1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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 Numbers 33-67390; 33-67390-01; 33-81088; 33-81088-01;
33-81088-02; 33-93808; 33-93808-01
MARCUS CABLE COMPANY, L.P.
MARCUS CABLE OPERATING COMPANY, L.P.
MARCUS CABLE CAPITAL CORPORATION
MARCUS CABLE CAPITAL CORPORATION II
MARCUS CABLE CAPITAL CORPORATION III
(Exact name of registrants as specified in their charters)
Delaware 75-2337471
Delaware 75-2495706
Delaware 75-2546077
Delaware 75-2546713
Delaware 75-2599586
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2911 Turtle Creek Boulevard, Suite 1300
Dallas, Texas 75219-6257
(Address of principal executive offices) (Zip Code)
(214) 521-7898
(Registrants' telephone number, including area code)
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
There is no established trading market for any of the registrants' voting
securities. As of the date of this report, there were 1,000 shares of common
stock of Marcus Cable Capital Corporation and 1,000 shares of common stock of
Marcus Cable Capital Corporation III outstanding, all of which are owned by
Marcus Cable Company, L.P., and 1,000 shares of common stock of Marcus Cable
Capital Corporation II outstanding, all of which are owned by Marcus Cable
Operating Company, L.P.
2
MARCUS CABLE COMPANY, L.P.
MARCUS CABLE OPERATING COMPANY, L.P.
MARCUS CABLE CAPITAL CORPORATION
MARCUS CABLE CAPITAL CORPORATION II
MARCUS CABLE CAPITAL CORPORATION III
Index to Quarterly Report Form 10-Q
September 30, 1996
Page No.
Definitions 4
PART I FINANCIAL INFORMATION
Item 1: Financial Statements - Marcus Cable Company, L.P. and Subsidiaries
Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995 5
Consolidated Statements of Operations
for the Three Months and Nine Months
Ended September 30, 1996 and 1995 6
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30,
1996 and 1995 7
Notes to the Consolidated Financial Statements 8-11
Consolidating Schedules 12-13
Separate financial statements of Operating as issuer of the 13 1/2% Notes have
not been presented, as the aggregate net assets, earnings and partners' capital
of Operating are substantially equivalent to the net assets, earnings and
partners' capital of the Company on a consolidated basis. Additionally,
separate financial statements of Capital, Capital II and Capital III have not
been presented because these entities have no operations and substantially no
assets or equity.
3
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-18
PART II OTHER INFORMATION
Item 1: Legal Proceedings 19
Item 2: Changes in Securities 19
Item 3: Defaults Upon Senior Securities 19
Item 4: Submission of Matters to a Vote of Security Holders 19
Item 5: Other Information 19
Item 6: Exhibits and Reports on Form 8-K 19
4
DEFINITIONS
When used herein, the following terms will have the meaning indicated.
TERM DEFINITION
11 7/8% Debentures 11 7/8%Senior Debentures, due October 1,
2005, which are obligations of MCC and
Capital
13 1/2% Notes 13 1/2% Senior Subordinated Guaranteed
Discount Notes, due August 1, 2004, which
are obligations of Operating and Capital
II that are guaranteed by MCC
14 1/4% Notes 14 1/4% Senior Discount Notes, due December
15, 2005, which are obligations of MCC and
Capital III
1992 Cable Act Cable Television Consumer Protection and
Competition Act of 1992
1996 Telecom Act Telecommunications Act of 1996
CALP Cencom of Alabama, L.P.
CALP Acquisition The August 31, 1995 purchase of remaining CALP
ordinary limited partnership interests, redemption
of all CALP special limited partnership interests
and retirement of CALP's senior bank debt
Capital Marcus Cable Capital Corporation
Capital II Marcus Cable Capital Corporation II
Capital III Marcus Cable Capital Corporation III
Company Marcus Cable Company, L.P. and subsidiaries
CPST Cable Programming Service Tier
EBITDA Earnings Before Interest, Taxes, Depreciation
and Amortization
FCC Federal Communications Commission
Goldman Sachs Goldman, Sachs & Co.
LIBOR London InterBank Offered Rate
Maryland Cable Maryland Cable Partners, L.P.
Maryland Cable Agreement The management agreement between Operating and
Maryland Cable
Maryland Cable System Cable system owned by Maryland Cable (also
the "Managed System")
MCC Marcus Cable Company, L.P. and subsidiaries
MCA Marcus Cable Associates, L.P.
MCALP Marcus Cable of Alabama, L.P. (formerly "CALP")
MCDM Marcus Cable of Delaware and Maryland, L.P.
MCP Marcus Cable Partners, L.P.
Operating Marcus Cable Operating Company, L.P.
