Filed pursuant to Rule 424(b)(3)
Registration Nos. 33-67390 and
33-67390-01
MARCUS CABLE COMPANY, L.P.
MARCUS CABLE CAPITAL CORPORATION
Supplement to Prospectus
Dated April 16, 1997
The date of this Supplement is May 15, 1997
On May 15, 1997, Marcus Cable Company, L.P. filed the attached Quarterly
Report on Form 10-Q for the period ended March 31, 1997.
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 NUMBERS 33-67390; 33-67390-01; 33-81088;
33-81088-01; 33-81088-02; 33-93808; 33-93808-01
MARCUS CABLE COMPANY, L.P.
MARCUS CABLE OPERATING COMPANY, L.P.
MARCUS CABLE CAPITAL CORPORATION
MARCUS CABLE CAPITAL CORPORATION II
MARCUS CABLE CAPITAL CORPORATION III
(Exact name of registrants as specified in their charters)
DELAWARE 75-2337471
DELAWARE 75-2495706
DELAWARE 75-2546077
DELAWARE 75-2546713
DELAWARE 75-2599586
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2911 TURTLE CREED BOULEVARD, SUITE 1300
DALLAS, TEXAS 75219-6257
(Address of principal executive offices) (Zip Code)
(214) 521-7898
(Registrants' telephone number, including area code)
Indicate by check mark whether the registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrants were required to
file such reports), and (2) have been subject to such filing
requirements for the past 90 days. Yes X No
There is no established trading market for any of the registrants'
voting securities. As of the date of this report, there were 1,000
shares of common stock of Marcus Cable Capital Corporation and 1,000
shares of common stock of Marcus Cable Capital Corporation III
outstanding, all of which are owned by Marcus Cable Company, L.P.,
and 1,000 shares of common stock of Marcus Cable Capital Corporation
II outstanding, all of which are owned by Marcus Cable Operating
Company, L.P.
<PAGE>
MARCUS CABLE COMPANY, L.P.
MARCUS CABLE OPERATING COMPANY, L.P.
MARCUS CABLE CAPITAL CORPORATION
MARCUS CABLE CAPITAL CORPORATION II
MARCUS CABLE CAPITAL CORPORATION III
<TABLE>
INDEX TO QUARTERLY REPORT FORM 10-Q
MARCH 31, 1997
<CAPTION>
Page No.
<S> <C> <C>
Definitions 3-4
PART I FINANCIAL INFORMATION
Item 1: Financial Statements - Marcus Cable Company, L.P.
and Subsidiaries
Consolidated Balance Sheets as of
March 31, 1997 and December 31, 1996 5
Consolidated Statements of Operations
for the Three Months Ended March 31, 1997 and 1996 6
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1997 and 1996 7
Notes to the Consolidated Financial Statements 8-12
Consolidating Schedules 13-14
</TABLE>
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
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-21
PART II OTHER INFORMATION
Item 1: Legal Proceedings 22
Item 2: Changes in Securities 22
Item 3: Defaults Upon Senior Securities 22
Item 4: Submission of Matters to a Vote of Security Holders 22
Item 5: Other Information 22
Item 6: Exhibits and Reports on Form 8-K 22
</TABLE>
2
<PAGE>
<TABLE>
DEFINITIONS
When used herein, the following terms will have the meaning
indicated.
<CAPTION>
Term Definition
<S> <C>
11 7/8% Debentures 11 7/8%Senior Debentures, due
October 1, 2005, which are
obligations of MCC and Capital
13 1/2% Notes 13 1/2% Senior Subordinated
Guaranteed Discount Notes, due
August 1, 2004, which are
obligations of Operating and
Capital II that are guaranteed by
MCC
14 1/4% Notes 14 1/4% Senior Discount Notes, due
December 15, 2005, which are
obligations of MCC and Capital III
1992 Cable Act Cable Television Consumer
Protection and Competition Act of
1992
1996 Telecom Act Telecommunications Act of 1996
Capital Marcus Cable Capital Corporation
Capital II Marcus Cable Capital Corporation II
Capital III Marcus Cable Capital Corporation
III
Company Marcus Cable Company, L.P. and
subsidiaries
CPST Cable Programming Service Tier
EBITDA Earnings Before Interest, Taxes,
Depreciation and Amortization
FCC Federal Communications Commission
Goldman Sachs Goldman, Sachs & Co.
LIBOR London InterBank Offered Rate
Maryland Cable Maryland Cable Partners, L.P.
Maryland Cable Agreement The management agreement between
Operating and Maryland Cable
Maryland Cable System Cable system owned by Maryland
Cable
MCC Marcus Cable Company, L.P. and
subsidiaries
MCA Marcus Cable Associates, L.P.
