Filed pursuant to Rule 424(b)(3)
Registration Nos. 33-81088,
33-81088-01 and 33-81088-02
MARCUS CABLE COMPANY, L.P.
MARCUS CABLE OPERATING COMPANY, L.P.
MARCUS CABLE CAPITAL CORPORATION II
Supplement to Prospectus
Dated April 12, 1996, as supplemented by
Prospectus Supplements Dated May 6, 1996, August 14, 1996
and November 14, 1996
The date of this Supplement is March 27, 1997
On March 27, 1997, Marcus Cable Company, L.P. filed the attached Annual Report
on Form 10-K for the year ended December 31, 1996.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File Numbers: 33-67390 & 33-81088 & 33-93808, 33-81088-01,
33-67390-01, 33-81088-02 and 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 names of registrants as specified in their charters)
Delaware 75-2337471
Delaware 75-2546077
Delaware 75-2495706
Delaware 75-2546713
Delaware 75-2599586
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2911 Turtle Creek Boulevard, Suite 1300
Dallas, Texas 75219
(Address of principal executive offices (Zip Code)
(214) 521-7898
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: None
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) has been subject to such filing requirements
for the past 90 days. Yes No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of the registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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 were
owned by Marcus Cable Operating Company, L.P.
Documents incorporated by reference: None
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
1996 ANNUAL REPORT ON FORM 10-K
<TABLE>
Table of Contents
<CAPTION>
Page
<S> <C> <C>
Definitions. . . . . . . . . . . . . . . . . . . . . . . .3
Part I
Item 1. Description of Business. . . . . . . . . . . . . . . . . .5
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 21
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 22
Item 4. Submission of Matters to a Vote of Security Holders. . . 22
Part II
Item 5. Market for Registrants' Common Equity and
Related Stockholder Matters . . . . . . . . . . . . 23
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . 23
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 24
Item 8. Financial Statements and Supplementary Data. . . . . . . 29
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . 29
Part III
Item 10. Directors and Executive Officers of the Registrants. . ..30
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . 34
Item 12. Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . . 36
Item 13. Certain Relationships and Related Transactions . . . . . 38
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . 38
</TABLE>
<TABLE>
DEFINITIONS
When used herein, the following terms will have the meaning
indicated.
<CAPTION>
<S> <C>
Term Definition
11 7/8% Debentures 11 7/8%Senior Debentures, due October
1, 2005, which are obligations of MCC
and Capital
13 1/2% Notes 13 1/2% Senior Subordinated Guaranteed
Discount Notes, due August 1, 2004,
which are obligations of Operating and
Capital II that are guaranteed by MCC
14 1/4% Notes 14 1/4% Senior Discount Notes, due
December 15, 2005, which are
obligations of MCC and Capital III
1984 Cable Act Cable Communications Policy Act of 1984
1992 Cable Act Cable Television Consumer Protection
and Competition Act of 1992
1996 Telecom Act Telecommunications Act of 1996
ASCAP American Society of Composers, Authors
and Publishers
BMI Broadcast Music, Inc.
BST Basic Service Tier
Cable Acts The 1984 Cable Act and the 1992 Cable
Act
CALP Cencom of Alabama, L.P.
CALP Acquisition The August 31, 1995 acquisition of
remaining CALP ordinary limited
partnership interests, redemption of
all CALP special limited partnership
interests and retirement of CALP's
senior bank debt
CALP Agreement The management agreement between
Operating and CALP, which terminated on
August 31, 1995
CALP Systems Certain cable systems in areas
surrounding Birmingham, Alabama which
were purchased in the CALP Acquisition
Capital Marcus Cable Capital Corporation
Capital II Marcus Cable Capital Corporation II
Capital III Marcus Cable Capital Corporation III
Communications Act Communications Act of 1934
Company Marcus Cable Company, L.P. and
subsidiaries
CPST Cable Programming Service Tier
Crown Crown Media, Inc.
Crown Acquisition The January 18, 1995 purchase of the
Crown Systems
Crown Systems Certain cable television systems in
Wisconsin and Minnesota purchased from
Crown
DBS Direct Broadcast Satellites
Delaware/Maryland Systems Certain cable television systems
located in and around Harrington,
Delaware and Cambridge, Maryland which
were purchased in 1992
EBITDA Earnings Before Interest, Taxes,
Depreciation and Amortization
FCC Federal Communications Commission
Fiberlink Marcus Fiberlink, L.L.C.
Frankfort Acquisition The July 31, 1996 purchase of the
Frankfort System
Frankfort System Certain cable television system in and
around Frankfort, Indiana purchased
from Frankfort Cable Communications,
Inc.
Futurevision Acquisition The July 8, 1996 purchase of the
Futurevision System
Futurevision System Certain cable television system in and
around Brookhaven, Mississippi
purchased from Futurevision Cable
Systems of Brookhaven
General Partner Marcus Cable Properties, L.P.
Goldman Sachs Goldman, Sachs & Co.
HFC Hybrid Fiber Coax
HSD Home Satellite Dish
JEDI Jefferson Eastern-Dane Interactive
LEC Local Exchange Carrier
LFA Local Franchising Authorities
LIBOR London InterBank Offered Rate
LMDS Local Multipoint Distribution Services
Management Company Marcus Cable Management, Inc.
Maryland Cable Maryland Cable Partners, L.P.
Maryland Cable Agreement The management agreement between
Operating and Maryland Cable
Maryland Cable System Cable system owned by Maryland Cable
(also the "Managed System")
MCC Marcus Cable Company, L.P.
MCA Marcus Cable Associates, L.P.
MCALP Marcus Cable of Alabama, L.P. (formerly
"CALP")
MCDM Marcus Cable of Delaware and Maryland,
L.P.
MCP Marcus Cable Partners, L.P.
MCPI Marcus Cable Properties, Inc.
MMDS Multichannel, Multipoint Distribution
Service
Moses Lake System Certain cable system in the state of
Washington which was sold on October
11, 1996
MSO Multiple System Operator
MPTC Morain Park Technical College
MVPD Multichannel Video Programming
Distributors
NPT New Product Tier
Operating Marcus Cable Operating Company, L.P.
Operating Partnerships MCP, MCDM, MCALP and MCA
OVS Open Video System
Owned Systems All cable television systems owned by
the Company
PCS Personal Communications Services
RBOC's Regional Bell Operating Companies
Sammons Sammons Communications, Inc. and
certain of its subsidiaries
Sammons Acquisition The November 1, 1995 purchase of the
Sammons Systems
Sammons Systems Certain cable television systems
purchased from Sammons
San Angelo Systems Certain cable television systems in and
around San Angelo, Texas which were
divested on June 30, 1995
Senior Credit Facility $1,100,000,000 Credit Agreement among
Operating, MCC, Banque Paribas, 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 and as amended on
March 31, 1997
SFAS Statement of Financial Accounting
Standard
SMATV Satellite Master Antenna Television
Star Acquisition The July 29, 1994 purchase of the Star
Systems
Star Star Cablevision Group
Star Systems Certain cable television systems
purchased from Star
Weatherford Acquisition The January 11, 1996 purchase of the
Weatherford System
Weatherford System Certain cable television system in
Weatherford, Texas purchased from C & R
Investments Corporation
</TABLE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
a) General Development of Business
General
MCC is a Delaware limited partnership formed for the purpose of
acquiring, operating and developing cable television systems in
primarily small to medium sized communities within suburban and rural
markets. MCC derives its main source of revenues from providing
various levels of cable television programming and services to
residential and business customers. During 1996, other revenues were
also derived from providing management services to cable systems owned
by third parties. Since its formation in 1990, MCC has increased in
size through internal growth and acquisitions, and is now the ninth
largest cable system operator in the United States, with owned and
managed systems serving approximately 1,267,500 basic customers in 18
states as of December 31, 1996.
MCC's operations are conducted through Operating, an operating
holding company in which it serves as a general partner and in which it
owns a greater than 99.00% interest. Operating in turn conducts its
operations through the Operating Partnerships, in which it, directly or
indirectly, serves as a general partner and owns a greater than 99.00%
interest.
Owned Systems
The Company began acquiring cable television systems in 1990
primarily in the state of Wisconsin. Since such time, the Company has
continued to expand through additional acquisitions and in 1995, MCC
completed several acquisitions of cable television system assets
serving approximately 950,000 customers. As of December 31, 1996, its
Owned Systems passed approximately 1,863,300 homes and served
approximately 1,181,300 basic customers, who subscribed for
approximately 666,700 premium units.
Managed System
Maryland Cable, which is controlled by an affiliate of Goldman
Sachs, entered into the Maryland Cable Agreement with Operating,
beginning September 30, 1994, whereby Operating managed the Maryland
Cable System which serves customers in and around Prince Georges
County, Maryland. Under the Maryland Cable Agreement, the Company
earns a management fee, payable monthly, equal to 4.7% of the revenues
of Maryland Cable. During 1996, the Company earned approximately
$2,335,000 pursuant to such agreement. At December 31, 1996, the
Maryland Cable System passed approximately 148,500 homes and served
approximately 86,200 basic customers who subscribed for approximately
75,700 premium service units.
Effective January 31, 1997, the Maryland Cable systems were sold
to Jones Communications of Maryland, Inc. Under the Maryland Cable
Agreement, Operating was granted rights to an incentive management fee
if the Maryland Cable System sold above certain threshold amounts. In
conjunction with the sale, Operating recognized an incentive management
fee of $4,083,000 in January 1997. 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 the partnership, anticipated to occur during the
first quarter of 1998. Although Operating is no longer involved in the
active management of those cable television systems, Operating has
entered into an agreement with Goldman Sachs to oversee the activities,
if any, of Maryland Cable through the liquidation of the partnership.
Pursuant to such agreement, Operating will earn a monthly fee ranging
from $25,000 to $50,000.
Recent Developments
General
Fiberlink
Fiberlink is an entity formed for the purpose of developing the
infrastructure necessary to foster distance education networks and
other forms of point-to-point transmission services in the Company's
service areas. Fiberlink currently has two distance education networks
in operation, MPTC and JEDI. The MPTC Distance Education Network is a
two-way fully interactive system which allows students and educators to
interact from three separate campuses. The JEDI Distance Education
Network provides a network which delivers voice, video and data
transmission to nine high schools in Jefferson and Dane Counties,
Wisconsin and to three campuses of the Madison Area Technical College
system. The Company is currently pursuing similar arrangements with
various educational institutions and with utility providers.
Acquisitions
Frankfort Acquisition
On July 31, 1996, the Company acquired the assets of Frankfort
Cable Communications, Inc. for an aggregate purchase price of
approximately $6,700,000. The Frankfort System provides service to
approximately 5,300 basic customers in and around Frankfort, Indiana,
located near the Company's other operations in Indiana.
Futurevision Acquisition
On July 8, 1996, the Company acquired the assets of Futurevision
Cable Systems of Brookhaven for an aggregate purchase price of
approximately $2,600,000. The communities served by the Futurevision
System are located in and around the Company's operations in
Mississippi. The Futurevision System provides service to approximately
2,400 basic customers.
Weatherford Acquisition
On January 11, 1996, the Company acquired the assets of the
Weatherford System for an aggregate purchase price of approximately
$875,000. The Weatherford System provides service to approximately 700
basic customers contiguous to the Company's existing system in
Weatherford, Texas.