Operating Partnerships MCP, MCDM, MCALP and MCA
Sammons Sammons Communications, Inc. and certain of
its subsidiaries
Sammons Acquisition The November 1, 1995 purchase of the Sammons
Systems
Sammons Systems Certain cable television systems purchased
from Sammons
San Angelo Systems Certain cable television systems in and around
San Angelo, Texas which were divested on
June 30, 1995
Senior Credit Facility $1,100,000,000 Credit Agreement among
Operating, MCC, Banque Paribas, The Chase
Manhattan Bank, Citibank, N.A., The First
National Bank of Boston, Goldman Sachs, Union
Bank and certain other lenders referred to
therein, dated as of August 31, 1995
SFAS Statement of Financial Accounting Standard
5
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
September 30, December 31,
Assets 1996 1995
------ ---------- ----------
(unaudited)
Current assets:
Cash and cash equivalents $ 14,493 $ 17,409
Accounts receivable, net of allowance
of $650 and $1,564, respectively 14,765 16,946
Prepaid expenses and other 4,010 1,860
---------- ----------
Total current assets 33,268 36,215
Property and equipment, net (note 2) 567,991 538,452
Other assets, net (note 3) 1,117,309 1,185,387
---------- ----------
$ 1,718,568 $ 1,760,054
========== ==========
Liabilities and Partners' Capital
---------------------------------
Current liabilities:
Current maturities of long-term
debt (note 5) $ 25,515 $ 339
Accrued liabilities (note 4) 46,879 50,350
Accrued interest 14,154 12,734
---------- ----------
Total current liabilities 86,548 63,423
Long-term debt (note 5) 1,422,503 1,407,551
Subsidiary limited partner interests (246) (246)
Partners' capital 209,763 289,326
Commitments and contingencies --- ---
---------- ----------
$ 1,718,568 $ 1,760,054
========== ==========
See accompanying notes to the consolidated financial statements.
6
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
(in thousands)
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
------- ------- ------- -------
Revenues:
Cable services $ 111,101 $ 37,833 $ 319,674 $ 111,557
Management fees (note 6) 588 849 1,734 2,709
------- ------- ------- -------
Total revenues 111,689 38,682 321,408 114,266
Operating expenses:
Selling, service and system
management 39,561 13,154 117,911 38,971
General and administrative 18,031 6,425 53,785 18,484
Depreciation and amortization 42,097 18,692 120,996 54,637
------- ------- ------- -------
99,689 38,271 292,692 112,092
------- ------- ------- -------
Operating income 12,000 411 28,716 2,174
Other (income) expense:
(Gain) loss on divestiture of
cable system --- 41 --- (26,394)
Interest expense 36,847 18,589 108,492 51,887
Interest income (39) (113) (213) (529)
------- ------- ------- -------
36,808 18,517 108,279 24,964
------- ------- ------- -------
Loss before extraordinary item (24,808) (18,106) (79,563) (22,790)
Extraordinary item - loss on early
retirement of debt --- (853) --- (8,395)
------- ------- ------- -------
Net Loss $ (24,808) $ (18,959) $ (79,563) $ (31,185)
======= ======= ======= =======
See accompanying notes to the consolidated financial statements.
7
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Nine months ended
September 30,
1996 1995
------- -------
Cash flows from operating activities:
Net loss $ (79,563) $ (31,185)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Extraordinary item - loss on early
retirement of debt --- 8,395
Gain on divestiture of cable television
system --- (26,394)
Depreciation and amortization 120,996 54,637
Amortization of debt issuance costs 2,444 1,362
Accretion of discount on notes 44,400 30,044
Changes in assets and liabilities, net
of acquisitions and divestitures:
Accounts receivable 2,203 (3,074)
Prepaid expenses (2,150) (282)
Other assets (89) (1,440)
Accrued interest 1,420 4,382
Accrued liabilities (3,462) (1,017)
------- -------
Net cash provided by operating activities 86,199 35,428
Cash flows from investing activities:
Acquisitions of cable systems and
franchises, net of cash acquired (10,222) (466,172)
Net proceeds from divestiture of cable
television system --- 65,022
Additions to property and equipment (73,925) (21,487)
------- -------
Net cash used in investing activities (84,147) (422,637)
Cash flows from financing activities:
Contributions by limited partners, net of
syndication costs --- 141,886
Excess of purchase price over carrying value of
certain CALP assets acquired --- (15,295)
Proceeds from long-term debt 20,338 535,003
Repayment of long-term debt (25,000) (235,000)
Payment of debt issuance costs --- (30,328)
Payment of capital lease obligations (306) (231)
------- -------
Net cash provided by (used in) financing
activities (4,968) 396,035
------- -------
Net increase (decrease) in cash and cash equivalents (2,916) 8,826
Cash and cash equivalents at beginning of period 17,409 5,328
------- -------
Cash and cash equivalents at end of period $ 14,493 $ 14,154
======= =======
Supplemental disclosure of cash flow information:
Interest paid $ 60,228 $ 16,099
======= =======
See accompanying notes to consolidated financial statements.
