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, 1998
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.L.C.
MARCUS CABLE OPERATING COMPANY, L.L.C.
MARCUS CABLE CAPITAL CORPORATION
MARCUS CABLE CAPITAL CORPORATION II
MARCUS CABLE CAPITAL CORPORATION III
(Exact name of registrants as specified in their charters)
DELAWARE 75-2775559
DELAWARE 75-2775557
DELAWARE 75-2546077
DELAWARE 75-2546713
DELAWARE 75-2599586
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
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.L.C., 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.L.C.
MARCUS CABLE COMPANY, L.L.C.
MARCUS CABLE OPERATING COMPANY, L.L.C.
MARCUS CABLE CAPITAL CORPORATION
MARCUS CABLE CAPITAL CORPORATION II
MARCUS CABLE CAPITAL CORPORATION III
INDEX TO QUARTERLY REPORT FORM 10-Q
SEPTEMBER 30, 1998
Page No.
Definitions 3-4
PART I FINANCIAL INFORMATION
Item 1: Financial Statements - Marcus Cable Company, L.L.C. and
Subsidiaries
Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997 5
Consolidated Statements of Operations for the three
months ended September 30, 1998 and 1997 6
Consolidated Statements of Operations for the periods
from April 23, 1998 to September 30, 1998; January 1,
1998 to April 22, 1998; and the nine months ended
September 30, 1997 7
Consolidated Statements of Cash Flows for the periods
from April 23, 1998 to September 30, 1998; January 1,
1998 to April 22, 1998; and for the nine months ended
September 30, 1997 8
Notes to the Consolidated Financial Statements 9-14
Consolidating Schedules 15-17
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.
The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for forward looking statements. Certain information
included in this Form 10-Q contains statements that are forward
looking, such as statements relating to the effects of future
regulation, future capital commitments and future acquisitions.
Such forward-looking information involves important risks and
uncertainties that could significantly affect expected results in
the future from those expressed in any forward-looking statements
made by, or on behalf of the Company. These risks and uncertainties
include, but are not limited to, uncertainties relating to economic
conditions, acquisitions and divestitures, government and regulatory
policies, the pricing and availability of equipment, materials,
inventories and programming, technological developments and changes
in the competitive environment in which the Company operates.
Investors are cautioned that all forward-looking statements involve
risks and uncertainties.
1
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 18-27
PART II OTHER INFORMATION
Item 1: Legal Proceedings 28
Item 2: Changes in Securities 28
Item 3: Defaults Upon Senior Securities 28
Item 4: Submission of Matters to a Vote of Security Holders 28
Item 5: Other Information 28
Item 6: Exhibits and Reports on Form 8-K 28
2
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 the
Company 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 the
Company
14 1/4% Notes 14 1/4% Senior Discount Notes, due
December 15, 2005, which are obligations
of the Company and Capital III
1992 Cable Act Cable Television Consumer Protection and
Competition Act of 1992
1996 Telecom Act Telecommunications Act of 1996
Capital Marcus Cable Capital Corporation
Capital II Marcus Cable Capital Corporation II
Capital III Marcus Cable Capital Corporation III
Charter Charter Communications, Inc.
CPST Cable Programming Service Tier
EBITDA Earnings Before Interest, Taxes,
Depreciation and Amortization
Eunit Specially designated Class B units in
MCC granted to certain employees in past
periods by the general partner of MCC.
FCC Federal Communications Commission
Harron Harron Communication Corp. and certain
of its subsidiaries
Harron Acquisition The July 1,1997 purchase of the Harron
Systems
Harron Systems Certain cable television systems
purchased from Harron
Goldman Sachs Goldman, Sachs & Co.
HFC Hybrid Fiber Coaxial
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
MCC Marcus Cable Company, L.P. and
subsidiaries
Marcus(or the "Company") Marcus Cable Company, L.L.C. and
subsidiaries
MCA Marcus Cable Associates, L.L.C.
MCOA Marcus Cable of Alabama, L.L.C.
MCDM Marcus Cable of Delaware and Maryland,
L.P.
MCP Marcus Cable Partners, L.L.C.
MCPI Marcus Cable Properties, Inc., the
ultimate General Partner of the Company
MCPLP Marcus Cable Properties, L.P.
3
MCPLLC Marcus Cable Properties, L.L.C.
Mountain Brook
Acquisition Certain cable system purchased from
Mountain Brook and Shelby Cable on April
1, 1998
Mountain Brook Mountain Brook Cablevision, Inc.
Mountain Brook and
Shelby Cable System Cable television system serving the
Mountain Cable System Brook and Shelby
County area in and around Birmingham,
Alabama purchased from Mountain Brook
and Shelby Cable
Operating Marcus Cable Operating Company, L.L.C.
Operating Divisions MCP, MCDM, MCOA and MCA
Predecessor Period The period from January 1, 1998 to April
22, 1998
Senior Credit Facility $1,150,000,000 Credit Agreement among
Operating, the Company, Banque Paribas,
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, as amended
Shelby Cable Shelby Cable, Inc.
SFAS Statement of Financial Accounting
Standards
Successor Period The period from April 23, 1998 to
September 30, 1998
Systems Cable television systems owned by the
Company
Time Warner Time Warner Entertainment Company, L.P.
and certain of its subsidiaries
Time Warner Exchange Exchange of certain cable television
systems with Time Warner on December 1,
1997
Vulcan Vulcan Cable, Inc.
Vulcan Acquisition The acquisition, by Vulcan, of the
outstanding partnership interests in
MCC, MCPLP and MCPI, excluding the
controlling interest in MCPI
4
PART I - FINANCIAL INFORMATION
MARCUS CABLE COMPANY, L.L.C. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
Successor(note 2) || Predecessor (note 2)
-------------------||--------------------
Assets September 30, ||
1998 ||
(Unaudited) || December 31,
(note 1) || 1997
-------------------||--------------------
||
Current assets: ||
Cash and cash equivalents $ 13,741 ||$ 1,607
Accounts receivable, ||
net of allowance of $1,530 ||
and $1,904, respectively 25,003 || 23,935
Prepaid expenses and other 4,045 || 2,105
-------------------||--------------------
Total current assets 42,789 || 27,647
||
Property and equipment, ||
net (note 3) 740,177 || 706,626
||
Other assets, net (note 4) 2,174,150 || 1,016,195
-------------------||--------------------
$ 2,957,116 ||$ 1,750,468
===================||====================
||
Liabilities and Partners' Capital ||
||
Current liabilities: ||
Current maturities of ||
long-term debt $ 75,755 ||$ 68,288
Accrued liabilities (note 5) 97,637 || 60,805
Accrued interest 9,561 || 7,949
-------------------||-------------------
Total current liabilities 182,953 || 137,042
||
Long-term debt (note 6) 1,329,622 || 1,533,645
Carrying-value ||
premium (note 6) 100,190 || ---
-------------------||-------------------
1,429,812 || 1,533,645
||
Subsidiary limited ||
partner interests --- || (246)
||
Partners' capital 1,344,351 || 80,027
||
Commitments and contingencies --- || ---
-------------------||-------------------
$ 2,957,116 ||$ 1,750,468
===================||====================
See accompanying notes to the consolidated financial statements.
5
MARCUS CABLE COMPANY, L.L.C. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
(in thousands)
Successor(note2) Predecessor (note 2)
-------------------||--------------------
Three || Three
Months ended || Months ended
September 30, || September 30,
1998 || 1997
-------------------||--------------------
||
Revenues: ||
Cable services $ 127,092 ||$ 123,086
Management fees (note 7) 75 || 75
-------------------||--------------------
Total revenues 127,167 || 123,161
-------------------||--------------------
||
Operating expenses: ||
Selling, service and ||
system management 48,580 || 45,301
General and administrative 19,986 || 18,332
Depreciation and ||
amortization 62,282 || 48,921
-------------------||--------------------
Total operating expenses 130,848 || 112,554
-------------------||--------------------
Operating (loss) income (3,681) || 10,607
-------------------||--------------------
||
Other expense: ||
Interest expense, net 34,824 || 38,358
-------------------||--------------------
Total other expense 34,824 || 38,358
-------------------||--------------------
Net loss $ (38,505) ||$ (27,751)
===================||====================
See accompanying notes to the consolidated financial statements.
6
MARCUS CABLE COMPANY, L.L.C. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
(in thousands)
Successor(note2) Predecessor (note 2)
----------------||--------------------------
Period from || Period from Nine
April 23 to || January 1, Months ended
September 30, || to April 22, September 30,
1998 || 1998 1997
----------------||------------ ------------
||
Revenues: ||
Cable services $ 224,065 ||$ 157,389 $ 348,438
Management fees (note 7) 131 || 374 5,539
----------------||------------ ------------
Total revenues 224,196 || 157,763 353,977
----------------||------------ ------------
||
Operating expenses: ||
Selling, service and ||
system management 86,110 || 60,501 130,146
General and administrative 35,030 || 24,245 53,130
Transaction costs (note 2) --- || 114,167 ---
Depreciation and ||
amortization 116,347 || 64,669 138,095
----------------||------------- ------------
Total operating expenses 237,487 || 263,582 321,371
----------------||------------ ------------
Operating (loss) income (13,291) || (105,819) 32,606
----------------||------------ ------------
||
Other (income) expense: ||
Interest expense, net 62,361 || 49,905 111,705
Gain on sale of assets --- || (43,662) ---
----------------||------------ ------------
Total other expense 62,361 || 6,243 111,705
----------------||------------ ------------
Net loss $ (75,652) ||$ (112,062) $ (79,099)
================||============ ============
See accompanying notes to the consolidated financial statements.