Sammons Acquisition
On November 1, 1995, the Company acquired the assets of the
Sammons Systems serving approximately 664,700 basic customers in
Alabama, California, Connecticut, Georgia, Illinois, Indiana, Kentucky,
Louisiana, Mississippi, North Carolina, Oklahoma, Tennessee, Texas,
Virginia and Washington, for a purchase price of $961,701,000, plus
direct acquisition costs of $31,187,000, and less assumed liabilities
of $4,524,000.
CALP Acquisition
On August 31, 1995, the Company acquired all remaining CALP
ordinary limited partnership interests held by outside parties in
exchange for convertible preference units of MCC with a $15,000,000
distribution preference and caused the redemption of all outstanding
CALP special limited partnership interests and the retirement of all
outstanding bank indebtedness of CALP for $138,280,000 in cash. The
Company had previously acquired the CALP general partnership interest
and certain of the CALP ordinary limited partnership interests from
Crown in September 1994 and January 1995, respectively.
Crown Acquisition
Effective January 1, 1995, the Company acquired the assets of the
Crown Systems, serving approximately 193,300 basic customers in
Wisconsin, and certain CALP ordinary limited partnership interests held
by Crown for an aggregate purchase price of $331,717,000. The
communities served by the Crown Systems were adjacent to the Company's
other operations in Wisconsin. The Company believes that its systems
in Wisconsin represent the largest concentration of system locations in
the state.
Divestitures
Moses Lake Divestiture
On October 11, 1996, the Company completed the sale of its cable
television systems serving approximately 12,700 customers in the state
of Washington for a sales price of approximately $20,638,000, net of
selling costs of $310,000. The sales price resulted in a gain on the
sale of approximately $6,442,000.
San Angelo Divestiture
On June 30, 1995, the Company completed the divestiture of its San
Angelo Systems which served approximately 32,000 basic customers in and
around San Angelo, Texas for a sales price of $65,037,000, net of
selling costs of $809,000. The sales price resulted in a gain on the
sale of approximately $26,409,000.
The decision to divest both the Moses Lake and San Angelo Systems
was made as part of the Company's strategy to trade or sell properties
that do not meet its strategic clustering objectives.
The following table illustrates the Company's growth over the last five
years: (includes both owned and managed systems)
<TABLE>
<CAPTION>
Homes Basic Basic Premium Premium Unit
Passed Customers Penetration Units Penetration
<S> <C> <C> <C> <C> <C>
December 31: (1) (2)
1992 209,979 138,274 65.8% 81,257 58.8%
1993 209,549 141,323 67.4% 97,944 69.3%
1994 322,842 222,735 69.0% 156,656 70.3%
1995 1,980,727 1,239,203 62.6% 726,988 58.7%
1996 2,011,820 1,267,520 63.0% 742,436 58.6%
<FN>
(1) Basic service customers as a percentage of homes passed.
(2) Premium service units as a percentage of basic service customers. A customer may
purchase more than one premium service, each of which is counted as a separate premium
service unit. This ratio may be greater than 100% if the average customer subscribes
for more than one premium service.
</FN>
</TABLE>
b) Financial Information About Industry Segments
The Company operates solely in the cable television industry and
all revenues are derived from that industry.
c) Narrative Description of Business
The Cable Television Industry
A cable television system receives television, radio and data
signals that are transmitted to the system's headend site by means of
off-air antennae, microwave relay systems and satellite earth stations.
These signals are then modulated, amplified and distributed, primarily
through coaxial and fiber optic cable, to customers who pay a fee for
this service. Cable systems may also originate their own television
programming and other information services for distribution through the
system. Cable television systems generally are constructed and
operated pursuant to nonexclusive franchises or similar licenses
granted by local governmental authorities for a specified term of
years.
Cable television systems offer customers various levels (or
"tiers") of basic cable services consisting of off-air television
signals of local network, independent and educational stations, a
limited number of television signals from so-called superstations
originating from distant cities, various satellite-delivered,
nonbroadcast channels (such as CNN, MTV, USA, ESPN and TNT), and
certain programming originated locally by the cable system (such as
public, governmental and educational access programs) and informational
displays featuring news, weather, stock market and financial reports
and public service announcements. Cable systems also typically offer
premium television services to their customers for an extra monthly
charge. These services (such as HBO, Showtime, The Disney Channel and
regional sports networks) are satellite-delivered channels consisting
principally of feature films, live sports events, concerts and other
special entertainment features, usually presented without commercial
interruption.
A customer generally pays an initial installation charge and fixed
monthly fees for basic and premium television services and for other
services (such as the rental of home terminal devices and remote
control units). Such monthly service fees constitute the primary
source of revenues for cable television systems. In addition to
customer revenues from these services, cable systems generate revenues
from additional fees paid by customers for pay-per-view programming of
movies and special events and from the sale of available advertising
spots on advertiser-supported programming. Cable systems also offer
home shopping services to their customers, a service which pays the
systems a share of revenues from sales of products in the systems'
service areas. The cable television industry is changing rapidly due
to new technology. Distributing traditional cable television
programming is only one aspect of the industry, as potential
opportunities to expand into Internet access, telephone, educational
and entertainment services on an interactive basis continue to develop.
Business Strategy
Operating Overview
The Company's owned and managed cable television systems are
operated in six geographic areas as follows: (1) North Central
(Wisconsin and Minnesota); (2) Southeast (Alabama, Georgia, North
Carolina, Tennessee, Kentucky and Mississippi); (3) Southwest (Texas
and Oklahoma); (4) East (Delaware, Maryland, Virginia and Connecticut);
(5) Midwest (Indiana and Illinois); and (6) West (California). The
table below sets forth certain operating statistics for these six
regions as of December 31, 1996:
<TABLE>
OPERATING DATA
<CAPTION>
Region Homes Basic Basic Premium Premium
Passed Customers Penetration Units Penetration
(1) (2) (3) (4) (5)
<S> <C> <C> <C> <C> <C>
North Central 607,529 385,303 63.4% 254,220 66.0%
Southeast 352,908 252,466 71.5% 101,356 40.2%
Southwest 408,058 187,761 46.0% 128,666 68.5%
East (6) 279,090 175,140 62.8% 125,061 71.4%
Midwest 177,621 139,138 78.3% 74,994 53.9%
West 186,614 127,712 68.4% 58,139 45.5%
Total Owned
and Managed 2,011,820 1,267,520 63.0% 742,436 58.6%
<FN>
(1) Homes passed refers to estimates by the Company of the approximate number of dwelling
units in a particular community that can be connected to the Company's cable television
distribution system without any further extension of principal transmission lines.
(2) A home with one or more television sets connected to a cable system is counted as one
basic customer. Bulk accounts are included on a "basic customer equivalent" basis in
which the total monthly bill for the account is divided by the basic monthly charge for
a single outlet in the area.
(3) Basic customers as a percentage of homes passed.
(4) Premium units include single channel services offered for a monthly fee per channel. A
customer may purchase more than one premium service, each of which is counted as a
separate premium service unit.
(5) Premium units as a percentage of basic customers. A customer may purchase more than one
premium service, each of which is counted as a separate premium service unit. This ratio
may be greater than 100% if the average customer subscribes for more than one premium
service.
(6) Includes the Maryland Cable System, which at December 31, 1996 passed 148,521 homes and
served 86,227 basic customers who subscribed for 75,734 premium units.
</FN>
</TABLE>
General Strategy
The Company's business strategy focuses on three principles: (i)
forming regional clusters of cable television systems through strategic
acquisitions, internal growth and divestitures of non-strategic assets,
(ii) promoting internal growth and enhanced operating and financial
performance by streamlining operations in newly clustered systems and
applying innovative marketing techniques and (iii) upgrading systems
and employing state-of-the-art technology to enhance existing service
and to develop, on a cost-effective basis, ancillary revenue streams.
This strategy was first employed by expanding the originally acquired
cable television systems in Wisconsin through strategic acquisitions
and internal growth. Upon completion of the Star and Crown
Acquisitions and the successful integration of their operations, the
Company's operations in that state more than tripled in size and the
Company is now the largest cable operator in Wisconsin.
The November 1995 purchase of the Sammons Systems elevated the
Company's standing to the ninth largest MSO in the United States. The
purchase expanded the Company's operations from five states to nineteen
states. The Company developed an operating strategy to facilitate this
integration, which included (i) establishing a high-performance sales
and customer service culture; (ii) consolidating regional operations;
(iii) launching innovative programming packages and sales and marketing
programs; and (iv)investing in and deploying hybrid fiber-coaxial plant
with advanced analog home terminal devices. The successful integration
of the Sammons Systems has allowed the Company to continue to take
advantage of operational synergies due to its increased size and
visibility in the industry.
As part of this acquisition integration, the Company underwent a
departmental restructuring, dividing managerial responsibilities into
regional system groups. At the corporate level and within each of the
regional system groups, several initiatives to grow revenues and reduce
operating expenses were undertaken which have improved the acquired
systems operating performance. The Company's objective is to increase
the value of its systems and to increase system cash flow through the
following business strategies.
Emphasis on Regional Clusters and Growth Through Acquisitions.
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. A key element of the Company's strategy is
building regional clusters of cable television systems in proximity to
its existing systems or of sufficient size to serve as cores for new
operating regions.
The Company's historical growth pattern illustrates this strategy.
In 1990, the Company acquired cable television systems in the Wisconsin
area and in 1992, purchased systems in Texas and in the
Delaware/Maryland area. In 1994, the Company added to its systems in
Wisconsin through the acquisition of the Star Systems in Wisconsin and
Minnesota. The Crown Acquisition, in January 1995, further
strengthened the Company's position, making it the largest cable
television operator in Wisconsin. The November 1995 purchase of the
Sammons Systems more that doubled the size of the Company and
significantly expanded the areas served by the Company.
Each of these acquisitions involved selected groups of cable
television systems which the Company believed had the potential for
increased basic and premium customer penetration and for growth in
operating cash flow and operating margins. The Company believes that
increasing its operating scale through strategic acquisitions, as well
as through internal growth, enhances its ability to reduce its
programming costs, develop new technologies, offer new services and
improve operating margins, and thus improve its long-term
competitiveness.
In addition, the Company's specific focus on Wisconsin provided
it with further opportunities to improve operating performance by
eliminating duplicative positions and excess office locations, creating
regional customer service centers and centralizing signal distribution
facilities and consolidating corporate support functions, including
accounting, billing, marketing, technical and administration services.
The Sammons Acquisition offered the Company an opportunity to increase
system cash flow through the introduction of value-added programming
packages and additional channel launches in systems which had been
previously undermarketed and underdeveloped.
The Company believes that, as a result of its clustering strategy,
it has recognized and will continue to recognize benefits through
reduced operating costs as a result of economies of scale. The Company
has also recognized economies of scale as a result of its increased
size, including programming cost savings and increased discounts on
equipment purchases.
Future expansion efforts are expected to focus on acquiring or
swapping systems in proximity to existing operations, with the
strategic goal of forming or expanding clusters of systems to permit
the operating efficiencies and economies of scale similar to those
achieved by the Company in Wisconsin. Opportunistic divestitures, in
areas where consolidation opportunities do not exist, are also
considered. The Company's decision to divest the Moses Lake and San
Angelo Systems, which presented limited clustering opportunities for
the Company, is illustrative of this strategy.