8
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(1) Summary of Significant Accounting Policies
(a) General
MCC is a Delaware limited partnership formed on January 17, 1990
for the purpose of acquiring, operating and developing cable
television systems. MCC derives its primary source of revenues by
providing various levels of cable television programming and
services to residential and business customers. MCC's
operations are conducted through Operating, an operating holding
company in which MCC serves as the general partner with a 99.8%
ownership interest. Operating, in turn, conducts its operations
through the Operating Partnerships, in which it, directly or
indirectly, serves as the general partner and owns a greater than
99.0% interest.
(b) Basis of Presentation
The consolidated financial statements include the accounts of MCC,
Capital, Capital II, Capital III, Operating and the Operating
Partnerships. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(c) Interim Financial Information
In the opinion of management, the accompanying unaudited interim
consolidated financial information of the Company contains all
adjustments, consisting only of those of a recurring nature,
necessary to present fairly (i) the Company's financial position
as of September 30, 1996, (ii) the results of its operations for
the three months and nine months ended September 30, 1996 and 1995
and (iii) its cash flows for the nine months ended September 30,
1996 and 1995. These financial statements are for interim periods
and do not include all of the detail normally provided in annual
financial statements and should be read in conjunction with the
consolidated financial statements of the Company for the year
ended December 31, 1995, included in the Company's Annual Report
on Form 10-K.
(d) Reclassifications
Certain reclassifications have been made to the prior periods'
balances to conform to the current year presentation.
9
(2) Property and Equipment
Property and equipment consists of the following (in thousands):
September 30, December 31,
1996 1995
-------- --------
Cable systems $ 640,652 $ 567,521
Vehicles and other 25,381 19,845
Land and buildings 11,918 10,364
-------- --------
677,951 597,730
Accumulated depreciation (109,960) (59,278)
-------- --------
$ 567,991 $ 538,452
======== ========
(3) Other Assets
Other assets consist of the following (in thousands):
September 30, December 31,
1996 1995
--------- ---------
Franchise rights $ 1,185,552 $ 1,181,243
Going concern value of acquired
cable systems 45,961 45,856
Noncompetition agreements 32,922 32,633
Debt issuance costs 43,311 43,246
Other 916 1,071
--------- ---------
1,308,662 1,304,049
Accumulated amortization (191,353) (118,662)
--------- ---------
$ 1,117,309 $ 1,185,387
========= =========
(4) Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
September 30, December 31,
1996 1995
------- -------
Accrued property taxes $ 4,200 $ 3,552
Accrued acquisition costs 3,438 3,438
Accrued programming costs 8,560 8,371
Accrued franchise fees 7,083 8,730
Accrued operating liabilities 18,077 18,916
Other accrued liabilities 5,521 7,343
------- -------
$ 46,879 $ 50,350
======= =======
10
(5) Long-term Debt
The Company has outstanding borrowings under long-term debt arrangements
as follows (in thousands):
September 30, December 31,
1996 1995
--------- ---------
Senior Credit Facility $ 880,000 $ 885,000
13 1/2% Senior Subordinated Discount
Notes, due August 1, 2004 285,690 258,979
14 1/4% Senior Discount Notes, due
December 15, 2004 179,716 162,027
11 7/8% Senior Debentures, due
October 1, 2005 100,000 100,000
Note Payable 338 ---
Capital leases 2,274 1,884
--------- ---------
1,448,018 1,407,890
Less current maturities (25,515) (339)
--------- ---------
$ 1,422,503 $ 1,407,551
========= =========
Amounts outstanding under the Senior Credit Facility bear interest at
either the i) Eurodollar rate, ii) prime rate or iii) CD base rate, in
each case plus a margin ranging from 0.00% to 2.75%, based on the ratio
of Operating's total debt to EBITDA, as defined. At September 30, 1996,
borrowings under the Senior Credit Facility bore interest at an average
interest rate of 7.64%. The Company pays a commitment fee ranging from
.250% to .375% on the unused commitment under the Senior Credit
Facility.
To reduce the impact of changes in interest rates on its floating rate
long-term debt, the Company has entered into certain interest rate swap
agreements with certain of the participating banks under the Senior
Credit Facility. At September 30, 1996, interest rate swap agreements
covering a notional balance of $650,000,000 are outstanding. These
outstanding swap agreements mature during 1997 and 1998 and require the
Company to pay a fixed rate of 5.77% to 5.81%, plus the applicable
interest rate margin, while the counterparty pays a floating rate based
on one or three-month LIBOR. Extensions are available within the swap
agreements at the option of the counterparties.
As interest rates change under the interest rate swap agreements, the
differential to be paid or received is recognized as an adjustment to
interest expense. The Company is not exposed to credit loss as its
interest rate swap agreements are with certain of the participating
banks under the Company's Senior Credit Facility. During the three
months and nine months ended September 30, 1996, the Company incurred
additional costs under its interest rate swap agreements of
approximately $61,000 and $217,000, respectively, as compared to one or
three month LIBOR borrowing rates.
