UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- - --------
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended March 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- - ----------
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 33-95298
GALAXY TELECOM, L.P._____
Exact name of Registrant as specified in its charter)
Delaware 43-1697125_________
(States or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1220 North Main, Sikeston, Missouri 63801________
(Address of principal executive offices) (zip code)
Registrant telephone number, including area code: (573) 472-8200
Indicate by check mark whether the Registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
previous 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days:
Yes X No ___________
GALAXY TELECOM, L.P.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
PAGE
PART I. Financial Information
Item 1. Consolidated Financial Statements
Galaxy Telecom, L.P. .....................................3
Notes to Consolidated Financial Statements.................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..............9
PART II. Other Information................................................15
Signatures ..........................................................16
Exhibit Index ..........................................................17
2
GALAXY TELECOM, L.P. AND SUDSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
ASSETS 1997 1996
---- ----
(Unaudited)
Cash and cash equivalents $ 3,504,518 $ 2,338,345
Subscriber receivables, net of allowance for doubtful accounts of
$389,213 and $411,950, respectively 5,356,745 5,998,127
Systems and equipment, net 144,193,926 144,822,616
Intangible assets, net 61,492,948 62,330,152
Prepaids and other 2,641,345 2,008,768
------------ ------------
Total assets $217,189,482 $217,498,008
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 21,250,849 $ 17,738,261
Subscriber deposits and deferred revenue 5,080,850 4,763,327
Long-term debt and other obligations 170,229,775 169,737,608
------------ ------------
Total liabilities 196,561,474 192,239,196
------------ ------------
Commitments and contingencies
Partners' Capital:
General partners 13,627,008 18,257,812
Limited partners 7,001,000 7,001,000
------------ ------------
Total partners' capital 20,628,008 25,258,812
------------ ------------
Total liabilities and partners' capital $217,189,482 $217,498,008
============ ============
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
3
GALAXY TELECOM, L.P. AND SUDSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended
March 31, 1997 March 31, 1996
------------ ------------
(Unaudited) (Unaudited)
Revenues $ 16,665,838 $ 14,475,398
------------ ------------
Operating expenses:
Systems operations 7,798,833 6,565,733
Selling, general and administrative 1,670,698 1,572,354
Management fee to affiliate 749,960 651,393
Depreciation and amortization 6,006,967 4,311,423
Total operating expenses 16,226,458 13,100,903
------------ ------------
Operating income 439,380 1,374,495
Interest expense (5,076,262) (4,853,293)
Interest income and other 6,078 46,015
------------ ------------
Net loss $ (4,630,804) $ (3,432,783)
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
4
GALAXY TELECOM, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
Limited Partners
General ---------------------------------------------------------------------
Partners Class B Class C Class D Class E Total Total
-------- ------- ------- ------- ------- ----- -----
Contributions $ 29,625,000 $ 1,000 $ 416,000 $ 6,384,000 -- 6,801,000 $ 36,426,000
Syndication and trans-
action costs (730,171) -- -- -- -- -- (730,171)
Net loss for period (175,311) -- -- -- -- -- (175,311)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31,
1994 28,719,518 1,000 416,000 6,384,000 -- 6,801,000 35,520,518
Contributions 15,000,000 -- -- -- $ 200,000 200,000 15,200,000
Net loss for period (8,549,767) -- -- -- -- -- (8,549,767)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31,
1995 35,169,751 1,000 416,000 6,384,000 200,000 7,001,000 42,170,751
Net loss for period (16,911,939) -- -- -- -- -- (16,911,939)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31,
1996 18,257,812 $ 1,000 $ 416,000 $ 6,384,000 $ 200,000 $ 7,001,000 $ 25,258,812
Net loss for period (4,630,804) -- -- -- -- -- (4,630,804)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at March 31,
1997 $ 13,627,008 $ 1,000 $ 416,000 $ 6,384,000 $ 200,000 $ 7,001,000 $ 20,628,008
============ ============ ============ ============ ============ ============ ============
