATM in its intercity
and intracity networks. Implementation of ATM will facilitate additional
enhanced data and voice services and network efficiencies.
On July 11, 1997, Intermedia's wholly owned subsidiary, Daylight
Acquisition Corp., completed a merger (the "Merger") with DIGEX, Incorporated
("DIGEX"), a leading nationwide business Internet services provider. The
aggregate cash consideration for the acquisition was approximately $155 million
and was funded with the Company's existing cash reserves in July 1997.
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,
exclusive of the opportunities provided by the DIGEX acquisition.
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
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.
11
<PAGE> 12
RESULTS OF OPERATIONS
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 SEPT. 30, NINE MONTHS ENDED SEPT. 30,
1997 1996 1997 1996
---- ---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Local network services 16.6% 9.7% 15.4% 15.0%
Enhanced data services 43.3 31.6 33.2 30.3
Interexchange services 38.8 56.6 48.9 49.5
Integration services 1.3 2.1 2.5 5.2
------- ----- ------- -------
100.0 100.0 100.0 100.0
Expenses:
Network operations 68.8 73.6 70.3 64.6
Facilities administration and 14.0 7.1 13.0 6.7
maintenance
Cost of goods sold .7 1.7 1.5 4.9
Selling, general and administrative 35.1 29.9 39.3 37.1
Depreciation and amortization 22.6 15.5 20.7 18.8
Charge for in-process R&D 84.2 -- 36.3 --
------- ----- ------- -------
Loss from operations (125.4) (27.8) (81.2) (32.1)
Other income (expense):
Interest expense (24.8) (31.7) (24.1) (37.6)
Other income 9.5 16.8 10.1 14.3
------- ----- ------- -------
Loss before extraordinary items (140.7) (42.7) (95.2) (55.4)
Extraordinary item (61.5) -- (26.5) --
------- ----- ------- -------
Net Loss (202.2) (42.7) (121.7) (55.4)
Preferred stock dividends and accretions (19.5) -- (16.4) --
------- ----- ------- -------
Net loss attributable to common stockholders (221.7)% (42.7)% (138.1)% (55.4)%
======= ===== ======= =======
</TABLE>
The following table sets forth other statistical data derived from the
Company's operating records:
<TABLE>
<CAPTION>
SEPT. 30, 1997 SEPT. 30, 1996
-------------- --------------
<S> <C> <C>
Transport services:
Buildings connected 2,703 429
Route miles 762 647
Fiber optic miles 33,801 23,763
Network cities
in operation 10 9
Enhanced data services:
Data switches installed 130 76
Frame relay cities 3,787 1,134
Nodes in service 17,286 8,462
NNI connections 366 219
Local and Long Distance Services:
Voice switches in operation 13 4
Long distance billable minutes 111,049,341 61,549,894
Access line equivalents 50,740 --
Employees 1,820 724
</TABLE>
12
<PAGE> 13
QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1996
Revenue
Total revenue increased 109.7% to $71.3 million for the third quarter
of 1997 compared to $34.0 million for the same period in 1996. This increase
primarily resulted from the acquisition of DIGEX, 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. A portion of the
increase was attributable to the inclusion of DIGEX's operating results for the
third quarter of 1997.
Local network services revenue increased 259.3% to $11.8 million for
the third quarter of 1997 compared to $3.2 million for the same period in 1996.
This increase primarily resulted from the continued rollout of local exchange
services into additional markets. The Company has received CLEC certification in
28 states plus the District of Columbia as of the end of the third quarter of
1997.
Enhanced data services revenue increased 187.0% to $30.8 million for
the third quarter of 1997 compared to $10.7 million for the same period in 1996.
This increase primarily resulted from the expansion of the Company's enhanced
data network by 54 switches and 8,824 new frame relay nodes since July 1, 1996.
In addition, the number of frame relay cities has increased by 2,653 during the
same time period. Of the revenue increase, a significant portion was
attributable to the inclusion of DIGEX's operating results for the third quarter
of 1997.
Interexchange services revenue increased 43.6% to $27.6 million for the
third quarter of 1997 compared to $19.2 million for the same period in 1996.
This increase primarily resulted from strong growth in long distance switched
revenue and steady growth in interLATA transport.
Integration services revenue increased 36.6% to $1.0 million for the
third quarter of 1997 compared to $.7 million for the same period in 1996. This
increase primarily resulted from the Company's increased focus on providing a
total service package for the customer.
Operating Expenses
Total operating expenses increased 269.8% to $160.6 million for the
third quarter of 1997 compared to $43.4 million for the same period in 1996. The
increase primarily resulted 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 $60 million resulted from the charge for in-process research and
development and the inclusion of DIGEX's operating results for the third
quarter of 1997.
Network operations expenses increased 96.1% to $49.0 million for the
third quarter of 1997 compared to $25.0 million for the same period in 1996.
This increase primarily resulted from the increases in leased network capacity
that is associated with the growth of local network service, enhanced data
service and interexchange service revenues. A portion of the increase was
attributable to the inclusion of DIGEX's operating results for the third
quarter of 1997.
Facilities administration and maintenance expenses increased 313.8% to
$10.0 million for the third quarter of 1997 compared to $2.4 million for the
same period in 1996. A portion of the increase was attributable to the
inclusion of DIGEX's operating results for the third 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 145.8% to $25.0
million for the third quarter of 1997 compared to $10.2 million for the same
period in 1996. This increase primarily resulted 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. A portion of the increase was
attributable to the inclusion of DIGEX's operating results for the third
quarter of 1997.
13
<PAGE> 14
Depreciation and amortization expenses increased 206.4% to $16.1
million for the third quarter of 1997 compared to $5.3 million for the same
period in 1996. This increase primarily resulted from additions to
telecommunications equipment placed in service during 1996 and the first nine
months of 1997, relating to ongoing network expansion. A portion of the
increase was attributable to the inclusion of DIGEX's operating results for the
third quarter of 1997.