7
MARCUS CABLE COMPANY, L.L.C. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Successor(note 2) Predecessor (note 2)
----------------||--------------------------
Period from || Period from Nine
April 23 to || January 1, Months ended
September 30, || to April 22, September 30,
1998 || 1998 1997
----------------||------------ ------------
||
Cash flows from operating ||
activites: ||
Net loss $ (75,652) ||$ (112,062) $ (79,099)
Adjustments to reconcile ||
net loss to net cash ||
provided by operating ||
activities: ||
Depreciation and ||
amortization 116,347 || 64,669 138,095
Accretion of discount ||
on notes 34,150 || 23,710 50,812
Amortization of carrying ||
value premium (7,301) || --- ---
Other non cash interest 94 || 1,289 2,920
Gain on sale of assets --- || (43,662) ---
Gain on early retirement
of debt (753) || --- ---
Changes in assets and ||
liabilities, net of ||
working capital ||
adjustments: ||
Accounts ||
receivable, net (3,531) || 1,888 (3,636)
Prepaid expenses ||
and other (161) || (1,914) 204
Other assets 1,666 || (2,371) (186)
Accrued liabilities (34,804) || 117,855 5,781
Accrued interest 4,856 || (3,230) (1,501)
----------------||------------ ------------
Net cash provided ||
by operating ||
activities 34,911 || 46,172 113,390
----------------||------------ ------------
||
Cash flows from investing ||
activites: ||
Acquisitions of ||
cable systems --- || (57,324) (34,551)
Proceeds from sale of ||
assets, net 338,218 || 64,564 ---
Cash contributed from ||
partners (note 2) 1,420,000 || --- ---
Distributions (1,400,000) || --- ---
Additions to property ||
and equipment (113,858) || (66,088) (137,671)
----------------||------------ ------------
Net cash provided ||
by (used in) ||
investing ||
activities 244,360 || (58,848) (172,222)
----------------||------------ ------------
Cash flows from financing ||
activites: ||
Net (repayments) ||
borrowings under ||
Senior Credit Facility (262,500) || 12,750 55,000
Repayments of long-term ||
debt (4,050) || (28) (81)
Payment of debt ||
issuance costs --- || --- (1,464)
Payment of capital ||
lease obligations (359) || (274) (399)
----------------||------------ ------------
Net cash (used in) ||
provided by ||
financing ||
activities (266,909) || 12,448 53,056
----------------||------------ ------------
Net increase (decrease)in ||
cash and cash equivalents 12,362 || (228) (5,776)
Cash and cash equivalents at ||
beginning of period 1,379 || 1,607 6,034
----------------||------------ ------------
Cash and cash equivalents at ||
end of period $ 13,741 ||$ 1,379 $ 258
================||============ ============
Supplemental disclosure of ||
cash flow information: ||
Interest Paid $ 30,959 ||$ 28,517 $ 59,398
================||============ ============
See accompanying notes to the consolidated financial statements.
8
MARCUS CABLE COMPANY, L.L.C. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(1) Summary of Significant Accounting Policies
(a) General
The Company is a Delaware limited liability company,
formerly Marcus Cable Company, L.P., which was formed as
a Delaware limited partnership on January 17, 1990 and
converted to a Delaware limited liability company on June
9, 1998. The Company was formed for the purpose of
acquiring, operating and developing cable television
systems. The Company derives its primary source of
revenues by providing various levels of cable television
programming and services to residential and business
customers. The Company's operations are conducted
through Operating, an operating holding company and a
wholly-owned subsidiary of the Company. Operating, in
turn, conducts its operations through the Operating
Divisions, in which, in the case of MCDM, it directly or
indirectly serves as the general partner and owns a
greater than 99.0% interest, and in the case of the other
three Operating Divisions, it serves as the sole member
and owns a 100% interest.
(b) Basis of Presentation
The consolidated financial statements include the
accounts of the Company, Capital, Capital II, Capital
III, Operating and the Operating Divisions. All
significant intercompany accounts and transactions have
been eliminated in consolidation. Certain
reclassifications have been made to prior years'
consolidated balances to conform to the current year
presentation. See also note 2 for a discussion of the
change in accounting basis effective April 23, 1998.
(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 the
Company's financial position and results of operations
for all periods presented. 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 MCC for the year ended December
31, 1997, included in MCC's Annual Report on Form 10-K.
(2) Acquisitions and Divestitures
Combination with Charter
On July 30, 1998, Paul G. Allen, the sole owner of Vulcan,
announced that he has entered into an agreement to acquire
Charter, and that he intends to integrate the operations of
the Company and Charter. The resulting combined entity will
be the seventh largest cable operator in the United States,
serving approximately 2.4 million customers. While the timing
and structure of such proposed integration has not been
established, the general partner of MCPI entered into a
management agreement on October 6, 1998 whereby Charter will
begin to manage the day to day operations of the Company. In
consideration for the management consulting services provided
by Charter, Marcus shall pay to Charter an annual fee equal to
3% of the gross revenues of the Systems, plus expenses.
Vulcan Acquisition
On April 23, 1998, Vulcan acquired all of the outstanding
partnership interests in MCC, MCPLP and MCPI, excluding the
controlling interest in MCPI, the ultimate general partner.
9
As a result of the Vulcan Acquisition, the Company has applied
push down accounting in the preparation of the accompanying
financial statements. Accordingly, the Company adjusted its
equity as of the Vulcan Acquisition date to reflect the amount
paid in the transaction and allocated that amount to assets
acquired and liabilities assumed based on their relative fair
values, as determined by management using past independent
appraisals and general industry practices. The excess of the
purchase price over the fair value of MCC's tangible and
separately identifiable intangible assets was allocated to
franchise rights. The total transaction was valued at
approximately $3.2 billion and was allocated as follows (in
thousands):
Franchise rights $ 2,511,391
Property and equipment 735,832
Noncompetition agreements 6,344
Other assets 719
--------------
$ 3,254,286
==============
The transaction was funded through cash contributions of
approximately $1.4 billion from Vulcan and the assumption of
approximately $1.8 billion in net liabilities.
In connection with the Vulcan Acquisition, MCC incurred
transaction costs of approximately $114,200,000, comprised of
approximately $90,200,000 paid to employees of MCC in
settlement of the Eunits and approximately $24,000,000 of
transaction fees paid to certain equity partners for
investment banking services. These transaction costs have
been included in the accompanying unaudited consolidated
statement of operations for the period from January 1, 1998 to
April 22, 1998. A total of $44,600,000 in reserves has been
established within accrued liabilities of the Company and is
included within the franchise rights listed above in order to
account for future costs incurred as a result of the Vulcan
Acquisition and the recent non-strategic system divestitures.
As a result of the Vulcan Acquisition and the application of
push down accounting, financial information in the
accompanying unaudited consolidated financial statements and
notes thereto as of September 30, 1998 and for the Successor
Period is presented on a different cost basis than the
financial information as of December 31, 1997 and for the
three and nine months ended September 30, 1997 and for the
Predecessor Period, and therefore, such information is not
comparable.
Additionally, as a result of the Vulcan Acquisition and in
accordance with the terms and conditions of the indentures
(collectively, the "Indentures") governing the 13 1/2% Notes,
the 11 7/8% Debentures and the 14 1/4% Notes, the Company and
the issuers offered to repurchase such notes and debentures at
a redemption price (i) in the case of the 13 1/2% Notes, of
101% of the Accreted Value (as defined in the Indenture
governing such notes) thereof, (ii) in the case of the 11 7/8%
Debentures, at a redemption price of 101% of the principal
amount thereof plus accrued but unpaid interest to the date of
purchase and (iii) in the case of the 14 1/4% Notes, at a
redemption price of 101% of the Accreted Value (as defined in
the Indenture governing such notes) thereof. On July 1, 1998,
4,500 of the 14 1/4% Notes and 500 of the 11 7/8% Notes were
tendered for gross tender payments of $3,472,000 and $520,000,
respectively. The payments resulted in a gain on the
retirement of the debt of approximately $753,000. The tender
payments were funded through borrowings under the Company's
Senior Credit Facility.
Other Acquisitions
On April 1, 1998, the Company completed the acquisition of the
Mountain Brook and Shelby Cable System from Mountain Brook and
Shelby Cable for an aggregate purchase price of $57,300,000.
The communities served by this system are adjacent to the
Company's existing systems in the suburban Birmingham, Alabama
area. As of the date of the acquisition, this system served
approximately 23,000 basic customers. The purchase was
financed with funds received from the sale of the Delaware and
Maryland cable systems discussed below. The acquisition was
accounted for as a purchase, and accordingly, the purchase
price was allocated to tangible and intangible assets based on
estimated fair values at the acquisition date. The excess
10
of the cost of the assets acquired over the amounts assigned to
net tangible assets at the date of the acquisition was
approximately $44,400,000 and is included in franchise costs.
Divestitures
On September 30, 1998, the Company completed the sale of its
cable television systems located in Illinois to Triax Midwest
Associates, L.P. for a sales price of approximately
$58,000,000. As of the date of the sale, the systems served
approximately 32,500 customers.
On August 31, 1998, the Company completed the sale of its
cable television systems located in Connecticut and Virginia
to TMC Holdings, Inc., an affiliate of Adelphia Communications
Corporation, for a sales price of approximately $150,000,000.
As of the date of the sale, the systems served approximately
63,500 customers.
On July 31, 1998, the Company completed the sale of its cable
television systems located in Mississippi, Louisiana, Texas
Panhandle and Oklahoma to Cable One, Inc. for a sales price of
approximately $129,500,000. As of the date of the sale, the
systems served approximately 72,000 customers.
On April 1, 1998, the Company completed the sale of its cable
television systems located in Delaware and Maryland to an
affiliate of Comcast Corporation for a sales price of
approximately $65,500,000. As of the date of the sale, the
systems served approximately 26,500 customers.
No gains or losses were recognized on the sale of the non-strategic
systems divested after the Vulcan Acquisition since
the current market value for the non-strategic systems was
reflected in the $3.2 billion purchase price paid by Vulcan
for its interest in the Company.