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
5
GALAXY TELECOM, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended
March 31, 1997 March 31, 1996
------------ ------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $ (4,630,804) $ (3,432,783)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation expense 4,980,651 3,852,692
Amortization expense 1,026,316 458,731
Amortization of debt issue costs 233,693 485,609
Financeable interest -- 132,124
Provision for doubtful accounts receivable 510,683 289,336
Changes in assets and liabilities:
Subscriber receivables 130,699 1,919,606
Prepaids and other (632,577) (526,042)
Accounts payable and accrued expenses 3,512,588 (1,996,801)
Subscriber deposits and deferred revenues 317,523 (1,964,301)
------------ ------------
Net cash provided by (used in) operating activities 5,448,772 (781,829)
------------ ------------
Cash flows from investing activities:
Acquisition of cable systems -- (9,192,555)
Capital expenditures (4,351,961) (2,761,427)
Other intangible assets (407,806) (50,043)
------------ ------------
Net cash used in investing activities (4,759,767) (12,004,025)
------------ ------------
Cash flows from financing activities:
Borrowings under revolver 500,000 17,350,000
Payments on revolver -- (5,000,000)
Payments on other debt (22,832) (41,736)
------------ ------------
Net cash provided by financing activities 477,168 12,308,264
------------ ------------
Net increase (decrease) in cash 1,166,173 (477,590)
Cash and cash equivalents, beginning of period 2,338,345 3,430,835
------------ ------------
Cash and cash equivalents, end of period $ 3,504,518 $ 2,953,245
============ ============
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
6
GALAXY TELECOM, L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. STATEMENT OF ACCOUNTING PRESENTATIONS AND OTHER INFORMATION
The attached unaudited interim financial statements are presented in
accordance with the requirements of Form 10-Q and consequently do not include
all of the footnote disclosures required for audited financial statements by
generally accepted accounting principles. The results for March 31, 1997, and
for the three months then ended are not necessarily indicative of the results to
be expected for the entire 1997 fiscal year. It is suggested that the
accompanying financial statements be read in conjunction with the Partnership's
Annual Report on Form 10-K/A for the year ended December 31, 1996.
Galaxy Telecom Capital Corp. ("Capital Corp."), a Delaware corporation,
was formed July 26, 1995 and was funded August 1, 1995 as a wholly owned
subsidiary of the Partnership. Capital Corp. did not have any significant
operations for the period ended March 31, 1997.
The following notes, insofar as they are applicable to the three months
ended March 31, 1997 and March 31, 1996, are not audited. In management's
opinion, all adjustments, consisting of only normal recurring accruals
considered necessary for a fair presentation of such financial statements are
included.
2. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid during the three months ended March 31, 1997 was approximately
$2.1 million. Interest paid during the three months ended March 31, 1996 was
approximately $7.8 million.
There were no non-cash transactions for the three months ended March 31,
1997 and 1996.
3. RELATED PARTY TRANSACTIONS
The Partnership incurs management fees and expenses pursuant to the terms
of a management agreement with Galaxy Systems Management, Inc., an affiliate of
a general partner, under which it manages the Partnership's business. Management
fees are calculated at 4.5% of gross revenues as defined in the management
agreement. Management fees totaled $749,960 for the three months ended March 31,
1997 and $651,393 for the three months ended March 31, 1996.
7
4. LONG-TERM DEBT
Long-term debt consists of the following:
March 31, December 31,
1997 1996
------------ ------------
(Unaudited)
Revolving Credit Facility $50,376,377 $49,876,377
Senior Subordinated Notes 120,000,000 120,000,000
Unamortized discount (510,000) (525,000)
Other 363,399 386,231
------------ ------------
Total $170,229,775 $169,737,608
============ ============
5. SUBSEQUENT EVENTS
On April 7, 1997, the Partnership sold its cable television system located
in Five Points, South Carolina (the "Five Points Sale"), representing 311 basic
subscribers for $372,645, or approximately $1,200 per subscriber. The
Partnership will use proceeds from the Five Points Sale to pay down the
principal of the Revolving Note.