Charge for in-process Research & Development of $60 million represents
the amount of the purchased in-process research and development associated with
the purchase of DIGEX. This cost is recorded as a one-time charge to earnings in
the third quarter of 1997.
Interest Expense
Interest expense increased 64.2% to $17.7 million for the third quarter
of 1997 compared to $10.8 million for the same period in 1996. This increase
primarily resulted from interest expense on the May 1996 issuance of $330
million principal amount at maturity of the Company's 12 1/2% Senior Discount
Notes due 2006 (the "12 1/2% Notes") and the July 1997 issuance of $649 million,
including the over-allotment option, principal amount at maturity of the
Company's 11 1/4% Notes.
Other Income
Other income increased 17.7% to $6.7 million for the third quarter of
1997 compared to $5.7 million for the same period in 1996. This increase was
primarily the result of interest earned on the cash available from the excess
proceeds relating to the May 1996 issuance of the 12 1/2% Notes, the May 1996
issuance of 4,674,503 common shares, par value $.01 per share, at $26.00 per
share, the March 1997 issuance of 30,000 shares of the Company's Series A
Preferred Stock, which was subsequently exchanged for the Series B Preferred
Stock, the July 1997 issuance of the 11 1/4% Notes and the July 1997 issuance of
6,900,000 Series D Depositary Shares.
Extraordinary Loss of $43.8 million for the third quarter of 1997
consisted of pre-payment penalties relating to certain indebtedness which was
repaid from the proceeds of the offering of the 11 1/4% Notes and the write-off
of the unamortized deferred financing costs associated with the indebtedness
repaid.
Net Loss
Net loss increased 893.8% to $144.2 million for the third quarter of
1997 compared to $14.5 million for the same period in 1996. This increase was
due primarily to the increased operating expenses resulting from the expansion
of the network, increased selling general and administrative costs, the charge
for in-process research & development, increased interest costs and the
extraordinary items.
Preferred Stock Dividends and Accretions
Preferred stock dividends and accretions of $13.9 million resulted from
the March 1997 issuance of 30,000 shares of the Company's Series A Preferred
Stock, which was subsequently exchanged for the Series B Preferred Stock, and
the July 1997 issuance of 6,900,000 Series D Depositary Shares.
EBITDA
EBITDA decreased 216.2% to $(13.3) million for the third quarter of
1997 compared to $(4.2) 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
network expenses, increases in sales, customer service and market development
costs, prior to realizing revenues associated with these expenditures.
14
<PAGE> 15
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Revenue
Total revenue increased 156.9% to $165.3 million for the nine months
ended September 30, 1997 compared to $64.3 million for the same period in 1996.
This increase primarily resulted from the acquisitions of EMI and DIGEX, 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. A portion of the increase was attributable to the inclusion of EMI and
DIGEX's operating results for the nine months ended September 30, 1997.
Local network services revenue increased 163.3% to $25.5 million for
the nine months ended September 30, 1997 compared to $9.7 million for the same
period in 1996. This increase primarily resulted from the continued rollout of
local exchange services into additional markets. The Company has received CLEC
certification in 28 states plus the District of Columbia as of the end of the
third quarter of 1997.
Enhanced data services revenue increased 181.3% to $54.8 million for
the nine months ended September 31, 1997 compared to $19.5 million for the same
period in 1996. This increase primarily resulted from the expansion of the
Company's enhanced data network by 54 switches and 8,824 new frame relay nodes
since July 1, 1996. In addition, the number of frame relay cities has increased
by 2,653 during the same time period. A portion of the revenue increase was
attributable to the inclusion of EMI and DIGEX's operating results for the nine
months ended September 30, 1997.
Interexchange services revenue increased 154.3% to $80.9 million for
the nine months ended September 30, 1997 compared to $31.8 million for the same
period in 1996. This increase primarily resulted from strong growth in long
distance switched revenue and steady growth in interLATA transport. A portion
of the increase was attributable to the inclusion of EMI's operating results
for the nine months ended September 30, 1997.
Integration services revenue increased 23.4% to $4.2 million for the
nine months ended September 30, 1997 compared to $3.4 million for the same
period in 1996. This increase primarily resulted from the Company's increased
focus on providing a total service package for the customer.
Operating Expenses
Total operating expenses increased 252.4% to $299.5 million for the
nine months ended September 30, 1997 compared to $85 million for the same period
in 1996. The increase primarily resulted 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, $60 million resulted from the charge for the in-process research
and development and the inclusion of EMI and DIGEX's operating results for the
nine months ended September 30, 1997.
Network operations expenses increased 179.9% to $116.3 million for the
nine months ended September 30, 1997 compared to $41.6 million for the same
period in 1996. This increase primarily resulted from the increases in leased
network capacity that is associated with the growth of local network service,
enhanced data service and interexchange service revenues. A portion of the
increase was attributable to the inclusion of EMI and DIGEX's operating results
for the nine months ended September 30, 1997.
Facilities administration and maintenance expenses increased 396.0% to
$21.4 million for the nine months ended September 30, 1997 compared to $4.3
million for the same period in 1996. A portion of the increase was attributable
to the inclusion of EMI and DIGEX's operating results for the nine months ended
September 30, 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 172.1% to $65
million for the nine months ended September 30, 1997 compared to $23.9 million
for the same period in 1996. This increase primarily resulted from the
15
<PAGE> 16
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. A portion of
the increase was attributable to the inclusion of EMI and DIGEX's operating
results for the nine months ended September 30, 1997.
Depreciation and amortization expenses increased 184.0% to $34.3
million for the nine months ended September 30, 1997 compared to $12.1 million
for the same period in 1996. This increase primarily resulted from additions to
telecommunications equipment placed in service during 1996 and the first nine
months of 1997, relating to ongoing network expansion. A portion of the
increase was attributable to the inclusion of DIGEX's operating results for the
third quarter of 1997.
Charge for in-process Research & Development of $60 million represents
the amount of the purchased in-process research and development associated with
the purchase of DIGEX. This cost is recorded as a one-time charge to earnings in
the third quarter of 1997.
