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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ______________
Commission file number 33-72468
33-72468-01
THE HELICON GROUP, L.P.
(Exact name of registrant as specified in its charter)
Delaware 4841 22-3248703
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number Identification No.)
HELICON CAPITAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 4841 22-3248702
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number Identification No.)
630 Palisade Avenue
Englewood Cliffs, New Jersey 07632
(201) 568-7720
(Address, including Zip Code and telephone number,
including area code, of registrants' principal executive offices)
Indicate by check mark whether the Registrants: (1) have 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
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Yes X No______
The number of shares outstanding of the common stock of Helicon Capital Corp.,
as of November 8, 1996: 100.
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THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
INDEX
PART I. FINANCIAL INFORMATION PAGE
--------------------- ----
Unaudited Condensed Consolidated Balance Sheets as
at December 31, 1995 and September 30, 1996 3
Unaudited Condensed Consolidated Statements of Operations for the
three-month and nine-month periods ended September 30, 1995 and 1996 4
Unaudited Condensed Consolidated Statement of Changes in Partners'
Deficit for the nine-month period ended September 30, 1996 5
Unaudited Condensed Consolidated Statements of Cash Flows for the
nine-month periods ended September 30, 1995 and 1996 6
Notes to Unaudited Condensed Consolidated Financial Statements 7 and 8
Management's Discussion and Analysis of Financial Condition and
Results of Operations 9 - 14
PART II. OTHER INFORMATION
-----------------
None
Signature Page 15
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
Condensed Consolidated Balance Sheets
December 31, September 30,
1995(a) 1996
------------- -------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 3,984,816 $ 7,792,045
Receivables from subscribers 915,563 704,801
Prepaid expenses and other assets 851,028 1,121,173
Property, plant and equipment, net 29,343,270 28,573,084
Intangible assets and deferred costs, net 25,843,688 22,861,539
------------- -------------
Total assets $ 60,938,365 $ 61,052,642
============= =============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable $ 2,795,738 $ 2,263,595
Accrued expenses 540,103 340,500
Subscriptions received in advanced 393,024 481,386
Accrued interest 1,770,572 4,315,629
Due to principal owner 5,000,000 5,000,000
Senior secured notes, net of unamortized discount of
$1,778,684 in 1995 and $181,720 in 1996 113,221,316 114,818,280
Loans payable to bank 2,050,000 1,905,556
Other notes payable 2,403,912 2,692,187
Due to affiliates 216,981 375,851
------------- -------------
Total liabilities 128,391,646 132,192,984
------------- -------------
Partners' deficit:
Accumulated partners' deficit (67,452,281) (71,139,342)
Less capital contribution receivable (1,000) (1,000)
------------- -------------
Total partners' deficit (67,453,281) (71,140,342)
------------- -------------
Total liabilities and partners' deficit $ 60,938,365 $ 61,052,642
============= =============
(a) Balance Sheet at December 31, 1995 has been derived from Audited
Consolidated Financial Statements at that date.
See accompanying notes to unaudited condensed consolidated financial statements.
3
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
Unaudited Condensed Consolidated Statements of Operations
Three-Month and Nine-Month Periods Ended September 30, 1995 and 1996
Three Months Ended September 30, Nine Months Ended September 30,
1995 1996 1995 1996
------------ ------------ ------------ ------------
Revenues $ 8,811,737 $ 9,440,447 $ 26,230,693 $ 28,312,621
------------ ------------ ------------ ------------
Operating Expenses:
Operating expenses 2,391,453 2,553,745 6,997,737 7,697,801
General and administrative expenses 1,250,974 1,521,675 4,149,973 4,464,092
Marketing expenses 232,268 243,523 770,402 797,806
Depreciation and amortization 2,426,478 2,516,575 7,109,622 7,423,568
Management fee charged by affiliate 440,319 471,985 1,311,530 1,415,593
Corporate and other expenses 84,054 87,871 231,941 249,798
------------ ------------ ------------ ------------
Total operating expenses 6,825,546 7,395,374 20,571,205 22,048,658
------------ ------------ ------------ ------------
Operating income 1,986,191 2,045,073 5,659,488 6,263,963
Interest expense (3,236,899) (3,379,126) (9,652,459) (10,109,798)
Interest income 59,498 57,743 165,244 158,774
------------ ------------ ------------ ------------
Net loss $ (1,191,210) $ (1,276,310) $ (3,827,727) $ (3,687,061)
============ ============ ============ ============
See accompanying notes to unaudited condensed consolidated financial statements
4
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
Unaudited Condensed Consolidated Statement of Changes in Partners' Deficit
Nine-Month Period Ended September 30, 1996
Accumulated Partners' Deficit
-----------------------------
Capital
General Limited Contribution
Partners Partners Receivable Total
------------ ------------ ------------ ------------
Balance at January 1, 1996 $ (307,994) $(67,144,287) $ (1,000) $(67,453,281)
Net Loss (36,871) (3,650,190) -0- (3,687,061)
------------ ------------ ------------ ------------
Balance at September 30, 1996 $ (344,865) $(70,794,477) $ (1,000) $(71,140,342)
============ ============ ============ ============
See accompanying notes to unaudited condensed consolidated financial statements.