On April 7, 1997, the Partnership signed a letter of intent to purchase
certain assets comprising cable television systems owned by Venture Associates
Corp. ("Venture") for a purchase price of $675,000, which is subject to certain
adjustments. As of December 31, 1996, the Venture systems passed approximately
980 homes located in Marion County Florida, with 8.6 miles of plant, a density
of 114 homes per mile. As of December 31, 1996, the Venture systems served
approximately 954 basic subscribers, a basic penetration rate of approximately
97.3%.
8
PART I. FINANCIAL INFORMATION
Item 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
During the second quarter of 1996, Galaxy Telecom, L.P. (the
"Partnership") acquired certain cable television systems of Cablevision of Texas
III, Empire Communications, Empire Cable of Kansas, Hurst Communications,
Midcontinent Cable Systems and High Plains Cable for an aggregate consideration
of $12.9 million. During the fourth quarter of 1995, the Partnership acquired
certain cable television systems of Douglas Cable Communications Limited
Partnership, Friendship Cable Southeast, Vista/Narragansett Cable, L.P., Vista
Communications Limited Partnership I, and Phoenix Cable for aggregate
consideration of $88.7 million.
On June 15, 1996, the Partnership traded certain of its assets located in
Shawnee County and Jefferson County, Kansas for certain assets comprising
approximately seven cable television systems of TCI located in northern
Mississippi.
On November 1, 1996, Galaxy acquired certain assets comprising five cable
television systems of C-S Cable for a purchase price of Approximately $2.27
million, serving approximately 3,450 subscribers in 5 franchise areas in and
around Marion and Sumter Counties in Florida.
On November 1, 1996, Galaxy traded assets comprising the Ranburn cable
system in Ranburn, Alabama serving approximately 110 subscribers for a similar
system in Mexia, Alabama serving approximately 230 subscribers. This trade
allowed Galaxy to trade a small system out of a non-targeted service area for a
similar system in proximity to our targeted service areas.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of selected
income statement items as a percent of revenues for the three months ended March
31, 1997 and March 31, 1996. Amounts shown are in thousands.
9
March 31, 1997 March 31, 1996
-------------- --------------
Amount %age Amount %age
------ ---- ------ ----
Subscription service revenue $16,666 100.0% $14,475 100.0%
-------- -------- --------- -------
Operating expenses:
System operations 7,799 46.8% 6,566 45.4%
Selling, general and administrative 1,671 10.0% 1,572 10.9%
Management fees 750 4.5% 651 4.5%
Depreciation and amortization 6,007 36.0% 4,312 29.8%
------- ------- -------- -------
Total operating expenses 16,227 97.4% 13,101 90.5%
------- ------- -------- -------
Operating income (loss) 439 2.6% 1,374 9.5%
Interest expense (5,076) (30.4%) (4,853) (33.5%)
Other income (expense) 6 0.0% 46 .3%
-------- ------- -------- ------
Net loss $(4,631) (27.8%) $(3,433) (23.7%)
======== ======= ======== =======
The following table sets forth demographic information as of March 31,
1996 and March 31, 1997.
March 31, March 31,
1996 1997
---- ----
Homes Passed 281,402 283,948
Basic Subscribers 171,789 178,819
Basic Penetration 61.05% 62.92%
Revenue per Subscriber $29.24 $32.06
Premium Subscribers 89,290 99,930
Premium Penetration 52.91% 57.25%
The Partnership generated revenues in the amount of $16,665,838 and
$14,475,398 for the three month periods ended March 31, 1997 and March 31, 1996,
respectively. The Partnership was able to realize additional revenue by
increasing basic and premium rates in certain systems during 1996 and during the
first quarter of 1997, therefore average revenue per subscriber increased from
$29.65 at March 31, 1996 to $32.06 at March 31, 1997.
