<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
--------------------------
Date of Report (Date of
earliest event reported): October 24, 1997
----------------
INTERMEDIA COMMUNICATIONS INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 59-2913586
- -------------------------- -------------------
(State or other jurisdic- (I.R.S. Employer
tion of incorporation or Identification No.)
organization)
0-20135
------------------------
(Commission File Number)
3625 Queen Palm Drive, Tampa, Florida 33619-1309
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (813) 829-0011
--------------
<PAGE>
Item 5. Other Events
- ---------------------
On October 24, 1997, Intermedia Communications Inc. (the "Company")
announced the commencement of two concurrent private offerings (the "Offerings")
of its securities, to be resold by the initial purchasers pursuant to Rule 144A
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
The Company will offer $250 million of Senior Notes, with an overallotment
option of $35 million, and $175 million liquidation preference of Depositary
Shares, each representing a one-hundredth interest in a share of the Company's
Series E Junior Convertible Preferred Stock, with an overallotment option of
$43.75 million. The net proceeds from the offering of the Depositary Shares will
be used by the Company 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
Senior Notes will be used to fund up to 80% of the cost of acquisition or
construction by the Company of telecommunications related assets. A portion of
the Company's expansion may occur through acquisitions (utilizing cash or
securities of the Company) as an alternative to direct investments in the assets
required to implement the expansion. The Senior Notes and the Depositary Shares
to be sold in the Offerings will not and have not been registered under the
Securities Act or any state securities or blue sky laws, and may not be offered
or sold in the United States or in any state thereof absent registration or an
applicable exemption from the registration requirements of such laws.
Item 7. Financial Statements and Exhibits
- ------------------------------------------
Exhibit 99.1 Press Release, dated October 24, 1997.
Exhibit 99.2 Unaudited Financial Statements of DIGEX, Incorporated
("DIGEX") for the Six Months Ended June 30, 1997.
Exhibit 99.3 Unaudited Pro Forma Condensed Consolidated Financial
Statements of the Company and DIGEX for the Year Ended
December 31, 1996 and the Six Months Ended June 30, 1997.
2
<PAGE>
SIGNATURE
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.
Date: October 24, 1997
INTERMEDIA COMMUNICATIONS INC.
------------------------------
(Registrant)
By: /s/ J. Christopher Brown
-------------------------------------
Name: J. Christopher Brown
Title: Senior Vice President -
Investor Relations
3
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
No. Description
------- -----------
99.1 Press Release, dated October 24, 1997.
99.2 Unaudited Financial Statements of DIGEX
for the Six Months Ended June 30, 1997.
99.3 Unaudited Pro Forma Condensed Consolidated
Financial Statements of the Company and
DIGEX for the Year Ended December 31, 1996
and the Six Months Ended June 30, 1997.
<PAGE>
EXHIBIT 99.1
[LETTERHEAD OF INTERMEDIA COMMUNICATIONS APPEARS HERE]
NEWS RELEASE
CONTACTS: Chris Brown
Senior Vice President,
Investor Relations
813/829-2408
INTERMEDIA ANNOUNCES COMMENCEMENT
OF PRIVATE OFFERINGS
TAMPA, FL (October 24, 1997) - Intermedia Communications Inc. (Nasdaq/NM: ICIX)
today announced the commencement of two concurrent private offerings of its
securities, to be resold by the initial purchasers pursuant to Rule 144A
promulgated under the Securities Act of 1933, as amended. The Company will offer
$250 million of Senior Notes, with an overallotment option of $35 million, and
$175 million liquidation preference of Depositary Shares, each representing a
one-hundredth interest in a share of the Company's Series E Junior Convertible
Preferred Stock, with an overallotment option of $43.75 million.
The net proceeds from the offering of the Depositary Shares will be used by the
Company 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 Senior Notes will be
used to fund up to 80% of the cost of acquisition or construction by the Company
of telecommunications-related assets. A portion of the Company's expansion may
occur through acquisitions (utilizing cash or securities of the Company) as an
alternative to direct investments in the assets required to implement the
expansion.