11
(6) Related Party Transactions
Affiliates of Goldman Sachs own limited partnership interests in MCC.
Maryland Cable, which is controlled by an affiliate of Goldman Sachs,
owns the Maryland Cable System which serves customers in and around
Prince Georges County, Maryland. Operating manages the Maryland Cable
System under the Maryland Cable Agreement, which was entered into in
September of 1994. Operating earns a management fee, payable monthly,
equal to 4.7% of the revenues of Maryland Cable, and is reimbursed for
certain expenses. Pursuant to such agreement, Operating earned
management fees of approximately $588,000 and $1,734,000 during the
three month and nine month periods ended September 30, 1996,
respectively, as compared to $569,000 and $1,627,000 for the three month
and nine month periods ended September 30, 1995.
Operating also provided management services to CALP under a separate
management contract until August 31, 1995. The CALP Agreement
terminated simultaneously with the completion of the CALP Acquisition.
Pursuant to this management contract, Operating earned management fees
of approximately $280,000 and $1,082,000, for the two and eight months
ended August 31, 1995.
On July 30, 1996, Maryland Cable entered into an agreement to sell all
of its assets to an affiliate of Jones Intercable, Inc. The acquisition
is subject to various governmental approvals and is expected to close on
or around the end of 1996. The management agreement described above
will terminate upon the closing of the Maryland Cable sale. Upon such
sale, Operating will receive an incentive bonus based on the final sales
price of the system. Such incentive bonus is currently expected to be
approximately $5,500,000.
(7) Acquisitions and Dispositions
On July 8, 1996, the Company acquired the assets of Futurevision Cable
Systems of Brookhaven for a purchase price of approximately $2,600,000,
subject to working capital adjustments. The system serves approximately
2,500 customers in and around the city of Brookhaven, Mississippi.
On July 31, 1996, the Company acquired the assets of Frankfort Cable
Communications, Inc., which serve approximately 5,600 customers in and
around the city of Frankfort, Indiana, for a purchase price of
approximately $6,700,000, subject to working capital adjustments.
On August 1, 1996, the Company entered into an agreement with an
unrelated third party to sell its cable television systems serving
approximately 12,600 customers in the state of Washington. The
transaction closed on October 11, 1996 for a sales price of
approximately $21,000,000, subject to working capital adjustments.
12
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Consolidation Schedule - Balance Sheet Information
As of September 30, 1996
(in thousands)
(Unaudited)
Combined Operating
Operating Capital Elimin- Consol- Capital Elimin-
Partnerships II Operating ations idated Capital III MCC ations Company
Current assets:
Cash and cash equivalents 9,159 1 4,577 -- 13,737 1 1 754 -- 14,493
Accounts receivable, net 48,119 -- 4,824 (38,178) 14,765 -- -- -- -- 14,765
Prepaid expenses and other 2,755 -- 1,255 -- 4,010 -- -- -- -- 4,010
------ ------ ------ ------ ------ ---- ---- ------ ------ ------
Total current assets 60,033 1 10,656 (38,178) 32,512 1 1 754 -- 33,268
Property and equipment, net 562,434 -- 5,557 -- 567,991 -- -- -- -- 567,991
Other assets, net 1,118,083 -- 1,516,590 (1,514,619) 1,120,054 -- -- 3,514 (6,259) 1,117,309
Investment in subsidiaries -- -- 210,367 (210,367) -- -- -- 491,149 (491,149) --
------ ------ ------ ------ ------ ---- ---- ------ ------ ------
Total assets 1,740,550 1 1,743,170 (1,763,164) 1,720,557 1 1 495,417 (497,408) 1,718,568
Current liabilities:
Current maturities of long-
term debt 167 -- 25,348 -- 25,515 -- -- -- -- 25,515
Accrued liabilities 73,310 -- 76,474 (96,646) 53,138 -- -- -- (6,259) 46,879
Accrued interest 14,154 -- 8,210 (14,148) 8,216 -- -- 5,938 -- 14,154
------ ------ ------ ------ ------ ---- ---- ------ ------ ------
Total current liabilities 87,631 -- 110,032 (110,794) 86,869 -- -- 5,938 (6,259) 86,548
Long-term debt 1,442,553 -- 1,142,237 (1,442,003) 1,142,787 -- -- 279,716 -- 1,422,503
Subsidiary limited partner
interests -- -- (246) -- (246) -- -- -- -- (246)
Partners' capital 210,366 1 491,147 (210,367) 491,147 1 1 209,763 (491,149) 209,763
------ ------ ------ ------ ------ ---- ---- ------ ------ ------
Total liabilities and
partners' capital 1,740,550 1 1,743,170 (1,763,164) 1,720,557 1 1 495,417 (497,408) 1,718,568
====== ====== ====== ====== ====== ==== ==== ====== ====== ======
13
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Consolidating Schedule - Statement of Operations Information
For the nine months ended September 30, 1996
(in thousands)
(Unaudited)
Combined Operating
Operating Capital Elimin- Consol- Capital Elimin-
Partnerships II Operating ations idated Capital III MCC ations Company
Revenues:
Cable services 319,674 -- -- -- 319,674 -- -- -- -- 319,674