5
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
Unaudited Condensed Consolidated Statements of Cash Flows
Nine-Month Periods Ended September 30, 1995 and 1996
1995 1996
------------ ------------
Cash flows from operating activities:
Net loss $ (3,827,727) $ (3,687,061)
------------ ------------
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 7,109,622 7,423,568
Gain on sale of equipment (6,450) (16,575)
Interest on other notes payable added to principal 153,025 168,328
Amortization of debt discount 1,435,196 1,596,964
Change in operating assets and liabilities:
(Increase) decrease in receivables from subscribers (264,324) 210,762
Increase in prepaid expenses and other assets (37,435) (270,145)
Decrease in accounts payable and accrued expenses (790,568) (731,746)
Increase in subscriptions received in advance 161,843 88,362
Increase in accrued interest 2,548,659 2,545,057
------------ ------------
Total adjustments 10,309,568 11,014,575
------------ ------------
Net cash provided by operating activities 6,481,841 7,327,514
------------ ------------
Cash flows from investing activities:
Purchases of property, plant and equipment (5,313,354) (3,134,827)
Proceeds from sales of equipment 6,450 18,147
Cash paid for net assets of cable television systems (350,000) --
Cash paid for net assets of internet business acquired -- (40,000)
Increase in intangible assets and deferred costs (380,615) (30,405)
------------ ------------
Net cash used in investing activities (6,037,519) (3,187,085)
------------ ------------
Cash flows from financing activities:
Proceeds from bank loans 1,650,000 400,000
Repayment of bank loans -- (544,444)
Repayment of other notes payable (313,254) (347,626)
Advances to affiliates (1,317,392) (1,021,580)
Repayments of advances to affiliates 1,067,898 1,180,450
------------ ------------
Net cash provided (used) by financing activities 1,087,252 (333,200)
------------ ------------
Net increase in cash and cash equivalents 1,531,574 3,807,229
Cash and cash equivalents at beginning of period 4,405,397 3,984,816
------------ ------------
Cash and cash equivalents at end of period $ 5,936,971 $ 7,792,045
============ ============
Supplemental cash flow information:
Interest paid $ 5,515,579 $ 5,799,449
============ ============
Other non-cash items:
Acquisition of property, plant and equipment through issuance of
other notes payable $ 125,064 $ 467,573
============ ============
See accompanying notes to unaudited condensed consolidated financial statements.
6
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 1995 and 1996
(1) Organization and Nature of Business
The Helicon Group, L.P. (the "Partnership") was organized on August 10,
1993 under the laws of the State of Delaware to consolidate the ownership
interests of Helicon Group Ltd. ("Helicon"); Terrebonne Cablevision, L.P.,
Roxboro Cablevision Associates, L.P., and Vermont Cablevision Associates,
L.P. (collectively, the "Predecessor Companies") in connection with a
roll-up plan completed on November 3, 1993 (the "roll-up"). As a result of
the roll-up, the Partnership acquired substantially all of the operating
assets and agreements of all the cable television systems which were
previously owned by the Predecessor Companies and the stockholders and the
partners of the Predecessor Companies became limited partners of the
Partnership.
The Partnership operates cable television systems located in Pennsylvania,
West Virginia, North Carolina, Louisiana, Vermont and New Hampshire.