The Senior Notes and the Depositary Shares to be sold in the offerings will not
be and have not been registered under the Securities Act or any state securities
or blue sky laws, and may not be offered or sold in the United States or in any
state thereof absent registration or an applicable exemption from the
registration requirements of such laws.
Intermedia Communications is one of the nation's fastest growing
telecommunications companies, providing integrated telecommunications solutions
to business and government customers. These solutions include voice and data,
local and long distance, and advanced network access services in cities
throughout the eastern United States. Intermedia's enhanced data portfolio,
including frame relay networking, ATM, and a full range of business Internet
connectivity and web hosting services, offers seamless end-to-end service
virtually anywhere in the world.
Intermedia, headquartered in Tampa, Florida, with sales offices in over 40
cities in the eastern U.S., trades on the Nasdaq Stock Market's National Market
under the symbol ICIX. Intermedia is on the World Wide Web at
http://www.icix.net.
-END-
<PAGE>
EXHIBIT 99.2
DIGEX, INCORPORATED
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.................... $ 32,667 $ 12,295
Accounts receivable, less allowance of $777
at December 31, 1996 and
$1,463 at June 30, 1997..................... 3,298 6,158
Inventory and prepaid assets................. 1,250 1,367
Deferred income taxes........................ 8 8
-------- --------
Total current assets....................... 37,223 19,828
Property and equipment:
Computer equipment and software.............. 20,302 31,049
Office furniture and equipment............... 1,099 1,823
Leasehold improvements....................... 793 839
-------- --------
Total property and equipment............... 22,194 33,711
Accumulated depreciation and amortization.... 3,616 6,908
-------- --------
Net property and equipment................. 18,578 26,803
Other assets................................... 972 1,830
-------- --------
Total assets................................... $56,773 $48,461
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses........ $ 8,501 $ 13,893
Deferred revenue............................. 4,931 4,096
Current portion of capital lease
obligations................................. 2,843 4,524
Current portion of long-term debt............ 896 998
-------- --------
Total current liabilities.................. 17,171 23,511
Capital lease obligations, less current
portion....................................... 4,878 9,944
Long-term debt, less current portion........... 1,018 941
Stockholders' equity:
Preferred stock, $1.00 par value:
Authorized shares--3,000 at December 31,
1996 and June 30, 1997;
Issued and outstanding shares--none at
December 31, 1996 and June 30, 1997
Common Stock, $.01 par value:
Authorized shares--47,000 at December 31,
1996 and June 30, 1997;
Issued and outstanding shares--11,285 at
December 31, 1996 and 11,713 at June 30,
1997....................................... 113 120
Additional paid-in capital................... 61,947 67,478
Accumulated deficit.......................... (28,354) (50,488)
Deferred compensation........................ -- (3,045)
-------- --------
Total stockholders' equity................. 33,706 14,065
-------- --------
Total liabilities and stockholders' equity..... $ 56,773 $ 48,461
======== ========
</TABLE>
1
<PAGE>
DIGEX, INCORPORATED
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------- -----------------------
1996 1997 1996 1997
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue:
Business Internet services... $ 2,663 $ 9,983 $ 4,659 $ 17,671
Equipment sales.............. 340 922 576 1,975
------- -------- ------- --------
Total revenue.............. 3,003 10,905 5,235 19,646
Costs and expenses:
Network operations........... 2,963 9,698 4,743 17,919
Cost of equipment sales...... 324 758 513 1,669
Sales and marketing.......... 1,913 6,664 2,587 12,384
General and administrative... 1,894 4,332 2,451 6,122
Depreciation and
amortization................ 578 1,767 925 3,390
------- -------- ------- --------
Total expenses............. 7,672 23,219 11,210 41,484
======= ======== ======= ========
Loss from operations........... (4,669) (12,314) (5,975) (21,838)
Other income (expense):
Interest and other income.... 33 254 47 486