Management fees -- -- 1,734 -- 1,734 -- -- -- -- 1,734
------ ------ ------ ------ ------ ---- ---- ------ ------ ------
Total revenues 319,674 -- 1,734 -- 321,408 -- -- -- -- 321,408
Operating expenses:
Selling, service and
system management 116,498 -- 1,413 -- 117,911 -- -- -- -- 117,911
General and administrative 44,983 -- 8,802 -- 53,785 -- -- -- -- 53,785
Allocated corporate costs 8,809 -- (8,809) -- -- -- -- -- -- --
Depreciation and
amortization 120,337 -- 659 -- 120,996 -- -- -- -- 120,996
------ ------ ------ ------ ------ ---- ---- ------ ------ ------
290,627 -- 2,065 -- 292,692 -- -- -- -- 292,692
------ ------ ------ ------ ------ ---- ---- ------ ------ ------
Operating income (loss) 29,047 -- (331) -- 28,716 -- -- -- -- 28,716
Other (income) expense:
Interest expense 108,907 -- 81,297 (108,858) 81,346 -- -- 27,146 -- 108,492
Interest income 206 -- (109,266) 108,858 (202) -- -- (11) -- (213)
Equity earnings of
subsidiaries -- -- 80,066 (80,066) -- -- -- 52,428 (52,428) --
------ ------ ------ ------ ------ ---- ---- ------ ------ ------
109,113 -- 52,097 (80,066) 81,144 -- -- 79,563 (52,428) 108,279
------ ------ ------ ------ ------ ---- ---- ------ ------ ------
Net loss (80,066) -- (52,428) 80,066 (52,428) -- -- (79,563) 52,428 (79,563)
====== ====== ====== ====== ====== ==== ==== ====== ====== ======
14
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached
consolidated financial statements and notes thereto, and with the Company's
audited consolidated financial statements and notes thereto for the fiscal
year ended December 31, 1995, included in the Company's Annual Report on Form
10-K.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
Operating results for the nine months ended September 30, 1995 consist of the
results of MCC's operations in Wisconsin, Minnesota, Delaware, Maryland,
Alabama (1 month) and San Angelo, Texas (6 months), along with management fee
revenue from managed systems in Maryland and Alabama (2 months). The Company
sold the San Angelo, Texas systems on June 30, 1995, acquired the managed
system in Alabama on August 31, 1995 and acquired cable television systems
from Sammons on November 1, 1995. Operating results for the nine months ended
September 30, 1996 consist of the current operations in 19 states and do not
include the results of operations for the cable television systems in San
Angelo, Texas or the management fees for the previously managed system in
Alabama. In addition, ongoing acquisition activity in 1996 has had a minor
impact on period to period comparable operating results.
Revenues increased from $114,266,000 in the first nine months of 1995 to
$321,408,000 for the nine months ended September 30, 1996. The CALP and
Sammons Acquisitions resulted in increased revenues of $204,826,000, net of a
decrease in management fees earned by Operating of $975,000. The divestiture
of the San Angelo Systems on June 30, 1995, resulted in a $6,022,000 decrease
in revenues. The remaining increase in revenues was caused by continued
customer growth as well as adjustments to rates charged to customers. Rates
charged to customers for certain services were increased for a majority of the
Company's systems effective June 1, 1996. The Company's homes passed
increased from 714,628 at September 30, 1995 to 1,863,903 at September 30,
1996. In addition, the Company's basic customers and pay units increased from
484,890 and 305,954, respectively, at September 30, 1995 to 1,190,580 and
661,358, respectively, at September 30, 1996. Substantially all of this
growth can be attributed to the Sammons Acquisition, continued marketing and
sales efforts and the extension of existing plant infrastructure to pass
additional dwelling units. On a pro forma basis, the Company's homes passed,
basic customers, and pay customers at September 30, 1995 were 1,759,154,
1,156,318 and 644,712, respectively. As a result, the pro forma annual
percentage growth for basic customers and pay units as of September 30, 1996
was 3.0% and 2.6%, respectively.
Selling, service and system management expenses increased from $38,971,000 for
the nine months ended September 30, 1995 to $117,911,000 for the nine months
ended September 30, 1996, primarily due to a $77,183,000 increase from the
CALP and Sammons Acquisitions, offset by a $2,238,000 decrease from the
divestiture of the San Angelo Systems. The remaining increase resulted
primarily from growth within the Company's existing systems, increased
marketing efforts, the continued development of advertising sales efforts and
increased costs of certain programming services. Effective April 1, 1996,
the Company became a member of Telesynergies, a cable television cooperative
buying venture representing over 5,000,000 customers. Members of this
cooperative benefit from lower programming costs per customer through
consolidated buying efforts. The Telesynergies membership has partially
offset the increased programming costs noted above.