System Operations. Upon completion of an acquisition, the Company
generally implements extensive management, operational and
organizational changes designed to enhance operating cash flow and
operating margins, while promoting superior customer service and strong
community relations. After consolidating acquired systems with
existing ones, the Company selectively upgrades the cable plant to
allow for the offering of additional programming and services. The
Company then seeks to add customers and increase revenue per customer
by aggressively marketing innovative basic, tier and premium service
packages and by developing ancillary sources of revenue, such as local
spot advertising and pay-per-view programming. The Company has been
successful in increasing revenues in its acquired systems through the
introduction of multiple premium service packages that emphasize
customer value and enable the Company to take advantage of the
programming agreements offering cost incentives based on premium
service unit growth. The Company's customer and revenue growth, in
combination with economies of scale and other operating cash flow and
operating margins of clusters of systems, has enabled the Company to
increase operating cash flow and operating margins of its existing
systems. At the same time, the Company has a decentralized and locally
responsive management structure which provides significant management
experience and stability and allows the Company to respond more
effectively to the specific needs of the communities it serves.
Locally Responsive Management. The Company's operations are
grouped on a regional basis into geographic areas in order to allow the
flexibility and response of decentralized management. At the same
time, the systems are combined to benefit from the Company's critical
mass and economies of scale in such areas as programming and marketing.
The combined operations are grouped into operating areas consisting of
six geographic regions as follows: (1) North Central (Wisconsin and
Minnesota); (2) Southeast (Alabama, Georgia, North Carolina, Tennessee,
Kentucky, Louisiana and Mississippi); (3) Southwest (Texas and
Oklahoma); (4) East (Delaware, Maryland, Virginia and Connecticut); (5)
Midwest (Indiana and Illinois); and (6) West (California).
Innovative Marketing. The Company seeks to add customers and
increase its revenue per customer by aggressively marketing innovative
basic, tier and premium cable service packages and by developing
ancillary sources of revenue through local spot advertising sales and
pay-per-view programming. The Company believes that it has benefitted
and will continue to benefit from its aggressive marketing strategy.
The Company's systems typically offer a choice of two tiers of basic
cable television programming service: a broadcast basic programming
tier (consisting generally of network and public television signals
available over-the-air in the franchise community and "superstation"
signals) and a satellite programming tier (consisting primarily of
satellite-delivered programming such as CNN, USA, ESPN and TNT).
Approximately 96% of the Company's customers subscribed to both tiers
of basic service as of December 31, 1996.
The Company also offers premium programming services, both on an
a la carte basis and as part of premium service packages. The former
service is designed to increase consumer options while the latter is
designed to enhance customer value and enable the Company to take
advantage of programming agreements offering cost incentives based on
premium service unit growth. The Company has successfully promoted
innovative premium service packages, such as its Maximum Value Package
program where customers are offered combinations of premium television
services such as HBO, Cinemax and Showtime as a package for a
discounted price, throughout all of its systems. Overall premium
service penetration has increased significantly in systems where such
packages have been introduced by the Company.
The Company has been and expects to continue to be successful by
actively marketing its services through direct mail, advertising,
telemarketing and door-to-door selling campaigns. The Company also
seeks to add customers by extending its cable plant to new housing
developments once a potential for a significant number of additional
customers is exhibited. Through its marketing efforts, the Company
strives to attract and retain customers in order to increase its market
penetration.
Customer Service and Community Relations. The Company is
dedicated to providing superior customer service and fostering strong
community relations in the towns and cities served by its cable
television systems. As part of this effort, the Company places special
emphasis on the personal and professional growth of its employees,
which includes a strong commitment to, and investment in, training.
All of the Company's employees receive extensive training in customer
service, sales and customer retention skills on a regular basis from
outside professionals and qualified management personnel. Technical
employees are encouraged to enroll in courses available from the
National Cable Television Institute and attend regularly scheduled on-site
seminars conducted by equipment manufacturers to keep pace with
the latest technological developments in the cable television industry.
The Company believes that all of these training programs improve the
overall quality of employee workmanship in the field, resulting in
fewer service calls from customers, improved cable television picture
and product quality and greater system reliability. The Company also
utilizes surveys, focus groups and other research tools as another part
of its effort to determine and respond to the needs of its customers.
The Company seeks to further develop its community relations by
participating in charitable activities and other community affairs in
the towns and cities served by its cable television systems. In
addition to the Company's commitment to training its own employees, the
Company places a special emphasis on education in the communities it
serves and regularly awards scholarships to customers who intend to
pursue courses of study related to the communications field. The
Company has demonstrated its commitment to education through its active
involvement in the Cable in the Classroom program, where cable
television companies throughout the United States provide schools with
cable television service free of charge. The Company also supports
numerous local charities and community causes through marketing
promotions to raise money and supplies for persons in need. Recent
charity affiliations have included campaigns for Toys for Tots, local
food banks and volunteer fire and ambulance corps.
Technology. The Company strives to maintain high technological
standards in its cable television systems on a cost-effective basis and
is constantly upgrading its cable plant to achieve this goal.
Subsequent to acquiring systems, in addition to implementing extensive
management, operational and organizational changes designed to enhance
operating cash flow and promote customer service and community
relations, the Company selectively upgrades the cable plant of such
systems to increase channel capacity and expand the number and variety
of services available to its customers. The Company may also seek to
deploy fiber optic technology, which is capable of carrying hundreds
of video, data and voice channels, in its systems during the system
upgrade process. The Company continually monitors and evaluates new
technological developments on the basis of its ability to make optimal
use of its existing assets and to anticipate the introduction of new
services and program delivery capabilities. Currently, the Company
intends to systematically rebuild its cable systems so that within the
next three years substantially all existing systems will have a
bandwidth of between 450 MHz and 860 MHz. This program should enable
the Company to deliver technological innovations to its customers as
such services become commercially viable.
For fiscal year 1997, the Company is projecting approximately
$167,000,000 of capital expenditures, of which $106,000,000 is directly
committed to system rebuilds and upgrades. The capital expenditures
projected for 1997 will provide, among other benefits, a substantial
increase in channel capacity. This will permit the Company to offer
additional programming through the expansion of existing product tiers,
the introduction of new product tiers, the multiplexing of premium
services and the offering of additional pay-per-view channels.
The Company has undertaken a program that will upgrade
substantially all of its plant facilities to a minimum bandwidth of 450
MHz by the end of 1999. 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 860 MHz with two-way communication
capabilities. The Company's network architecture combines two design
criteria: (1) copper reach of the coaxial cable portion of the plant
which is defined as delivering a carrier to noise specification of 48
dB and is generally limited to less than an 8,500 foot radius from an
optical node and (2) an optical node limited to serving no greater than
500 homes with excess fiber capacity to allow for further reducing the
number of customers served from each node. This architecture insures
a highly reliable network that, when coupled with an active return
path, is capable of supporting both analog and digital interactive
services, including the deployment of cable modems.
In addition to expanding revenue opportunities, upgrading network
architecture serves to enhance picture quality and system reliability,
reduce operating costs and improve overall customer satisfaction. As
of December 31, 1996, the average channel capacity of the Owned Systems
is approximately 65 analog channels with approximately 25% of the
customers served by systems with 550 MHz or greater bandwidth capacity
and approximately 76% of the customers served by systems that utilize
addressable technology. The Company's current plan contemplates that
by the end of 1997, its systems will have an average capacity of
approximately 78 analog channels with approximately 43% of the
customers being served by systems with 550 MHz or greater bandwidth
capacity, warehoused digital spectrum of up to 200 MHz in systems
serving approximately 28% of the Company's customers and approximately
83% of the customers served by systems that utilize addressable
technology.
Through the upgrade of its cable plant, including the utilization
of addressable technology and fiber optic cable, the Company seeks to
position itself to benefit from the further development of advertising,
pay-per-view and home shopping services, as well as anticipated future
services such as video-on-demand and other interactive applications.
This advanced broadband platform has allowed the Company to enter into
arrangements to provide video and data transmission services to various
educational institutions and to pursue similar arrangements with
utility providers. For example, in March 1995, the Company, together
with a neighboring cable television operator, was selected to create
a two-way broadband fiber network to connect 12 school districts in
south central Wisconsin as part of a "distance education" project. The
fiber network allows live interaction among classrooms in various
locations. The Company was also awarded a contract to connect the main
campus of a technical college in the Fond du Lac, Wisconsin area to two
remote campuses in West Bend and Beaver Dam. These projects will
accelerate the rate at which the Company is able to build a
technologically advanced fiber network through shared funding with
various third parties. The Company, together with several public
utilities, is also exploring certain applications of its cable plant
for digital meter reading and electronic load monitoring applications
which would provide "real time" power usage information and would
assist the utilities in monitoring and distributing power in times of
peak demand.
In addition to allowing for increased channel offerings, the
expanded bandwidth of the upgraded systems creates the optimal medium
for transmitting vast amounts of information at high speed. Cable
modem technology enables data traffic to be carried at rates up to 100
times faster than current telephone modems. Most current Internet users
are accessing the network through narrow band telephony technology.
This telephony technology severely limits the types of content and
services that can be effectively utilized. The high speed capabilities
of cable modems eliminate the current data bottle necks and will "free
up" users. The Company currently is testing the capabilities of cable
modems and its HFC network in one of its Dallas area systems. This
test is utilizing a 750 MHz system to provide high speed Internet
access to several customers. In addition to implementing the technical
and operational steps in deploying high speed data modems utilizing HFC
plant, the Company plans to explore various products and services that
can be offered utilizing the high speed data modems. It is anticipated
that commercial deployment of the service in this system will begin in
late 1997 with expanding deployment in other systems in 1998.
Competition
Cable television systems face competition from alternative methods
of receiving and distributing television signals such as DBS and from
other sources of news, information and entertainment such as off-air
television broadcast programming, newspapers, movie theaters, live
sporting events, interactive computer services and home video products,
including videotape cassette recorders. The extent to which a cable
communications system is competitive depends, in part, upon the cable
system's ability to provide, at a reasonable price to customers, a
greater variety of programming and other communications services than
those which are available off-air or through other alternative delivery
sources. See " Legislation and Regulation in the Cable Television
Industry."
The 1996 Telecom Act enables local telephone companies and others
to provide a wide variety of video services competitive with services
provided by cable systems and to provide cable services directly to
customers. Various local telephone companies currently are seeking to
provide video programming services within their telephone service areas
through a variety of distribution methods. Cable systems could be
placed at a competitive disadvantage if the delivery of video
programming services by local telephone companies becomes widespread
since telephone companies may not be required, under certain
circumstances, to obtain local franchises to deliver such video
services or to comply with the variety of obligations imposed upon
cable systems under such franchises. Issues of cross-subsidization by
local telephone companies of video and telephony services also pose
strategic disadvantages for cable operators seeking to compete with
local telephone companies who provide video services. The Company
cannot predict at this time the likelihood of success of any video
programming ventures by local telephone companies or the impact on the
Company of such competitive ventures.