Pro Forma Financial Information
Unaudited pro forma financial information for the periods from
April 23, 1998 to September 30, 1998 and January 1, 1998 to
April 22, 1998 and for the nine month period ended September
30, 1997 as though all acquisitions and divestitures completed
during the period from January 1, 1997 through September 30,
1998 had occurred at January 1, 1997 follows (in thousands):
Successor Predecessor
---------------- ---------------------------
April 23 to January 1, January 1, to
September 30, to April 22, September 30,
1998 1998 1997
---------------- ---------------------------
Revenue $ 200,255 $ 139,308 $ 311,726
Operating (loss) income (19,199) (13,147) 1,937
Net loss (82,937) (57,487) (97,388)
The pro forma financial information has been prepared for
comparative purposes only and does not purport to indicate the
results of operations which would actually have occurred had
the acquisitions and divestitures been made at the beginning
of the period indicated, or which may occur in the future.
11
(3) Property and Equipment
Property and equipment consists of the following (in
thousands):
September 30, December 31,
1998 1997
-------------- ------------
(Successor) (Predecessor)
Cable systems $ 735,154 $ 878,721
Vehicles and other 30,659 37,943
Land and buildings 13,666 17,271
-------------- ------------
779,479 933,935
Accumulated depreciation (39,302) (227,309)
-------------- ------------
$ 740,177 $ 706,626
============== ============
(4) Other Assets
Other assets consist of the following (in thousands):
September 30, December 31,
1998 1997
-------------- ------------
(Successor) (Predecessor)
Franchise rights $ 2,239,315 $ 1,209,725
Debt issuance costs --- 45,225
Going concern value of acquired
cable systems --- 37,274
Noncompetition agreements 4,843 25,914
Other 1,014 1,090
-------------- ------------
2,245,172 1,319,228
Accumulated amortization (71,022) (303,033)
-------------- ------------
$ 2,174,150 $ 1,016,195
============== ============
(5) Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
September 30, December 31,
1998 1997
-------------- ------------
(Successor) (Predecessor)
Accrued transaction costs $ 42,633 $ ---
Accrued operating costs 28,437 27,923
Accrued programming costs 10,174 9,704
Accrued franchise fees 7,175 10,131
Accrued property taxes 4,028 5,125
Other accrued liabilities 5,190 7,922
-------------- ------------
$ 97,637 $ 60,805
============== ============
12
The accrued transaction costs of $42.6 million represents the
amount remaining of the $44,600,000 in reserves which were
established in order to account for future costs incurred as a
result of the Vulcan Acquisition and the recent non-strategic
system divestitures.
(6) Long-term Debt and Carrying Value Premium
The Company had outstanding borrowings and a carrying value
premium as follows (in thousands):
September 30, December 31,
1998 1997
-------------- ------------
(Successor) (Predecessor)
At historical carrying amounts:
Senior Credit Facility $ 700,000 $ 949,750
13 1/2% Senior Subordinated
Discount Notes, due
August 1, 2004 370,991 336,304
14 1/4% Senior Discount
Notes, due December 15, 2004 233,116 213,372
11 7/8% Senior Debentures, due
December 15, 2004 99,500 100,000
Capital leases and other notes 1,770 2,507
-------------- ------------
1,405,377 1,601,933
Less current maturities 75,755 68,288
-------------- ------------
1,329,622 1,533,645
Carrying value premium 100,190 ---
-------------- ------------
$ 1,429,812 $ 1,533,645
============== ============
In conjunction with the Vulcan Acquisition and in accordance
with push down accounting, the Company was required to record
its outstanding debt at its estimated fair value. As a
result, the Company recognized a carrying value premium
(estimated fair market value less historical carrying amount)
of approximately $108,292,000 as of the date of the Vulcan
Acquisition. The carrying value premium is being amortized to
interest expense over the estimated remaining lives of the
related indebtedness using the interest method.
Amounts outstanding under the Senior Credit Facility bear
interest at either the (i) Eurodollar rate, (ii) prime rate or
(iii) CD base rate or Federal Funds rate, plus a margin of up
to 2.25% subject to certain adjustments based on the ratio of
Operating's total debt to annualized operating cash flow, as
defined. At September 30, 1998, borrowings under the Senior
Credit Facility bore interest at rates ranging from 7.01% to
8.88% under the Eurodollar and prime rate options. 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, 1998, interest rate swap agreements covering a
notional balance of $400,000,000 were outstanding which
require the Company to pay fixed rates ranging from 5.30% to
5.77%, plus the applicable interest rate margin. These
agreements mature from 1998 through 2002, and allow for the
optional extension by the counterparty for additional periods
and certain of the agreements provide for the automatic
termination in the event that one month LIBOR exceeds 6.75% on
any monthly reset date. The Company has also entered into an
interest rate swap agreement covering an aggregate notional
principal amount of $100,000,000 which matures in the year
2000 whereby the Company receives one month LIBOR plus 0.07%
and is required to pay the higher of one month LIBOR at either
the beginning or end of the interest period, plus the
applicable interest rate margin.
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. During the
period from January 1, 1998 to April 22, 1998 and for the
period from April 23, 1998 to September 30, 1998, the Company
recognized additional interest expense of approximately
$23,000 and $108,000, respectively, under its interest rate
swap agreements. During the three months ended September 30,
1997, the Company recognized an interest benefit of
13
approximately $20,600 and during the nine months ended
September 30, 1997, the Company recognized additional interest
expense of approximately $566,400 under its interest rate swap
agreements.
On October 16, 1998, Operating entered into an agreement to
amend its Senior Credit Facility. The amendment provides for,
among other items, a reduction in the permitted leverage and
cash flow ratios, a reduction in the interest rate charge
under the Senior Credit Facility and a change in the
restriction related to the use of cash proceeds from asset
sales to allow such proceeds to be used to redeem the 11 7/8%
Senior Debentures.
On November 11, 1998, the trustee of the 11 7/8% Senior Debentures
submitted a notice of redemption to the holders of the 11 7/8%
Senior Debentures stating that the Company intends to redeem
the the 11 7/8% Senior Debentures at 105.9% of the face value
plus accrued interest on December 11, 1998 for all holders
on record as of November 5, 1998.
(7) Related Party Transactions
Prior to the consummation of the Vulcan Acquisition,
affiliates of Goldman Sachs owned limited partnership
interests in MCC. Maryland Cable, which is controlled by an
affiliate of Goldman Sachs, owned the Maryland Cable System.
Operating managed the Maryland Cable System under the Maryland
Cable Agreement. Pursuant to such agreement, Operating earned
a management fee equal to 4.7% of the revenues of Maryland
Cable.
Effective January 31, 1997, the Maryland Cable System was sold
to Jones Communications of Maryland, Inc. Pursuant to the
Maryland Cable Agreement, Operating recognized incentive
management fees of $280,000 during the nine months ended
September 30, 1998 and $5,069,000 during the nine months ended
September 30, 1997, respectively, in conjunction with the
sale. Although Operating is no longer involved in the active
management of the Maryland Cable System, Operating has entered
into an agreement with Maryland Cable to oversee the
activities, if any, of Maryland Cable through the liquidation
of the partnership. Pursuant to such agreement, Operating
earns a nominal monthly fee. Including the incentive
management fees noted above, during the period from January 1,
1998 to April 22, 1998 and for the period from April 23, 1998
to September 30, 1998, Operating earned total management fees
of approximately $374,000 and $131,000, respectively. During
the three and nine month periods ended September 30, 1997,
Operating earned total management fees of $75,000 and
$5,539,000, respectively.
In connection with the Vulcan Acquisition, certain equity
partners were paid approximately $24,000,000 for investment
banking services.
(8) Comprehensive Income
In June 1997, SFAS No. 130, Reporting Comprehensive Income,
was issued. SFAS No. 130 establishes standards for reporting
and displaying comprehensive income and its components in an
annual financial statement that is displayed with the same
prominence as other annual financial statements.
Reclassification of financial statements for earlier periods,
provided for comparative purposes, is required. The statement
also requires the accumulated balance of other comprehensive
income to be displayed separately from retained earnings and
additional paid-in capital in the equity section of the
statement of financial position. SFAS No. 130 is effective
for fiscal years beginning after December 15, 1997. There are
no differences between comprehensive loss and actual net loss
on the Company's financial statements.