(2) Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of the Partnership and its wholly owned
incorporated entity, Helicon Capital Corp. ("HCC"), reflect all
adjustments, consisting of normal recurring accruals, necessary to present
fairly the Partnership's consolidated financial position as at September
30, 1996, and their results of operations for the three-month and
nine-month periods ended September 30, 1995 and 1996 and cash flows for the
nine-month periods ended September 30, 1995 and 1996. Information included
in the condensed consolidated balance sheet at December 31, 1995 has been
derived from the audited consolidated balance sheet in the Partnership's
and HCC's Annual Report on Form 10-K for the year ended December 31, 1995
(the "1995 Form 10-K") filed with the Securities and Exchange Commission.
The unaudited consolidated financial statements and these notes have been
condensed; therefore, they do not contain all of the disclosures required
by generally accepted accounting principles and should be read in
conjunction with the consolidated financial statements and the other
information in the 1995 Form 10-K.
HCC had nominal assets as of September 30, 1996 and had no operations from
the date of incorporation to September 30, 1996. All intercompany accounts
have been eliminated in consolidation. The results of operations of the
Partnership for the nine-month periods ended September 30, 1995 and 1996
are not necessarily indicative of the results for a full year.
7
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 1995 and 1996
3) Acquisitions
On January 31, 1995, the Partnership acquired a cable television system,
serving approximately 1,100 subscribers in the Vermont communities of
Bradford, South Royalton and Chelsea. The aggregate purchase price was
approximately $350,000.
On March 22, 1996, the Partnership acquired the net assets of a telephone
dial-up internet access provider, serving approximately 350 customers in
and around the area of Uniontown, Pennsylvania. The aggregate purchase
price was approximately $40,000.
4) Other Events
On April 8, 1996, the existing limited partners of the Helicon Group, L.P.
("THGLP") exchanged (the "Exchange") their limited partnership interests in
THGLP for all Class A Common Limited Partnership Interests and Preferred
Partnership Interests in Helicon Partners I, L.P. ("HPI"). As a result of
this Exchange, THGLP became 99% owned by HPI (HPI now owns all of the
limited partnership interests in THGLP and Baum Investments, Inc. continues
to be the general partner of THGLP and to own a 1.00% general partnership
interest in TGHLP). The previous limited partners of the THGLP presently
own 100% of the limited partner interests of HPI, subject to dilution upon
exercise of the warrants described below.
Also on April 8, 1996, HPI entered into a Securities Purchase Agreement and
several other related agreements with certain investors pursuant to which
HPI issued to such investors (i) $34,000,000 aggregate principal amount of
12% Subordinated Notes due April 1, 2004 and (ii) Warrants to purchase
24.191% of HPI's common limited partnership interests.
In April 1996, HPI formed HPI Acquisition Co., LLC ("HPIAC") a Delaware
limited liability company. HPIAC was formed to use the proceeds of the 12%
Subordinated Notes and the Warrants and borrowings under HPIAC's $85.0
million line of credit to acquire interests in cable television systems. To
date HPIAC has acquired three cable television systems serving
approximately 26,000 subscribers in Tennessee and Georgia.
In April 1996, THGLP acquired a 1% interest in HPIAC for $1,000. THGLP's
equity in HPIAC's net loss to date is not material.
8
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
SEPTEMBER 30, 1995 AND 1996
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General
The Helicon Group, L.P. (the "Partnership" or "Company") incurred a net
loss for the three and nine months ended September 30, 1995 and 1996,
respectively. The principal items contributing to the Partnership's net losses
are the high level of expenses relating to depreciation, amortization and
interest. These expenses are the result of capital expenditures related to
continued expansion and rebuilding of the systems, the Partnership's
acquisitions and its financing activities. The Partnership believes that
recurring net losses are common for cable television companies and expects that
such net losses will continue. The Partnership believes that available working
capital, cash flows generated from operations and the availability of the 1994
Credit Facility will be sufficient to meet its operating needs and future
commitments. See "Liquidity and Capital Resources" below.