Cable systems generally operate pursuant to franchises granted on
a nonexclusive basis. The 1992 Cable Act gives local franchising
authorities jurisdiction over basic cable service rates and equipment
in the absence of "effective competition", prohibits franchising
authorities from unreasonably denying requests for additional
franchises and permits franchising authorities to operate cable
systems. It is possible that a franchising authority might grant a
second franchise to another company containing terms and conditions
more favorable than those afforded the Company. Well-financed
businesses from outside the cable industry (such as the public
utilities that own the poles on which cable is attached) may become
competitors for franchises or providers of competing services. The
costs of operating a cable system where a competing service exists will
be substantially greater than if there were no competition present.
Although the potential for competition exists, there are presently only
two competing systems located in each of the East and Midwest operating
regions, which represent an aggregate of approximately 1,250 of the
homes in the Company's franchise areas. The Company is not aware of any
other company that is actively seeking local governmental franchises
for areas presently served by the Company.
Cable operators face additional competition from private SMATV
systems that serve condominiums, apartment and office complexes and
private residential developments. The operators of these SMATV systems
often enter into exclusive agreements with building owners or
homeowners' associations. Due to the widespread availability of
reasonably priced earth stations, SMATV systems now offer both improved
reception of local television stations and many of the same
satellite-delivered program services offered by franchised cable systems.
Various states have enacted laws to provide franchised cable systems
access to private complexes. These laws have been challenged in the
courts with varying results. Additionally, the 1984 Cable Act gives
a franchised cable operator the right to use existing compatible
easements within its franchise area; however, there have been
conflicting judicial decisions interpreting the scope of this right,
particularly with respect to easements located entirely on private
property. The ability of the Company to compete for customers in
residential and commercial developments served by SMATV operators is
uncertain. The 1996 Telecom Act broadens the definition of SMATV
systems not subject to local franchising regulation and gives cable
operators greater flexibility in pricing cable services provided to
customers in condominiums, apartment and office complexes and private
residential developments.
Competition for the Company's customers is likely to increase from
medium power and higher power DBS that use higher frequencies to
transmit signals that can be received by dish antennas much smaller in
size than traditional HSDs. Primestar distributes a multi-channel
programming service via a medium power communications satellite to HSDs
of approximately 3 feet in diameter. DirecTv, Inc., United States
Satellite Broadcasting Corporation and EchoStar Communication
Corporation transmit from high power satellites and generally use
smaller dishes to receive their signals. Alphastar, Inc. began
offering medium power service in the second quarter of 1996. MCI
Communications, Corp/News Corp has announced that it expects to
commence offering high power service by the end of 1997. DBS operators
have the right to distribute substantially all of the significant cable
television programming services currently carried by cable television
systems. The Company expects that competition from DBS will continue
to grow.
DBS has advantages and disadvantages as an alternative means of
distributing video signals to the home. Among the advantages are that
the capital investment (although initially high) for the satellite and
uplinking segment of a DBS system is fixed and does not increase with
the number of customers receiving satellite transmissions; that DBS is
not currently subject to local regulation of service and prices or
required to pay franchise fees; and that the capital costs for the
ground segment of a DBS system (the reception equipment) are directly
related to, and limited by, the number of service customers. DBS's
disadvantages presently include limited ability to tailor the
programming package to the interests of different geographic markets,
such as providing local news, other local origination services and
local broadcast stations; signal reception being subject to line of
sight angles; substantial upfront costs for customers; significant
costs to customers for providing service on multiple television sets
within a single home; and limited ability to locally service the
customer's reception equipment.
Although the effect of competition from these DBS services cannot
be specifically predicted, it is clear there has been significant
growth in DBS customers and the Company assumes that such DBS
competition will continue as developments in technology continue to
increase satellite transmitter power and decrease the cost and size of
equipment needed to receive these transmissions.
Another alternative method of distribution are MMDS systems, which
deliver programming services over microwave channels received by
customers with special antennas. MMDS systems are less capital
intensive, are not required to obtain local franchises or pay franchise
fees and are subject to fewer regulatory requirements than cable
television systems. The 1992 Cable Act also ensures that MMDS systems
have access to acquire all significant cable television programming
services. Although there are relatively few MMDS systems in the United
States currently in operation, virtually all markets have been licensed
or tentatively licensed. The FCC has taken a series of actions
intended to facilitate the development of wireless cable systems as an
alternative means of distributing video programming, including
reallocating the use of certain frequencies to these services and
expanding the permissible use of certain frequencies to these services
and expanding the permissible use of certain channels reserved for
educational purposes. The FCC's actions enable a single entity to
develop an MMDS system with a potential of up to 35 analog channels,
and thus compete more effectively with cable television. Developments
in digital compression technology will significantly increase the
number of channels that can be made available from MMDS. Further, in
1995, several large telephone companies acquired significant ownership
in numerous MMDS companies. This infusion of money into the MMDS
industry was expected to accelerate its growth and its competitive
impact. However, in 1996, telephone company backing of MMDS appeared
to diminish as both Bell Atlantic and NYNEX suspended their investments
in two major MMDS companies. Finally, an emerging technology, LMDS,
could also pose a threat to the cable television industry, if and when
it becomes established. LMDS, sometimes referred to as cellular
television, could have the capability of delivering more than 100
channels of video programming to a customer's home. The potential
impact of LMDS is difficult to assess due to the newness of the
technology and the absence of any current fully operational LMDS
systems.
Although long distance telephone companies have no legal
prohibition on the provision of video services, they have historically
not been providers of such services in competition with cable systems.
However, such companies may prove to be a source of competition in the
future. The long distance companies are expected to expand into local
markets with local telephone and other offerings (including video
services) in competition with the RBOCs.
Cable-like programming can also be delivered through on-line
computer services on the Internet such as CompuServe. However, due to
its substandard picture quality and transmission speed, the technology
of these services presently is not comparable to cable television
service. The Company is unable to predict the effect of competition
from on-line services on its future operations.
Other new technologies may become competitive with
nonentertainment services that cable television systems can offer. The
FCC has authorized television broadcast stations to transmit textual
and graphic information useful both to consumers and businesses. The
FCC also permits commercial and noncommercial FM stations to use their
subcarrier frequencies to provide nonbroadcast services including data
transmissions. The FCC established an over-the-air Interactive Video
and Data Service that will permit two-way interaction with commercial
and educational programming along with informational and data services.
The expansion of fiber optic systems by telephone companies and other
common carriers are providing facilities for the transmission and
distribution to homes and businesses of video services, including
interactive computer-based services like the Internet, data and other
nonvideo services. The FCC has held spectrum auctions for licenses to
provide PCS. PCS will enable license holders, including cable
operators, to provide voice and data services as well as video
programming.
Advances in communications technology as well as changes in the
marketplace and the regulatory and legislative environments are
constantly occurring. Thus, it is not possible to predict the effect
that ongoing or future developments might have on the cable industry
or on the operations of the Company.
Legislation and 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. This section briefly summarizes key laws and regulation
currently affecting the growth and operations of the Company's cable
systems.
Cable Rate Regulation. The 1992 Cable Act imposed an extensive
rate regulation regime on the cable television industry. Under that
regime, all cable systems are subject to rate regulation, unless they
face "effective competition" in their local franchise area. Under the
1992 Cable Act, the incumbent cable operator can demonstrate "effective
competition" by showing either low penetration (less than 30% of the
local population) or the presence (measured collectively as 50%
availability, 15% customer penetration) of other MVPDs. The 1996
Telecom Act expands the existing definition of "effective competition"
to create a special test for a competing MVPD (other than a DBS
distributor) affiliated with an LEC. There is no penetration minimum
for an LEC affiliate to qualify as an effective competitor, but it must
offer comparable programming services in the franchise area.
Although the FCC establishes all cable rate rules, local
government units (commonly referred to as LFAs) are primarily
responsible for administering the regulation of the lowest level of
cable - the BST, which typically contains local broadcast stations and
public, educational, and government access channels. Before an LFA
begins BST rate regulation, it must certify to the FCC that it will
follow applicable federal rules, and many LFAs have voluntarily
declined to exercise this authority. LFAs also have primary
responsibility for regulating cable equipment rates. Under federal
law, charges for various types of cable equipment must be unbundled
from each other and from monthly charges for programming services. The
1996 Telecom Act allows operators to aggregate costs for broad
categories of equipment across geographic and functional lines. This
change should facilitate the introduction of new technology to a
broader customer base.
The FCC itself directly administers rate regulation of any CPST,
which typically contains satellite-delivered programming. Under the
1996 Telecom Act, the FCC can regulate CPST rates only if an LFA first
receives at least two complaints from local customers within 90 days
of a CPST rate increase and then files a formal complaint with the FCC.
When new CPST rate complaints are filed, the FCC now considers only
whether the incremental increase is justified and will not reduce the
previously established CPST rate.
Under the FCC's rate regulations, the Company was required to
reduce its BST and CPST rates in 1993 and 1994, and has since had its
rate increases governed by a complicated price cap scheme that allows
for the recovery of inflation and certain increased costs, as well as
providing some incentive for expanding channel carriage. The FCC has
modified its rate adjustment regulations to allow for annual rate
increases and to minimize previous problems associated with regulatory
lag. Operators also have the opportunity of bypassing this "benchmark"
scheme in favor of traditional cost-of-service regulation in cases
where the latter methodology appears favorable. However, the FCC
significantly limited the inclusion in the rate base of acquisition
costs in excess of the book value of tangible assets. As a result, the
Company pursued cost of service justifications in only a few cases.
The FCC has also provided operators with a mechanism to recover costs
associated with a system rebuild. Using a cost-of-service approach,
the amounts produced by the FCC's calculation are added to the BST &
CPST rates discussed above and recovered over a 10 year period.
Premium cable service offered on a per channel or per program basis
remain unregulated, as do affirmatively marketed packages consisting
entirely of new programming product.
The Company believes that it has materially complied with
provisions of the Cable Acts, 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 year ended December 31, 1994, the Company paid total
cumulative rate refunds of approximately $944,000 for 1993 and 1994 to
its cable customers as a result of rate orders issued by certain
franchise authorities within certain cable systems which have
subsequently been sold. During 1995, a total of approximately $25,000
was paid for rate refunds. Additionally, there are rate complaints
currently pending at the FCC concerning certain of the Company's
CPST's. 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. Reviews involving certain of the Company's systems
serving approximately 75,000 customers have been completed in which the
FCC found no errors in the Company's rate calculations. As a result,
the related complaints were denied. If the FCC 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.
The 1996 Telecom Act sunsets FCC regulation of CPST rates for all
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.
Cable Entry Into Telecommunications. The 1996 Telecom Act
provides that no state or local laws or regulations may prohibit or
have the effect of prohibiting any entity from providing any interstate
or intrastate telecommunications services. States are authorized,
however, to impose "competitively neutral" requirements regarding
universal service, public safety and welfare, service quality and
consumer protection. State and local governments also retain their
authority to manage the public rights-of-way. Although the 1996
Telecom Act clarifies that traditional cable franchise fees may be
based only on revenues related to the provision of cable television
services, it also provides that LFAs may require reasonable,
competitively neutral compensation for management of the public rights-
of-way when cable operators provide telecommunications service. The
1996 Telecom Act prohibits LFAs from requiring cable operators to
provide telecommunications service or facilities as a condition of a
franchise grant, renewal or transfer, except that LFAs can seek
"institutional networks" as part of such franchise negotiations. The
favorable pole attachment rates afforded cable operators under federal
law can be increased by utility companies owning the poles during a
five year phase in period beginning in 2001, if the cable operator
provides telecommunications services, as well as cable service over its
plant.