14
(9) Financial Information
MARCUS CABLE COMPANY, L.L.C. AND SUBSIDIARIES
Consolidating Schedule - Balance Sheet Information
As of September 30, 1998
(unaudited)
(in thousands)
ASSETS
Combined
Operating Capital Elimin- Operating Capital Elimin-
Divisions II Operating ations Consolidated Capital III Company ations Company
Current assets:
Cash and cash equivalents 5,614 1 7,282 --- 12,897 1 1 842 --- 13,741
Accounts receivable, net 20,638 --- 8,013 (3,648) 25,003 --- --- --- --- 25,003
Prepaid expenses and other 3,454 --- 591 --- 4,045 --- --- --- --- 4,045
--------- ----- --------- --------- --------- ----- ----- --------- --------- ---------
Total current assets 29,706 1 15,886 (3,648) 41,945 1 1 842 --- 42,789
Property and equipment, net 729,786 --- 10,391 --- 740,177 --- --- --- --- 740,177
Other assets, net 2,174,927 --- 1,654,789 (1,621,827) 2,207,889 --- --- 356,163 (389,902) 2,174,150
Investment in subsidiaries --- --- 1,231,848 (1,231,848) --- --- --- 1,415,593 (1,415,593) ---
--------- ----- --------- --------- --------- ----- ----- --------- --------- ---------
Total assets 2,934,419 1 2,912,914 (2,857,323) 2,990,011 1 1 1,772,598 (1,805 495) 2,957,116
========= ===== ========= ========= ========= ===== ===== ========= ========= =========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current maturities of
long-term debt 161 --- 75,594 --- 75,755 --- --- --- --- 75,755
Accrued liabilities 189,713 --- 377,908 (112,924) 454,697 --- --- 32,842 (389,902) 97,637
Accrued interest 9,561 --- 3,648 (9,561) 3,648 --- --- 5,913 --- 9,561
--------- ----- --------- --------- --------- ----- ----- --------- --------- ---------
Total current liabilities 199,435 --- 457,150 (122,485) 534,100 --- --- 38,755 (389,902) 182,953
Long-term debt 1,402,947 --- 996,859 (1,402,800) 997,006 --- --- 332,616 --- 1,329,622
Carrying value premium 100,190 --- 43,314 (100,190) 43,314 --- --- 56,876 --- 100,190
--------- ----- --------- --------- --------- ----- ----- --------- --------- ---------
1,503,137 --- 1,040,173 (1,502,990) 1,040,320 --- --- 389,492 --- 1,429,812
Partners' capital 1,231,847 1 1,415,591 (1,231,848) 1,415,591 1 1 1,344,351 (1,415,593) 1,344,351
--------- ----- --------- --------- --------- ----- ----- --------- --------- ---------
Total liabilities and
partners' capital 2,934,419 1 2,912,914 (2,857,323) 2,990,011 1 1 1,772,598 (1,805,495) 2,957,116
========= ===== ========= ========= ========= ===== ===== ========= ========= =========
15 (continued)
MARCUS CABLE COMPANY, L.L.C. AND SUBSIDIARIES
Consolidating Schedule - Statement of Operations Information
Sucessor
For the period from April 23, 1998 to September 30, 1998
(unaudited)
(in thousands)
Combined Operating
Operating Capital Elimin- Consol- Capital Elimin-
Divisions II Operating ations idated Capital III MCC ations Company
Revenues:
Cable services 224,065 --- --- --- 224,065 --- --- --- --- 224,065
Management fees --- --- 131 --- 131 --- --- --- --- 131
--------- ------ ------- ------ ------- ------ ------ ------ ------ -------
Total revenues 224,065 --- 131 --- 224,196 --- --- --- --- 224,196
--------- ------ ------- ------ ------- ------ ------ ------ ------ -------
Operating expenses:
Selling, service and
system management 84,941 --- 1,169 --- 86,110 --- --- --- --- 86,110
General and administrative 28,675 --- 6,355 --- 35,030 --- --- --- --- 35,030
Allocated corporate costs 8,270 --- (8,270) --- --- --- --- --- --- ---
Depreciation and amortization 115,604 --- 743 --- 116,347 --- --- --- --- 116,347
--------- ------ ------- ------ ------- ------ ------ ------ ------ -------
Total operating expenses 237,490 --- (3) --- 237,487 --- --- --- --- 237,487
--------- ------ ------- ------ ------- ------ ------ ------ ------ -------
Operating income (loss) (13,425) --- 134 --- (13,291) --- --- --- --- (13,291)
Other (income) expense:
Interest (income) expense, net 63,801 --- (15,634) --- 48,167 --- --- 14,194 --- 62,361
Equity (income) loss
of subsidiaries --- --- 77,226 (77,226) --- --- --- 61,458 (61,458) ---
--------- ------ ------- ------ ------- ------ ------ ------ ------ -------
63,801 --- 61,592 (77,226) 48,167 --- --- 75,652 (61,458) 62,361
--------- ------ ------- ------ ------- ------ ------ ------ ------ -------
Net loss (77,226) --- (61,458) 77,226 (61,458) --- --- (75,652) 61,458 (75,652)
========= ====== ======= ====== ======= ====== ====== ====== ====== =======
16 (continued)
MARCUS CABLE COMPANY, L.L.C. AND SUBSIDIARIES
Consolidating Schedule - Statement of Operations Information
Predecessor
For the period from January 1, 1998 to April 22, 1998
(unaudited)
(in thousands)
Combined Operating
Operating Capital Elimin- Consol- Capital Elimin-
Divisions II Operating ations idated Capital III MCC ations Company
Revenues:
Cable services 157,389 --- --- --- 157,389 --- --- --- --- 157,389
Management fees --- --- 374 --- 374 --- --- --- --- 374
--------- ------ ------- ------ -------- ------ ------ ------- ------ -------
Total revenues 157,389 --- 374 --- 157,763 --- --- --- --- 157,763
--------- ------ ------- ------ -------- ------ ------ ------- ------ -------
Operating expenses:
Selling, service and
system management 59,671 --- 830 --- 60,501 --- --- --- --- 60,501
General and administrative 19,560 --- 4,685 --- 24,245 --- --- --- --- 24,245
Allocated corporate costs 5,778 --- (5,778) --- --- --- --- --- --- ---
Transaction costs --- --- 114,167 --- 114,167 --- --- --- --- 114,167
Depreciation and amortization 64,147 --- 522 --- 64,669 --- --- --- --- 64,669
--------- ------ ------- ------ -------- ------ ------ ------- ------ -------
Total operating expenses 149,156 --- 114,426 --- 263,582 --- --- --- --- 263,582
--------- ------ ------- ------ -------- ------ ------ ------- ------ -------
Operating income(loss) 8,233 --- (114,052) --- (105,819) --- --- --- --- (105,819)
Other (income) expense:
Interest (income) expense, net 50,492 --- (14,010) --- 36,482 --- --- 13,423 --- 49,905
Gain on sale of assets (43,662) --- --- --- (43,662) --- --- --- --- (43,662)
Equity (income) loss
of subsidiaries --- --- (1,403) 1,403 --- --- --- 98,639 (98,639) ---
--------- ------ ------- ------ -------- ------ ------ ------- ------ -------
6,830 --- (15,413) 1,403 (7,180) --- --- 112,062 (98,639) 6,243
--------- ------ ------- ------ -------- ------ ------ ------- ------ -------
Net income(loss) 1,403 --- (98,639) (1,403) (98,639) --- --- (112,062) 98,639 (112,062)
========= ====== ======= ====== ======== ====== ====== ======= ====== =======
17
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 unaudited 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,
1997, included in the Company's Annual Report on Form 10-K.
GENERAL
The Company has followed a systematic approach in acquiring,
operating and developing cable television systems based on the
principle of increasing operating cash flow while maintaining a
high quality standard of service. The Company's acquisition
strategy focuses on cable television systems in proximity to its
existing systems or of sufficient size to serve as cores for new
operating regions. The Company believes that increasing its
operating scale through strategic acquisitions, as well as through
internal growth, enhances its ability to reduce the rate of
increase in programming costs, develop new technologies, offer new
services and improve operating margins, and thus improve its long-term
competitiveness.
In continuing to implement the Company's acquisition strategy, the
Company acquired the Mountain Brook and Shelby Cable System in
April of 1998. The Mountain Brook and Shelby Cable System serves
approximately 23,000 customers from a single headend through a 550
MHz HFC architecture. This system serves the two broader areas of
Mountain Brook and northern Shelby County, which are adjacent to
the Company's existing systems in the Birmingham, Alabama market.
The Company intends to interconnect this system with its existing
HFC networks and fully integrate the operations of this system with
its existing operations in the Birmingham area. Funding for the
$57.3 million purchase was provided through the proceeds received
from the divestiture of the cable television systems located in
Delaware and Maryland.
During the third quarter of 1998, the Company completed
divestitures of certain non-strategic cable systems. After the
sale of these non-strategic systems, the Company owns and operates
six core groups of cable systems. See the discussion concerning
system divestitures in note 2 to the unaudited consolidated
financial statements.
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.
Uses of Cash
As part of the ongoing business strategy, the Company has invested,
and will continue to invest, significant amounts of capital
rebuilding and upgrading its cable systems so that by the end of
1999, 84% of the existing systems will have a bandwidth of between
550 MHz and 862 MHz. This program should enable the Company to
deliver technological innovations to its customers as such services
become commercially viable. As part of this program, certain
systems, such as those serving the areas in and around Ft.
Worth/Tarrant County (Texas), Glendale/Burbank (California) and
suburban Birmingham (Alabama) together with selected systems in
Wisconsin, Indiana, Tennessee and other states in which the Company
operates cable systems, are being upgraded to 750 MHz or 862 MHz
with two-way communication capabilities.
A significant use of capital in 1998 has been to finance the
planned system upgrades, rebuilds and extensions and the purchase
of digital and data distribution equipment and home terminal
devices for use in customers' homes. Capital expenditures are
expected to approximate $218,097,000 (or approximately $200 per
customer) in 1998. The Company expects to fund these capital
expenditures through cash generated from operations and available
borrowings under
18
the Senior Credit Facility. During the period
from January 1, 1998 to April 22, 1998 and for the period from
April 23, 1998 to September 30, 1998, the Company made capital
expenditures of approximately $66,362,000 and $114,217,000,
respectively.
Cash interest is payable monthly, quarterly and semiannually on
borrowings outstanding under the Company's Senior Credit Facility
and the 11 % 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 $526,915,000 over the next five years. The Company
expects to cover both interest and principal payments on its long-term
obligations through internally generated funds, borrowings
under the Senior Credit Facility, or the future issuance of public
or private equity or debt. Although in the past the Company has
been able to obtain financing through equity investments, debt
issuances and bank borrowings, there can be no assurance that the
capital resources necessary to accomplish the Company's business
strategy will be available, or that the terms will be favorable to
the Company.
During the period from January 1, 1998 to April 22, 1998 and for
the period from April 23, 1998 to September 30, 1998, the Company
made gross payments of approximately $16,278,000 and $329,558,000,
respectively, on the Senior Credit Facility and other long-term
debt.
As a result of the Vulcan Acquisition and in accordance with the
terms and conditions of the indentures (collectively, the
"Indentures") governing the 13 1/2% Notes, the 11 7/8% Debentures and
the 14 1/4% Notes, the Company and the issuers offered to
repurchase such notes and debentures at a redemption price (i) in
the case of the 13 1/2% Notes, of 101% of the Accreted Value (as
defined in the Indenture governing such notes) thereof, (ii) in the
case of the 11 7/8% Debentures, at a redemption price of 101% of
the principal amount thereof plus accrued but unpaid interest to
the date of purchase and (iii) in the case of the 14 1/4% Notes, at
a redemption price of 101% of the Accreted Value (as defined in the
Indenture governing such notes) thereof. On July 1, 1998, 4,500 of
the 14 1/4% Notes and 500 of the 11 7/8% Notes were tendered for
gross tender payments of $3,472,000 and $520,000, respectively.