For the three months ended March 31, 1997 and March 31, 1996 system
operating expenses consisting of subscriber costs, technician costs and system
maintenance costs were $7,798,866, or 46.8% of revenue, and $6,565,733, or 45.4%
of revenue, respectively. The increase in these expenses are a result of a 2.9%
increase in programming fees charged to the Partnership offset partially by a
reduction in costs due to a decrease in the number of subscribers.
10
Selling, general and administrative expenses, which includes office rents
and maintenance, marketing costs and corporate expenses, increased from
$1,572,354 to $1,670,698 for the three months ended March 31, 1996 and March 31,
1997, respectively. For the three month period ended March 31, these expenses
decreased as a percentage of revenue from 10.9% in 1996 to 10.0% in 1997. The
Partnership was able to decrease marketing expenses by sharing costs of
promotions with programmers. General and administrative costs decreased as a
percentage of revenue due to the Partnership's ability to serve additional
subscribers within its existing corporate structure.
For the three months ended March 31, 1997 and March 31, 1996, depreciation
and amortization expense was $6,006,967, or 36.0% of revenues, and $4,311,423,
or 29.8% of revenues, respectively. The increase in depreciation and
amortization expense is attributable to the increase in fixed assets from
internal purchases and acquisitions.
For the three months ended March 31, 1997 and March 31, 1996, interest
expense was $5,076,262 and $4,853,293, respectively. The increase of $222,969
was a result of additional borrowings and an increase in the lending rate
charged by Fleet National Bank on the Partnership's Revolving Credit Facility.
Other income decreased from $46,015 for the three months ended March 31, 1996,
to $6,078 for the three months ended March 31, 1997, respectively, a decrease of
$39,937.
The Partnership as an entity pays no income taxes, although it is required
to file federal and state income tax returns for informational purposes only.
All income or loss "flows through" to the partners of the Partnership as
specified in the Partnership's limited partnership agreement.
LIQUIDITY AND CAPITAL RESOURCES:
As of March 31, 1997, the Partnership had $3,504,518 in cash and cash
equivalents. As of such date, total current liabilities (other than notes
payable) exceeded cash and cash equivalents by $22,827,181. The Partnership
expects to fund this deficiency through its operating cash flows.
Due to the results of operations discussed above, the Partnership
generated operating cash flows, defined as earnings before interest,
depreciation and amortization expense, of $6,452,425, or 38.7% of operating
revenues and $5,731,933, or 39.6% of operating revenues for the three months
ended March 31, 1997 and 1996, respectively.
11
On April 1, 1996, the Partnership acquired certain assets from the
Cablevision of Texas Systems for a total purchase price of $10.16 million. In
April 1996, the Partnership also completed the acquisitions of the Hurst
Systems, the High Plains Systems and the Midcontinent Systems for an aggregate
purchase price of approximately $2.75 million.
The Partnership had aggregate indebtedness of approximately $170.2 million
as of March 31, 1997, representing $120 million of 12.375% Senior Subordinated
Notes due in 2005 (the "Notes") and $50.2 million of bank debt. The bank debt
includes a Revolving Credit Facility under which the Partnership may make
revolving borrowings of up to $68.0 million until December 31, 1997, subject to
compliance with certain conditions, including certain financial covenants. On
December 31, 1997, outstanding balances of the Revolving Credit Facility will
convert to a term loan amortizing quarterly until a final maturity on December
31, 2002. The Revolving Credit Facility requires the Partnership to maintain
compliance with certain financial ratios and other covenants. The financial
covenants in the Revolving Credit Facility may limit the Partnership's ability
to borrow under the Revolving Credit Facility. The Partnership presently intends
to utilize the Revolving Credit Facility to fund capital expenditures, repay the
term loan and acquire additional cable systems. As of March 31, 1997, the
Partnership has borrowings under the Revolving Credit Facility of $50.3 million,
which include borrowings used to fund the acquisitions of the Cablevision of
Texas, Hurst, High Plains, Midcontinent Systems and CS Cable Systems.