MCALP Marcus Cable of Alabama, L.P.
MCDM Marcus Cable of Delaware and
Maryland, L.P.
MCP Marcus Cable Partners, L.P.
Operating Marcus Cable Operating Company,
L.P.
Operating Partnerships MCP, MCDM, MCALP and MCA
Sammons Sammons Communications, Inc. and
certain of its subsidiaries
Sammons Systems Certain cable television systems
purchased from Sammons
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Senior Credit Facility $1,150,000,000 Credit Agreement
among Operating, MCC, 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
SFAS Statement of Financial Accounting
Standard
Systems Cable television systems owned by
the Company
</TABLE>
4
<PAGE>
<TABLE>
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
<CAPTION>
March 31, December 31,
Assets 1997 1996
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 21,905 $ 6,034
Accounts receivable, net
of allowance of $1,895 and
$1,900, respectively 15,440 17,043
Prepaid expenses and other 3,420 2,432
----------- ---------
Total current assets 40,765 25,509
Property and equipment, net (note 2) 582,225 578,507
Other assets, net (note 3) 1,060,958 1,083,534
----------- ----------
$ 1,683,948 $1,687,550
=========== ==========
Liabilities and Partners' Capital
Current liabilities:
Current maturities of
long-term debt (note 5) $ 58,071 $ 41,819
Accrued liabilities (note 4) 44,784 49,405
Accrued interest 10,521 10,664
----------- ----------
Total current liabilities 113,376 101,888
Long-term debt (note 5) 140,673 139,665
Subsidiary limited partner interests (246) (246)
Partners' capital 164,079 189,256
Commitments and contingencies --- ---
----------- ----------
$ 1,683,948 $1,687,550
=========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
<TABLE>
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
(in thousands)
<CAPTION>
Three months ended
March 31,
1997 1996
<S> <C> <C>
Revenues:
Cable services $ 110,070 $ 102,149
Management fees (note 6) 4,377 567
---------- ----------
Total revenues 114,447 102,716
---------- ----------
Operating expenses:
Selling, service and
system management 41,432 39,065
General and administrative 17,498 17,791
Depreciation and amortization 44,146 39,093
---------- ----------
103,076 95,949
---------- ----------
Operating income 11,371 6,767
Other expense:
Interest expense, net 36,548 35,786
---------- ----------
Net loss $ (25,177) $ (29,019)
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
6
<PAGE>
<TABLE>
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
<CAPTION>
Three months ended
March 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (25,177) $ (29,019)
Adjustments to reconcile net loss to
net cash provided by
operating activities:
Depreciation and amortization 44,146 39,093
Amortization of debt issuance costs 1,002 795
Accretion of discount on notes 16,512 14,385
Changes in assets and liabilities,
net of effects of acquisitions:
Accounts receivable 1,603 3,770
Prepaid expenses (988) (1,503)
Other assets --- (1,071)
Accrued interest (143) 1,847
Accrued liabilities (4,621) (4,668)
---------- ----------
Net cash provided
by operating activities 32,334 23,629
---------- ----------
Cash flows from investing activities:
Acquisitions of cable systems and
franchises, net of cash acquired --- (877)
Additions to property and equipment (24,905) (12,720)
----------- ----------
Net cash used in
investing activities (24,905) (13,597)
----------- ----------
Cash flows from financing activities:
Proceeds from note payable --- 10,000
Proceeds from borrowings 95,000 ---
Repayment of long-term debt (85,027) (15,000)
Payment of debt issuance costs (1,385) ---
Payment of capital lease obligations (146) (90)
----------- ----------
Net cash provided by (used in)
financing activities 8,442 (5,090)
----------- ----------
Net increase in cash and cash equivalents 15,871 4,942
Cash and cash equivalents at
beginning of period 6,034 17,409
----------- ----------
Cash and cash equivalents at
end of period $ 21,905 $ 22,351
=========== ==========
Supplemental disclosure of cash
flow information:
Interest paid $ 19,119 $ 18,833
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(1) Summary of Significant Accounting Policies
(a) General
MCC is a Delaware limited partnership formed on January
17, 1990 for the purpose of acquiring, operating and
developing cable television systems. MCC derives its
primary source of revenues by providing various levels of
cable television programming and services to residential
and business customers. MCC's operations are conducted
through Operating, an operating holding company in which
MCC serves as the general partner with a 99.8% ownership
interest. Operating, in turn, conducts its operations
through the Operating Partnerships, in which it, directly
or indirectly, serves as the general partner and owns a
greater than 99.0% interest.