The payments resulted in a gain on the retirement of the debt of
approximately $753,000. The tender payments were funded through
borrowings under the Company's Senior Credit Facility.
On October 16, 1998, Operating entered into an agreement to amend
its Senior Credit Facility. The amendment provides for, among
other items, a reduction in the permitted leverage and cash flow
ratios, a reduction in the interest rate charge under the Senior
Credit Facility and a change in the restriction related to the use
of cash proceeds from asset sales to allow such proceeds to be used
to redeem the 11 7/8% Senior Debentures.
On November 11, 1998, the trustee of the 11 7/8% Senior Debentures
submitted a notice of redemption to the holders of the 11 7/8%
Senior Debentures stating that the Company intends to redeem
the the 11 7/8% Senior Debentures at 105.9% of the face value
plus accrued interest on December 11, 1998 for all holders
on record as of November 5, 1998.
Sources of Cash
The Company generated cash flows from operating activities of
$46,172,000 and $34,911,000 during the period from January 1, 1998
to April 22, 1998 and for the period from April 23, 1998 to
September 30,1998, respectively. During the period from January 1,
1998 to April 22, 1998 and for the period from April 23, 1998 to
September 30,1998, the Company borrowed $29,000,000 and
$67,000,000, respectively, under the Senior Credit Facility. Cash
flows from operating activities, funding from equity contributions
and borrowings have been sufficient to meet the Company's debt
service, working capital and capital expenditure requirements. The
Company has an additional $356,059,000 of borrowing capacity under
its Revolving Credit Facility after considering committed lines of
credit of $3,941,000.
19
RESULTS OF OPERATIONS
The comparability of operating results between the three and nine
months ended September 30, 1998 and the corresponding periods for
1997 are affected by several events which occurred during 1997 and
1998 (collectively referred to as the "Pro Forma Adjustments").
These events include 1) the addition of approximately 14,000 net
basic customers in Wisconsin and Indiana through the Time Warner
Exchange on December 1, 1997; 2) the sale of the previously managed
Maryland Cable System on January 31, 1997; 3) the sale of the
Delaware and Maryland systems on April 1, 1998; 4) the Mountain
Brook Acquisition on April 1, 1998; 5) the Vulcan Acquisition on
April 23, 1998; 6) the sale of the Mississippi, Louisiana, Texas
Panhandle and Oklahoma systems on July 31, 1998; 7) the sale of the
Connecticut and Virginia systems on August 31, 1998; and 8) the
sale of the Illinois systems on September 30, 1998.
The following table summarizes the operating results for the three
and nine months ended September 30, 1998 in comparison to the same
periods in 1997, combining the 1998 results for the Predecessor
Period (January 1 through April 22) with the Successor Period
(April 23 though September 30). The most significant impact of the
Vulcan Acquisition on the operating results was the $114.2 million
of transaction costs, as previously explained in note 2 to the
unaudited consolidated financial statements, a decrease of
approximately $7,301,000 in interest expense, due to the
amortization of the carrying value premium, and an increase of
approximately $27,176,000 in depreciation and amortization expense,
due to an increase in the carrying value of the assets. Specific
trends addressed within the discussion of operating results will
refer to the combined results as presented in this table (in
thousands):
Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
Revenues:
Cable services $ 127,092 $ 123,086 $ 381,454 $ 348,438
Management fees 75 75 505 5,539
--------- --------- --------- ---------
Total revenues 127,167 123,161 381,959 353,977
--------- --------- --------- ---------
Operating expenses:
Selling, service and
system management 48,580 45,301 146,611 130,146
General and
administrative 19,986 18,332 59,275 53,130
Transaction costs --- --- 114,167 ---
Depreciation and
amortization 62,282 48,921 181,016 138,095
--------- --------- --------- ---------
Total operating
expenses 130,848 112,554 501,069 321,371
--------- --------- --------- ---------
Operating
income (loss) (3,681) 10,607 (119,110) 32,606
--------- --------- --------- ---------
Other (income) expenses:
Interest expense, net 34,824 38,358 112,266 111,705
Gain on sale
of assets --- --- (43,662) ---
--------- --------- --------- ---------
Total other
expense 34,824 38,358 68,604 111,705
--------- --------- --------- ---------
Net loss $ (38,505) $ (27,751) $(187,714) $ (79,099)
========= ========= ========= =========
The Company generates the majority of its revenues from monthly
customer fees for basic and premium services, installation income
and other ancillary services (such as the rental of home terminal
devices). Additional revenues are generated from pay-per-view
programming, the sale of advertising spots and sales commissions
from home shopping networks. Revenues were also generated from
fees earned in conjunction with the sale of and the management of
Maryland Cable.
Selling, service and system management expenses consist primarily
of labor costs and other expenses associated with programming,
marketing, engineering and plant maintenance and advertising.
General and administrative costs consist primarily of salaries for
administrative personnel, customer billing costs, bad debt expense,
property taxes and copyright fees.
20
Transaction costs of $114,167,000 consist of approximately
$90,200,000 paid in settlement of the Eunits and approximately
$24,000,000 paid to certain equity partners for investment banking
services.
The gain on the divestiture of cable system pertains to the gain
recognized on the sale of the Company's Delaware and Maryland
properties on April 1, 1998. No gains or losses were recognized on
the sale of the non-strategic systems divested after the Vulcan
Acquisition since the current market value for the non-strategic
systems was reflected in the $3.2 billion purchase price paid by
Vulcan for its interest in the Company.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THREE MONTHS
ENDED SEPTEMBER 30, 1997
Revenues
Revenues of $127,167,000 for the three months ended September 30,
1998 increased $4,006,000, or 3.3%, over revenues of $123,161,000
for the three months ended September 30, 1997. The increase was
primarily attributable to growth in basic service revenue,
equipment sales and rentals, advertising sales revenue and pay-per-view
movies and events revenue. These increases were offset by
decreases in premium service revenue. Normalizing the effects of
the Pro Forma Adjustments, pro forma revenue of $117,575,000
increased $8,670,000, or 8.0%, for the three months ended September
30, 1998, versus the comparable period in 1997.
Basic service revenue of $95,570,000 for the three months ended
September 30, 1998 increased $4,096,000, or 4.5%, over basic
service revenue of $91,474,000 for the three months ended September
30, 1997. The increase primarily reflects the impact of new
product offerings, channel additions, mid-year rate adjustments and
increases in the number of basic customers. Normalizing the
effects of the Pro Forma Adjustments, pro forma basic service
revenues increased $7,562,000, or 9.3%, for the three months ended
September 30, 1998, versus the comparable period in 1997.
Equipment sales and rentals of $5,715,000 for the three months
ended September 30, 1998 increased $924,000, or 19.3%, from
$4,791,000 for the three months ended September 30, 1997. The
increase was primarily due to the deployment of addressable
converters, including advanced analog home terminal devices, in
conjunction with the system upgrades and rebuilds. Normalizing the
effects of the Pro Forma Adjustments, pro forma equipment sales and
rentals increased $1,113,000, or 25.9%, for the three months ended
September 30, 1998, versus the comparable period in 1997.
Advertising revenue of $5,183,000 for the three months ended
September 30, 1998 increased $919,000, or 21.6%,from $4,264,000 for
the three months ended September 30, 1997. The positive trend in
advertising sales is primarily the result of increases in the
number of insertable channels, improved channel utilization through
the installation of digital insertion equipment and greater market
demand. Normalizing the effects of the Pro Forma Adjustments, pro
forma advertising revenue increased $972,000, or 25.5%, for the
three months ended September 30, 1998, versus the comparable period
in 1997.
Pay-per-view revenue of $2,541,000 for the three months ended
September 30, 1998 increased $685,000, or 36.9%, from $1,856,000
for the three months ended September 30, 1997. The increase was
primarily due to the deployment of advanced analog home terminal
devices, which have increased the availability of pay-per-view
products. Normalizing the effects of the Pro Forma Adjustments,
pro forma pay-per-view revenue increased $648,000, or 37.9%, for
the three months ended September 30, 1998, versus the comparable
period in 1997.
Premium service revenue of $12,183,000 for the three months ended
September 30, 1998 decreased $2,826,000, or 18.8%, from $15,009,000
for the three months ended September 30, 1997. The decrease was
primarily the result of continued losses in premium units, mainly
caused by the migration of approximately 71,000 Disney units from
a premium to a basic service and the loss of approximately 31,000
units of The Movie Channel that are now being packaged with
Showtime. See discussion in the "Customer Information" section.
Normalizing the effects of the Pro Forma Adjustments, pro forma
premium service revenue decreased $2,014,000, or 15.5%, for the
three months ended September 30, 1998, versus the comparable period
in 1997.
Management fee revenue of $75,000 for the three months ended
September 30, 1998 was unchanged versus the three months ended
September 30, 1997. The Company will continue to earn a nominal
monthly management fee through
21
the dissolution of the Maryland
Cable management agreement, expected to occur by December 31, 1998.
Operating Expenses
Selling, service and system management expenses of $48,580,000 for
the three months ended September 30, 1998 increased $3,279,000 or
7.2%, from $45,301,000 for the three months ended September 30,
1997. The programming cost increase of $2,902,000, or 9.9%, is
primarily attributable to increases in the cost of basic satellite
programming as a result of annual cost increases, incremental basic
customer growth and the addition of satellite programming channels
to certain of the Company's rebuilt systems. Another factor
contributing to the increase in selling, service and system
management expenses resulted from an increase in plant expense of
$569,000, or 5.4% for the three months ended September 30, 1998.
