-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MyCpg7KZiw7HJPq7+V6UMq4aG8r0FmCK3iXCvHnmSThSfpxEdAR36NWrCypkbKwS vISBUQx7AhLq1kqbBapTxQ== 0000950144-97-012228.txt : 19971117 0000950144-97-012228.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950144-97-012228 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERMEDIA COMMUNICATIONS OF FLORIDA INC CENTRAL INDEX KEY: 0000885067 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 592913586 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20135 FILM NUMBER: 97718148 BUSINESS ADDRESS: STREET 1: 3625 QUEEN PALM DR STREET 2: STE 720 CITY: TAMPA STATE: FL ZIP: 33619 BUSINESS PHONE: 8138290011 10-Q 1 INTERMEDIA COMMUNICATIONS INC. FORM 10-Q 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- FORM 10-Q ----------------- QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended 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 ------------------------------------------------------ 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. ================================================================================ 2 INTERMEDIA COMMUNICATIONS INC. INDEX PART I. FINANCIAL INFORMATION PAGE NO.
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
2 3 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements INTERMEDIA COMMUNICATIONS INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 ------------------ ------------------ ------------------ ------------------ 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 ============ ============ ============ ============
See accompanying notes. 3 4 INTERMEDIA COMMUNICATIONS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE INFORMATION)
SEPTEMBER 30, 1997 DECEMBER 31, 1996 ------------------ ----------------- 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 =========== =========
See accompanying notes. 4 5 INTERMEDIA COMMUNICATIONS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 ------------------ ------------------ 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 ========= =========
See accompanying notes. 5 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. 6 7 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). 7 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. 8 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.
Nine Months Ended September 30, (In thousands) 1997 1996 --------------- ---------------- 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)
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 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 10 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 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:
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30, 1997 1996 1997 1996 ---- ---- ---- ---- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) 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)% ======= ===== ======= =======
The following table sets forth other statistical data derived from the Company's operating records:
SEPT. 30, 1997 SEPT. 30, 1996 -------------- -------------- 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
12 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 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 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 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 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 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 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 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 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
Number Exhibit ------ ------- 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
21 22 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)
(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 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 EX-3.1 2 RESTATED CERTIFICATE OF REINCORPORATION 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 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 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- 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- 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- 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- 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- 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- 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- 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 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 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 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 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 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 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 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 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 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 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 EX-27.1 3 FINANCIAL DATA SCHEDULE (FOR SEC USE ONLY)
5 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. 0000885067 INTERMEDIA COMMUNICATIONS, INC. 1,000 U.S. DOLLARS 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 1 471,101 6,842 46,855 3,873 0 529,114 453,545 65,731 1,086,185 79,465 619,262 482,111 0 171 (90,600) 1,086,185 4,152 165,317 2,537 299,498 0 0 39,895 (157,385) 0 (157,385) 0 (48,834) 0 (228,337) (13.87) (13.87)
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