15
General and administrative expenses increased from $18,484,000 for the nine
months ended September 30, 1995 to $53,785,000 for the nine months ended
September 30, 1996. The $31,931,000 increase from the CALP and Sammons
Acquisitions was offset by a $718,000 decrease from the divestiture of the San
Angelo Systems. The remaining increase resulted primarily from the necessary
expansion of the home office operations in order to manage the increased size
of the business.
Depreciation and amortization expenses increased from $54,637,000 for the nine
months ended September 30, 1995 to $120,996,000 for the nine months ended
September 30, 1996 due primarily to the CALP and Sammons Acquisitions offset
by a $4,097,000 decrease from the divestiture of the San Angelo Systems.
Interest expense increased from $51,887,000 for the nine months ended
September 30, 1995 to $108,492,000 for the nine months ended September 30,
1996 due to the inclusion of interest expense relating to the borrowings under
the 14 1/4% Notes and the Senior Credit Facility, which became effective on
June 9, 1995 and August 31, 1995, respectively. Borrowings, excluding capital
leases, increased from $657,311,000 at September 30, 1995 to $1,445,744,000 at
September 30, 1996. The weighted average interest rate for total debt
outstanding during the nine months ended September 30, 1996 was 10.00%,
compared with 12.20% for the nine months ended September 30, 1995.
The difference between the loss before extraordinary item for the nine months
ended September 30, 1995 of $22,790,000, compared to the loss before
extraordinary item of $79,563,000 for the nine months ended September 30, 1996
was due to the net effects of the $26,394,000 gain from the sale of the San
Angelo cable television systems in 1995 and the increases in operations,
depreciation, amortization and interest expense as discussed above. The
extraordinary loss of $8,395,000 recorded in 1995 related to the write-off of
debt issuance costs from the early retirement of debt.
As a result of the foregoing, EBITDA increased from $56,811,000 in the first
nine months of 1995 to $149,712,000 in the first nine months of 1996.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1995
Operating results for the three months ended September 30, 1995 consist of the
results of MCC's operations in Wisconsin, Minnesota, Delaware, Maryland and
Alabama (1 month), along with management fee revenue from managed systems in
Maryland and Alabama (the Company acquired the managed system in Alabama on
August 31, 1995). Operating results for the three months ended September 30,
1996 include the acquired cable television systems from Sammons on November 1,
1995, and such results do not include the management fees for the previously
managed system in Alabama. In addition, ongoing acquisition activity in 1996
has had a minor impact on period to period comparable operating results.
Revenues increased from $38,682,000 in the three months ended September 30,
1995 to $111,689,000 in the three months ended September 30, 1996. The CALP
and Sammons Acquisitions resulted in increased revenues of $69,835,000, net of
a decrease in management fees earned by Operating of $261,000. The remaining
increase in revenues was caused by continued customer growth as well as
adjustments to rates charged to customers. Rates charged to customers for
certain services were increased for a majority of the Company's systems
effective June 1, 1996. The Company's homes passed increased from 714,628 at
September 30, 1995 to 1,863,903 at September 30, 1996. In addition, the
Company's basic customers and pay units increased from 484,890 and 305,954,
respectively, at September 30, 1995 to 1,190,580 and 661,358, respectively, at
September 30, 1996. Substantially all of this growth can be attributed to the
Sammons Acquisition, continued marketing and sales efforts and the extension
of existing plant infrastructure to pass additional dwelling units.
16
Selling, service and system management expenses increased from $13,154,000 for
the three months ended September 30, 1995 to $39,561,000 for the three months
ended September 30, 1996, primarily due to a $24,876,000 increase from the
CALP and Sammons Acquisitions. The remaining increase resulted primarily from
growth within the Company's existing systems, increased marketing efforts, the
continued development of advertising sales efforts and increased costs of
certain programming services. Membership in the Telesynergy cooperative is
expected to continue to produce savings in programming expense, which will
partially offset programming increases from additional channel launches,
rebuilds and increased penetration.
General and administrative expenses increased from $6,425,000 for the three
months ended September 30, 1995 to $18,031,000 for the three months ended
September 30, 1996. A $10,457,000 increase resulted from the CALP and Sammons
Acquisitions while the remaining increase resulted primarily from the
necessary expansion of the home office operations in order to manage the
increased size of the business.
Depreciation and amortization expenses increased from $18,692,000 for the
three months ended September 30, 1995 to $42,097,000 for the three months
ended September 30, 1996 due primarily to the CALP and Sammons Acquisitions.
Interest expense increased from $18,589,000 for the three months ended
September 30, 1995 to $36,847,000 for the three months ended September 30,
1996 due to the inclusion of interest expense relating to the borrowings under
the Senior Credit Facility, which became effective on August 31, 1995.
