attributable to the systems include wages and employee benefits for customer
service, accounting and administrative personnel, franchise fees and expenses
related to billing, payment processing and office administration.
Pro Forma Operating Results. We have begun to implement operating changes in
the business formerly conducted by Cable Michigan. Most notably, we directly
manage Cable Michigan's operations through a twelve person corporate staff and
we no longer pay RCN Corporation a management fee or reimburse RCN Corporation
for allocated costs. As a result, we have eliminated the RCN Corporation
management fee of $3.2 million for the year ended December 31, 1998. Management
expects to eliminate certain corporate overhead expenses at Nova Cablevision,
Cross Country Cable TV, Novagate Communications, R/COM, Traverse Internet,
Galaxy American Communications, Taconic Technology and Hometown TV of $1.5
million for the year ended December 31, 1998.
Amortization and depreciation. On a pro forma basis, our depreciation and
amortization has and will increase by approximately $7.3 million on a yearly
basis due to our acquisitions and the associated fair value allocation to fixed
assets and intangibles associated with these purchases.
Interest expense, net. On a pro forma basis, interest expense would be $31.5
million. Interest expense is expected to continue at approximately this amount
subject to increases for additional borrowings for acquisitions and
fluctuations due to the floating interest rates we pay under our credit
On a pro forma basis, our cash flows from operating, investing and financing
activities for the year ended December 31, 1998 were $27.7 million, $(556.1)
million, and $510.5 million, respectively, reflecting our acquisition and
financing activities described elsewhere herein.
In addition, we expect to eliminate non-recurring or one-time operating
costs incurred by Cable Michigan of $1.9 million for the year ended December
31, 1998. These non-recurring costs include expenses such as litigation
expenses, expenses associated with a May 1998 storm in Grand Rapids, expenses
related to the relocation of the customer call center to Michigan and one-time
costs associated with special promotions. We also expect lower administrative
costs through the elimination of some public company expenses of $394,000. For
the year ended December 31, 1998 we expect a total savings of $7.0 million on a
pro forma basis.
For the quarter ended March 31, 1999 management expects to eliminate certain
corporate overhead expenses at Traverse Internet, Galaxy American
Communications, Hometown TV and Taconic Technology of $213,000. We also do not
expect a recurrence of a credit resulting from the May 1998 storm insurance
adjustment of $80,000.
Other operating changes include changes in the areas of customer service and
programming, all of which RCN Corporation managed for Cable Michigan. To better
serve subscribers located in Michigan, we relocated the customer call center
from Pennsylvania, which Cable Michigan shared with RCN Corporation and
Commonwealth Telephone Enterprises, to a site within Michigan and reconfigured
the call center to operate as a stand-alone entity. Management is currently
analyzing its options for acquiring programming for the Michigan cluster. We
are currently using our existing membership in the National Cable Television
Cooperative to program both the Michigan cluster and the New England cluster.
We are exploring joining the programming consortium that RCN Corporation used
in managing Cable Michigan as well as engaging in direct negotiations with
programming suppliers. Management currently believes that, in the aggregate,
our expenses in these areas for the Michigan cluster will not be materially
different than those of Cable Michigan, considering for these purposes both the
direct costs incurred by Cable Michigan and the allocated costs reimbursed to