Cable entry into telecommunications will be affected by the
regulatory landscape now being fashioned by the FCC and state
regulators. One critical component of the 1996 Telecom Act to
facilitate the entry of new telecommunications providers (including
cable operators) is the interconnection obligation imposed on all
telecommunications carriers. Review of the FCC's initial
interconnection order is now pending before the Eighth Circuit Court
of Appeals.
Telephone Company Entry Into Cable Television. The 1996 Telecom
Act allows telephone companies to compete directly with cable operators
by repealing the historic telephone company/cable cross-ownership ban
and the FCC's video dialtone regulations. This will allow LECs,
including the RBOCs, to compete with cable operators both inside and
outside their telephone service areas. Because of their resources,
LECs could be formidable competitors to traditional cable operators,
and certain LECs have begun offering cable service to a very limited
number of households.
Under the 1996 Telecom Act, an LEC providing video programming to
customers will be regulated as a traditional cable operator (subject
to local franchising and federal regulatory requirements), unless the
LEC elects to provide its programming via an OVS. LECs providing
service through an OVS can proceed without a traditional cable
franchise, although an OVS operator will be subject to general rights-of-way
management regulations and can be required to pay franchise fees
to the extent it provides cable services. To be eligible for OVS
status, the LEC itself cannot occupy more than one-third of the
system's activated channels when demand for channels exceeds supply.
Nor can it discriminate among programmers or establish unreasonable
rates, terms or conditions for service.
Although LECs and cable operators can now expand their offerings
across traditional service boundaries, the general prohibitions remain
on LEC buyouts (i.e., any ownership interest exceeding 10 percent) of
co-located cable systems, cable operator buyouts of co-located LEC
systems, and joint ventures between cable operators and LECs in the
same market. The 1996 Telecom Act provides a few limited exceptions
to this buyout prohibition. The "rural exemption" permits buyouts
where the purchased system serves an area with fewer than 35,000
inhabitants outside an urban area, and the cable system plus any other
system in which the LEC has interest do not represent 10% or more of
the LECs telephone service area. The 1996 Telecom Act also provides
the FCC with the power to grant waivers of the buyout prohibition in
cases where: (1) the cable operator or LEC would be subject to undue
economic distress; (2) the system or facilities would not be
economically viable; or (3) the anticompetitive effects of the proposed
transaction are clearly outweighed by the effect of the transaction in
meeting community needs. The LFA must approve any such waiver.
Electric Utility Entry Into Telecommunications/Cable Television.
The 1996 Telecom Act provides that registered utility holding companies
and subsidiaries may provide telecommunications services (including
cable television) notwithstanding the Public Utilities Holding Company
Act. Electric utilities must establish separate subsidiaries, known
as "exempt telecommunications companies" and must apply to the FCC for
operating authority. Again, because of their resources, electric
utilities could be formidable competitors to traditional cable systems.
Additional Ownership Restrictions. The 1996 Telecom Act
eliminates statutory restrictions on broadcast/cable cross-ownership
(including broadcast network/cable restrictions), but leaves in place
existing FCC regulations prohibiting local cross-ownership between
television stations and cable systems. The 1996 Telecom Act also
eliminates the three year holding period required under the 1992 Cable
Act's "anti-trafficking" provision. The 1996 Telecom Act leaves in
place existing restrictions on cable cross-ownership with SMATV and
MMDS facilities, but lifts those restrictions where the cable operator
is subject to effective competition. In January 1995, however, the FCC
adopted a regulation which permits cable operators to own and operate
SMATV systems within their franchise area, provided that such operation
is consistent with local cable franchise requirements.
Must Carry/Retransmission Consent. The 1992 Cable Act contains
broadcast signal carriage requirements that allow local commercial
television broadcast stations to elect once every three years to
require a cable system to carry the station ("must carry") or negotiate
for payments for granting permission to the cable operator to carry the
station ("retransmission consent"). Less popular stations typically
elect "must carry," and more popular stations typically elect
"retransmission consent." Must carry requests can dilute the appeal
of a cable system's programming offerings, and retransmission consents
demands may require substantial payments or other concessions. Either
option has a potentially adverse affect on the Company's business.
Additionally, cable systems are required to obtain retransmission
consent for all "distant" commercial television stations (except for
commercial satellite-delivered independent "superstations" such as
WTBS). The constitutionality of the must carry requirements has been
challenged and is awaiting a decision from the United States Supreme
Court.
Access Channels. LFAs can include franchise provisions requiring
cable operators to set aside certain channels for public, educational
and governmental access programming. Federal law also requires a cable
system with 36 or more channels to designate a portion of its channel
capacity (either 10% or 15%) for commercial leased access by
unaffiliated third parties. The FCC has adopted rules regulating the
terms, conditions and maximum rates a cable operator may charge for use
of these designated channel capacity, but use of commercial leased
access channels has been relatively limited. In February of 1997, the
FCC released revised rules which mandate a modest rate reduction and
could make commercial leased access a more attractive option for third
party programmers.
"Anti-Buy Through" Provisions. Federal law requires each cable
system to permit customers to purchase video programming offered by the
operator on a per-channel or a per-program basis without the necessity
of subscribing to any tier of service (other than the basic service
tier) unless the system's lack of addressable home terminal devices or
other technological limitations does not permit it to do so. The
statutory exemption for cable systems that do not have the
technological capability to comply expires in December 2002, but the
FCC may extend that period if deemed necessary.
Access to Programming. To spur the development of independent
cable programmers and competition to incumbent cable operators, the
1992 Cable Act imposed restrictions on the dealings between cable
operators and cable programmers. Of special significance from a
competitive business posture, the 1992 Act precludes video programmers
affiliated with cable companies from favoring cable operators over
competitors and requires such programmers to sell their programming to
other multichannel video distributors (such as DBS and MMDS). This
provision limits the ability of vertically integrated cable programmers
to offer exclusive programming arrangements to the Company.
Other FCC Regulations. In addition to the FCC regulations noted
above, there are other FCC regulations covering such areas as equal
employment opportunity, customer privacy, programming practices
(including, among other things, syndicated program exclusivity, network
program nonduplication, local sports blackouts, indecent programming,
lottery programming, political programming, sponsorship identification,
and children's programming advertisements), registration of cable
systems and facilities licensing, maintenance of various records and
public inspection files, frequency usage, lockbox availability,
antenna structure notification, tower marking and lighting, consumer
protection and customer service standards, technical standards and
consumer electronics equipment compatibility. The FCC is expected to
impose new Emergency Alert System requirements on cable operators this
year. The FCC has the authority to enforce its regulations through the
imposition of substantial fines, the issuance of cease and desist
orders and/or the imposition of other administrative sanctions, such
as the revocation of FCC licenses needed to operate certain
transmission facilities used in connection with cable operations.
Two pending FCC proceedings of particular competitive concern
involve inside wiring and navigational devices. The former rulemaking
is considering ownership of cable wiring located inside multiple
dwelling unit complexes. If the FCC concludes that such wiring belongs
to, or can be unilaterally acquired by the complex owner, it will
become easier for complex owners to terminate service from the
incumbent cable operator in favor of a new entrant. The latter
rulemaking is considering whether cable customers should be permitted
to purchase cable converters from third party vendors. If the FCC
concludes that such distribution is required, and does not make
appropriate allowances for signal piracy concerns, it may become more
difficult for cable operators to combat theft of service.
Copyright. Cable television systems are subject to federal
copyright licensing covering carriage of television and radio broadcast
signals. In exchange for filing certain reports and contributing a
percentage of their revenues to a federal copyright royalty pool (that
varies depending on the size of the system and the number of distant
broadcast television signals carried), cable operators can obtain
blanket permission to retransmit copyrighted material on broadcast
signals. The possible modification or elimination of this compulsory
copyright license is subject to continuing review and could adversely
affect the Company's ability to obtain desired broadcast programming.
In addition, the cable industry pays music licensing fees to BMI and
is negotiating a similar arrangement with ASCAP. Copyright clearances
for nonbroadcast programming services are arranged through private
negotiations.
State and Local Regulation. Cable television systems generally
are operated pursuant to nonexclusive franchises granted by a
municipality or other state or local government entity. The 1996
Telecom Act clarified that the need for an entity providing cable
services to obtain a local franchise depends solely on whether the
entity crosses public rights of way. Federal law now prohibits
franchise authorities from granting exclusive franchises or from
unreasonably refusing to award additional franchises covering an
existing cable system's service area. Cable franchises generally are
granted for fixed terms and in many cases are terminable if the
franchisee fails to comply with material provisions. Non-compliance
by the cable operator with franchise provisions may also result in
monetary penalties.
The terms and conditions of franchises vary materially from
jurisdiction to jurisdiction. Each franchise generally contains
provisions governing cable operations, service rates, franchise fees,
system construction and maintenance obligations, system channel
capacity, design and technical performance, customer service standards
and indemnification protections. A number of states subject cable
television systems to the jurisdiction of centralized state
governmental agencies, some of which impose regulation of a character
similar to that of a public utility. Although LFAs have considerable
discretion in establishing franchise terms, there are certain federal
limitations. For example, LFAs cannot insist on franchise fees
exceeding 5% of the system's gross revenues, cannot dictate the
particular technology used by the system, and cannot specify video
programming other than identifying broad categories of programming.
Federal law contains renewal procedures designed to protect
incumbent franchisees against arbitrary denials of renewal. Even if
a franchise is renewed, the franchise authority may seek to impose new
and more onerous requirements such as significant upgrades in
facilities and services or increased franchise fees (limited to 5% of
revenue) as a condition of renewal. Similarly, if a franchise
authority's consent is required for the purchase or sale of a cable
system or franchise, such authority may attempt to impose more
burdensome or onerous franchise requirements in connection with a
request for consent. Historically, franchises have been renewed for
cable operators that have provided satisfactory services and have
complied with the terms of their franchises.
Technology
At December 31, 1996, approximately 76% of the Company's customers
are served by systems which utilize addressable technology (i.e.,
systems having the capacity to offer addressable services if
addressable converters are present in customer homes), and
approximately 40% of the Company's customers have addressable
converters. Addressable technology enables a cable television system
operator to activate, from the headend site or another central
location, the cable television services delivered to each customer
having an addressable converter. With addressable technology, the
Company can upgrade or downgrade services to a customer immediately,
without the delay or expense associated with dispatching a technician
to the home. Addressable technology also allows the Company to offer
pay-per-view services, reduces premium service theft, and through the
ability to deactivate service automatically, to disconnect delinquent
customer accounts. In certain of its systems, the Company has taken
active steps to remove from service older addressable converter
equipment which was costly to maintain. Through this equipment
replacement, the Company has enhanced customer convenience and revenue
growth through increased premium service orders and simultaneously has
achieved significant reductions in service costs. The Company's
current plan contemplates that by the end of 1997, its systems will
have an average capacity of approximately 78 analog channels with
approximately 43% of the customers being served by systems with 550 MHz
or greater bandwidth capacity, warehoused digital spectrum of up to 200
MHz in systems serving approximately 28% of the Company's customers and
approximately 83% of the customers served by systems that utilize
addressable technology.