Interest Expense
Interest expense increased 65.0% to $39.9 million for the nine months
ended September 30, 1997 compared to $24.2 million for the same period in 1996.
This increase primarily resulted at maturity from interest expense on the May
1996 issuance of $330 million principal amount of the Company's 12 1/2% Notes
and the July 1997 issuance of $649 million, including the over-allotment option,
principal amount at maturity of the Company's 11 1/4% Notes.
Other Income
Other income increased 81.4% to $16.7 million for the nine months ended
September 30, 1997 compared to $9.2 million for the same period in 1996. This
increase was primarily the result of interest earned on the cash available from
the excess proceeds relating to the May 1996 issuance of the 12 1/2% Notes, the
May 1996 issuance of 4,674,503 common shares, par value $.01 per share, at
$26.00 per share, the March 1997 issuance of 30,000 shares of the Company's
Series A Preferred Stock, which was subsequently exchanged for the Series B
Preferred Stock, the July 1997 issuance of the 11 1/4% Notes and the July 1997
issuance of 6,900,000 Series D Depositary Shares.
Extraordinary Loss of $43.8 million for the third quarter of 1997
consisted of pre-payment penalties relating to certain indebtedness which was
repaid from the proceeds of the offering of the 11 1/4% Notes and the write-off
of the unamortized deferred financing costs associated with the indebtedness
repaid.
Net Loss
Net loss increased 464.6% to $201.2 million for the nine months ended
September 30, 1997 compared to $35.6 million for the same period in 1996. This
increase was due primarily to the increased operating expenses resulting from
the expansion of the network, increased selling general and administrative
costs, the charge for in-process research & development, increased interest
costs and the extraordinary items.
Preferred Stock Dividends and Accretions
Preferred stock dividends and accretions of $27.1 million resulted from
the March 1997 issuance of 30,000 shares of Series A Preferred Stock, which was
subsequently exchanged for the Series B Preferred Stock, and the July 1997
issuance of 6,900,000 Series D Depositary Shares.
EBITDA
EBITDA decreased 364.3% to $(39.9) million for the nine months ended
September 30, 1997 compared to $(8.6) 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 network expenses, increases in sales, customer service and market
development costs, prior to realizing revenues associated with these
expenditures.
16
<PAGE> 17
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 $179 million and $81 million for the nine months ended September 30, 1997
and 1996, 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. In addition, the Company
utilized approximately $155 million of its available cash to complete the
acquisition of DIGEX in July 1997.
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. From inception through December 31, 1996, the Company
raised approximately $212.6 million from the sale of Common Stock, including
Common Stock issued in connection with the acquisitions of FiberNet, Phone One,
EMI and UTT, and $324.6 million from the sale of senior 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 28 states and the District of Columbia, allowing the Company to provide local
exchange services in those markets. 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 $45
million to fund anticipated capital requirements during the remainder of 1997,
which it expects to fund from its available cash. The Company does not believe
that the acquisition of DIGEX will have a material impact on its capital
expenditure requirements.
On March 7, 1997, the Company sold 30,000 shares (aggregate liquidation
preference $300,000,000) of Series A Preferred Stock in a private placement
transaction. Net proceeds to the Company amounted to approximately $288 million.
On June 6, 1997, the company issued 300,000 shares (aggregate liquidation
preference $300 million) of its Series B Preferred Stock, which were registered
under the Securities Act of 1933, as amended, in exchange for all outstanding
shares of the Series A Preferred Stock pursuant to a registered exchange offer.
Dividends on the Series B 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 B Preferred Stock having an aggregate liquidation
preference equal to the amount of such dividends. The Series B Preferred Stock
is subject to mandatory redemption at its liquidation preference of $1,000 per
share, plus accumulated and unpaid dividends on March 31, 2009. The Series B
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 B Preferred Stock for the Company's 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
17
<PAGE> 18
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.
On July 11, 1997, Intermedia's wholly owned subsidiary, Daylight
Acquisition Corp., completed a merger with DIGEX, a leading nationwide business
Internet services provider. The aggregate cash consideration for the acquisition
was approximately $155 million and was funded with the Company's existing cash
reserves in July 1997.
On July 9, 1997, the Company sold 6,000,000 Series D Depositary Shares
(aggregate liquidation preference $150,000,000) each representing a
one-hundredth interest in a share of the Company's Series D Preferred Stock, in
a private placement transaction. Subsequent thereto, the over-allotment option
with respect to the Series D Depositary Shares was exercised and the Company
sold an additional 900,000 Series D Depositary Shares (aggregate liquidation
preference of $22,500,000). Net proceeds to the Company amounted to
approximately $167 million. Dividends on the Series D Preferred Stock will
accumulate at a rate of 7% 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 shares of Common Stock of the Company. The
Series D Preferred Stock will be redeemable at the option of the Company at any
time on or after July 19, 2000 at rates commencing with 104%, declining to 100%
on July 19, 2004.
The Series D Preferred Stock is convertible, at the option of the
holder, into Common Stock of the Company at a conversion price of $38.90 per
share of Common Stock, subject to certain adjustments.
Concurrently with the sale of the Series D Depositary Shares, the
Company sold $606 million principal amount at maturity of 11 1/4% Notes in a
private placement transaction. Subsequent thereto, the over-allotment option
with respect to the 11 1/4% Notes was exercised and the Company sold an
additional $43 million principal amount at maturity of 11 1/4% Notes. The issue
price of the 11 1/4% Notes was $577.48 per $1,000 principal amount at maturity
of the 11 1/4% Notes. Net proceeds to the Company amounted to approximately $365
million. Cash interest will not accrue on the 11 1/4% Notes prior to July 15,
2002. Commencing January 15, 2003, cash interest on the 11 1/4% Notes will be
payable semi-annually in arrears on July 15 and January 15 at a rate of 11 1/4%
per annum. The 11 1/4% Notes will be redeemable, at the Company's option at any
time on or after July 15, 2002, and are pari passu with all other senior
indebtedness.
The Company used a portion of the proceeds of the private offering of
the 11 1/4% Notes to retire or defease Intermedia's outstanding 13 1/2% Notes.