(b) Basis of Presentation
The consolidated financial statements include the
accounts of MCC, Capital, Capital II, Capital III,
Operating and the Operating Partnerships. All
significant intercompany accounts and transactions have
been eliminated in consolidation.
(c) Franchise Fees
Local governmental authorities impose franchise fees on
the Systems ranging up to a federally mandated maximum of
5.0% of gross revenues. On a monthly basis, such fees
are collected from the Systems' customers. Historically,
franchise fees in certain of the Systems (i.e. the former
Sammons Systems) were not separately itemized on
customers' bills. Such fees were considered part of the
monthly charge for basic services and equipment, and
therefore were reported as revenue and expense in the
Company's financial results. Beginning in November 1996,
the Company began the process of itemizing such fees on
all customers' bills to conform with the collection of,
and accounting for, franchise fees in the remaining
Systems. During the first quarter of 1997, such
itemization was completed and such fees were itemized on
customers' bills in all of the Systems. As a result,
such fees are no longer included as revenue nor general
and administrative expenses. The net accounting effect
of this change is a quarterly reduction in revenue of
approximately $1,700,000 and a corresponding reduction in
general and administrative expenses, versus the
comparable period in 1996.
(d) Interim Financial Information
In the opinion of management, the accompanying unaudited
interim consolidated financial information of the Company
contains all adjustments, consisting only of those of a
recurring nature, necessary to present fairly (i) the
Company's financial position as of March 31, 1997, (ii)
the results of its operations for the three months
8
<PAGE>
ended March 31, 1997 and 1996 and (iii) its cash flows for the
three months ended March 31, 1997 and 1996. These
financial statements are for interim periods and do not
include all of the detail normally provided in annual
financial statements and should be read in conjunction
with the consolidated financial statements of the Company
for the year ended December 31, 1996, included in the
Company's Annual Report on Form 10-K.
(2) Property and Equipment
Property and equipment consists of the following (in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
<S> <C> <C>
Cable systems $ 695,388 $ 670,829
Vehicles and other 26,306 26,008
Land and buildings 13,304 13,256
------- -------
734,998 710,093
Accumulated depreciation (152,773) (131,586)
------- -------
$ 582,225 $ 578,507
======= =======
</TABLE>
(3) Other Assets
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
<S> <C> <C>
Franchise rights $ 1,175,009 $ 1,175,009
Going concern value of
acquired cable systems 45,969 45,969
Noncompetition agreements 31,914 31,914
Debt issuance costs 44,885 43,500
Other 1,069 1,069
------------ -----------
1,298,846 1,297,461
Accumulated amortization (237,888) (213,927)
------------ -----------
$ 1,060,958 $ 1,083,534
============ ===========
</TABLE>
9
<PAGE>
(4) Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
<S> <C> <C>
Accrued property taxes $ 2,544 $ 3,830
Accrued acquisition costs 2,838 2,838
Accrued programming costs 8,973 8,301
Accrued franchise fees 5,022 9,429
Accrued operating liabilities 20,882 20,377
Other accrued liabilities 4,525 4,630
--------- ---------
$ 44,784 $ 49,405
========= =========
</TABLE>
(5) Long-term Debt
The Company had outstanding borrowings under long-term debt
arrangements as follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
<S> <C> <C>
Senior Credit Facility $ 865,000 $ 855,000
13 1/2% Senior Subordinated
Discount Notes, due
August 1, 2004 304,973 295,119
14 1/4% Senior Discount Notes,
due December 15, 2004 192,520 185,862
11 7/8% Senior Debentures, due
October 1, 2005 100,000 100,000
Note Payable 260 287
Capital leases 2,057 2,203
----------- ----------
1,464,810 1,438,471
Less current maturities (58,071) (41,819)
----------- -----------
$ 1,406,739 $ 1,396,652
=========== ===========
</TABLE>
Amounts outstanding under the Senior Credit Facility bear
interest at either the (i) Eurodollar rate, (ii) prime rate or
(iii) CD base rate, in each case plus a margin of up to 2.25%,
subject to certain adjustments based on the ratio of
Operating's total debt to annualized operating cash flows, as
defined. At March 31, 1997, borrowings under the Senior
Credit Facility bore interest at rates ranging from 6.57% to
7.81% under the Eurodollar rate option. 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
10
<PAGE>
participating banks under the Senior Credit Facility. At
March 31, 1997, interest rate swap agreements covering a
notional balance of $650,000,000 were outstanding. These
outstanding swap agreements mature during 1997 and 1998 and
require the Company to pay a fixed rate of 5.77% to 5.81%,
plus the applicable interest rate margin. Extensions for
additional periods are available within the swap agreement at
the option of the other parties thereto.