Borrowings, excluding capital leases, increased from $657,311,000 at September
30, 1995 to $1,445,744,000 at September 30, 1996. The weighted average
interest rate for total debt outstanding during the three months ended
September 30, 1996 was 10.04%, compared with 13.26% for the three months ended
September 30, 1995.
The difference between the loss before extraordinary item for the three months
ended September 30, 1995 of $18,106,000, compared to the loss before
extraordinary item of $24,808,000 for the three months ended September 30,
1996 was primarily due to the increases in operations, depreciation,
amortization and interest expense as discussed above. The extraordinary loss
of $853,000 recorded during the third quarter of 1995 related to the write-off
of debt issuance costs from the early retirement of debt.
As a result of the foregoing, EBITDA increased from $19,103,000 for the third
quarter of 1995 to $54,097,000 in the third quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has grown significantly over the past several years through
acquisitions as well as through upgrading, extending and rebuilding its
existing cable television systems. Since expansion by means of these methods
is capital intensive, the Company has relied upon various sources of financing
to meet its funding needs. These sources have included contributions from
equity investors, borrowings under various debt instruments and positive cash
flows from operations.
As of September 30, 1996, unreturned capital contributions from equity
investors totaled approximately $493,327,000. The Company has an aggregate of
$1,448,018,000 of indebtedness outstanding in the form of the 11 7/8%
Debentures, 13 1/2% Notes, 14 1/4% Notes, borrowings under its Senior Credit
Facility, note payable and capital lease obligations. The Company has an
additional $218,209,000 of borrowing capacity under its Revolving Credit
Facility. The Company generated cash flows from operating activities of
$35,158,000 and $86,199,000 for the three month and nine month periods ended
September 30, 1996, respectively. Funding from equity contributions,
borrowings and cash flow from operations have been sufficient to meet the
Company's debt service, working capital and capital expenditure requirements.
17
Certain of the Company's systems will be upgraded or rebuilt to 750 MHZ or 550
MHZ band- width capacity over the next several years to allow for additional
programming and service offerings. Capital expenditures are expected to
approximate $101,000,000 (or $85 per customer) in 1996 and include certain of
these upgrade and rebuild projects.
Cash interest is payable monthly and quarterly on borrowings outstanding under
the Company's Senior Credit Facility and semiannually on the 11 7/8%
Debentures. No cash interest is payable on the 13 1/2% Notes until February
1, 2000 and no cash interest is payable on the 14 1/4% Notes until December
15, 2000. Maturities of long-term debt approximate $250,000,000 over the
next four years.
The Company expects to pay both interest and principal payments on its long-
term obligations with internally generated funds. Funds for the Company's
capital expenditure requirements may be provided through internally generated
funds or by borrowings under its Senior Credit Facility.
RECENT ACCOUNTING PRONOUNCEMENTS
The provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" is effective for the
Company in 1996. There was no impact on the Company upon adoption. No other
recent accounting pronouncements have been issued which the Company has not
adopted and which are expected to have a material effect on the Company's
consolidated financial statements and related disclosures.
INFLATION
Based on the FCC's current rate regulation standards, an inflation factor is
included in the benchmark formula in establishing the initial permitted rate.
Subsequent to establishing the initial rate, an annual rate increase based on
the year-end inflation factor is permitted. In addition to inflation
adjustments, certain costs over the prescribed inflation factors, defined by
the FCC as "external costs", may be passed through to customers as part of the
monthly rates charged to such customers.
Certain of the Company's expenses generally increase with inflation. However,
the Company does not believe that its financial results have been adversely
affected by inflation. Periods of high inflation could have an adverse effect
to the extent that increased borrowing costs for floating rate debt may not be
offset by increases in revenues. As of September 30, 1996, the Company had
$230,000,000 of outstanding borrowings under its Senior Credit Facility and
other facilities which are subject to floating interest rates after
considering the Company's interest rate swap agreements. The rates are based
on either the Eurodollar rate, prime rate, CD base rate or Federal Funds rate,
plus a margin ranging from 0.00% to 2.75%, based on the ratio of Operating's
total debt to EBITDA.
To reduce the impact of changes in interest rates on its floating rate long-
term debt, the Company entered into certain interest rate swap agreements with
certain of the participating banks under the Senior Credit Facility. At
September 30, 1996, interest rate swap agreements covering a notional balance
of $650,000,000 were outstanding. These outstanding swap agreements mature
during 1997 and 1998 and require the Company to pay a fixed rate of 5.77% to
5.81% plus the applicable interest rate margin, while the counterparty pays a
floating rate based on one or three-month LIBOR. Extensions are available
within the swap agreements at the option of the counterparties.