The Retirement resulted in an extraordinary loss, as shown in the accompanying
consolidated statement of operations, of approximately $44 million in the third
quarter of 1997.
On October 30, 1997, the Company sold 7,000,000 Series E Depositary
Shares (aggregate liquidation preference $175,000,000) each representing a
one-hundredth interest in a share of the Company's Series E Preferred Stock, in
a private placement transaction. Subsequent thereto, the over-allotment option
with respect to the Series E Depositary Shares was exercised and the Company
sold an additional 1,000,000 Series E Depositary Shares (aggregate liquidation
preference of $25,000,0000). Net proceeds to the Company amounted to
approximately $193.8 million. Dividends on the Series E Preferred Stock will
accumulate at a rate of 7% 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 shares of Common Stock of the Company. The
Series E Preferred Stock will be redeemable at the option of the Company at any
time on or after October 18, 2000 at rates commencing with 104%, declining to
100% on October 18, 2004.
The Series E Preferred Stock will be convertible at any time after
December 29, 1997, at the option of the holder into Common Stock of the Company
at a conversion price of $60.47 per share of Common Stock, subject to certain
adjustments.
Concurrently with the sale of the Series E Depositary Shares, the
Company sold $250 million principal amount at maturity of 8 7/8% Notes due in a
private placement transaction. Net proceeds to the Company amounted to
approximately $243 million. Cash interest on the 8 7/8% Notes will be payable
semi-annually in arrears on May 1 and November 1 at a rate of 8 7/8% per annum.
The 8 7/8% Notes will be redeemable, at the Company's option at any time on or
after November 1, 2002, and are pari passu with all other senior indebtedness.
18
<PAGE> 19
The proceeds from the Series E Depositary Shares will be used to
finance the continued expansion of the Company's telecommunications networks,
including but not limited to, network electronics, such as local/long distance
voice and data switches, and for general corporate purposes, including working
capital. The net proceeds from the offering of the 8 7/8% Notes will be used to
fund up to 80% of the cost of acquisition or construction by the Company of
telecommunications-related assets.
The Company expects that its available cash, including proceeds from
the concurrent offerings of the 8 7/8% Notes and Series E Depositary Shares, and
credit availability will be sufficient to fund its current accelerated and
expanded capital deployment plan. If the Company were to require additional
financing, it would seek to obtain such financing 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 of the terms upon
which such financing might be available. Moreover, the 12 1/2% Notes, the 11
1/4% Notes, the 8 7/8% Notes and the Series B 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" includes 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 Form 10-K for
the year ended December 31, 1996.
19
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
On June 20, 1997, two purported class action complaints were filed in
the Court of Chancery of the State of Delaware in and for New Castle County
respectively by TAAM Associates, Inc. and David and Chaile Steinberg (the
"Complaints"), purported stockholders of DIGEX on behalf of all non-affiliated
common stockholders of DIGEX against Intermedia, DIGEX and the Directors of
DIGEX (the "DIGEX Directors"). The Complaints allege that the DIGEX Directors
violated their fiduciary duties to the public stockholders of DIGEX by agreeing
to vote in favor of the Merger and that Intermedia knowingly aided and abetted
such violation by offering to retain DIGEX management in their present positions
and consenting to stock option grants to certain executive officers of DIGEX.
The Complaints sought preliminary and permanent injunction enjoining the Merger
but no applications were made for such injunctions prior to consummation of the
Merger on July 11, 1997. In addition, the Complaints seek cash damages from the
DIGEX Directors. In August 1997, a motion to dismiss the Complaints was filed
on behalf of Intermedia, DIGEX and the DIGEX Directors.
These cases are in their very early stages and no assurance can be
given as to their ultimate outcome. Intermedia, after consultation with its
counsel, believes that there are meritorious factual and legal defenses to the
claims in the Complaints. Intermedia intends to defend vigorously the claims in
the Complaints.
ITEM 2. Changes in Securities
On July 9, 1997, the Company sold 6,000,000 Series D Depositary Shares
(aggregate liquidation preference $150,000,000) each representing a
one-hundredth interest in a share of the Company's Series D Preferred Stock, in
a private placement transaction. Subsequent thereto, the over-allotment option
with respect to the Series D Depositary Shares was exercised and the Company
sold an additional 900,000 Series D Depositary Shares (aggregate liquidation
preference of $22,500,000). Net proceeds to the Company amounted to
approximately $167 million. Dividends on the Series D Preferred Stock will
accumulate at a rate of 7% 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 shares of Common Stock of the Company. The
Series D Preferred Stock will be redeemable at the option of the Company at any
time on or after July 19, 2000 at rates commencing with 104%, declining to 100%
on July 19, 2004.
The Series D Preferred Stock is convertible, at the option of the
holder, into Common Stock of the Company at a conversion price of $38.90 per
share of Common Stock, subject to certain adjustments.
The Series D Depositary Shares were issued and sold to the initial
purchasers pursuant to an exemption from registration provided by Section 4(2)
of the Securities Act of 1933, as amended (the "Act"). Each of the initial
purchasers of the Series D Depositary Shares represented to the Company, among
other things, that (i) it is a qualified institutional buyer ("QIB"), (ii) it is
not acquiring the Series D Depositary Shares with a view to any distribution
thereof that would violate the Act or the securities laws of any state of the
United States or any other applicable jurisdiction, (iii) it will be re-offering
and reselling the Series D Depositary Shares only to QIBs in reliance on the
exemption from the registration requirements of the Act provided by Rule 144A
and to accredited investors in a private placement exempt from the registration
requirements of the Act, and (iv) no form of general solicitation or general
advertising has been or will be used by it or any of its representatives in
connection with the offer and sale of any of the Depositary Shares.