Recent Cable Regulatory Developments. The Telecommunications Act of 1996,
Public law 104-104, enacted on February 8, 1996 ("1996 Act") instituted sweeping
changes in the telecommunications industries and has significantly increased the
potential for competition to cable television, especially from telephone and
electric utilities. The Act has terminated the 1982 federal court consent decree
(the "Modified Final Judgment") that settled the 1974 antitrust suit against
AT&T and has eliminated the 1984 Cable Act codification of the FCC telephone
cable/cross-ownership regulations. As a result, long-distance telephone
companies such as AT&T, MCI and Sprint will be able to provide local exchange
service, and the local exchange carriers, including the seven Regional Bell
Operating Companies, GTE and the smaller independent telephone carriers, will be
allowed to provide long-distance service.
Telephone companies will be allowed to provide cable television service
either as a franchised cable operator or as an unfranchised common carrier "open
video service" ("OVS") provider. The 1996 Act allows telephone company direct
ownership of franchised cable systems by repealing the telephone company-cable
television cross-ownership ban. Further, the FCC's "video dialtone" regulations
have been replaced with a more lenient "open video system" or "OVS" concept.
This will allow local exchange carriers ("LEC's"), including the Regional Bell
Operating Companies, to compete with cable companies both inside and outside
their telephone service areas either as a common carrier OVS provider or as a
franchised cable operator.
The 1996 Act attempts to eliminate all state and local regulatory barriers
to entry, including cable television company entry, into the telephone business.
Any company or entity desiring to enter the telephone business may do so as a
reseller of LEC services for which the Act requires the LEC to offer a bulk
discount, as a facilities-based local exchange carrier interconnecting with the
incumbent LEC's local loops, or as a partial facilities-based carrier
interconnecting with various parts of the incumbent LEC's unbundled services. On
August 1, 1996, the FCC adopted a 668 page order establishing regulations
governing the terms and conditions of resale, interconnection and access to
unbundled services ("Interconnection Order" ). The Company is currently
analyzing these complex regulations to assess potential opportunities for the
Company to enter into competitive telephony in its service areas.
9
Numerous parties have sought judicial review of certain regulations
promulgated by the Interconnection Order. On October 15, 1996, the 8th Circuit
Court of Appeals stayed certain pricing regulations pending judicial review of
the Interconnection Order. The stay leaves the establishment of interconnection
and resale rates, terms and conditions between the parties, subject to state
public utility commission arbitration. On October 24, 1996, the FCC and the
Solicitor General of the United States commenced proceedings seeking reversal of
the stay by the United States Supreme Court.
The Company anticipates that, over time, it will become subject to
increasing competition for the provision of video programming from telephone
companies. It may also face increasing competition from electric utilities, as
evidenced by the FCC's September 19, 1996 order permitting registered public
utility holding companies to enter the telecommunications industry without prior
Securities and Exchange Commission approval. This may have a material, but as
yet undetermined, impact on the Company's operations.
Although the 1996 Act eliminates the telephone/cable cross-ownership
restrictions, it also contains a general prohibition on LEC acquisitions of
cable systems located within the LEC's local service area. Cable operators are
likewise generally prohibited from acquiring LEC systems, and joint ventures
between cable operators and LEC's, within the same service areas, are also
banned. There are certain exceptions for cable systems in rural areas and
telephone exchanges and for small telephone companies.
Under the 1996 Act, the Company qualifies for small cable system status and
is rate deregulated in most jurisdictions. The 1996 Act deregulated certain
rates of "small cable operators" as of February 8, 1996. A "small cable
operator" has fewer than approximately 617,000 subscribers and is not
"affiliated" with any entity having more than $250 million in gross annual
revenues. The FCC has adopted a temporary affiliation standard and is working on
a more definitive standard. To qualify for rate deregulation, the system must
have 50,000 or fewer subscribers in a particular franchise area. Where a
qualified system has only one tier of service (i.e., "basic") as of December 31,
1994, the 1996 Act deregulated all rates, including installation and customer
premises equipment rates, on February 8, 1996. Where it had a "basic"tier and an
upper "CPS" tier, the CPS tier rate was similarly deregulated on February 8,
1996. Only the Company's Vermont system has a CPS tier. A social contract
entered into by the Company and the State of Vermont govern those rates,
however, the 1996 Act does not disturb existing or pending rate inquiries.