As interest rates change under the interest rate swap
agreements, the differential to be paid or received is
recognized as an adjustment to interest expense. The Company
is not exposed to credit loss as its interest rate swap
agreements are with certain of the participating banks under
the Company's Senior Credit Facility. During the three months
ended March 31, 1997 and 1996, the Company recognized
additional expenses under its interest rate swap agreements of
approximately $521,000 and $260,000, respectively.
On March 14, 1997, Operating entered into an agreement to
amend its Senior Credit Facility. The amendment provides for,
among other items, a reduction in the interest rate margins
under the Senior Credit Facility as well as increased
flexibility for the Company as it relates to investments,
permitted lines of businesses and the incurrence of unsecured
indebtedness. The amendment also resulted in a $50,000,000
increase in the availability under the Revolving Credit
Facility.
(6) Related Party Transactions
Affiliates of Goldman Sachs own limited partnership interests
in MCC. Maryland Cable, which is controlled by an affiliate
of Goldman Sachs, owned the Maryland Cable System which served
customers in and around Prince Georges County, Maryland.
Operating managed the Maryland Cable System under the Maryland
Cable Agreement, which was entered into in September of 1994.
Operating earned a management fee, payable monthly, equal to
4.7% of the revenues of Maryland Cable, and was reimbursed for
certain expenses. Pursuant to such agreement, Operating was
also entitled to an incentive management fee if the Maryland
Cable System sold above certain threshold amounts. Operating
earned management fees of $4,377,000 and $567,000 during the
three month periods ended March 31, 1997 and 1996,
respectively.
Effective January 31, 1997, the Maryland Cable System was sold
to Jones Communications of Maryland, Inc. In conjunction with
the sale, Operating recognized an incentive management fee of
$4,083,000. Additional incentive management fees may be
recognized upon finalization of the purchase price adjustment,
anticipated to occur during the second quarter of 1997, and
upon dissolution of Maryland Cable, anticipated to occur
during the first quarter of 1998. There is no assurance that
any of such fees will be realized. Although Operating is no
longer involved in the active management of those cable
television systems, 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 will earn a nominal
monthly fee.
11
<PAGE>
(7) Acquisitions and Dispositions
On March 4, 1997, the Company entered into an acquisition
agreement with Harron Cablevision of Texas, Inc. pursuant to
which the Company will purchase from Harron substantially all
of the assets of cable television systems in Texas. The
communities served by this system are located in and around
the Company's operations in Texas. The acquisition of the
Harron Systems is subject to certain closing conditions and is
expected to occur in the third quarter of 1997.
On April 4, 1997, the Company entered into an agreement in
principle with Time Warner to trade cable television systems
in the states of Wisconsin and Indiana representing
approximately 125,000 customers. According to the terms of
the agreement, Time Warner will receive approximately 55,000
customers, while the Company will receive approximately 70,000
customers. The formal exchange agreement is being finalized
and although there can be no assurance, closing is expected on
or around year end 1997, pending final legal documentation,
regulatory and other third party approvals.
12
<PAGE>
<TABLE>
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Consolidating Schedule - Balance Sheet Information
As of March 31, 1997
(unaudited)
(in thousands)
ASSETS
<CAPTION>
Combined
Operating Capital Elimin- Operating Capital Elimin-
Partnership II Operating ations Consolidated Capital III Company ations Company
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents 21,385 1 (237) 0 21,149 1 1 754 0 21,905
Accounts receivable, net 39,950 0 (10,299) (14,211) 15,440 0 0 0 0 15,440
Prepaid expenses and
other 2,859 0 561 0 3,420 0 0 0 0 3,420
------------ ---- -------- ---------- ---------- ------ ------ ------- ------- ---------
Total current assets 64,194 1 (9,975) (14,211) 40,009 1 1 754 0 40,765
Property and equipment, net 576,842 0 5,383 0 582,225 0 0 0 0 582,225
Other assets, net 1,061,708 0 1,557,879 (1,548,746) 1,070,841 0 0 9,135 (19,018) 1,060,958
Investment in subsidiaries 0 0 164,242 (164,242) --- 0 0 452,647 (452,647) ---