The Company continually monitors and evaluates new technological
developments on the basis of its ability to make optimal use of its
existing assets and to anticipate the introduction of new services and
program delivery capabilities. The use of fiber optic cable as an
enhancement to coaxial cable is playing a major role in expanding
channel capacity and improving the performance of cable television
systems. Fiber optic cable is capable of carrying hundreds of video,
data and voice channels. To date, the Company has sought to implement
fiber optic technology in portions of its systems, primarily by
undertaking fiber-to-the-node upgrades. Such upgrades use fiber optic
cable to carry signals from a systems's headend to multiple locations
within the system reducing the need to deploy amplifiers, thereby
enhancing signal quality and reducing service interruptions. The
Company plans to continue to deploy fiber-to-the-node to upgrade and
expand channel capacity, using both analog and digital transmission
techniques, to interconnect systems and groups of systems into regional
networks.
New technological advances that are anticipated to be commercially
viable in the next few years include digital compression and expanded
bandwidth amplifiers, which offer cable operators the potential for a
dramatic expansion of channel capacity, along with alternative
communications delivery systems. As this new technology and related
services become available, the Company intends to carefully assess the
economic return and market demand for such technology and services in
order for the Company to prudently implement additional services in the
most cost-effective manner.
Programming
The Company has various contracts to obtain basic and premium
programming for its systems from program suppliers whose compensation
is typically based on a fixed fee per customer. The Company's
programming contracts are generally for a fixed period of time and are
subject to negotiated renewal. Some program suppliers provide volume
discount pricing structures or offer marketing support to the Company.
In particular, the Company has negotiated programming agreements with
premium service suppliers that offer cost incentives to the Company
under which premium service unit prices decline as certain premium
service growth thresholds are met. The Company's successful marketing
of multiple premium service packages emphasizing customer value has
enabled the Company to take advantage of such cost incentives.
The Company's cable programming costs have increased in recent
years and are expected to continue to increase due to system
acquisitions, additional programming being provided to customers,
increased cost to produce or purchase cable programming, inflationary
increases and other factors. Program suppliers may continue to
increase rates. However, under the new FCC rules, the cable operator
may have the ability to mark up these increases by 7.5% and pass the
increase on to customers. In lieu of the 7.5% markup, the Company has
the right to recover up to $1.20 per customer between January 1, 1995
and 1997 for additional channels added to CPST's (not to exceed $0.20
per added channel) and up to $0.30 per customer over that same period
for aggregate license fees. Beginning January 1, 1997, the cap for
additional channels will increase to $1.40 and the license fee reserve
will also increase. After January 1, 1998, the optional rate increase
for additional channels will lapse. Although there can be no
assurances, the Company believes it will continue to have access to
cable programming services at reasonable prices.
Effective April 1, 1996, the Company became a member of
TeleSynergy, a cable television cooperative buying venture representing
over 5,000,000 customers. Members of this cooperative benefit from
lower programming costs per customer through consolidated buying
efforts. The TeleSynergy membership has partially offset the increased
programming costs noted above.
Franchises
Cable television systems are generally constructed and operated
under nonexclusive franchises granted by local governmental
authorities. These franchises typically contain many conditions, such
as time limitations on commencement and completion of construction;
conditions of service, including the provision of free service to
schools and certain other public institutions; and the maintenance of
insurance, indemnity bonds and customer service standards. The
provisions of local franchises are subject to federal regulation under
the 1984 Cable Act and the 1992 Cable Act, now consolidated under the
1996 Telecom Act.
As of December 31, 1996, the Company operated pursuant to 751
franchises. These nonexclusive franchises provide for the payment of
fees to the issuing authority. Annual franchise fees imposed on the
systems range up to a 5% federally mandated cap on gross revenues
generated by a system. In substantially all of the Owned Systems, such
franchise fees are passed through to the customers directly as an
addition to the rates for cable television service.
The table below illustrates the grouping of the franchises by date
of expiration and presents the approximate number and percentage of
basic service customers for each as of December 31, 1996.
<TABLE>
<CAPTION>
Year of Percentage
Franchise Number of Number of of Total
Expiration Communities Customers Customers
<S> <C> <C> <C>
Prior to 1997 (1) 60 90,954 7.2%
1997-2001 247 405,100 32.0%
2002 and after 405 733,311 57.8%
Other (2) 39 38,155 3.0%
Total 751 1,267,520 100.0%
<FN>
(1) All expired franchises have open extensions pending renegotiation of long-term
renewals.
(2) The Company operates a number of systems that serve multiple communities and, in
some instances, portions of such systems extend into jurisdictions for which the
Company believes no franchise is necessary.
</FN>
</TABLE>
The 1984 Cable Act provides, among other things, for an orderly
franchise renewal process where franchise renewal will not be
unreasonably withheld or, if renewal is withheld, the franchise
authority must pay the operator the "fair market value" for the system
covered by such franchise. In addition, the 1984 Cable Act establishes
comprehensive renewal procedures that require that an incumbent
franchisee's renewal application be assessed on its own merit and not
as part of a comparative process with competing applications.
Employees
At December 31, 1996, the Company had 2,078 full-time employees
and 147 part-time employees. Approximately 220 of the employees at
seven of its cable television systems are represented by a designated
collective bargaining representative or under various labor agreements.
The Company considers its relations with its employees to be good.
(d) Financial Information About Foreign and Domestic Operations and
Export Sales
MCC has neither foreign operations nor export sales.
ITEM 2. PROPERTIES
The Company currently operates the Owned Systems in 751
communities in Alabama, California, Connecticut, Delaware, Georgia,
Indiana, Illinois, Kentucky, Louisiana, Maryland, Minnesota,
Mississippi, North Carolina, Oklahoma, Tennessee, Texas, Wisconsin and
Virginia. In connection with its operation of the Owned Systems, the
Company owns or leases parcels of real property for signal reception
sites (antenna towers and headends), microwave facilities and business
offices, and owns most of its service vehicles. The Company believes
that its properties, both owned and leased, are in good condition and
are suitable and adequate for the Company's business operations.
Cable television systems generally consist of four principal
operating components. The first component, known as the headend
facility, receives television and radio signals and other programming
and information by means of special antennae, microwave relays and
satellite earth stations. The second component, the distribution
network, which originates at the headend and extends throughout the
system's service area, typically consists of coaxial or fiber optic
cables placed on utility poles or buried underground, and associated
electronic equipment. The third component of the system is a drop
cable, which extends from the distribution network into each customer's
home and connects the distribution system to the customer's television
set. The fourth component, a converter, is the home terminal device
that expands channel capacity to permit reception of more than 12
channels of programming. Some systems utilize home terminal devices
that can be addressed by sending coded signals from the headend over
the cable network.
The Company's cables generally are attached to utility poles under
pole rental agreements with local public utilities, although in some
areas the distribution cable is buried in underground ducts or
trenches. The physical components of the systems require maintenance
and periodic upgrading to keep pace with technological advances.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which MCC or
any of its subsidiaries are a party or to which any of their respective
properties are subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There is no established public trading market for any of the
registrants' equity securities. As of March 26, 1997, 27,787.2
Employee Units were outstanding. The Company believes that the
Employee Units issued have no current value.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below are derived from the
audited historical financial statements of the Company. The Company's
acquisitions of cable television systems during the periods for which
the selected data are presented below materially affect the
comparability of such data from one period to another. The data
presented below should be read in conjunction with the Company's
historical financial statements and the related notes thereto.
<TABLE>
FINANCIAL DATA
(in thousands)
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Statement of
Operations Data: (1)
Revenues $434,507 $198,294 $64,747 $52,307 $38,310
Costs and expenses 230,214 102,024 31,453 21,849 16,104
Management fees
and expenses (2) --- --- 2,165 3,617 2,224
Depreciation
and amortization 166,429 83,723 37,412 28,633 26,652
Operating income (loss) 37,864 12,547 (6,283) (1,792) (6,670)
Interest expense 144,681 82,911 28,105 13,443 11,114
Net loss (100,070) (52,816) (30,610) (9,643) (21,323)
Balance Sheet Data:
Total assets $1,687,550 $1,760,054 $315,217 $195,148 $206,641
Total debt
(including
current maturities) 1,438,471 1,407,890 327,264 195,000 162,500
Subsidiary limited
partner interests (246) (246) (246) 5,788 34,608
Partners'
capital (deficit) 189,256 289,326 (21,290) (11,670) 4,991
Other Data:
EBITDA (3) 204,293 96,270 31,129 26,841 19,982
___________________________
<FN>
(1) All statement of operations data reflect the following acquisitions and divestitures by
the Company from the date of acquisition or sale: (i) the May 1, 1992 acquisition of the
San Angelo Systems; (ii) the October 1, 1992 acquisition of the Delaware/Maryland Systems;
(iii) the July 29, 1994 acquisition of the Star Systems, (iv) the acquisition of the Crown
Systems effective January 1, 1995, (v) the June 30, 1995 divestiture of the San Angelo
Systems, (vi) the August 31, 1995 acquisition of the CALP Systems, (vii) the November 1,
1995 acquisition of the Sammons Systems, (viii) the January 11, 1996 acquisition of the
Weatherford System, (ix)the July 8, 1996 acquisition of the Futurevision System, (x) the
July 31, 1996 acquisition of the Frankfort System and (xi) the October 11, 1996
divestiture of the Moses Lake System.
(2) Each of the then existing Operating Partnerships formerly entered into management
agreements, pursuant to which each then existing Operating Partnership paid the Management
Company a specified percentage of the revenues from the systems owned and operated by such
Operating Partnerships, plus certain reimbursable expenses. These agreements terminated
July 29, 1994, in connection with the acquisition and financing of the Star Systems.
(3) EBITDA is equal to operating income (loss) plus depreciation and amortization. The
Company believes that EBITDA is a meaningful measure of performance because it is commonly
used in the cable television industry to analyze and compare cable television companies
on the basis of operating performance, leverage and liquidity. In addition, the
indentures governing the 14 1/4% Notes, the 11 7/8% Debentures and the 13 1/2% Notes and
the Senior Credit Facility contain certain covenants measured by computations
substantially similar to those used in determining EBITDA. However, EBITDA is not
intended to be a performance measure that should be regarded as an alternative either to
operating income or net income as an indicator of operating performance or to cash flows
as a measure of liquidity, as determined in accordance with generally accepted accounting
principles.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
In each of the past three years, the Company has generated substantially
all of its revenues from monthly customer fees for basic, premium and other
services (such as the rental of home terminal devices and remote control
devices) and from installation income. Additional revenues were generated
from pay-per-view programming, the sale of advertising and home shopping
networks. Beginning in September of 1994, revenues were also generated from
management fees earned in conjunction with two managed systems. On August
31, 1995, the Company purchased one of the managed systems and thus
terminated the related management agreement. Effective January 31, 1997, the
remaining managed system was sold. As a result of these two transactions,
the Company is no longer involved in the active management of cable systems
for third parties.