The 1996 Act amends the requirement that cable rates be uniform throughout
a franchise area to exempt situations where the cable operator faces "effective
competition," and by permitting bulk discounts to multiple dwelling units. The
FCC retains jurisdiction to investigate complaints of "predatory pricing".
Further, the FCC has recently adopted rules permitting an operator to equalize
rates over various geographic areas on a revenue neutral basis.
The 1996 Act eliminates the requirement instituted in the 1992 Cable Act
that cable systems must be held for three years prior to sale. The definition of
"cable system" is amended so that competitive providers of video services will
be regulated as a definitional "cable system" only if they use public
rights-of-way. This frees many Satellite Master Antenna Television ("SMATV") and
Multi-Channel, Multi-Point Distribution Service ("MMDS") providers of cable
service from the FCC's cable regulations and restrictions. In addition to the
elimination of the telephone/cable cross-ownership restrictions the 1996 Act
eliminates the broadcast network/cable cross-ownership restrictions, but leaves
in place FCC regulations prohibiting cross-ownership between local television
stations and cable systems. The FCC is empowered to adopt rules to ensure
carriage, channel positioning and non-discriminatory treatment of non-affiliated
broadcast stations by cable systems affiliated with a broadcast network. The
MMDS/cable cross-ownership restrictions are eliminated for cable operators
subject to effective competition.
10
The 1996 Act requires cable operators, upon subscriber request, to fully
scramble or block at no charge the audio and video portion of any channel not
specifically subscribed to by a household. Further, cable operators are
obligated to fully scramble or block both the audio and video of all sexually
explicit programming. If the cable operator cannot fully scramble or block its
signal, it must restrain distribution to those "safe harbor" hours of the day
when children are unlikely to view the programming. The FCC adopted interim
rules defining the "safe harbor" to be between 10:00 PM to 6:00 AM. These
provisions of the 1996 Act have been stayed by the Federal District Court in
Delaware pending a decision as to their constitutionality. The United States
Supreme Court struck down two other provisions. An operator is no longer
required to block, scramble and segregate certain adult oriented leased access
programming. Operators are also not permitted to exercise editorial control over
public education and government access programming depicting nudity, sexually
explicit or indecent programming.
The 1996 Act introduces several changes to the regulation of cable pole
attachments that could have an effect on the Company. The FCC is directed to
establish a new formula for poles used by cable operators which will result in
higher pole rental rates. Any increases pursuant to this formula may not begin
for 5 years and will be phased in over a 5 year period thereafter. This new FCC
formula does not apply in states which certify that they regulate pole rents.
The states of Vermont and Louisiana, in which the Partnership conducts
operations, have certified to regulate pole attachment rates. The 1996 Act also
requires pole owners to impute pole rentals to themselves if they offer
telecommunications or cable services. Additionally, cable operators need not pay
for future "makeready" on poles currently used if the makeready is required to
accommodate the attachments of another user, including the pole owner.
The FCC has adopted numerous regulations implementing these statutory
provisions and will continue with adoption of implementing regulations through
at least the end of 1996. All these regulations are subject to requests for
reconsideration or clarification. The Company is unable at this time to assess
the full impact of those regulations on its operations.
Results of Operations
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30,
1995.
Revenues. Revenues increased $2,081,928 or 7.9% to $28,312,621. The
increase in revenues was primarily attributed to increase in basic service
rates, internal subscriber growth, revenues from the new program services and a
non-cable internet service which was acquired on March 22, 1996 and strong
growth in advertising revenue. The average monthly cable revenue per basic
subscriber increased from $33.83 in the 1995 period to $35.88 in the 1996
period. The $2.05 increase in cable revenue per basic subscriber reflected
primarily i) an increase of $1.78 in basic revenues; ii) an increase of $.28 in
new program services; iii) an increase of $.08 in advertising revenue; iv) a
decrease of $.12 in premium subscription revenue; and v) an increase of $.03 in
other services.
Operating, Marketing, General and Administrative Expenses. Operating,
marketing, general and administrative expenses increased $1,041,587 or 8.7% to
$12,959,699. Approximately half of this increase reflected additional expenses
for new and expanded programming services; including costs related to a
non-cable internet service. The balance of the increase in expenses was
consistent with the growth in revenues and
11
subscribers, coupled with general cost increases. As a percentage of revenues,
operating, marketing, general and administrative expenses increased from 45.4%
to 45.8% in the 1996 period.