Interest expense............. (626) (438) (1,167) (784)
------- -------- ------- --------
(594) (184) (1,120) (298)
------- -------- ------- --------
Net loss....................... (5,263) (12,498) (7,095) (22,136)
Accretion of Series A
Mandatorily Redeemable
Convertible Preferred Stock to
redemption value.............. (130) -- (253) --
------- -------- ------- --------
Net loss attributable to common
stockholders.................. $(5,393) $(12,498) $(7,348) $(22,136)
======= ======== ======= ========
Net loss per common share
attributable to common
stockholders.................. (0.70) (1.09) (0.98) (1.94)
======= ======== ======= ========
Weighted average common and
common equivalent shares
outstanding................... 6,788 11,504 6,788 11,399
======= ======== ======= ========
</TABLE>
2
<PAGE>
DIGEX, INCORPORATED
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
--------------------------
1996 1997
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss......................................... $ (7,095) $ (22,136)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization.................. 925 3,390
Amortization of debt discount charged to
interest expense.............................. 951 --
Non-cash compensation recorded for vested stock
option grants................................. 400 3,418
Non-cash compensation recorded for 401(k)
matching...................................... -- 250
Changes in operating assets and liabilities:
Accounts receivable, net..................... (520) (2,616)
Inventory and prepaid expenses............... (776) (117)
Accounts payable and accrued expenses........ 7,088 5,393
Deferred revenue............................. 4,687 (835)
Deferred compensation........................ -- (3,045)
----------- ------------
Net cash provided by (used in) operating
activities...................................... 5,660 (16,298)
INVESTING ACTIVITIES:
Purchases of property and equipment, net......... (5,577) (2,667)
Acquisition of Electronic Press Services Group... -- (844)
Increase in other assets......................... (42) (276)
----------- ------------
Net cash used in inventing activities............ (5,619) (3,787)
FINANCING ACTIVITIES:
Proceeds from issuances of long-term debt........ -- 523
Repayment of long-term debt...................... -- (498)
Borrowings under revolving line of credit........ 1,167 --
Repayments under revolving line of credit........ (1,167) --
Repayment of capital lease obligations........... (588) (1,948)
Proceeds from issuance of debentures and
detachable stock warrants....................... 1,000 --
Proceeds of issuance of Series B Mandatorily
Redeemable Convertible Preferred Stock......... 5,000 --
Proceeds from issuance of warrants to purchase
common stock to customer........................ 228 --
Proceeds from issuance of shares for the Employee
Stock Purchase Plan............................. -- 258
Proceeds from exercise of stock options and
warrants........................................ -- 1,378
Increase in deferred financing costs............. (245) --
----------- ------------
Net cash provided by (used in) financing
activities...................................... 5,395 (287)
----------- ------------
Net increase (decrease) in cash and cash
equivalents..................................... 5,436 (20,372)
Cash and cash equivalent at beginning of period.. 833 32,667
----------- ------------
Cash and cash equivalents at end of period....... $ 6,269 $ 12,295
=========== ============
Interest paid.................................... $ 41 $ 771
=========== ============
</TABLE>
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1997
(In thousands, except share and per share amounts)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Item 310 (b) of Regulation S-B.
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) considered necessary for a fair presentation have been included.
Operating results for the three month and six month periods ended June 30,
1997 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1997. For further information, refer to the
financial statements and footnotes thereto included in the DIGEX, Incorporated
annual report on Form 10-KSB for the year ended December 31, 1996.
Certain reclassifications have been made to prior years' financial
statements to conform to current years' presentation.