------------ ---- -------- ---------- ---------- ------ ------ ------- -------- --------
Total assets 1,702,744 1 1,717,529 (1,727,199) 1,693,075 1 1 462,536 (471,665) 1,683,948
============ ==== ======== ========== ========== ====== ====== ======= ======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current maturities of
long-term debt 189 0 57,882 0 58,071 0 0 0 0 58,071
Accrued liabilities 67,814 0 76,344 (92,881) 51,277 0 0 (1) (6,492) 44,784
Accrued interest 10,520 0 4,585 (10,522) 4,583 0 0 5,938 0 10,521
------------ ---- -------- ---------- ---------- ------ ------ ------- -------- --------
Total current
liabilities 78,523 0 138,811 (103,403) 113,931 0 0 5,937 (6,492) 113,376
Long-term debt 1,459,980 0 1,113,793 (1,459,554) 1,114,219 0 0 292,520 0 1,406,739
Subsidiary limited partner
interest 0 0 (246) 0 (246) 0 0 0 0 (246)
Partners' capital 164,241 1 465,171 (164,242) 465,171 1 1 164,079 (465,173) 164,079
------------ ---- -------- ---------- ---------- ------ ------ ------- -------- --------
Total liabilities and
parterns' capital 1,702,744 1 1,717,529 (1,727,199) 1,693,075 1 1 462,536 (471,665) 1,683,948
============ ==== ======== ========== ========== ====== ====== ======= ======== ========
</TABLE>
13
<PAGE>
<TABLE>
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Consolidating Schedule - Statement of Operations Information
For the three months ended March 31, 1997
(unaudited)
(in thousands)
<CAPTION>
Combined Operating
Operating Capital Elimin- Consol- Capital Elimin-
Partnerships II Operating ations idated Capital III MCC ations Company
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Cable services 110,070 --- --- --- 110,070 --- --- --- --- 110,070
Management fees --- --- 4,377 --- 4,377 --- --- --- --- 4,377
----------- ----- ------- ------ ------- ----- ---- ------ ------ --------
Total revenues 110,070 --- 4,377 --- 114,447 --- --- --- --- 114,447
----------- ----- ------- ------ ------- ----- ---- ------ ------ --------
Operating expenses:
Selling, service and system manage 40,863 --- 569 --- 41,432 --- --- --- --- 41,432
General and administrative 14,142 --- 3,356 --- 17,498 --- --- --- --- 17,498
Allocated corporate costs (122) --- 122 --- --- --- --- --- --- ---
Depreciation and amortization 43,824 --- 322 --- 44,146 --- --- --- --- 44,146
----------- ----- ------- ------ ------- ----- ---- ------ ------ --------
98,707 --- 4,369 --- 103,076 --- --- --- --- 103,076
Operating income 11,363 --- 8 --- 11,371 --- --- --- --- 11,371
Other (income) expense:
Interest (income) expense, net 36,695 --- (9,948) 0 26,747 --- --- 9,801 --- 36,548
Equity earnings (loss) of subsidia --- --- 25,332 (25,332) --- --- --- 15,376 (15,376) ---
----------- ----- ------ ------ ------- ----- ---- ------ ------ --------
36,695 --- 15,384 (25,332) 26,747 --- --- 25,177 (15,376) 36,548
----------- ----- ------ ------ ------- ----- ---- ------ ------ --------
Net loss (25,332) --- (15,376) 25,332 (15,376) --- --- (25,177) 15,376 (25,177)
======= ==== ======= ====== ======= ==== ==== ====== ====== =======
</TABLE>
14
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
attached consolidated financial statements and notes thereto, and
with the Company's audited consolidated financial statements and
notes thereto for the fiscal year ended December 31, 1996, included
in the Company's Annual Report on Form 10-K.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1996.
The Company generates the majority of its revenues from monthly
customer fees for basic, premium and other services (such as the
rental of home terminal devices) and from installation income.
Additional revenues are generated from pay-per-view programming,
advertising sales and commissions from home shopping networks.
Revenues were also generated from fees earned from the management
of Maryland Cable.
The comparability of operating results between the three months
ended March 31, 1997 and the comparable period for 1996 are affected
by several events which occurred during 1996 and 1997. These events
include 1) the acquisition of cable systems as follows: a system
serving 700 basic customers in Texas on January 11, 1996, a system
serving 2,600 basic customers in Mississippi on July 8, 1996, and
a system serving 5,400 basic customers in Indiana on July 31, 1996;
2) the sale of the Company's cable system serving 12,600 customers
in Washington on October 11, 1996; 3) the sale of the previously
managed Maryland Cable system on January 31, 1997; and 4) as
described in Note 1 to the quarterly financial statements, the
conforming change in the accounting for franchise fees in certain
of the Systems.