Depreciation and Amortization. Depreciation and amortization expenses
increased $313,946 or 4.4% to $7,423,568, primarily as a result of $318,761
higher depreciation charges relating to capital expenditures made in 1995 and
1996. Amortization expense in the 1996 period approximated the amortization
expense of the 1995 period.
Management Fee Charged by Affiliate. Management fee expenses increased
$104,063 or 7.9% to $1,415,593 consistent with the increase in revenues.
Corporate and other expenses. Corporate and other expenses increased
$17,857 or 7.7% to $249,798 primarily due to the timing of certain professional
fees.
Operating Income. Operating income for the nine months ended September 30,
1996 increased $604,475 or 10.7% to $6,263,963 from the $5,659,488 operating
income in the comparable 1995 period. The improvement in operating results was
due to increased profits on higher cable revenues.
Interest Expense. Interest expense increased $457,339 or 4.7% to
$10,109,798 primarily as a result of the payment of interest on the note due to
the Principal Owner which resumed in November 1995, as per the terms of the
Senior Secured Notes, higher non-cash interest expense related to the
amortization of the original issue discount on the Senior Secured Notes and
borrowing under the 1994 Credit Facility.
Interest Income. Interest income decreased $6,470 or 3.9% to $158,774.
Three Months Ended September 30, 1996 Compared to Three Months Ended September
30, 1995
Revenues. Revenues increased $628,710 or 7.1% to $9,440,447. The increase
in revenues was primarily attributed to increase in basic service rates,
revenues from new program services and a non-cable internet service which was
acquired on March 22, 1996. The average monthly cable revenue per basic
subscriber increased from $33.87 in the 1995 period to $35.91 in the 1996
period. The $2.04 increase in cable revenue per basic subscriber reflected
primarily i) an increase of $1.78 in basic revenues; ii) an increase of $.23 in
new program services; iii) an increase of $.07 in advertising revenue; iv) a
decrease of $.05 in premium subscription revenue; and v) an increase of $.01 in
other services.
Operating, Marketing, General and Administrative Expenses. Operating,
marketing, general and administrative expenses increased $444,248 or 11.5% to
$4,318,943. Approximately half of this increase reflected additional expenses
for new and expanded programming services and costs related to the new non-cable
internet service. The balance of the increase in expenses was consistent with
the growth in revenues and subscribers, coupled with general cost increases. As
a percentage of revenues, operating, marketing, general and administrative
expenses increased from 44.0% in the 1995 period to 45.7% in the 1996 period.
12
Depreciation and Amortization. Depreciation and amortization expenses
increased $90,097or 3.7% to $2,516,575, primarily as a result of $96,048 higher
depreciation charges relating to capital expenditures made in 1995 and 1996.
Amortization expense in the 1996 period approximated the amortization expense of
the 1995 period.
Management Fee Charged by Affiliate. Management fee expenses increased
$31,666 or 7.1% to $471,985 consistent with the increase in revenues.
Corporate and Other Expenses. Corporate and other expenses increased $3,817
or 4.5% to $87,871 primarily due to the timing of certain professional fees.
Operating Income. Operating income for the three months ended September 30,
1996 increased $58,882 or 3.0% to $2,045,073 from the $1,986,191 operating
income in the comparable 1995 period. The improvement in operating results was
primarily due to increased profits on higher cable revenues which were offset in
part by expenses incurred in launching a new non-cable internet service.
Interest Expense. Interest expense increased $142,227 or 4.4% to $3,379,126
primarily as a result of the payment of interest on the note due to the
Principal Owner which resumed in November 1995, as per the terms of the Senior
Secured Notes, higher non-cash interest related to the amortization of the
original issue discount on the Senior Secured Notes and borrowing under the 1994
Credit Facility.
Interest Income. Interest income decreased $1,755 or 2.9% to $57,743.
Liquidity and Capital Resources
The cable television business requires substantial financing for
construction, expansion and maintenance of plant and for acquisitions. The
Partnership has historically financed its capital needs and acquisitions through
long-term debt and, to a lesser extent, through cash provided from operating
activities.