On October 30, 1997, the Company sold 7,000,000 Series E Depositary
Shares (aggregate liquidation preference $175,000,000) each representing a
one-hundredth interest in a share of the Company's Series E Preferred Stock, in
a private placement transaction. Subsequent thereto, the over-allotment option
with respect to the Series E Depositary Shares was exercised and the Company
sold an additional 1,000,000 Series E Depositary Shares (aggregate liquidation
preference of $25,000,0000). Net proceeds to the Company amounted to
approximately $193.8 million. Dividends on the Series E Preferred Stock will
accumulate at a rate of 7% 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 shares of Common Stock of the Company. The
Series E Preferred Stock will be redeemable at the option of the Company at any
time on or after October 18, 2000 at rates commencing with 104%, declining to
100% on October 18, 2004.
20
<PAGE> 21
The Series E Preferred Stock will be convertible at any time after
December 29, 1997, at the option of the holder, into Common Stock of the Company
at a conversion price of $60.47 per share of Common Stock, subject to certain
adjustments.
The Series E Depositary Shares were issued and sold to the initial
purchasers pursuant to an exemption from registration provided by Section 4(2)
of the Securities Act of 1933, as amended (the "Act"). Each of the initial
purchasers of the Series E Depositary Shares represented to the Company, among
other things, that (i) it is a qualified institutional buyer ("QIB"), (ii) it is
not acquiring the Series E Depositary Shares with a view to any distribution
thereof that would violate the Act or the securities laws of any state of the
United States or any other applicable jurisdiction, (iii) it will be re-offering
and reselling the Series E Depositary Shares only to QIBs in reliance on the
exemption from the registration requirements of the Act provided by Rule 144A,
pursuant to offers and sales that occur outside the United States within the
meaning of Regulation S, and to accredited investors in a private placement
exempt from the registration requirements of the Act, and (iv) no form of
general solicitation or general advertising has been or will be used by it or
any of its representatives in connection with the offer and sale of any of the
Series E Depositary Shares.
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
<TABLE>
<CAPTION>
Number Exhibit
------ -------
<S> <C>
2.1 Agreement and Plan of Merger among the Company,
Daylight Acquisition Corp. and DIGEX, dated June 4,
1997. Exhibit 99 (c) (1) to the Company's Schedule
14D-1 filed with the Securities and Exchange
Commission on June 11, 1997 is incorporated herein by
reference.
3.1 Restated Certificate of Incorporation of the Company,
together with all amendments thereto.
3.2 By-laws of the Company, together with all amendments
thereto. Exhibit 3.2 to the Company's Form S-1, filed
with the Commission on November 8, 1993, (No.
33-69053) is incorporated herein by reference.
4.1 Indenture, dated as of October 30, 1997, by and
between the Company and SunTrust Bank, Central
Florida, National Association, as Trustee. Exhibit
4.1 to the Company's Current Report on Form 8-K,
filed with the Commission on November 6, 1997 (the
"Form 8-K"), is incorporated herein by reference.
4.2 Certificate of Designation of Voting Power,
Designation Preferences and Relative, Participating,
Optional and other Rights and Qualifications,
Limitations and Restrictions of 7% Series E Junior
Convertible Preferred Stock of the Company, filed
with the Secretary of State of the State of Delaware
on October 29, 1997. Exhibit 4.2 to the Form 8-K is
incorporated herein by reference.
4.3 Deposit Agreement, dated as of October 30, 1997, by
and among the Company, Continental Stock Transfer &
trust Company and all the holders from time to time
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C>
of Depositary Receipts issued thereunder. Exhibit 4.2
to the Form 8-K is incorporated herein by reference.
27.1 Financial Data Schedule (For SEC Use Only)
</TABLE>
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the third
quarter of 1997 and through November 6, 1997:
The Company filed a Current Report on Form 8-K, dated July 9,
1997, reporting under Item 2 the completion of the acquisition
of DIGEX, Incorporated by Daylight Acquisition, Corp., a
wholly owned subsidiary of Intermedia Communications Inc. The
Company also reported under Item 5 the completion of the
concurrent private placements of its Series D Depositary
Shares and 11 1/4% Notes.
The Company filed a Current Report on Form 8-K/A, dated July
9, 1997, reporting under Item 7 the financial statements of
businesses acquired and the proforma financial information as
of March 31, 1997.
The Company filed a Current Report on Form 8-K, dated October
24, 1997, reporting under Item 5, the commencement of two
concurrent private offerings of its securities.
The Company filed a Current Report on Form 8-K, dated November
6, 1997, reporting under Item 5, the completion of concurrent
private placements of its Series E Depositary Shares and 8
7/8% Notes.
22
<PAGE> 23
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: November 6, 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
23
<PAGE> 1
EXHIBIT 3.1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
-----------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE,
DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED
CERTIFICATE OF "INTERMEDIA COMMUNICATIONS OF FLORIDA, INC.", FILED IN THIS
OFFICE ON THE SEVENTH DAY OF MAY, A.D. 1992, AT 9 O'CLOCK A.M.
[LOGO]
/s/ Edward J. Freel, Secretary of State
---------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8714777
DATE: 10-21-97
<PAGE> 2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 05/07/1992
921285160 - 214051
RESTATED
CERTIFICATE OF INCORPORATION
OF
INTERMEDIA COMMUNICATIONS OF FLORIDA, INC.
---------------------
UNDER SECTION 245 OF THE
GENERAL CORPORATION LAW
----------------------
The undersigned DOES HEREBY CERTIFY as follows:
I. The name of the Corporation is INTERMEDIA
COMMUNICATIONS OF FLORIDA, INC. (the "Corporation").
II. The date of filing of the Corporation's original
Certificate of Incorporation with the Secretary of State of the
State of Delaware was November 9, 1987.
III. Upon the filing of this Restated Certificate of
Incorporation, each 2.8 issued and outstanding shares of Common
Stock, $.01 par value per share, of the Corporation ("Old Common
Stock"), shall automatically, without any further action by the
holder thereof or by the Corporation, be reclassified and deemed
to be one validly issued, fully paid and nonassessable share of
Common Stock, $.01 par value per share, of the Corporation ("New
Common Stock"). No certificates or scrip representing fractional
shares of New Common Stock shall be issued by reason hereof. If
a fractional share would be issuable to any one holder of Old
Common Stock pursuant hereto, then the number of shares into
which such old Common Stock will be reclassified pursuant hereto
<PAGE> 3
will be rounded to the next highest number of whole shares of New Common Stock.