Revenue
The Company's revenues increased 11.4% to $114,447,000 for the three
months ended March 31, 1997 from $102,716,000 for the three months
ended March 31, 1996. Substantially all of this increase was
attributable to growth in basic service revenues caused by increases
in the number of basic customers served, new product offerings and
adjustments to the monthly rates charged customers for services
(mainly effective in June of 1996), and the incremental management
fees earned upon the sale of the Maryland Cable System. In
conjunction with the sale of the Maryland Cable System, Operating
recognized an incentive management fee of $4,083,000 in January
1997. The effects of these increases in revenue were offset by a
revenue reduction of approximately $1,700,000 as a result of the
conforming change regarding franchise fee itemization in the former
Sammons Systems. Normalizing the effects of the events noted in the
previous paragraph above, pro forma revenue would have increased
10.0% over the comparable periods. In addition to the above noted
revenue increases, pro forma advertising revenue would have
increased $558,000, or 19.0%, and pro forma revenue from premium
units would have increased $110,000, despite the conversion of
approximately 12,000 premium units, attributable to The Disney
Channel, to a basic satellite service in certain cable systems
during the first half of 1996.
15
<PAGE>
Operating Expenses
Selling, service and system management expenses consist primarily
of costs associated with programming, marketing, engineering and
advertising. Selling, service and system management expenses
increased 6.1% to $41,432,000 for the three months ended March 31,
1997 from $39,065,000 for the three months ended March 31, 1996.
Programming costs increased approximately $2,800,000 or 11.1% with
substantially all of this increase attributable to increases in the
cost of basic satellite programming. Approximately 50.0% of the
16.6% increase in basic satellite programming costs is the result
of annual contractual increases in rates charged by programmers.
The addition of satellite programming channels and incremental basic
customers accounted for the balance of the increase in basic
satellite programming costs. Additional expense increases included
engineering and marketing staffing costs, marketing expenditures and
advertising sales costs. These increases were partially offset by
approximately $1,800,000 of new channel marketing launch support
reported in the first quarter of 1997. Normalizing the effects of
the events noted in the second paragraph of this section, pro forma
selling, service and system management expenses would have increased
the same 6.1% over the comparable periods.
General and administrative expenses decreased 1.6% to $17,498,000
for the three months ended March 31, 1997 from $17,791,000 for the
three months ended March 31, 1996. The decrease in franchise fee
expense, as a result of the conforming itemization of such costs on
customers' bills in the former Sammons Systems, was mainly offset
by rising employee costs, associated with increased staffing of
customer service operations and employee wage adjustments, and
increases in customer receivable reserves as a result of tightening
disconnect procedures in the later half of 1996. Normalizing the
effects of the events noted in the second paragraph of this section,
pro forma general and administrative expenses would have increased
9.7% over the comparable periods. Approximately 95.0% of the pro
forma increase in general and administrative expenses is a result
of the previously mentioned rising employee costs and customer
receivable reserves.
Depreciation and amortization expenses increased 12.9% to
$44,146,000 for the three months ended March 31, 1997 from
$39,093,000 for the three months ended March 31, 1996. The increase
is a result of the additional capital expenditures incurred to
rebuild and upgrade the physical plant and equipment of certain of
the Systems.
Operating Income
Operating income rose $4,604,000 to $11,371,000 for the three months
ended March 31, 1997 from $6,767,000 in 1996. This increase was due
to the previously discussed rise in revenues which was partially
offset by increases in selling, service and system management
expenses and depreciation and amortization.
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. Furthermore, the cable
television industry generally measures 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
16
<PAGE>
financial statements, rather these measures are
included as industry standards. System cash flow, which represents
revenues from cable services less operating expenses before
corporate expenses and depreciation and amortization, increased
13.3% to $55,065,000 for the three months ended March 31, 1997 from
$48,586,000 for the three months ended March 31, 1996. EBITDA
increased 21.1% to $55,517,000 for the three months ended March 31,
1997 from $45,860,000 for the three months ended March 31, 1996.
Normalizing the effects of the events noted in the second paragraph
of this section, pro forma system cash flow before corporate
expenses and depreciation and amortization and EBITDA would have
increased 13.9% and 13.5%, respectively, over the comparable period
in 1996.
Other Expenses
Net interest expense increased 2.1% to $36,548,000 for the three
months ended March 31, 1997 from $35,786,000 for the three months
ended March 31, 1996, due primarily to the scheduled increase in
accretion of the 13 1/2% Notes and the 14 1/4% Notes of $2,053,000.
This accretion increase was offset by a decrease in interest expense
from reductions in the average outstanding balances and the average
borrowing costs under the Senior Credit Facility. Borrowings
increased to $1,464,810,000 at March 31, 1997 from $1,407,195,000
at March 31, 1996. The weighted average interest rate, including
commitment fees, for total debt outstanding during the three months
ended March 31, 1997 was 9.91%, compared with 10.01% for the three
months ended March 31, 1996.