The Partnership operates at low and sometimes negative working capital
levels. This is primarily due to accounts payable balances which often include
significant amounts for capital expenditures. Currently, such payables are paid
when due from available cash balances, including cash generated from operations
up to the date of payment and borrowings under the 1994 Credit Facility.
Cash flows provided by operating activities amounted to $6,481,841 for the
nine months ended September 30, 1995 compared to $7,327,514 net cash provided by
operating activities in the nine months ended September 30, 1996. The
improvement in cash generated from operations in the 1996 period compared to the
1995 period resulted primarily from increased revenues that were in excess of
the increases in cash operating costs.
Net cash used in investing activities amounted to $6,037,519 and $3,187,085
for the nine-months ended September 30, 1995 and 1996, respectively, and
included the following:
13
o In the 1995 period, the Partnership incurred $5,313,354 in capital
expenditures related to the expansion and rebuilding of the Systems, paid
$350,000 in connection with the acquisition of the property, plant and
equipment and intangibles of an adjacent cable television system and
incurred $380,615 in other deferred costs.
o In the 1996 period, the Partnership incurred $3,134,827 in capital
expenditures related to the expansion and rebuilding of the Systems, paid
$40,000 in connection with the acquisition of equipment and intangibles of
a telephone dial-up internet access provider and incurred $30,405 in other
deferred costs.
Net cash provided by financing activities amounted to $1,087,252 for the
nine-months ended September 30, 1995 compared to $333,200 cash used by financing
activities for the nine-months ended September 30, 1996, which included the
following:
o In the 1995 and 1996 period, the Partnership borrowed $1,650,000 and
$400,000, respectively, under the 1994 Credit Facility. Beginning in June
1996, the Partnership paid installments totaling $544,444 against the
amount outstanding under the 1994 Credit Facility.
o In the 1995 and 1996 period, the Partnership made repayments of notes
payable in the amounts of $313,254 and $347,626, respectively, which
represented principal repayments under the Partnership's equipment credit
facilities.
o Advances to other affiliates and repayments of such advances result from
management fees and other reimbursable expenses.
Credit Agreements of the Partnership. On September 30, 1996, the
Partnership had cash and cash equivalents of $7,792,045 and the following credit
arrangements: (i) $115,000,000 aggregate principal amount of 11% Senior Secured
Notes due 2003; (ii) $1,851,604 10% Note due August 20, 2000 to Simmons
Communications Partnership, L.P.; (iii) $5,000,000 principal amount in favor of
the principal owner pursuant to a Prime Plus 2% Subordinated Note which has no
due date and may only be repaid, subject to the passage of certain limiting
tests prior to repayment of the Notes; (iv) the 1994 Credit Facility with a bank
which consisted of a $2,500,000 three year term loan facility, with a $1,905,556
balance outstanding, and a $2,500,000 one-year line of credit facility bearing
interest at Prime Plus 1.5%, none of which was oustanding, secured by all the
assets of the Company, (on June 28, 1996, the 1994 Credit Facility was amended
and extended until May 31, 1997); (v) $100,000 Prime Subordinated Notes due July
31, 1997 in favor of a non affiliated third party; and (vi) $740,583 of certain
other equipment credit facilities with various due dates not exceeding four
years.
The Partnership believes that available working capital, cash flows
generated from operations and the availability of the 1994 Credit Facility will
be sufficient to allow it to meet its planned capital expenditures and meet its
debt obligations and cover its other short and long-term liquidity needs. Also,
while the Partnership presently sees no reason to do so, it could adjust
scheduled capital expenditures if the Partnership's liquidity position so
warrants.
Inflation
Certain of the Partnership's expenses, such as those for wages and
benefits, for equipment repair and replacement, and for billing and marketing,
increase with general inflation. However, the Partnership does not
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believe that its financial results have been, or will be, adversely affected by
inflation, provided that it is able to increase its service rates periodically.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this Report to be signed on their behalf by the
undersigned, thereunto duly authorized.
Dated: November 11, 1996 THE HELICON GROUP, L.P.
(Registrant)
By: /s/ Herbert J. Roberts
-------------------------
Name: Herbert J. Roberts
Title: Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
HELICON CAPITAL CORP.
Name: Herbert J. Roberts
Dated: November 11, 1996 By: /s/ Herbert J. Roberts
-------------------------
Name: Herbert J. Roberts
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
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