2. ACQUISITION OF ELECTRONIC PRESS SERVICES GROUP
On January 3, 1997, the Company acquired all of the assets of Electronic
Press Services Group (EPSG) for approximately $805 in cash and the assumption
of approximately $20 in liabilities. Additionally, the Company issued to the
sellers warrants to purchase 175,000 shares of common stock. These warrants
are exercisable at any time during the period from December 31, 1997 through
January 1, 2000 at $10.38 per share. The acquisition was accounted for as a
purchase and the excess of the purchase price over the fair value of the
assets received of $613 has been recorded as goodwill, which is being
amortized over a ten year period.
EPSG designs, integrates and manages electronic commerce solutions for
corporate Internet Web sites. The acquisition of EPSG is an element of the
Company's heightened focus on and evolving commitment to the most critical and
highest revenue-producing customers, such as software publishers and mission-
critical applications with high access and reliability requirements.
3. CAPITAL LEASE OBLIGATIONS
The Company leases equipment under capital leases. Property and equipment
includes the following amounts for leases that have been capitalized:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
<S> <C> <C>
Computer equipment and software........................... $9,679 $17,938
Leasehold improvements.................................... -- 203
Office furniture and equipment............................ 110 342
------ -------
9,789 18,483
Less accumulated amortization............................. 2,214 4,253
------ -------
$7,575 $14,230
====== =======
</TABLE>
4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
3. CAPITAL LEASE OBLIGATIONS (CONTINUED)
Amortization of leased assets is included in depreciation and amortization
expense.
Future minimum payments under capital lease obligations consist of the
following at June 30, 1997:
<TABLE>
<S> <C>
Through December 31, 1997....................................... $ 3,091
1998....................................... 6,655
1999....................................... 5,472
2000....................................... 2,603
2001....................................... 668
-------
Total minimum lease payments.................................... $18,489
Amounts representing interest................................... 4,021
-------
Present value of net minimum lease payments (including current
portion of $4,524)............................................. $14,468
=======
</TABLE>
4. LOSS PER SHARE
The following table summarizes the computations of share amounts used in the
computation of loss per share for the periods ended June 30, 1996 and June 30,
1997 (in thousands of shares):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS
JUNE 30, ENDED JUNE 30,
------------ --------------
1996 1997 1996 1997
----- ------ --------------
<S> <C> <C> <C> <C>
Weighted average number of shares of common
stock outstanding during the period......... 1,618 11,504 1,618 11,399
Effect of options and warrants to purchase
common stock issued within one year of
registration statement...................... 2,990 -- 2,990 --
Effect of convertible debentures and
preferred stock issued within one year of
the registration statement.................. 2,180 -- 2,180 --
----- ------ ------ -------
Total shares considered outstanding.......... 6,788 11,504 6,788 11,399
===== ====== ====== =======
</TABLE>
Loss per share is based on the average number of shares of common stock
outstanding during the period adjusted for the effect of other outstanding
securities as described in the following sentence. As required by the
Securities and Exchange Commission, all common stock options, warrants,
convertible debentures, and convertible preferred stock issued by the Company
at exercise prices or conversion rates below the expected public offering
price during the twelve month period prior to the initial public offering date
have been included in the computation as if they were outstanding for all of
the periods included in the initial public offering Registration Statement,
which included the first three months of 1996, even if the result was anti-
dilutive.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
4. LOSS PER SHARE (CONTINUED)
In February 1997, the Financial accounting Standards Board issued Statement
No. 128, Earnings per Share, which is require to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact of Statement 128
on the calculation of primary and fully diluted earnings per share for these
quarters is not expected to be material.
5. INCOME TAXES
No provision for income taxes is expected for 1997 as the Company expects to
incur a net loss for the year and does not meet the criteria for recognizing
an income tax benefit under the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
6. SUBSEQUENT EVENTS
On July 10, 1997 the shareholders of the company approved the sale to
Intermedia Communications Inc. at $13 a share. The transaction closed on July
10, 1997.