The plant cost increase is primarily the result of the extensions
and rebuilds of certain of the Company's systems as previously
described and the higher cost of addressable converters and
advanced analog home terminals currently being placed in customer's
homes. Offsetting the increases in programming and plant expense
was a decrease in marketing costs of $146,000 or 1.3% for the three
months ended September 30, 1998, the net result of advertising
costs offset by channel launch support received from programmers.
Normalizing the effects of the Pro Forma Adjustments, pro forma
selling, service and system management expenses increased
$5,266,000, or 13.1%, for the three months ended September 30,
1998, versus the comparable period in 1997.
General and administrative expenses of $19,986,000 for the three
months ended September 30, 1998 increased $1,654,000, or 9.0%, from
$18,332,000 for the three months ended September 30, 1997. The
increase is mainly attributable to incremental labor costs incurred
as the Company continues to add customer service resources,
including staffing both existing and new customer call centers.
Billing costs have increased as a result of upgrading the Company's
customer care platform. Normalizing the effects of the Pro Forma
Adjustments, pro forma general and administrative expenses
increased $2,427,000, or 14.6%, for the three months ended
September 30, 1998, versus the comparable period in 1997.
Depreciation and amortization expense of $62,282,000 for the three
months ended September 30, 1998 increased $13,361,000, or 27.3%,
from $48,921,000 for the three months ended September 30, 1997.
The increase is principally a result of an additional $15,529,000
of depreciation and amortization expense recognized from the
increase in net assets due to the Vulcan Acquisition, and due to
additional capital expenditures incurred to rebuild and upgrade the
physical plant and equipment of certain of the Systems.
Operating (Loss) Income
The operating loss of $3,681,000 for the three months ended
September 30, 1998 decreased from operating income of $10,607,000
for the comparable period in 1997, mainly due to the increased
depreciation and amortization costs of $13,361,000 and the other
factors discussed above.
The cable television industry generally measures the performance of
a cable system in terms of system cash flow before corporate
expenses and depreciation and amortization (often referred to as
"Cable System Cash Flow") and the performance of a cable television
company in terms of operating income before depreciation and
amortization (often referred to as "EBITDA"). These measures are
not intended to be a substitute or improvement on the terms
disclosed on the financial statements. Rather, these measures are
included as industry standards. Cable System Cash Flow and EBITDA
of $62,658,000 and $58,601,000, respectively, for the three months
ended September 30, 1998 decreased $1,027,000, or 1.6%, and
$927,000, or 1.6%, in comparison to the same period in 1997.
Normalizing the effects of the Pro Forma Adjustments, pro forma
Cable System Cash Flow and EBITDA for the three months ended
September 30, 1998 increased 1.6% and 1.9%, respectively, over the
comparable period in 1997.
Other Expenses
Net interest expense of $34,824,000 for the three months ended
September 30, 1998 decreased $3,534,000, or 9.2%, in comparison to
the same period in 1997. This decrease was primarily due to the
carrying-value premium amortization of $4,163,000 combined with a
decrease in interest expense from decreased borrowings under the
Senior Credit Facility offset by the scheduled increase in
accretion for the 13 1/2% Notes and the 14 1/4% Notes of
$2,493,000. The weighted average interest rate, including
commitment fees, for total debt outstanding during the three months
ended September 30, 1998 was 10.21%, compared with 9.82% for the
three months ended September 30, 1997.
22
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH NINE MONTHS
ENDED SEPTEMBER 30, 1997
Revenues
Revenues of $381,959,000 for the nine months ended September 30,
1998 increased $27,982,000, or 7.9%, over revenues of $353,977,000
for the nine months ended September 30, 1997. The increase was
primarily attributable to growth in basic service revenue,
equipment sales and rentals, advertising sales revenue and pay-per-view
movies and event revenue. These increases were offset by
decreases in premium service revenue and a decrease of $5,034,000
in management fee income. Normalizing the effects of the Pro Forma
Adjustments, pro forma revenue of $339,563,000 increased
$27,837,000, or 8.9%, for the nine months ended September 30, 1998,
versus the comparable period in 1997.
Basic service revenue of $285,735,000 for the nine months ended
September 30, 1998 increased $31,479,000, or 12.4%, over basic
service revenues of $254,256,000 for the nine months ended
September 30, 1997. The increase primarily reflects the impact of
new product offerings, channel additions, mid-year rate adjustments
and increases in the number of basic customers. Normalizing the
effects of the Pro Forma Adjustments, pro forma basic service
revenues increased $27,085,000, or 11.9%, for the nine months ended
September 30, 1998, versus the comparable period in 1997.
Equipment sales and rentals of $16,142,000 for the nine months
ended September 30, 1998 increased $2,549,000, or 18.8%, from
$13,593,000 for the nine months ended September 30, 1997. The
increase was primarily due to the deployment of addressable
converters, including advanced analog home terminal devices, in
conjunction with the system upgrades and rebuilds. Normalizing the
effects of the Pro Forma Adjustments, pro forma equipment sales and
rentals increased $2,296,000, or 18.6%, for the nine months ended
September 30, 1998, versus the comparable period in 1997.
Advertising revenue of $15,886,000 for the nine months ended
September 30, 1998 increased $3,801,000, or 31.5%,from $12,085,000
for the nine months ended September 30, 1997. The upward trend in
advertising sales is primarily the result of increases in the
number of insertable channels, improved channel utilization through
the installation of digital insertion equipment and greater market
demand. Normalizing the effects of the Pro Forma Adjustments, pro
forma advertising revenue increased $3,359,000, or 31.2%, for the
nine months ended September 30, 1998, versus the comparable period
in 1997.
Pay-per-view revenue of $7,345,000 for the nine months ended
September 30, 1998 increased $994,000, or 15.7%, from $6,351,000
for the nine months ended September 30, 1997. The increase was
primarily due to the deployment of advanced analog home terminal
devices, which have increased the availability of pay-per-view
products. Normalizing the effects of the Pro Forma Adjustments,
pro forma pay-per-view revenue increased $463,000, or 7.8%, for the
nine months ended September 30, 1998, versus the comparable period
in 1997.
Premium service revenue of $39,114,000 for the nine months ended
September 30, 1998 decreased $6,397,000, or 14.1%, from $45,511,000
for the nine months ended September 30, 1997. The decrease was
primarily the result of continued losses in premium units, mainly
caused by the migration of approximately 71,000 Disney units from
a premium to a basic service and the loss of approximately 31,000
units of The Movie Channel that are now being packaged with
Showtime. See discussion in the "Customer Information" section.
Normalizing the effects of the Pro Forma Adjustments, pro forma
premium service revenue decreased $5,710,000, or 14.4%, for the
nine months ended September 30, 1998, versus the comparable period
in 1997.
Management fee revenue of $505,000 for the nine months ended
September 30, 1998 decreased $5,034,000, or 90.9%, from $5,539,000
for the nine months ended September 30, 1997. The decrease
resulted from the sale of the Maryland Cable Systems, as discussed
in note 7 to the unaudited consolidated financial statements. The
Company will continue to earn a nominal monthly management fee
through dissolution of the Maryland Cable management agreement,
expected to occur by December 31, 1998.
Operating Expenses
Selling, service and system management expenses of $146,611,000 for
the nine months ended September 30, 1998
23
increased $16,465,000 or
12.7%, from $130,146,000 for the nine months ended September 30,
1997. The programming cost increase of $11,616,000, or 13.5%, is
primarily attributable to increases in the cost of basic satellite
programming as a result of annual cost increases, incremental basic
customer growth and the addition of satellite programming channels
to certain of the Company's rebuilt systems. Another factor
contributing to the increase in selling, service and system
management expenses resulted from an increase in marketing expenses
and plant expense of $2,740,000, or 36.0%,and $2,155,000, or 7.0%,
respectively, for the nine months ended September 30, 1998. The
increase in marketing expense resulted from printing and direct
mail and advertising costs due to the introduction of several new
marketing campaigns and from a $1,348,000 reduction in channel
launch support. The increase in plant expense for the nine months
ended September 30, 1998 was primarily the result of the extensions
and rebuilds of certain of the Company's systems as previously
described and the higher cost of addressable converters and
advanced analog home terminals currently being placed in customer's
homes. Normalizing the effects of the Pro Forma Adjustments, pro
forma selling, service and system management expenses increased
$14,427,000, or 12.3%, for the nine months ended September 30,
1998, versus the comparable period in 1997.
General and administrative expenses of $59,275,000 for the nine
months ended September 30, 1998 increased $6,145,000, or 11.6%,
from $53,130,000 for the nine months ended September 30, 1997. The
increase is mainly attributable to incremental labor costs incurred
as the Company continues to add customer service resources,
including staffing both existing and new customer call centers.
Billing costs have increased as a result of upgrading the Company's
customer care platform. Normalizing the effects of the Pro Forma
Adjustments, pro forma general and administrative expenses
increased $5,634,000, or 11.5%, for the nine months ended September
30, 1998, versus the comparable period in 1997.
Depreciation and amortization expense of $181,016,000 for the nine
months ended September 30, 1998 increased $42,921,000, or 31.1%,
from $138,095,000 for the nine months ended September 30, 1997.
The increase is principally a result of an additional $27,176,000
of depreciation and amortization expense recognized from the
increase in net assets due to the Vulcan Acquisition, and due to
additional capital expenditures incurred to rebuild and upgrade the
physical plant and equipment of certain of the Systems.
Operating (Loss) Income
The operating loss of $119,110,000 for the nine months ended
September 30, 1998 decreased from operating income of $32,606,000
for the comparable period in 1997, mainly due to the transaction
costs of $114,167,000 and other factors discussed above.
Cable System Cash Flow and EBITDA of $188,606,000 and $176,073,000,
respectively, for the nine months ended September 30, 1998
increased $11,190,000, or 6.3%, and $5,372,000, or 3.1%, in
comparison to the same period in 1997. Normalizing the effects of
the Pro Forma Adjustments, pro forma Cable System Cash Flow and
EBITDA for the nine months ended September 30, 1998 increased 5.4%
and 5.3%, respectively, over the comparable period in 1997.