The net loss for the three months ended March 31, 1997 was
$25,177,000 compared to a net loss of $29,010,000 for the three
months ended March 31, 1996. The reduction in the net loss is due
to the factors discussed above.
Customer Information
The Company's number of basic customers and premium units are
as follows:
<TABLE>
<CAPTION>
Pro Forma
March 31, December 31, March 31,
1997 1996 1996(a)
<S> <C> <C> <C>
Basic Customers 1,189,581 1,181,293 1,162,086
Premium Units 669,977 666,702 653,363
- -----------------------
<FN>
(a) Excludes approximately 12,600 basic customers and 4,800
premium units served by the cable systems in Washington which
were subsequently sold to a third party on October 11, 1996.
Includes approximately 8,000 basic customers and 3,200 premium
units served by systems in Mississippi and Indiana purchased
in July 1996.
</FN>
</TABLE>
Substantially all of the internal growth in basic customers and
premium units is attributable to continued marketing and sales
efforts as well as the continued extension of physical cable plant
in order to pass additional dwelling units.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has grown significantly over the past several years
through acquisitions as well as through upgrading, extending and
rebuilding its existing cable television systems. Since expansion
by means of these methods is capital intensive, the Company has
relied upon various sources of financing to meet its funding needs.
These sources have included contributions from equity investors,
borrowings under various debt instruments and positive cash flows
from operations.
As of March 31, 1997, unreturned capital contributions from equity
investors totaled approximately $493,327,000. The Company has an
aggregate of $1,464,810,000 of indebtedness outstanding in the form
of the 11 7/8% Debentures, 13 1/2% Notes, 14 1/4% Notes, borrowings
under the Senior Credit Facility and note payable and capital lease
obligations. The Company has an additional $283,000,000 of
borrowing capacity under its Revolving Credit Facility. The Company
generated cash flows from operating activities of $32,334,000 for
the three month period ended March 31, 1997. Funding from equity
contributions, borrowings and cash flow from operations have been
sufficient to meet the Company's debt service, working capital and
capital expenditure requirements.
Certain Systems will be upgraded or rebuilt principally to 860 MHz
or 750 MHz capability over the next three years to allow for
additional programming and service offerings through networks
characterized by such bandwidth capacity. Capital expenditures are
expected to approximate $167,000,000 (or $139 per customer) in 1997.
Such expenditures include certain upgrade and rebuild projects
occurring principally in the Systems located in Alabama, California,
Wisconsin and Texas. Ongoing capital expenditures in excess of
upgrade and rebuild amounts are consistent with current costs to
extend and maintain the existing networks. The Company expects to
fund these capital expenditures through cash generated from
operations and available borrowings under the Revolving Credit
Facility.
Cash interest is payable monthly, quarterly and semiannually on
borrowings outstanding under the Company's Senior Credit Facility
and the 11 7/8% Debentures. No cash interest is payable on the 13
1/2% Notes until February 1, 2000 and no cash interest is payable
on the 14 1/4% Notes until December 15, 2000. Maturities of long-term
debt approximate $414,987,000 over the next five years. The
Company expects to cover both interest and principal payments on its
long-term obligations through internally generated funds.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 125,
"Transfers of Financial Assets and Extinguishments of Liabilities".
SFAS No. 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities. The provisions of SFAS No. 125 are generally effective
for transactions occurring after December 31, 1996. There has been
no impact on the Company upon adoption. No other recent accounting
pronouncements have been issued which the Company has not adopted
and which are expected to have a material effect on the Company's
consolidated
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<PAGE>
financial statements and related disclosures.
INFLATION
Based on the FCC's current rate regulation standards, an inflation
factor is included in the benchmark formula in establishing the
initial permitted rate. Subsequent to establishing the initial
rate, an annual rate increase based on the year-end inflation factor
is permitted. In addition to 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 March 31, 1997,
the Company had $215,000,000 of outstanding borrowings under the
Senior Credit Facility which are subject to floating interest rates.
The rates are based on either the Eurodollar rate, prime rate, 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.
To reduce the impact of changes in interest rates on its floating
rate long-term debt, the Company entered into certain interest rate
swap agreements with certain of the participating banks under the
Senior Credit Facility. At March 31, 1997, interest rate swap
agreements covering a notional balance of $650,000,000 were
outstanding. These outstanding swap agreements mature during 1997
and 1998 and require the Company to pay a fixed rate of 5.77% to
5.81% plus the applicable interest rate margin. Extensions for
additional periods are available within the swap agreements at the
option of the other parties thereto.