Each certificate for 2.8 shares of Old Common Stock prior to the filing of this
Restated Certificate of Incorporation will be deemed upon the filing hereof to
represent a certificate for one share of New Common Stock (subject to the
treatment of fractional interests described above).
IV. Concurrently with the filing of this Restated Certificate of
Incorporation, each outstanding share of the Corporation's Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock, $1.00 par value
per share, is being converted (without the payment of accrued but unpaid
dividends thereon), at the election of the Corporation, into fully paid and
nonassessable shares of New Common Stock, all pursuant to the terms and
conditions of such Preferred Stock.
V. The Certificate of Incorporation, as heretofore amended, of the
Corporation (the "Certificate of Incorporation") is amended hereby as follows:
(a) Article FOURTH is amended to (i) increase the number of shares of
capital stock which the Corporation shall have authority to issue,
(ii) eliminate the designations of the Series A, B, C, and D
Preferred Stock of the Corporation (the "Series Preferred Stock")
and all powers, preference, privileges, voting, dividend and other
special or relative rights and qualifications of the Series
Preferred Stock, including the related prohibition on reissuance
of such Series
-2-
<PAGE> 4
Preferred Stock, and (iii) eliminate the parenthetical reference
in A(2) of Article FOURTH to written actions by stockholders in
lieu of meetings;
(b) Articles FIFTH and SIXTH are hereby deleted in their entirety, in
part, to eliminate the supermajority voting requirement to effect
a merger or consolidation;
(c) new Articles FIFTH and SIXTH are inserted, among other things, to
(i) establish the number of directors of the Corporation, with the
number of directors to be fixed from time to time by resolution of
the Board of Directors of the Corporation (the "Board"), (ii)
reorganize the Board into three classes with staggered terms, and
(iii) eliminate the ability of stockholders to take action by
written consent; and
(d) Article NINTH is amended to conform it to the changes stated
hereinabove.
VI. This Restated Certificate of incorporation was duly adopted
by the Board and authorized by the affirmative vote of the stockholders pursuant
to Sections 222 and 242 of the General Corporation Law of the State of Delaware.
VII. The Certificate of Incorporation is hereby amended and
restated in its entirety to read as follows:
-3-
<PAGE> 5
CERTIFICATE OF INCORPORATION
OF
INTERMEDIATE COMMUNICATIONS OF FLORIDA, INC.
FIRST: The name of the Corporation is Intermediate Communications
of Florida, Inc. (the "Corporation").
SECOND: The address of the registered office of the Corporation in
the State of Delaware is 15 East North Street, in the City of Dover, County of
Kent. The name of its registered agent at that address is United Corporate
Services, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful
act or activity for which a corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware as set forth in Title 8 of the Delaware Code (the "GCL").
FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is 20,500,000 shares, of which
20,000,000 shares shall be classified as Common stock, $.01 par value per share
("Common Stock"), and 500,000 shares shall be classified as Preferred Stock,
$1.00 par value per share ("Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
-4-
<PAGE> 6
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the
holders of the Common Stock are subject to and qualified by the rights of the
holders of the Preferred Stock of any series as may be designated by the Board
of Directors of the Corporation (the "Board") upon any issuance of the
Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one
vote for each share held at all meetings of stockholders. There shall be no
cumulative voting.
3. Dividends. Dividends may be declare and paid on the Common
Stock from lawfully available therefor as and when determined by the Board and
subject to any preferential dividend rights of any then outstanding Preferred
Stock.
4. Liquidation. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to receive all assets of the Corporation available for distribution to
its stockholders, subject to any preferential or participating rights of any
then outstanding Preferred Stock.
B. PREFERRED STOCK.
The Preferred Stock may be issued in one or more series. The
number, designation and all of the powers, preferences and rights and the
qualifications, limitations or restrictions of the shares of any series of
Preferred Stock may be fixed by the Board as provided in Section 151 of the
GCL.
-5-
<PAGE> 7
Different series of Preferred Stock shall not be construed to constitute
different classes of shares for the purposes of voting by classes unless
expressly so provided.
FIFTH: The number of directors constituting the entire Board shall
be not less than three nor more than seven as determined from time to time by
resolution of the Board. The Board shall consist of three classes, designated
as Class I, Class II, and Class III, respectively, with the size of each class
determined from time to time by resolution of the Board. The Board shall
consist of three classes, designated as Class I, Class II, and Class III,
respectively, with the size of each class determined from time to time by
resolution of the Board; each of which classes shall, however, consist of a
number of directors as equal as possible, with no class having more than one
director more than any other class. Except for the initial directors in each
class who shall have terms of office of one, two and three years, respectively,
each class of directors shall thereafter have a term of office of three years
and until their respective successors shall have been elected and qualified, or
until a director's earlier resignation or removal. Any director may resign at
any time upon notice to the Corporation.
SIXTH: All action required or permitted to be taken by the
Corporation's stockholders must be effected at a duly called Annual or Special
Meeting (and may not be effected by written consent in lieu thereof).
SEVENTH: The Corporation shall to the fullest extent permitted by
Section 145 of the GCL, as amended from time to time, indemnify all persons
whom it may indemnify pursuant
-6-
<PAGE> 8
thereto. Directors of the Corporation shall have no personal liability for
monetary damages for breach of a fiduciary duty, or failure to exercise any
applicable standard of care, of a director to the fullest extent permitted by
Section 102(b)(7) of the GCL.
EIGHTH: Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of the GCL or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation
under the provisions of Section 279 of the GCL, order a meeting of the creditors
or class of creditors, and/or of the stockholders or class of stockholders of
this Corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise
or arrangement and to any reorganization of this Corporation as a consequence
of such compromise or arrangement and the said reorganization shall, if
sanctioned by the court to which the said application has been
-7-
<PAGE> 9
made, be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
NINTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by law, and all rights and powers conferred
upon stockholders, directors and officers are subject to this reservation.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation of the
Corporation has been signed, and the statements made herein affirmed as true
under the penalties of perjury, this 27th day of April, 1992.