6
<PAGE>
EXHIBIT 99.3
INTERMEDIA COMMUNICATIONS INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited pro forma condensed consolidated balance sheet of
Intermedia Communications Inc. at June 30, 1997, and the related unaudited pro
forma condensed consolidated statements of operations for the year ended
December 31, 1996 and the six months ended June 30, 1997 includes the
historical and pro forma effects of the acquisitions of the Telecommunications
Division of EMI Communications Corporation (EMI), acquired in June 1996,
certain assets and related business lines of Universal Telcom Technologies,
Inc. (UTT) and of NetSolve, Incorporated (NetSolve) which were both acquired
in December 1996, and the acquisition of DIGEX, Incorporated (DIGEX), which
was consummated in July 1997. These pro forma financial statements also
include the historical and pro forma effects of the issuance of the Series B
redeemable exchangeable preferred stock, 11 1/4% Senior Discount Notes due
2007 and the Series D junior convertible preferred stock in July 1997. The
unaudited pro forma condensed consolidated statements of operations have been
prepared to reflect the aforementioned transactions as if they were
consummated at the beginning of each period for which pro forma statements of
operations are presented, and at June 30, 1997 for the condensed consolidated
balance sheet. The pro forma effects are based on the historical financial
statements of the acquired businesses giving effect to the transactions under
the purchase method of accounting and the assumptions and adjustments
described in the accompanying supplemental notes.
The pro forma information is not intended to purport to be indicative of the
actual results or financial position that would have been achieved had the
acquisitions in fact been consummated at the beginning of each period
presented or at June 30, 1997. Such pro forma financial information should be
read in conjunction with the Consolidated Financial Statements and Notes of
Intermedia Communications Inc.
1
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------
(A) (B) PRO FORMA PRO FORMA
CONSOLIDATED DIGEX ADJUSTMENTS TOTALS
------------ -------- ----------- ----------
(IN THOUSANDS)
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents.............. $ 347,863 $ 12,295 $(160,000)(c) $ 533,246
333,088 (d)
Short-term investments.... 5,644 -- -- 5,644
Restricted investments.... 16,686 -- -- 16,686
Accounts receivable, net.. 26,835 6,158 -- 32,993
Prepaid expenses and other
current assets........... 6,224 1,375 -- 7,599
--------- -------- --------- ----------
Total current assets.... 403,252 19,828 173,088 596,168
Restricted investments...... 10,483 -- -- 10,483
Telecommunications and other
equipment.................. 347,588 33,711 (6,908)(e) 374,391
Less accumulated
depreciation............... (53,667) (6,908) 6,908 (e) (53,667)
--------- -------- --------- ----------
Telecommunications and other
equipment, net............. 293,921 26,803 -- 320,724
Intangible assets, net...... 46,488 583 126,635 (f) 173,706
Other assets................ 4,391 1,247 5,795 (g) 11,433
--------- -------- --------- ----------
Total assets............ $758,535 $48,461 $ 305,518 $1,112,514
========= ======== ========= ==========
<CAPTION>
LIABILITIES, REDEEMABLE
PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable.......... $ 27,799 $ 13,893 $ -- $ 41,692
Other accrued expenses.... 14,348 4,096 9,800 (h) 28,244
Current portion of long-
term debt and capital
lease obligations........ 159,693 5,522 -- 165,215
--------- -------- --------- ----------
Total current
liabilities............ 201,840 23,511 9,800 235,151
Other noncurrent
liabilities................ 10,900 (h) 10,900
Long-term debt and capital
lease obligations.......... 210,385 10,885 215,617 (i) 436,887
--------- -------- --------- ----------
Total liabilities....... 412,225 34,396 236,317 682,938
Series B redeemable
exchangeable preferred
stock and accrued
dividends.................. 301,387 -- -- 301,387
Series D redeemable
exchangeable preferred
stock and accrued
dividends.................. -- -- 167,100 (j) 167,100
Stockholders' equity:
Common stock.............. 166 120 (120)(k) 166
Additional paid-in
capital.................. 210,219 67,478 (67,478)(k) 230,219
20,000 (l)
Accumulated deficit....... (161,418) (50,488) 50,488 (k) (265,252)
(60,000)(m)
(43,834)(n)
Deferred compensation..... (4,044) (3,045) 3,045 (k) (4,044)
--------- -------- --------- ----------
Total stockholders'
equity................. 44,923 14,065 (97,899) (38,911)
--------- -------- --------- ----------
Total liabilities,
redeemable preferred
stock and stockholders'
equity................. $ 758,535 $ 48,461 $ 305,518 $1,112,514
========= ======== ========= ==========
</TABLE>
2
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(a) This column represents the historical consolidated balance sheet of
Intermedia at June 30, 1997.