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
19
<PAGE>
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 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 three month
period ended March 31, 1997, there were no rate refunds issued.
There are, however, rate complaints currently pending at the FCC
concerning certain of the Company's CPST rates. Pursuant to the
re-regulation covering the time period from September 1, 1993 through
May 15, 1994, there are currently under review by the FCC 18 cost-of-service
filings and two benchmark filings. Pursuant to the re-regulation covering
the time period from May 1994 to the date
hereof, there are 48 benchmark filings under review by the FCC.
These pending reviews potentially affect 351,000 of the Company's
basic customers. During 1996, reviews involving certain Systems
serving approximately 75,000 customers were completed in which the
FCC found no errors in the Company's rate calculations. As a result,
the related complaints were denied. If the FCC determines that the
Company's CPST rates are unreasonable, it has the authority to order
the Company to reduce such rates and to refund to customers any
overcharges with interest occurring from the filing date of the rate
complaint at the FCC. The amount of refunds, if any, which may be
required by the FCC in the event the Company's CPST rates are found
to be unreasonable is not currently estimable.
Because the FCC has not yet resolved pending rate complaints
involving the Company and because franchise authorities may certify
in the future, the overall impact of these regulations and other
provisions of the 1996 Telecom Act and the 1992 Cable Act on the
Company's business cannot be determined at this time.
20
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
There were no material legal proceedings instituted during the
three months ended March 31, 1997 to which the Company is a party
or of which any of its property is subject.
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Included in this report:
<TABLE>
<CAPTION>
Exhibit:
<S> <C>
27.1 Financial Data Schedule (supplied for the
information of the Commission)
</TABLE>
(b) Reports on Form 8-K
None
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, each of the registrants have duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
MARCUS CABLE COMPANY, L.P.
(Registrant)
By: Marcus Cable Properties, L.P., its
general partner,
By: Marcus Cable Properties, Inc.,
its general partner,
May 15, 1997 By: /s/ Jeffrey A. Marcus
Jeffrey A. Marcus
Its: President, Chief Executive
Officer and Sole Director of
Marcus Cable Properties, Inc.
(Principal Executive Officer)
By: /s/ Thomas P. McMillin
Thomas P. McMillin
Its: Senior Vice President and
Chief Financial Officer of
Marcus Cable Financial and
Accounting Officer)
MARCUS CABLE OPERATING COMPANY, L.P.
(Registrant)
By: Marcus Cable Company, L.P., its
general partner,
By: Marcus Cable Properties, L.P.,
its general partner,
By: Marcus Cable Properties, Inc.,
its general partner,
May 15, 1997 By: /s/ Jeffrey A. Marcus
Jeffrey A. Marcus
Its: President, Chief Executive
Officer and Sole Properties,
Inc.(Principal Executive
Officer)
By: /s/ Thomas P. McMillin
Thomas P. McMillin
Its: Senior Vice President and Chief
Financial Officer of Marcus
Cable Properties, Inc.
(Principal Financial and
Accounting Officer)
22
<PAGE>
MARCUS CABLE CAPITAL CORPORATION
(Registrant)
May 15, 1997 By: /s/ Jeffrey A. Marcus
Jeffrey A. Marcus
Its: President, Chief Executive
Officer and Sole Director of
Marcus Cable Capital
Corporation(Principal Executive
Officer)
By: /s/ Thomas P. McMillin
Thomas P. McMillin
Its: Senior Vice President and Chief
Financial Officer of Marcus
Cable Capital Corporation
(Principal Financial and
Accounting Officer)
MARCUS CABLE CAPITAL CORPORATION II
(Registrant)
May 15, 1997 By: /s/ Jeffrey A. Marcus
Jeffrey A. Marcus
Its: President, Chief Executive
Officer and Sole Director of
Marcus Cable Capital
Corporation II (Principal
Executive Officer)
By: /s/ Thomas P. McMillin
Thomas P. McMillin
Its: Senior Vice President and Chief
Financial Officer of Marcus
Cable Capital Corporation II
(Principal Financial and
Accounting Officer)
23
<PAGE>
MARCUS CABLE CAPITAL CORPORATION III
(Registrant)
May 15, 1997 By: /s/ Jeffrey A. Marcus
Jeffrey A. Marcus
Its: President, Chief Executive
Officer and Sole Director of
Marcus Cable Capital
Corporation III(Principal
Executive Officer)
By: /s/ Thomas P. McMillin
Thomas P. McMillin
Its: Senior Vice President and Chief
Financial Officer of Marcus
Cable Capital Corporation III
(Principal Financial and
Accounting Officer)
24
<PAGE>