ATTEST:
/s/ Daniel J. Montague /s/ Robert F. Benton
- -------------------------- ------------------------
Daniel J. Montague, Robert F. Benton,
Secretary President
-8-
<PAGE> 10
State of Delaware
Office of the Secretary of State PAGE 1
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "INTERMEDIA COMMUNICATIONS OF FLORIDA, INC.", FILED IN THIS OFFICE
ON THE TWENTY-FIRST DAY OF JUNE, A.D. 1993, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
[SEAL] ---------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8714778
DATE: 10-21-97
<PAGE> 11
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 06/21/1993
703172017 - 2143051
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
INTERMEDIA COMMUNICATIONS OF FLORIDA, INC.
(Pursuant to Section 242 of the
General Corporation Law of the State of Delaware)
It is hereby certified that:
1. The name of the corporation (the "Corporation") is Intermedia
Communications of Florida, Inc.
2. To allow the Corporation's Board of Directors to amend the
Corporation's By-laws without stockholder approval, the Certificate of
Incorporation of the Corporation, as heretofore amended and restated, is hereby
further amended to add the following Article TENTH:
"TENTH: The Board of Directors (by action
taken by a majority of the entire Board of Directors
then in office) may amend or change the By-Laws of
the Corporation in any respect."
3. The foregoing amendment to the Certificate was duly adopted by
the Board of Directors and stockholders of the Corporation in accordance with
the provisions of Section 242 of the General corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed on this 4th day of June, 1993.
INTERMEDIA COMMUNICATIONS OF
FLORIDA, INC.
By: /s/ David Ruberg 6/4/93
----------------------------------------
David Ruberg, Chief Executive Officer
Attest:
/s/ Daniel J. Montague
- --------------------------------
Daniel J. Montague, Secretary
<PAGE> 12
State of Delaware
Office of the Secretary of State PAGE 1
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "INTERMEDIA COMMUNICATIONS OF FLORIDA, INC.", CHANGING ITS NAME
FROM "INTERMEDIA COMMUNICATIONS OF FLORIDA, INC." TO "INTERMEDIA COMMUNICATIONS
INC.", FILED IN THIS OFFICE ON THE THIRTIETH DAY OF MAY, A.D. 1996, AT 9
O'CLOCK A.M.
/s/ Edward J. Freel
[SEAL] ------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8714780
DATE: 10-21-97
<PAGE> 13
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 05/30/1996
960157445 - 2143051
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
INTERMEDIA COMMUNICATIONS OF FLORIDA, INC.
------------------------------------------
Under Section 242 of the Delaware General
Corporation Law
------------------------------------------
Pursuant to the provisions of Section 242 of the General
Corporation Law of the State of Delaware, the undersigned, being the President
and Secretary of Intermedia Communications of Florida, Inc. do hereby certify
that:
FIRST: The name of the corporation is Intermedia
Communications of Florida, Inc. (hereinafter referred to as the "Corporation").
SECOND: The Certificate of Incorporation of the Corporation
was filed with the Office of the Secretary of State of the State of Delaware on
November 9, 1987. The Certificate of Incorporation was Restated and filed with
the Office of the Secretary of State of Delaware on May 7, 1992.
THIRD: The Restated Certificate of Incorporation of the
Corporation is hereby amended to (i) change the name of the Corporation from
Intermedia Communications of Florida, Inc. to Intermedia Communications Inc.,
and (ii) increase the authorized Common Stock from 20,000,000 shares to
50,000,000 shares, so that Article FIRST and paragraph 1 of ARTICLE FOURTH of
the Restated Certificate of Incorporation are hereby amended to read as
follows:
"FIRST: The name of the corporation is Intermedia
Communications Inc. (hereinafter referred to as the "Corporation").
"FOURTH: The total number of shares of capital stock which
the Corporation shall have authority to issue is 50,500,000, of which
50,000,000 shares shall be classified as Common stock, $.01 par value per share
("Common Stock"), and 500,000 shares shall be classified as Preferred Stock,
$1.00 par value per share ("Preferred Stock").
"FOURTH: This Amendment to the Restated Certificate of
Incorporation of the Corporation was duly adopted by the Board of Directors and
by a majority of stockholders of the Corporation
<PAGE> 14
entitled in vote in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned have executed this Certificate of
Amendment to the Certificate of Incorporation of the Corporation as of this 28
day of May, 1996 and affirm that the statements set forth herein are true and
correct under the penalties of perjury.
/s/ David Ruberg
-----------------------------------
David Ruberg, President and Chief
Executive Officer
/s/ Oscar Williams
-----------------------------------
Oscar Williams, Secretary
2
<PAGE> 15
State of Delaware
Office of the Secretary of State PAGE 1
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "INTERMEDIA COMMUNICATIONS INC.", FILED IN THIS OFFICE ON THE
THIRTIETH DAY OF MAY, A.D. 1997, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel,
[SEAL] ---------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8714783
DATE: 10-21-97
<PAGE> 16
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 05/30/1997
971176982 - 2143051
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
INTERMEDIA COMMUNICATIONS INC.
--------------------------------
Pursuant to Section 242 of the Delaware
General Corporation Law
--------------------------------
Pursuant to the provisions of Section 242 of the Delaware General
Corporation Law, the undersigned, being a duly authorized officer of Intermedia
Communications Inc., does hereby certify that:
FIRST: The name of the corporation is Intermedia Communications
Inc. (hereinafter, the "Corporation").
SECOND: The Certificate of Incorporation of the Corporation was
filed with the Office of the Secretary of State of the State of Delaware on
November 9, 1987. The Certificate of Incorporation was Restated (as amended,
the "Restated Certificate of Incorporation") and filed with the Office of the
Secretary of State of the State of Delaware on May 7, 1992. A Certificate of
Designation of Voting Power, Designation Preferences and Relative,
Participating, Optional and Other Special Rights and Qualifications,
Limitations and Restrictions of the 13 1/2% Series A and Series B Redeemable
Exchangeable Preferred Stock due 2009 of the Corporation was filed with the
Office of the Secretary of State of the State of Delaware on March 6, 1997 (the
"Certificate of Designation").