(b) This column represents the historical balance sheet of DIGEX at June 30,
1997.
(c) This adjustment represents the cash purchase price for 11,953,436 shares
of DIGEX common stock at $13 per share, plus transaction expenses of $4.6
million.
(d) This adjustment represents cash proceeds of $167.1 million from the July
1997 Series D Redeemable Exchangeable Preferred Stock offering, cash
proceeds of $363.9 million from the July 1997 issuance of 11 1/4% Senior
Discount Notes due 2007 and cash payments of $197.9 million for the
retirement of the 13 1/2% Senior Notes, originally due 2005.
(e) This adjustment represents the elimination of DIGEX's accumulated
depreciation as fixed assets have been recorded at fair values, which
approximated net book value on the date of acquisition.
(f) This adjustment represents the excess of the total purchase price
(including $9.3 million related to duplicate facilities, $11.4 million
related to unfavorable leases and $20.0 million related to stock options
exchanged) for DIGEX, over the fair values of the net tangible and
intangible assets acquired, less the effect of the write-off of in-process
research and development projects acquired of $60.0 million, for which
there were no alternative use. The balance, which is subject to further
allocation, may be allocated to customer lists and other identifiable
intangible assets based upon appraised values, with the excess allocated
to goodwill.
(g) This adjustment represents the deferred loan costs of $10.8 million
related to the 11 1/4% Senior Discount Notes Due 2007, less the write-off
of $5.0 million of deferred loan costs related to the 13 1/2% Senior
Notes, originally due 2005, that were retired.
(h) These adjustments represent the current and noncurrent portions of assumed
liabilities for estimated duplicate network facility costs, following
complete suspension of use of such facilities, and unfavorable leases.
(i) This adjustment represents the sale of $374.7 million of 11 1/4% Senior
Discount Notes due 2007, less the retirement of $159.1 million 13 1/2%
Senior Notes due 2005.
(j) This adjustment represents the sale of Series D Redeemable Exchangeable
Preferred Stock.
(k) These adjustments represent the elimination of DIGEX's stockholders'
equity for pro forma combining purposes.
(l) This adjustment represents the value ascribed to DIGEX's employee stock
options and warrants that were exchanged for stock options of Intermedia
at fair market value. These options and warrants were granted/issued by
DIGEX prior to its acquisition by Intermedia and were "in-the-money" at
the acquisition date.
(m) This adjustment represents the write-off of in-process research and
development projects acquired in the DIGEX acquisition for which there
were no alternative future use.
(n) This adjustment represents the extraordinary loss recorded in connection
with the retirement of the 13 1/2% Senior Notes due 2005.