Other Expenses
Net interest expense of $112,266,000 for the nine months ended
September 30, 1998 increased $561,000, or 0.5%, in comparison to
the same period in 1997. This increase was primarily due to the
scheduled increase in accretion for the 13 1/2% Notes and the 14
1/4% Notes of $7,187,000, offset by a decrease in interest expense
from decreased borrowings under the Senior Credit Facility, and by
the carrying-value premium amortization of $7,301,000. The
weighted average interest rate, including commitment fees, for
total debt outstanding during the nine months ended September 30,
1998 was 9.90%, compared with 9.86% for the nine months ended
September 30, 1997.
Customer Information
The following table illustrates the changes in the Company's basic
customers and premium units which have significantly contributed to
the revenue fluctuations previously noted. Substantially all of
the internal growth in basic customers is attributable to continued
marketing and sales efforts as well as the continued extension of
physical cable plant to pass additional dwelling units. A portion
of the premium unit decrease from December 31, 1997 was the result
of a loss of approximately 31,000 units of The Movie Channel which
are now being packaged with Showtime.
24
Another portion of the
decrease in premium units from December 31, 1997 was anticipated as
approximately 60,000 Disney units were converted from a pay service
to the basic service level and as a reaction to a change in the
Company's marketing strategy. In the third quarter of 1997, the
Company decided to no longer promote deep discount sales offers due
to the amount of churn these types of offers produced. In an
effort to renew premium unit growth, the Company has introduced
multiplex premium services at the a la carte level and has
introduced specific regional and local marketing campaigns. These
multiplex services and marketing campaigns are directed at
upgrading existing customers' service packages and acquiring new
customers through discounted initial service pricing packages. All
of the campaigns are specifically tailored toward customer
retention and providing programming variety and choice at
competitive rates.
Actual Actual Pro Forma
September 30, December 31, September 30,
1998 1997 1997 (a)
Basic Customers 1,068,700 1,232,287 1,066,345
Premium Units 436,490 583,603 545,619
- ----------------------
<FN>
(a) Includes: 1) an increase of approximately 14,000 basic
customers and a decrease of approximately 19,100 premium units
from the net effect of the Time Warner Exchange on December 1,
1997; 2) an increase of approximately 23,000 basic customers
and 12,000 premium units from the Mountain Brook Acquisition
on April 1, 1998; 3) a decrease of approximately 27,000 basic
customers and 20,000 premium units from the DelMar Divestiture
on April 1, 1998; and 4) a decrease of approximately 168,000
basic customers and 68,000 premium units as a result of the
divestiture of the Mississippi, Louisiana, Texas Panhandle and
Oklahoma systems on July 31, 1998, the divestiture of the
Connecticut and Virginia systems on August 31, 1998 and the
divestiture of the Illinois systems on September 30, 1998.
</FN>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133 is effective for fiscal years
beginning after June 15, 1999. This statement establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other
contracts, and for hedging activities. The effective adoption of
SFAS No. 133 is not expected to have a material impact on the
Company's financial statements and related disclosures.
YEAR 2000 IMPACT
Many existing computer systems and applications and other control
devices use only two digits to identify a year in the date field
without considering the impact of the upcoming change in the
century. As a result, as year 2000 approaches, computer systems
and applications used by many companies may need to be upgraded to
comply with Year 2000 requirements. Since January, 1998, the
Company has been in the process of addressing Year 2000 issues.
The primary focus for the Company has been to identify Year 2000
issues in the areas that provide quality customer services and
accurate billing for those services. A new software release of the
CableData billing system, the third-party billing service used by
the Company, will be installed in November 1998 that will bring the
system into Year 2000 compliance. This will address Year 2000
issues associated with customer billing and provisioning of
services. However, additional effort will be required in the
network area to remediate the remaining Year 2000 issues.
While engineering and construction is underway in the network area,
physical inventories are being made of non-critical equipment,
office computers and equipment, and non-computer equipment to
determine the extent of Year 200 issues. The Company has a project
team underway and if equipment can't be readily tested, vendors are
being contacted to determine their Year 2000 compliance status.
Vendor compliance is an essential part of the project because the
Company has no critical in-house systems. In addition to the
Company's internal review, participation in an industry task force,
Cable Television Laboratories, Inc. helps to address Year 2000
technical issues on a broader scale.
25
While the Company is moving ahead and making every effort to
address all Year 2000 issues, there can be no assurance that the
Company's systems or the computer systems of other companies with
whom the Company conducts business will be Year 2000 compliant
prior to December 31, 1999. If such modifications and conversions
are not completed in a timely manner, the Year 2000 issues may have
a material impact on the operations of the Company.
The Company currently estimates that its costs associated with Year
2000 compliance, including any costs associated with the
consequences of incomplete or untimely resolution of Year 2000
compliance issues, will not have a material adverse effect on the
Company's business, financial condition or results of operations.
However, the Company has not investigated and does not believe it
has fully identified the impact of Year 2000 compliance and has not
concluded that it can resolve any issues that may arise in
complying with Year 2000 without disruption of its business or
without incurring significant expense. In addition, even if the
Company's internal systems are not materially affected by Year 2000
compliance issues, the Company could be affected through disruption
in the operation of the businesses with which the Company
interacts.
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 annual rate increases, certain
costs over the prescribed inflation factors, defined by the FCC as
"external costs", may be passed through to customers.
Certain of the Company's expenses, such as those for wages and
benefits, equipment repair and replacement and billing and
marketing 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, 1998, the Company had $700,000,000 of outstanding
borrowings under the Senior Credit Facility, $300,000,000 are not
subject to fixed rate interest swap agreements. The rates are
based on either the Eurodollar rate, prime rate or CD base rate,
plus a margin of up to 2.25% subject to certain adjustments based
on the ratio of Operating's total debt to annualized operating cash
flow.
REGULATION IN THE CABLE TELEVISION INDUSTRY
The operation of cable television systems is extensively regulated
by the FCC, some state governments and most local governments. On
February 8, 1996, the President signed into law the 1996 Telecom
Act. This new law alters the regulatory structure governing the
nation's telecommunications providers. It removes barriers to
competition in both the cable television market and the local
telephone market. Among other things, it reduces the scope of
cable rate regulation.
The 1996 Telecom Act required the FCC to undertake a host of
implementing rulemakings, the final outcome of which cannot yet be
determined. Moreover, Congress and the FCC have frequently
revisited the subject of cable television regulation and may do so
again. Future legislative and regulatory changes could adversely
affect the Company's operations.
The 1996 Telecom Act sunsets FCC regulation of CPST rates for all
cable television systems (regardless of size) on March 31, 1999.
It also relaxes existing uniform rate requirements by specifying
that uniform rate requirements do not apply where the operator
faces "effective competition," and by exempting bulk discounts to
multiple dwelling units, although complaints about predatory
pricing still may be made to the FCC. 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.
The Company believes that it has materially complied with
provisions of the 1996 Telecom Act and the 1992 Cable Act,
including rate setting provisions promulgated by the FCC on April
1, 1993. 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
26
regulated at a later date and is unable
to justify its rates through a benchmark or cost-of-service filing.
The amount of refunds, if any, which may be payable by the Company
in the event that these systems' rates are successfully challenged
by franchising authorities is not currently estimable. During the
nine month period ended September 30, 1998, there were no rate
refunds issued.
The Company currently has rate filings pending review at the FCC
pertaining to the CPST level of service. For the regulation period
from September 1, 1993 through May 15, 1994, there is one cost-of-service
filing pending review at the FCC affecting 341 customers.
For the re-regulation time period from May 1994 to the present,
there are filings for 27 franchises under review at the FCC
affecting approximately 208,000 customers. The majority of these
filings are from old outstanding complaints and have been waiting
to be reviewed for over three years. Until the FCC rules on the
complaints, the Company is required to refresh its filings
annually. During 1997 and the first two quarters of 1998, the
Company received favorable rulings (i.e., the FCC confirmed the
Company's rates and denied the complaint) for 24 filings affecting
approximately 137,000 customers. The FCC also issued several
decisions reducing rates for certain of the Company systems serving
approximately 58,000 customers, which the Company has asked to be
reconsidered. If the FCC determines that the Company's CPST rates
for those 58,000 customers are unreasonable, it has the authority
to order the Company to reduce such rates and to refund to those
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 required by the FCC in the event the Company's
CPST rates are found to be unreasonable for those customers is
estimated at approximately $182,000.
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 1996 Telecom Act and the 1992 Cable Act on the
Company's business cannot be determined at this time.
27
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
During July, August and October of 1998 and October of 1997,
separate class action lawsuits were filed in Wisconsin, Texas,
Indiana and Alabama, respectively, against the Company, on behalf
of all persons residing in those states who are or were residential
customers of the Company's cable television service, and who have
been charged a processing fee for delinquent payment of their cable
bill. The actions challenge the legality of the Company's
processing fee and seek declaratory judgment, injunctive relief and
unspecified damages. The Company believes the lawsuits to be
without merit and intends to defend the actions vigorously. The
Company is not able, at this time, to project the costs which will
be associated with these actions or to predict any potential
outcome or final impact.
The Company is also party to lawsuits which are generally
incidental to its business. In the opinion of management, after
consulting with legal counsel, the outcome of these lawsuits will
not have a material adverse effect on the Company's consolidated
position or results of operations.
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:
10.1 Form of Amendment to the Senior Credit Facility,
dated October 16, 1998.
27.1 Financial Data Schedule (supplied for the
information of the Commission)
(b) Reports on Form 8-K
The Company filed reports on Form 8-K reporting Item 5 --
Other Events on August 5, 1998 and on September 8, 1998.
28
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.L.C.
(Registrant)
By: Marcus Cable Properties, L.L.C., its sole
managing member,
By: Marcus Cable Properties, Inc., its sole
managing member,
November 13, 1998 By: /s/ John P. Klingstedt, Jr.
John P. Klingstedt, Jr.