18
REGULATION IN THE CABLE TELEVISION INDUSTRY
On February 1, 1996 Congress passed the 1996 Telecom Act, which was
subsequently signed into law on February 8, 1996. This new law will alter
federal, state and local laws and regulation for telecommunications providers
and services, including the Company. There are numerous rulemakings to be
undertaken by the FCC which will interpret and implement the 1996 Telecom Act.
On April 9, 1996, the FCC acted to implement the 1996 Telecom Act, adopting an
Order and Notice of Proposed Rulemaking. The Order and Notice amends certain
rules to implement the 1996 Telecom Act, establishes interim rules to govern
implementation of the 1996 Telecom Act pending the adoption of final rules,
and proposes certain final rules. The Order and Notice focuses principally on
rules relating to cable television rate regulation. Under the 1996 Telecom
Act, regulation of CPST rates will generally continue until the statutory date
of March 31, 1999. It is not possible at this time to predict the outcome of
such rulemakings. Until the various required rulemakings are implemented
which amend the rules under the previous cable acts, the Company continues to
be subject to the provisions of the 1992 Cable Act.
Based on the FCC's 13th Order on Reconsideration, operators may adjust their
rates once per year to reflect changes in inflation, external costs, and the
number of regulated channels that are projected for the coming 12 months. As
a result, effective June 1, 1996, the Company adjusted rates for a majority of
its systems to reflect the estimated aggregate changes in such costs.
The Company believes that it has materially complied with all provisions of
the 1992 Cable Act, including the rate setting provisions promulgated by the
FCC. However, in jurisdictions which have chosen not to certify, refunds
covering a one-year period on basic service may be ordered if the Company is
regulated at a later date and is unable to justify its rates through a
benchmark or cost-of-service filing. During the nine month period ended
September 30, 1996, there were no rate refunds issued. There are, however,
certain CPST rate complaints still pending at the FCC. Reviews involving two
of the Company's systems totaling approximately 75,000 customers have been
completed in which the FCC found no errors in the Company's rate calculations.
As a result, the related complaints were denied. If the FCC, through its
pending reviews, determines that the Company's CPST rates are unreasonable, it
has the authority to order the Company to reduce such rates and to refund to
customers any overcharges with interest occurring from the filing date of the
rate complaint at the FCC. The amount of refunds, if any, which may be
payable by the Company in the event that these systems' rates are successfully
challenged is not currently estimable.
Because the FCC has not yet resolved pending rate complaints involving the
Company and because franchise authorities may certify in the future, the
overall impact of these regulations and other provisions of the 1992 Cable Act
cannot be determined at this time, nor can the ultimate provisions of the 1996
Telecom Act and its effect on the Company's business be determined.
19
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
- --------------------------
There were no material legal proceedings instituted during the nine months
ended September 30, 1996 to which the Company is a party or of which any of
its property is subject.
Item 2 - Changes in Securities
- ------------------------------
None
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
Included in this report:
Exhibit:
27.1 Financial Data Schedule (supplied for the information
of the Commission)
(b) Reports on Form 8-K
None
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each of
the registrants have duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARCUS CABLE COMPANY, L.P.
(Registrant)
By: Marcus Cable Properties, L.P., its general partner,
By: Marcus Cable Properties, Inc., its general partner,
November 14, 1996 By: /s/ Jeffrey A. Marcus
Jeffrey A. Marcus
Its: President and Chief Executive Officer
By: /s/ Thomas P. McMillin
Thomas P. McMillin
Its: Senior Vice President and
Chief Financial Officer
MARCUS CABLE OPERATING COMPANY, L.P.
(Registrant)
By: Marcus Cable Company, L.P., its general partner,
By: Marcus Cable Properties, L.P., its general partner,
By: Marcus Cable Properties, Inc., its general partner,
November 14, 1996 By: /s/ Jeffrey A. Marcus
Jeffrey A. Marcus
Its: President and Chief Executive Officer
By: /s/ Thomas P. McMillin
Thomas P. McMillin
Its: Senior Vice President and
Chief Financial Officer
21
MARCUS CABLE CAPITAL CORPORATION
(Registrant)
November 14, 1996 By: /s/ Jeffrey A. Marcus
Jeffrey A. Marcus
Its: President and Chief Executive Officer
By: /s/ Thomas P. McMillin
Thomas P. McMillin
Its: Senior Vice President and
Chief Financial Officer
MARCUS CABLE CAPITAL CORPORATION II
(Registrant)
November 14, 1996 By: /s/ Jeffrey A. Marcus
Jeffrey A. Marcus
Its: President and Chief Executive Officer
By: /s/ Thomas P. McMillin
Thomas P. McMillin
Its: Senior Vice President and
Chief Financial Officer
MARCUS CABLE CAPITAL CORPORATION III
(Registrant)
November 14, 1996 By: /s/ Jeffrey A. Marcus
Jeffrey A. Marcus
Its: President and Chief Executive Officer
By: /s/ Thomas P. McMillin
Thomas P. McMillin
Its: Senior Vice President and
Chief Financial Officer