3
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------------------
PRO FORMA
(B) (C) (D) (E) (F) PRO FORMA TOTALS
CONSOLIDATED EMI UTT NETSOLVE DIGEX ADJUSTMENTS (A)
------------ ------- ------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $103,397 $25,882 $ 4,812 $18,028 $ 15,573 $ (48)(g) $ 167,644
Costs and expenses:
Facilities
administration and
management and line
costs................ 81,105 24,331 4,331 12,084 16,020 (48)(g) 128,023
(9,800)(h)
Selling, general and
administrative....... 36,610 1,646 1,335 1,072 18,934 59,597
Depreciation and
amortization......... 19,836 1,931 40 -- 2,855 (584)(i)
1,799 (j)
9,482 (k) 35,359
-------- ------- ------- ------- -------- -------- ---------
137,551 27,908 5,706 13,156 37,809 849 222,979
-------- ------- ------- ------- -------- -------- ---------
Income (loss) from
operations........... (34,154) (2,026) (894) 4,872 (22,236) (897) (55,335)
Other income
(expense):
Interest expense.... (35,213) -- (230) (30) (1,566) 260 (l) (59,613)
(22,834)(q)
Interest and other
income............. 12,168 118 -- -- 497 (10,759)(m) 2,024
-------- ------- ------- ------- -------- -------- ---------
Income (loss) before
income tax benefit..... (57,199) (1,908) (1,124) 4,842 (23,305) (34,230) (112,924)
Income tax benefit...... -- 677 -- -- -- (677)(n) --
-------- ------- ------- ------- -------- -------- ---------
Net income (loss)....... (57,199) (1,231) (1,124) 4,842 (23,305) (34,907) (112,924)
Preferred stock
dividends and
accretions............. -- -- -- -- -- (57,400)(p) (57,400)
-------- ------- ------- ------- -------- -------- ---------
Net loss attributable to
common stockholders.... $(57,199) $(1,231) $(1,124) $ 4,842 $(23,305) $(92,307) $(170,324)
======== ======= ======= ======= ======== ======== =========
Net loss per share...... $ (4.08) $ (11.73)
======== =========
Weighted average number
of shares outstanding.. 14,018 14,518 (o)
======== =========
</TABLE>
4
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(YEAR ENDED DECEMBER 31, 1996)
(a) The unaudited pro forma condensed consolidated statement of operations for
the year ended December 31, 1996 does not give effect to any potential
cost savings and synergies that could result from the DIGEX acquisition.
The effect of the write-off of intangible assets consisting of in-process
research and development (R & D) projects of $60 million has not been
reflected in the statement as it is a nonrecurring charge. In addition,
the effect of the extraordinary charge for loss on extinguishment of debt
of $43 million has not been reflected in the statement as it is also a
non-recurring charge.
(b) This column represents Intermedia's historical results of operations for
the year ended December 31, 1996, which includes the operating results of
EMI beginning July 1, 1996, and UTT and NetSolve beginning December 1,
1996.
(c) This column represents EMI's historical results of operations for the six
months ended June 30, 1996.
(d) This column represents UTT's historical results of operations for the
eleven months ended November 30, 1996.
(e) This column represents NetSolve's historical results of operations for the
eleven months ended November 30, 1996.
(f) This column represents DIGEX's historical results of operation for the
year ended December 31, 1996.
(g) This adjustment represents the elimination of intercompany sales between
Intermedia and EMI, prior to its acquisition.
(h) This adjustment represents reduction of assumed liabilities in connection
with the DIGEX acquisition related to duplicate network facility costs of
$4,100 and unfavorable lease rates of $5,700.
(i) This adjustment represents a reduction in EMI's historical depreciation
expense as a result of the allocation of purchase price to fair values of
fixed assets acquired. In addition, these fixed assets are being
depreciated for pro forma purposes on a straight line basis using an
estimated weighted average remaining life of seven years versus original
estimated lives and accelerated depreciation historically followed.
(j) This adjustment represents the additional amortization expense that would
have been incurred had UTT and NetSolve been acquired at the beginning of
the year.
(k) This adjustment represents the additional amortization expense that is
expected to be incurred in connection with the DIGEX acquisition. For
purposes of the pro forma presentation, it is assumed that the excess of
the purchase price over the net tangible assets acquired will be allocated
to developed technology (5 year lives) and goodwill (10 year life). The
Company is investigating the amount and the appropriate amortization
periods for the intangible assets.
(l) This adjustment represents the elimination of interest expense on UTT's
and NetSolve's historical statement of operations.
