The Company is subject to interest rate fluctuations on its Senior Credit
Facility, ($110.0 million outstanding at March 31, 1998), and accordingly has
entered into an interest rate cap agreement with a notional amount of $100.0
million. This agreement serves to cap the interest rates associated with the
Company's variable rate debt under the Senior Credit Facility. The cap
agreement protects the Company from increased interest costs if LIBOR exceeds
7.25% and expires on December 1, 1999.
The Company assesses its interest rate protection options on an ongoing
basis with a goal of having in place interest rate protection plans as it
deems appropriate, based on its assessment of future interest rates balanced
against the cost of such plans and the degree of interest rate fluctuation
risk the Company believes is appropriate.
YEAR 2000 ISSUES
The Company relies on computer systems, related software applications and
other control devices in operating and monitoring all major aspects of its
business, including, but not limited to, its financial systems (such as
general ledger, accounts payable and payroll modules), subscriber billing
systems, internal networks and telecommunications equipment. The Company also
relies, directly and indirectly, on the external systems of various
independent business enterprises, such as its suppliers and financial
organizations, for the accurate exchange of date and related information.
The Company continues to assess the likely impact of Year 2000 issues on its
business operations, including its material information technology ("IT") and
non-IT applications. These material applications include all billing and
subscriber information systems, general ledgers, phone switches and certain
headend applications, all of which are third party supported. The Company has
received written assurances from the providers of all third party-supported
applications to the effect that such applications are either Year 2000
compliant or subject to plans to become Year 2000 compliant. The Company is
currently quantifying its non-IT applications which may be affected by Year
2000 issues and have an effect on its operations.
The Company continues to monitor Year 2000 issues and expect to have all
systems identified by the end of 1998 and compliance determinations completed
by the end of the first calendar quarter of 1999. Based on the results of its
compliance determinations, appropriate contingency plans will be finalized to
the extent possible.
The Company has not incurred any material Year 2000 costs to date, and
excluding the need for contingency plans, does not expect to incur any
material Year 2000 costs in the future because most of the applications it
uses are maintained by third parties who have borne such Year 2000 compliance
The Company cannot be certain that it or third parties supporting its
systems have resolved or will resolve all Year 2000 issues in a timely manner.
Failure by the Company or any such third party to successfully address the
relevant Year 2000 issues could result in disruptions of the Company's
business and the incurrence of significant expenses by the Company.
Additionally, the Company could be affected by any disruption to third parties
with which the Company does business if such third parties have not
successfully addressed their Year 2000 issues.
During January 1998, the Systems increased their subscription rates from
$7.69 to $7.88, on a weighted average basis (excluding bulk subscribers) for
basic service, and from $17.33 to $20.28, on a weighted average basis, for
CPST. For the three months ended March 31, 1998, after giving pro forma effect
to the rate increases described above as if they had occurred on January 1,
1998 as opposed to cycling in throughout the month, and the Acquisition as if
it occurred at the beginning of the period, the Company's EBITDA would have
been approximately $7.2 million, as compared to approximately $6.9 million
reflected in the pro forma combined statement of operations for the three
months ended March 31, 1998.