The Company has experienced significant increases in revenues and EBITDA
in each of the past three fiscal years. This growth was accomplished
primarily through acquisitions and through internal customer growth. During
1996, the Company acquired systems serving approximately 700 basic customers
in Weatherford, Texas on January 11, 1996, 2,600 basic customers in
Mississippi with the Futurevision Acquisition in July, 1996 and 5,400 basic
customers in Indiana with the Frankfort Acquisition on July 31, 1996. Also
during 1996, the Company sold its cable television system serving
approximately 12,600 customers in the state of Washington. The significant
increases in revenues and EBITDA are primarily the result of the
acquisitions during 1995 which increased MCC's basic customer base by
approximately 950,000 basic customers with the significant portions of the
increase resulting from the Crown Acquisition (193,300 customers) effective
January 1, 1995, the CALP Acquisition (85,000 customers) on August 31, 1995
and the Sammons Acquisition (664,700 customers) on November 1, 1995.
Total selling, service and system management expenses, and general and
administrative expenses have also increased significantly due to the
acquisitions mentioned above, growth within the Company's existing systems,
increased marketing efforts and the continued development of advertising
sales efforts. Until July 29, 1994, certain general and administrative
services were performed on behalf of the Company by the Management Company,
for which the Operating Partnerships, then in existence, paid a management
fee of 5.5% of gross revenues. After that date, the employees and related
expenses of the Management Company became a part of Operating, and Operating
now records all overhead expenses relating to the Dallas home office and the
Wisconsin regional office within selling, service and system management and
general and administrative expenses, instead of management fees.
Programming expenses have increased both in dollars and as a percentage
of revenue for the past three years due to system acquisitions, additional
programming being provided to customers and increased costs to produce or
purchase certain cable programming services. However, the increase in the
Company's size has allowed the Company to recognize certain volume discounts.
Effective April 1, 1996, the Company became a member of TeleSynergy, a cable
television cooperative buying venture representing over 5,000,000 customers.
Members of this cooperative benefit from lower programming costs per customer
through consolidated buying efforts. The TeleSynergy membership has
partially offset the increased programming costs noted above.
The significant increases in charges for depreciation and amortization
are due to acquisitions and capital expenditures related to continued
construction and upgrading of the systems. Similarly, interest expense has
increased significantly due to additional amounts outstanding under long-term
obligations which were necessary to finance the acquisitions.
The following table sets forth for the periods indicated, certain income
statement items as a percentage of total revenues.
<TABLE>
Percentage of Revenue for
Periods Ended
December 31, (1)
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Selling, service and system management 36.2 34.7 33.4
General and administrative 16.8 16.8 15.1
Management fees and expenses 0.0 0.0 3.3
Depreciation and amortization 38.3 42.2 57.8
Operating income (loss) 8.7 6.3 (9.7)
Interest 33.3 41.8 43.4
Other (income) expense (1.6) (13.1) 0.0
Subsidiary limited partner interests (3) 0.0 0.0 (9.3)
Net loss before extraordinary items (23.0)% (22.4)% (43.7)%
EBITDA (2) 47.0% (4) 48.5% 48.1%
____________________
<FN>
(1) Reflects results of operations of the following acquisitions and divestitures by the
Company from the date of acquisition or sale: (i) the May 1, 1992 acquisition of the San
Angelo Systems; (ii) the October 1, 1992 acquisition of the Delaware/Maryland Systems;
(iii) the July 29, 1994 acquisition of the Star Systems, (iv) the acquisition of the Crown
Systems effective January 1, 1995, (v) the June 30, 1995 divestiture of the San Angelo
Systems, (vi) the August 31, 1995 acquisition of the CALP Systems, (vii) the November 1,
1995 acquisition of the Sammons Systems, (viii) the January 11, 1996 acquisition of the
Weatherford System, (ix) the July 8, 1996 acquisition of the Futurevision System, (x) the
July 31, 1996 acquisition of the Frankfort System and (xi) the October 11, 1996
divestiture of the Moses Lake System.
(2) EBITDA is equal to operating income (loss) plus depreciation and amortization. The
Company believes that EBITDA is a meaningful measure of performance because it is commonly
used in the cable television industry to analyze and compare cable television companies
on the basis of operating performance, leverage and liquidity. In addition, the
indentures governing the 14 1/4% Notes, the 11 7/8% Debentures and the 13 1/2% Notes and
the Senior Credit Facility contain certain covenants measured by computations
substantially similar to those used in determining EBITDA. However, EBITDA is not
intended to be a performance measure that should be regarded as an alternative either to
operating income or net income as an indicator of operating performance or to cash flows
as a measure of liquidity, as determined in accordance with generally accepted accounting
principles. The Company has substantial noncash charges to earnings from depreciation,
amortization and interest.
(3) Represents preferred returns and allocated net income or loss to partners who are
affiliated with, but not a part of, the Company. Subsequent to July 29, 1994, remaining
subsidiary limited partner interests are not entitled to preferred returns.
(4) Reduced EBITDA is a direct reflection of higher selling, service and system management
costs and the resulting lower operating margins of certain of the systems acquired in
1995.
</FN>
</TABLE>
Fiscal 1996 Compared to Fiscal 1995
Revenues increased from $198,294,000 for the year ended December 31,
1995 to $434,507,000 for the year ended December 31, 1996. Approximately
$231,916,000 of such increase was the result of the CALP and Sammons
Acquisitions. This increase from acquisitions was partially offset by the
divestiture of the San Angelo Systems on June 30, 1995. The San Angelo
Systems generated reported revenues of $6,022,000 for the year ended December
31, 1995. Management fees earned by Operating decreased by $955,000. Eight
and twelve months of such fees pursuant to the CALP and Maryland Cable
Agreements, respectively, were recorded in 1995, compared to a full year of
fees earned pursuant to just the Maryland Cable Agreement in 1996. The CALP
Agreement terminated upon the completion of the CALP Acquisition on August
31, 1995. The revenues generated from internal and continued customer growth
account for the remaining increase.
The Company's basic customers and pay units for its Owned Systems
increased from 1,154,718 and 651,121, respectively, at December 31, 1995, to
1,181,293 and 666,702, respectively, at December 31, 1996. This customer
and unit growth was developed through the extension of existing plant
infrastructure to pass additional dwelling units, marketing promotions and
continued implementation of premium packaging, and was negatively affected
by the net affect of the Weatherford, Frankfort and Futurevision Acquisitions
and Moses Lake Divestiture (a net reduction in basic customers of 4,300).
Selling, service and system management expenses increased from
$68,753,000 for the year ended December 31, 1995 to $157,197,000 for the year
ended December 31, 1996, primarily due to an $86,284,000 increase from the
CALP and Sammons Acquisitions, offset by a $2,238,000 decrease from the
divestiture of the San Angelo Systems. The remaining increase resulted
primarily from growth within the Company's existing systems, increased
marketing efforts, the continued development of advertising sales efforts and
increased costs of certain programming services. Effective April 1, 1996,
the Company became a member of TeleSynergy, a cable television cooperative
buying venture representing over 5,000,000 customers. Members of this
cooperative benefit from lower programming costs per customer through
consolidated buying efforts. The TeleSynergy membership has partially offset
the increased programming costs.
General and administrative expenses increased from $33,271,000 for the
year ended December 31, 1995 to $73,017,000 for the year ended December 31,
1996. Approximately $35,468,000 of the increase, from the CALP and Sammons
Acquisitions, was offset by a $718,000 decrease from the divestiture of the
San Angelo Systems. The remaining increase resulted primarily from the
necessary expansion of the home office operations in order to manage the
increased size of the business and other increases in operating costs due to
the growth experienced in other of the Owned Systems.
Depreciation and amortization expense increased from $83,723,000 for the
year ended December 31, 1995 to $166,429,000 for the year ended December 31,
1996 due primarily to the CALP and Sammons Acquisitions offset by a
$4,078,000 decrease from the divestiture of the San Angelo Systems. Interest
expense increased from $82,911,000 for the year ended December 31, 1995 to
$144,681,000 for the comparable period in 1996, due to the inclusion of
interest expense related to the borrowings under the 14 1/4% Notes and the
Senior Credit Facility, which became effective on June 9, 1995 and August 31,
1995, respectively (borrowings under the Senior Credit Facility were
substantially increased on November 1, 1995). Borrowings, excluding capital
leases, increased from $1,406,006,000 at December 31, 1995 to $1,436,269,000
at December 31, 1996. The weighted average interest rate on all outstanding
indebtedness was 11.6% and 9.97% for the twelve months ended December 31,
1995 and December 31, 1996, respectively.
The difference between the loss before extraordinary item of $44,421,000
and $100,070,000 for the year ended December 31, 1995 and 1996, respectively
was due to the net effects of the $26,394,000 gain and the $6,442,000 gain
from the sales of the San Angelo and Moses Lake cable television systems in
1995 and 1996, respectively. The remaining increase resulted from the
increases in operations, depreciation, amortization and interest expense as
discussed above.
No losses were allocated to the subsidiary limited partner interests for
the year ended December 31, 1996 or 1995. The Company recognized a loss of
$8,395,000 from the write-off of debt issuance costs from the early
retirement of the outstanding balance under its previous credit agreements
for the year ended December 31, 1995.
As a result of the changes explained in the foregoing paragraphs, EBITDA
increased from $96,270,000 for the year ended December 31, 1995 to
$204,293,000 for the year ended December 31, 1996.
Fiscal 1995 Compared to Fiscal 1994
Revenues increased from $64,747,000 for the year ended December 31, 1994
to $198,294,000 for the year ended December 31, 1995. Approximately
$135,410,000 of such increase was the result of the Star, Crown, CALP and
Sammons Acquisitions. This increase from acquisitions was partially offset
by the divestiture of the San Angelo Systems on June 30, 1995. The San
Angelo Systems generated revenues of $11,992,000 for the year ended December
31, 1994, while revenues from the San Angelo Systems through the date of sale
in 1995 were $6,022,000. Management fees earned by Operating increased by
$2,172,000. Three and four months of such fees pursuant to the CALP and
Maryland Cable Agreements, respectively, were recorded in 1994, compared to
a full year of fees earned pursuant to the Maryland Cable Agreement in 1995
and eight months of fees earned under the CALP Agreement. The CALP Agreement
terminated upon the completion of the CALP Acquisition on August 31, 1995.
The revenues generated from internal growth account for the remaining
increase.
The Company's basic customers for its Owned Systems increased from
222,735 at December 31, 1994, to 1,154,718 at December 31, 1995 due primarily
to the Crown, CALP and Sammons Acquisitions along with continued direct sales
efforts, offset by the divestiture of the San Angelo Systems. The total
number of premium units increased from 156,656 units at December 31, 1994,
to 651,121 units at December 31, 1995. The Crown, CALP and Sammons
Acquisitions account for 488,115 of the increase in premium units, or 94.6%
of the growth, after considering the divestiture of the San Angelo Systems.
The remaining growth was developed through marketing promotions and continued
implementation of premium packaging.
Selling, service and system management expenses increased from
$21,660,000 for the year ended December 31, 1994 to $68,753,000 for the year
ended December 31, 1995, primarily due to a $48,214,000 increase from the
Star, Crown, CALP and Sammons Acquisitions, offset by a $2,236,000 decrease
from the divestiture of the San Angelo Systems. The remaining increase
resulted primarily from growth within the Company's existing systems,
increased marketing efforts, the development of more advertising sales
ventures and increases in rates charged by certain programming vendors.