(m) Where acquisitions were paid all or partially in cash, interest income was
adjusted to reflect the absence of the cash or investments for the full
year.
(n) Represents the elimination of the historical income tax benefit of EMI
that would not have been realized had the operations of EMI been
consolidated with Intermedia for the year.
(o) Includes the weighted effect of 937,500 shares issued in June 1996 for EMI
and 31,380 shares issued in December 1996 for UTT.
(p) This adjustment represents the preferred stock dividends and accretions
that would have been recorded if Intermedia's Series B and D preferred
stock had been outstanding for the entire period.
(q) This adjustment represents interest expense of $44.4 million on the 11
1/4% Senior Discount Notes due 2007 that were issued in July 1997, net of
$21.6 million reduction of interest due to the retirement of the 13 1/2%
Senior Notes.
5
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------
(B) (C) PRO FORMA PRO FORMA
CONSOLIDATED DIGEX ADJUSTMENTS TOTALS(A)
------------ -------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues...................... $ 94,070 $ 19,646 $ 113,716
Costs and expenses:
Facilities, administration
and maintenance and line
costs...................... 80,721 19,588 $ (3,600)(d) 96,709
Selling, general and
administrative............. 39,978 18,506 (374)(e) 58,110
Depreciation and
amortization............... 18,174 3,390 4,741 (f) 26,305
---------- -------- -------- ----------
138,873 41,484 767 181,124
---------- -------- -------- ----------
Loss from operations.......... (44,803) (21,838) (767) (67,408)
Other income (expenses):
Interest expense............ (22,206) (784) (10,824)(g) (33,814)
Other income................ 9,956 486 (5,120)(h) 5,322
---------- -------- -------- ----------
Net loss...................... (57,053) (22,136) (16,711) (95,900)
Preferred stock dividends and
accretions................... (13,223) -- (14,771)(i) (27,994)
---------- -------- -------- ----------
Net loss attributable to
common stock................. $ (70,276) $(22,136) $(31,482) $ 123,894
========== ======== ======== ==========
Net loss per common share..... $ (4.30) $ (7.58)
========== ==========
Weighted average number of
shares outstanding........... 16,347,288 16,347,288
========== ==========
</TABLE>
6
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
(SIX MONTHS ENDED JUNE 30, 1997)
(a) The unaudited pro forma condensed consolidated statement of operations for
the six months ended June 30, 1997 does not give effect to any potential
cost savings and synergies that could result from the DIGEX acquisition.
The effect of the write-off of intangible assets consisting of in-process
research and development (R&D) projects of $60 million has not been
reflected in the statement as it is a non-recurring charge. In addition,
the effect of the extraordinary charge for loss on extinguishment of debt
of $43 million has not been reflected in the statement as it is also a
non-recurring charge.
(b) This column represents the historical results of operations for the six
months ended June 30, 1997.
(c) This column represents the historical results of operations of DIGEX for
the six months ended June 30, 1997.
(d) This adjustment represents reduction of assumed liabilities in connection
with the DIGEX acquisition related to duplicate facility costs of $800 and
unfavorable lease rates of $2,800.
(e) This adjustment represents the reversal of DIGEX's deferred compensation
amortization for the period.
(f) This adjustment represents the amortization of intangible assets.
Capitalized technologies are amortized over 8 years. All other intangible
assets are being amortized over 10 years.
(g) This adjustment represents interest expense of $21.6 million on the
11 1/4% Senior Discount Notes Due 2007 that were issued in July 1997, net of
$10.8 million reduction of interest due to the retirement of the 13 1/2%
Senior Notes.
(h) This adjustment represents the estimated reduction in interest income that
would have been experienced had the cash purchase price been paid at the
beginning of the period.
(i) This adjustment represents the preferred stock dividends and accretions
that would have been recorded if the Series B and D Preferred Stock had
been outstanding for the entire period.
7