THIRD: The Restated Certificate of Incorporation is hereby
amended to (i) increase the number of authorized shares of the Corporation's
Preferred Stock, par value $1.00 per share, from 500,000 shares to 2,000,000
shares, (ii) increase the number of authorized shares of the Corporation's 13
1/2% Series B Redeemable Exchangeable Preferred Stock (the "Series B Preferred
Stock") from 60,000 shares to 600,000 shares, and (iii) decrease the
liquidation preference of each authorized share of Series B Preferred Stock
from $10,000 per share to $1,000 per share as follows:
The first paragraph of ARTICLE FOURTH of the Restated Certificate of
Incorporation is hereby amended to read as follows:
"FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is
<PAGE> 17
52,000,000 shares, of which $50,000,000 shares shall be classified as
Common Stock, $.01 par value per share ("Common Stock"), and 2,000,000
shares shall be classified as Preferred Stock, $1.00 par value per share
("Preferred Stock")."
The second paragraph of the first page of the Certificate of
Designation is hereby amended to read as follows:
"RESOLVED, that pursuant to the authority vested in the Board of
Directors by the Certificate of Incorporation, the Board of Directors does
hereby designate, create, authorize and provide for the issue of two series
of preferred stock having a par value of $1.00 per share, which shall be
designated as Series A Redeemable Exchangeable Preferred Stock due 2009
(the "Series A Preferred Stock") and Series B Redeemable Exchangeable
Preferred Stock due 2009 (the "Series B Preferred Stock" and, together
with the Series A Preferred Stock, the "Exchangeable Preferred Stock"),
the Series A Preferred Stock consisting of 60,000 shares, and the Series
B Preferred Stock consisting of 600,000 shares provided that no shares of
Series B Preferred Stock may be issued, except upon the surrender and
cancellation of such number of shares of Series A Preferred Stock
having an aggregate Liquidation Preference equal to the aggregate
Liquidation Preference of the shares of Series B Preferred Stock so
issued, and each shall have the following voting powers, preferences and
relative, participating, optional and other special rights, and
qualifications, limitations and restrictions thereof as follows:"
The definition of "Liquidation Preference" in the Certificate of
Designation is hereby amended to read as follows:
""Liquidation Preference" means $10,000 per share of Series A
Preferred Stock and $1,000 per share of Series B Preferred Stock."
FOURTH: The additional shares of Preferred Stock created by this
Certificate of Amendment in excess of the 500,000 shares of Preferred Stock
previously authorized may only be issued by the Corporation in connection with
financing transactions, including financing of corporate acquisitions by the
Corporation, and may not be issued for anti-takeover purposes.
FIFTH: This amendment to the Restated Certificate of Incorporation
was duly adopted by the Board of Directors of the Corporation and by holders of
a majority of the outstanding shares of capital stock of the Corporation
entitled to vote in accordance with the provisions of Section 242 of the
Delaware General Corporation Law.
2
<PAGE> 18
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment to the Restated Certificate of Incorporation as of May 20, 1997, and
affirms that the statements set forth herein are true under the penalties of
perjury.
/s/ Robert M. Manning
-------------------------------
Robert M. Manning
Senior Vice President, Chief
Financial Officer & Secretary
3
<PAGE> 19
State of Delaware
Office of the Secretary of State PAGE 1
-------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
CHANGE OF REGISTERED AGENT OF "INTERMEDIA COMMUNICATIONS INC.", FILED IN THIS
OFFICE ON THE SECOND DAY OF OCTOBER, A.D. 1997, AT 9 O'CLOCK A.M.
[SEAL] /s/ Edward J. Freel
----------------------------------------
Edward J. Freel, Secretary of State
2143051 8100 AUTHENTICATION: 8714785
971355443 DATE: 10-21-97
<PAGE> 20
CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED OFFICE
AND OF REGISTERED AGENT
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"corporation") is INTERMEDIA COMMUNICATIONS, INC.
2. The registered office of the corporation within the State of
Delaware is hereby changed to 1013 Centre Road, City of Wilmington 19805,
County of New Castle.
3. The registered agent of the corporation within the State of
Delaware is hereby changed to Corporation Service Company, the business office
of which is identical with the registered office of the corporation as hereby
changed.
4. The corporation has authorized the changes hereinbefore set forth
by resolution of its Board of Directors.
Signed on August 29, 1997.
/s/ Jeanne M. Walters
------------------------------------
Jeanne M. Walters
Controller/Chief Accounting Officer
DE BCD-:COA CERTIFICATE OF CHANGE 03/96
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 10/02/1997
971332236 - 2143051
<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
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000885067
<NAME> INTERMEDIA COMMUNICATIONS, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 471,101
<SECURITIES> 6,842
<RECEIVABLES> 46,855
<ALLOWANCES> 3,873
<INVENTORY> 0
<CURRENT-ASSETS> 529,114
<PP&E> 453,545
<DEPRECIATION> 65,731
<TOTAL-ASSETS> 1,086,185
<CURRENT-LIABILITIES> 79,465
<BONDS> 619,262
482,111
0
<COMMON> 171
<OTHER-SE> (90,600)
<TOTAL-LIABILITY-AND-EQUITY> 1,086,185
<SALES> 4,152
<TOTAL-REVENUES> 165,317
<CGS> 2,537
<TOTAL-COSTS> 299,498
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,895
<INCOME-PRETAX> (157,385)
<INCOME-TAX> 0
<INCOME-CONTINUING> (157,385)
<DISCONTINUED> 0
<EXTRAORDINARY> (48,834)
<CHANGES> 0
<NET-INCOME> (228,337)
<EPS-PRIMARY> (13.87)
<EPS-DILUTED> (13.87)
</TABLE>