As of March 31, 1997, the Partnership had $144.2 million in systems and
equipment consisting of $134.3 million of cable television systems and $9.9
million of vehicles, equipment, buildings and office equipment, all net of
accumulated depreciation. The Partnership had capital expenditures (exclusive of
system acquisitions) of $4.4 million for the three months ended March 31, 1997.
For the three months ended March 31, 1996, the Partnership had capital
expenditures (exclusive of system acquisitions) of $2.8 million. These capital
expenditures were financed mainly through the Revolving Credit Facility and cash
flows from operations. During the first three months of 1997, the Partnership's
capital expenditures were primarily used to purchase vehicles and related
equipment, add channels, expand and interconnect administrative offices, and
eliminate headends by interconnecting adjacent systems with fiber-optic cable.
12
The Partnership's cash flows have been sufficient to meet its debt
service, working capital and capital expenditure requirements, with the
exception of the above acquisitions of cable systems, which have been funded
principally through the proceeds of the Notes and borrowings under the Revolving
Credit Facility. The Partnership expects that it will be able to meet its
short-and long-term requirements for debt service, working capital and capital
expenditures and to fund future cable system acquisitions through its operating
cash flows and borrowings under the Revolving Credit Facility, and its access to
additional capital in the public and private debt markets.
Safe Harbor Under The Private Securities Litigation Reform Act Of 1995
The statements contained in the Form 10-Q relating to Galaxy's operating
results, and plans and objectives of management for future operations, including
plans or objectives relating to Galaxy's products and services, constitute
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results of Galaxy may differ materially
from those in the forward looking statements and may be affected by a number of
factors including the receipt of regulatory approvals, the success Galaxy's
implementation of digital technology, subscriber equipment availability, tower
space availability, and the absence of interference, as well as other factors
contained herein and in Galaxy's securities filings.
Galaxy's future revenues and profitability are difficult to predict due to
a variety of risks and uncertainties, including (i) business conditions and
growth in Galaxy's existing markets, (ii) the successful launch of systems and
technologies in new and existing markets, (iii) Galaxy's existing indebtedness
and the need for additional financing to fund subscriber growth and system and
technological development, (iv) government regulation, including FCC
regulations, (v) Galaxy's dependence on channel leases, (vi) the successful
integration of future acquisitions and (vii) numerous competitive factors,
including alternative methods of distributing and receiving video transmissions.
Galaxy expects to continue its subscriber growth and launch additional
systems. Moderate increases in revenues and subscribers are anticipated in 1997;
however, the rate of increase cannot be estimated with precision or certainty.
Galaxy believes that general and administrative expenses and depreciation and
amortization expense will continue to increase to support overall growth.
Because of the foregoing uncertainties affecting Galaxy's future operating
results, past performance should not be considered to be a reliable indicator of
future performance, and investors should not use historical results or trends as
determinative of Galaxy's future performance. In addition, Galaxy's
participation in a developing industry employing rapidly changing technology
will result in significant volatility in the market value of the Notes.
13
In addition to the matters noted above, certain other statements made in
this Form 10-Q are forward looking. Such statements are based on an assessment
of a variety of factors, contingencies and uncertainties deemed relevant by
management, including technological changes, competitive products and services
and management issues. As a result, the actual results realized by Galaxy could
differ materially from the statements made herein. Readers of this Form 10-Q are
cautioned not to place undue reliance on the forward looking statements made in
this Form 10-Q or in Galaxy's other securities filings.
14
PART II. OTHER INFORMATION
Items 1 through 5.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are included or incorporated by
reference below.
10. Amendment #1 party to the Amended and Restated Loan Agreement
27. Financial Data Schedule
(b) Reports of Form 8-K. No reports on Form 8-K were filed during the quarter
ended March 31, 1997.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GALAXY TELECOM, L.P.
BY: Galaxy Telecom, Inc.
as General Partner
Date: May 13, 1997 \s\ J. Keith Davidson
------------------------
BY: J. Keith Davidson
Vice President-Finance
(Principal Financial Officer)
16
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
10 Amendment #1 to the Amended and
Restated Loan Agreement
27 Financial Data Schedule