Its: Senior Vice President and Controller
of Marcus Cable Properties, Inc.
(Principal Accounting Officer)
MARCUS CABLE OPERATING COMPANY, L.L.C.
(Registrant)
By: Marcus Cable Company, L.L.C., its sole member,
By: Marcus Cable Properties, L.L.C., its sole
managing member,
By: Marcus Cable Properties, Inc., sole
managing member,
November 13, 1998 By: /s/ John P. Klingstedt, Jr.
John P. Klingstedt, Jr.
Its: Senior Vice President and Controller
of Marcus Cable Properties, Inc.
(Principal Accounting Officer)
MARCUS CABLE CAPITAL CORPORATION
(Registrant)
November 13, 1998 By: /s/ John P. Klingstedt, Jr.
John P. Klingstedt, Jr.
Its: Senior Vice President and Controller
of Marcus Cable Capital Corporation
(Principal Accounting Officer)
29
MARCUS CABLE CAPITAL CORPORATION II
(Registrant)
November 13, 1998 By: /s/ John P. Klingstedt, Jr.
John P. Klingstedt, Jr.
Its: Senior Vice President and Controller
of Marcus Cable Capital Corporation II
(Principal Accounting Officer)
MARCUS CABLE CAPITAL CORPORATION III
(Registrant)
November 13, 1998 By: /s/ John P. Klingstedt, Jr.
John P. Klingstedt, Jr.
Its: Senior Vice President and Controller
of Marcus Cable Capital Corporation
III (Principal Accounting Officer)
30
INDEX TO EXHIBITS
Exhibit
Number Description Page Number
10.1 Form of Amendment to the Senior Credit Facility,
dated October 16, 1998 (Exhibit 10.1) 32
31
Exhibit 10.1
MARCUS CABLE OPERATING COMPANY, L.P.
CREDIT AGREEMENT DATED AS OF AUGUST 31, 1995
To: The Chase Manhattan Bank, as Administrative Agent
270 Park Avenue
New York, New York 10017
Ladies and Gentlemen:
Reference is made to the Credit Agreement, dated as of
August 31, 1995, as amended by the First Amendment thereto dated as
of March 14, 1997, the Second Amendment thereto dated as of March 31,
1998 and the Third Amendment thereto dated as of April 15, 1998 (the
"Credit Agreement"), among Marcus Cable Operating Company, L.P. (the
"Borrower"), Marcus Cable Company, L.P. (the "Parent"), the several
banks and other financial institutions from time to time parties
thereto, the Co-Agent, Managing Agents and Co-Arrangers named therein,
and The Chase Manhattan Bank, as Administrative Agent.
The Borrower and the Parent wish to amend certain provisions
of the Credit Agreement on the terms described in the Fourth Amendment
to the Credit Agreement in the form attached hereto as Exhibit A (the
"Amendment").
Pursuant to Section 12.1 of the Credit Agreement, the
undersigned Lender hereby consents to the execution by the
Administrative Agent of the Amendment.
Very truly yours,
_____________________________________________
(NAME OF LENDER)
By______________________________________
Name:
Title:
32
Dated as of October 16, 1998
FOURTH AMENDMENT, dated as of October 16, 1998 (this "Fourth
Amendment"), to the Credit Agreement, dated as of August 31, 1995, as
amended by the First Amendment thereto dated as of March 14, 1997, the
Second Amendment thereto dated as of March 31, 1998 and the Third
Amendment thereto dated as of April 15, 1998 (the "Credit Agreement"),
among MARCUS CABLE OPERATING COMPANY, L.P. (the "Borrower"), MARCUS
CABLE COMPANY, L.P. (the "Parent"), the several banks and other
financial institutions from time to time parties thereto, the
Co-Agent, Managing Agents and Co-Arrangers named therein, and THE
CHASE MANHATTAN BANK, as Administrative Agent.
W I T N E S S E T H :
WHEREAS, the Borrower and the Parent wish to amend certain
provisions of the Credit Agreement as hereinafter provided; and
WHEREAS, the parties hereto are willing to so amend the
Credit Agreement on the terms and conditions provided herein;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements herein contained, the parties hereto agree as
follows:
1. Amendments to Credit Agreement. (a) Section 4.2(f)(ii)
of the Credit Agreement is hereby amended by adding the following
sentence to the end thereof:
"Notwithstanding anything to the contrary in this Section 4.2,
the Borrower shall not be required to apply Net Cash Proceeds of
any Asset Sale in the manner otherwise specified in this Section
4.2 if such Net Cash Proceeds are instead applied to redeem the
11-7/8% Debentures."
(b) Clauses (i) and (ii) of Section 8.1(a) are hereby amended
and restated in their entirety as follows:
"(i) Leverage. Permit the Leverage Ratio at the end of any
fiscal quarter of the Borrower ending during any period set
forth below to be greater than the ratio set forth opposite such
period below:
Period Ratio
7/1/98 -3/31/99 5.75 to 1.0
4/1/99 -12/31/99 5.50 to 1.0
1/1/00 -3/31/00 5.00 to 1.0
4/1/00 -12/31/00 4.75 to 1.0
1/1/01 -6/30/01 4.50 to 1.0
7/1/01 and thereafter 4.25 to 1.0
(ii) Senior Debt to Annualized Operating Cash Flow. Permit the
ratio of (x) Senior Debt at the end of any fiscal quarter of the
Borrower ending during any period set forth below to (y)
33
Annualized Operating Cash Flow for such fiscal quarter to be
greater than the ratio set forth opposite such period below:
Period Ratio
7/1/98 -3/31/99 4.25 to 1.0
4/1/99 -9/30/99 3.95 to 1.0
10/1/99 and thereafter 3.75 to 1.0"
(c) Clause (b) of Section 8.7 of the Credit Agreement is
hereby amended by adding a new subclause (iv) to the end thereof which
shall read in its entirety as follows:
"(iv) to the extent necessary to enable the Parent to (x)
prepay, redeem or purchase 11-7/8% Debentures or (y) prepay,
redeem or purchase 14-1/4% Notes to the extent the Parent is
permitted to do so by Section 8.9."
(d) Section 8.9 of the Credit Agreement is hereby amended and
restated in its entirety as follows:
"8.9 Limitation on Payments of Certain Indebtedness. (1)
Make any optional payment or prepayment on or redemption or
purchase of (a) any of the 13-1/2% Notes or any Indebtedness
incurred pursuant to Section 8.2(g), other than with the
proceeds of (i) Indebtedness incurred pursuant to Section 8.2(g)
or (ii) capital contributions made by the Parent to the Borrower
or (b) any Indebtedness of the Parent outstanding under the
14-1/4% Note Indenture or any Refinancing Indebtedness in
respect thereof, other than with the proceeds of (i) other
Indebtedness of the Parent having terms, in the judgment of the
Required Lenders, no less favorable to the interests of the
Borrower and the Lenders than the Indebtedness being refinanced
or (ii) the issuance of equity interests by the Parent (so long
as, in the case of this clause (ii), the requirements of Section
4.2(f)(i) are also complied with), provided, that,
notwithstanding the foregoing, payments, prepayments,
redemptions or purchases of Indebtedness referred to above and
not otherwise permitted by this Section 8.9 may be made so long
as the aggregate amount expended in connection therewith, when
added to the aggregate amount expended in connection with
Investments made pursuant to Section 8.8(j), does not exceed
$75,000,000 (which amount may be replenished by any cash return
representing return of principal or return of capital of any
Investment made pursuant to Section 8.8(j)) during the term of
this Agreement; or (2) make any mandatory offer to redeem
Indebtedness under the 13-1/2% Note Indenture or the 14-1/4%
Note Indenture or any Refinancing Indebtedness in respect
thereof with the Net Cash Proceeds of any Asset Sale unless (X)
at the time such offer is made, the Borrower provides evidence
satisfactory to the Administrative Agent that such Indebtedness
is trading at a price of at least 105% of par (determined by
reference to outstanding principal amount or accreted value, as
applicable) and (Y) the time frame selected for acceptance and
funding of such offer is the shortest time frame permitted by
the documentation governing such Indebtedness."
2. Representations and Warranties on Fourth Amendment Effective
Date. Each of the representations and warranties made by the Parent
or the Borrower in Sections 5.1 through 5.20 of the Credit Agreement,
as amended hereby, are true and correct in all material respects on
and as of the Fourth Amendment Effective Date (as defined below), as
if made on and as of the Fourth Amendment Effective
34
Date, except to
the extent such representations and warranties expressly relate to an
earlier date.
3. Conditions to Effective Date. This Fourth Amendment shall
become effective on the date (the "Fourth Amendment Effective Date")
on which the Administrative Agent shall have received (a) counterparts
hereof, executed by the Parent and the Borrower and (b) executed
Consent Letters from the Required Lenders authorizing the
Administrative Agent to enter into this Fourth Amendment.
4. This Fourth Amendment may be executed by one or more of the
parties to this Fourth Amendment on any number of separate
counterparts (including by facsimile transmission), and all of said
counterparts taken together shall be deemed to constitute one and the
same instrument. A set of the copies of this Fourth Amendment signed
by all the parties shall be lodged with the Borrower and the
Administrative Agent.
5. THIS FOURTH AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be duly executed and delivered by their respective proper
and duly authorized officers as of the day and year first above
written.
MARCUS CABLE OPERATING COMPANY, L.L.C.
By: MARCUS CABLE COMPANY, L.L.C.
Managing Member
By: MARCUS CABLE PROPERTIES, L.L.C.
Managing Member
By: MARCUS CABLE PROPERTIES,
INC.
Managing Member
By:
Name:
Title:
MARCUS CABLE COMPANY, L.L.C.
By: MARCUS CABLE PROPERTIES, L.L.C.
Managing Member
By: MARCUS CABLE PROPERTIES, INC.
Managing Member
By:
Name:
Title:
35
THE CHASE MANHATTAN BANK,
as Administrative Agent
By:
Name:
Title:
36