The Company used the net proceeds from the Notes offering, together with
the equity contributions and borrowings under the Term Loans, to consummate the
Acquisition. The Company has approximately $207.3 million of indebtedness
outstanding and unused commitments under the Revolver of $40.0 million. Subject
to compliance with the terms of the Credit Agreement, borrowings under the
Revolver will be available for working capital purposes, capital expenditures
and acquisitions. In July 1998 the Company received additional equity
contributions of $.1 million from Holdings.
The Company expects to make substantial investments in capital to: (i)
upgrade its cable plant; (ii) build line extensions; (iii) purchase new
equipment; and (iv) acquire the equipment necessary to implement its digital and
Internet and data transmission strategy. In 1998, the Company estimates it will
make capital expenditures of approximately $5.0 million, down from its original
estimate of $9.8 million, due to design delays relating to plant upgrades. The
difference in estimates will be carried over into 1999. The Company believes
that the borrowings expected to be available under the Revolver and anticipated
cash flow from operations will be sufficient to upgrade the Systems as currently
contemplated and to satisfy the Company's working capital, capital expenditure
and debt service requirements. However, the actual amount and timing of the
Company's capital requirements may differ materially from the Company's
estimates as a result of, among other things, the demand for the Company's
services and regulatory, technological and competitive developments (including
additional market developments and new opportunities) in the Company's industry.
The Company also expects that it will require additional financing if the
Company's development plans or projections change or prove to be inaccurate or
the Company engages in any acquisitions. Sources of additional financing may
include commercial bank borrowings, vendor financing or the private or public
sale of equity or debt securities. There can be no assurances that such
financing will be available on terms acceptable to the Company or at all.
Borrowings under the Credit Agreement bear interest at floating rates,
although the Company is required to maintain interest rate protection programs.
Renaissance Media's obligations under the Credit Agreement are secured by
substantially all the assets of Renaissance Media.
The Company is subject to interest rate fluctuations on its Credit
Agreement ($102.5 million outstanding at September 30, 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 Credit Agreement. 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.