General and administrative expenses increased from $9,793,000 for the
year ended December 31, 1994 to $33,271,000 for the year ended December 31,
1995. Excluding the $18,473,000 increase from the Star, Crown, CALP and
Sammons Acquisitions and the $794,000 decrease from the divestiture of the
San Angelo Systems, general and administrative expenses increased by
$6,276,000. Such increase was mainly the result of the inclusion of expenses
which were formerly expenses of the Management Company and previously
recorded as management fees and expenses. The remaining decrease of $477,000
is primarily the result of improved operating efficiencies, partially due to
office consolidations within the existing Marcus systems.
Depreciation and amortization expense increased from $37,412,000 for the
year ended December 31, 1994 to $83,723,000 for the year ended December 31,
1995 due mainly to the Star, Crown, CALP and Sammons Acquisitions. Interest
expense for the year ended December 31, 1994 increased from $28,105,000 to
$82,911,000 for 1995, as borrowings, excluding capital leases, increased from
$327,264,000 at December 31, 1994 to $1,406,006,000 at December 31, 1995.
The weighted average interest rate on all outstanding indebtedness was 11.0%
and 11.6% for the twelve months ended December 31, 1994 and December 31,
1995, respectively. The sale of the San Angelo Systems on June 30, 1995
resulted in a gain of approximately $26,409,000, which is included in other
income (see note 2 of the Notes to the Consolidated Financial Statements).
No losses were allocated to the subsidiary limited partner interests for
the year ended December 31, 1995 compared to allocated losses of $6,034,000
for the year ended December 31, 1994, primarily due to the conversion of
certain subsidiary limited partner interests into MCC partnership units in
July 1994. The loss before subsidiary limited partner interests and
extraordinary item for the year ended December 31, 1995, was $44,421,000,
compared to a loss before subsidiary limited partnership interests and
extraordinary item of $34,337,000 for the year ended December 31, 1994. The
change in loss between the last two years is due to the factors discussed
above. The Company recognized losses of $8,395,000 and $2,307,000 from the
write-off of debt issuance costs from the early retirement of the outstanding
balance under its previous credit agreements for the years ended December 31,
1995 and 1994, respectively.
As a result of the changes explained in the foregoing paragraphs, EBITDA
increased from $31,129,000 for the year ended December 31, 1994 to
$96,270,000 for the year ended December 31, 1995.
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 December 31, 1996, unreturned capital contributions from equity
investors totaled approximately $493,327,000. There was no capital
contributed from equity investors during 1996. The Company has an aggregate
of $1,438,471,000 of indebtedness outstanding in the form of the 11 7/8%
Debentures, 13 1/2% Notes, 14 1/4% Notes, borrowings under its Senior Credit
Facility and capital lease obligations. The Company has an additional
$243,000,000 of borrowing capacity under its Revolving Credit Facility. Cash
flows generated from operating activities have been positive over the past
three years and increased from $15,889,000 and $86,030,000 in 1994 and 1995,
respectively, to $118,986,000 in 1996. Funding from equity contributions,
borrowings and positive cash flows from operations have been sufficient to
meet the Company's debt service, working capital and capital expenditure
requirements including the purchase costs incurred in connection with all of
the completed acquisitions.
The Company's most significant need for capital in the next year will
be to finance the planned system upgrades, rebuilds and extensions and the
purchase of modems and home terminal devices for use in customers' homes.
Certain of the Company's 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 Company's
cable systems located in Alabama, California, Wisconsin and Texas. Ongoing
capital expenditures in excess of these 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 all long-term debt total approximately
$383,764,000 over the next five years. The Company expects to cover both
interest and principal payments on its long-term obligations through
internally generated funds.
On March 14, 1997, the Company 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.
In addition, the availability under the Revolving Credit Facility was
increased by $50,000,000.
Recent Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board issued 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, however, the effective adoption of SFAS No. 125 is
not expected to have a material impact on the Company's 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 December 31, 1996, the Company has $205,000,000 of outstanding borrowings
under its Senior Credit Facility which are subject to floating interest
rates. The rates are based on either the Eurodollar rate, prime rate or CD
base rate, plus a margin of up to 2.75% 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 December 31, 1996, interest rate swap agreements covering a
notional balance of $650,000,000 were outstanding. These outstanding swap
agreements mature during 1997 and 1998 and require the Company to pay a fixed
rate of 5.77% to 5.81%, plus the applicable interest rate margin. Extensions
for additional periods are available within the swap agreements at the option
of the counter parties.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company required under
Regulation S-X are set forth herein commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
Director and Executive Officers of Marcus Cable Properties, Inc.
The sole director and executive officers of MCPI, which as the sole
general partner of the General Partner is responsible for the overall
management of the business and operations of the Company, are:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Jeffrey A. Marcus 50 President and Chief Executive Officer
Louis A. Borrelli, Jr. 41 Executive Vice President and Chief
Operating Officer
Thomas P. McMillin 35 Senior Vice President and Chief
Financial Officer
Richard A. B. Gleiner 44 Senior Vice President, Secretary and
General Counsel
David L. Hanson 48 Senior Vice President of Operations
Edwin F. Comstock, III 44 Vice President of Operations
J. Christian Fenger 42 Vice President of Operations
Steven P. Brockett 46 Vice President of Operations -
Administration
Cynthia J. Mannes 38 Vice President of Human Resources and
Administration
David M. Intrator 41 Vice President of Marketing and
Programming
John C. Pietri 47 Vice President of Engineering and
Technology
John P. Klingstedt, Jr. 34 Vice President and Controller
Daniel J. Wilson 32 Vice President of Finance and Development
Susan C. Holliday 31 Vice President of Regulatory Compliance
and Planning
</TABLE>
The following sets forth certain biographical information with respect
to the director and executive officers of MCPI:
Jeffrey A. Marcus, is President and Chief Executive Officer of MCPI, is
a cable television industry executive with more than 28 years of experience
in system operations and ownership, who founded the Company in 1990. Mr.
Marcus had previously founded Marcus Communications, Inc. in 1982, a cable
television company that ultimately served and managed over 160,000 customers
by the time of its 1988 merger into publicly held Western Tele-Communications,
Inc. The combined companies were renamed WestMarc Communications, Inc.
("WestMarc"), and grew to serve over 550,000 customers
during the period when Mr. Marcus served as WestMarc's Chairman and Chief
Executive Officer. Mr. Marcus exchanged his interest in WestMarc at the end
of 1988 for cable television systems in Wisconsin which were operated from
1989 until August 1990 by Marcus Communications, Inc. These Systems were
subsequently contributed to the Company as part of the acquisition of the
Wisconsin Systems. Prior to forming the original Marcus Communications, Inc.
in 1982, Mr. Marcus co-founded Communications Equity Associates ("CEA") in
1975. From its inception until 1982, when Mr. Marcus sold his interest in
the company, CEA grew to become the second-largest brokerage firm in the
cable television industry. Mr. Marcus also served as Director of Sales for
Teleprompter Corporation from 1973 to 1975, as Vice President of Marketing
for Sammons Communications, Inc. from 1971 to 1973 and as the owner of Markit
Communications, Inc., a cable marketing and installation company, from 1969
to 1971.
Long active in state and national cable television industry matters and
community affairs, Mr. Marcus serves as a member of the board of directors
for the National Cable Television Association ("NCTA"), the Cable Television
Association ("CATA"), the Cable Television Advertising Bureau, Cable in the
Classroom, CSPAN, Chancellor Broadcasting and Brinker International. He has
also served as Executive Director of the Minnesota and Wisconsin Cable
Television Associations, as a Director of Daniels & Associates, one of the
cable television industry's largest brokerage and investment services
companies, and as Director of TCI Northeast, Inc., a subsidiary of
TeleCommunications, Inc.
Louis A. Borrelli, Jr. is Executive Vice President and Chief Operating
Officer of MCPI, with responsibility for the Company's general operations as
well as strategic planning. From October 1989 to March 1994, Mr. Borrelli
served as Senior Vice President of MCPI. Mr. Borrelli has had an extensive
18 year career in the cable television industry, with specific expertise in
the marketing, programming and operations areas. Mr. Borrelli joined Marcus
Communications, Inc. in 1986 as Director of Operations. In connection with
the 1988 WestMarc merger, he was appointed as a Vice President - Operations
for WestMarc, with responsibility for a division of cable systems serving
200,000 customers. In October 1989 Mr. Borrelli returned to Marcus
Communications, Inc. as Senior Vice President.
From 1978 to 1986, Mr. Borrelli served in various capacities for the
predecessor company to United Artists Cable Systems Corp., including service
as the Director of Programming/Marketing from 1984 to 1986. There he
coordinated all programming and marketing activities and the development of
new revenue opportunities such as advertising sales and pay-per-view. Long
active in the cable television industry, Mr. Borrelli is a member of the
Cable Television Administration and Marketing Society ("CTAM"), and has
served as President of CTAM's South Central region, Director of CTAM's
National Board and Chairman of CTAM's National Pay-Per-View and Interactive
Media Conference and as Chairman of the Planning and Development Committee
of the Metro Cable Marketing Co-Op, representing over 3 million cable
customers in the New York tri-state area. He is also a member of the Board
of Directors of TeleSynergy, Women in Telecommunications and the Mentor
Program of the National Association of Minorities in Cable.
Thomas P. McMillin is Senior Vice President and Chief Financial Officer
of MCPI with responsibility for overseeing all of the financing, accounting,
regulatory and information system aspects of the Company. He joined the
Company in September 1994, as Vice President of Finance and Development.
Prior to joining the Company, Mr. McMillin served for three years as Vice
President - Cable Development for Crown Media, a cable television subsidiary
of Hallmark Cards, Inc. Prior to his position with Crown, Mr. McMillin
served five years in various positions for Cencom Cable Associates,
Inc.("Cencom"), most recently as Vice President - Finance and Acquisitions.
Prior to joining Cencom in 1987, Mr. McMillin served four years with Arthur
Andersen & Co., certified public accountants. Mr. McMillin received his
Bachelor of Science Degree in Accountancy from the University of Missouri -
Columbia.
Richard A. B. Gleiner is Senior Vice President, Secretary and General
Counsel of MCPI, with responsibility for overseeing all of the legal affairs
of the Company. Prior to joining the Company in 1994, Mr. Gleiner had been
of counsel to Dow, Lohnes & Albertson, New York, New York from 1988 until
1991, where he was the primary outside counsel to the Company and its
predecessors. From 1991 until joining Marcus Cable, Mr. Gleiner was in
private practice in Northampton, Massachusetts. Mr. Gleiner received his
A.B. Degree from Vassar College in 1974, and his J.D. Degree from Boston
University in 1977.
David L. Hanson is Senior Vice President of Operations of MCPI, with
responsibility for the daily operations of the North Central Region. Mr.
Hanson is a native of Wisconsin and has spent more than 20 years in the
state's cable television industry designing, building and managing systems.
Mr. Hanson held a number of technical and management positions with Badger
CATV in Wisconsin from 1973 through 1982, when Badger CATV was acquired by
Marcus Communications, Inc., after which Mr. Hanson was named Wisconsin
Regional Manager of Marcus Communications, Inc. After the 1988 WestMarc
merger, Mr. Hanson was named a Vice President/Regional Manager of WestMarc,
and he became a Vice President of Marcus Communications, Inc. in 1989 when
Mr. Marcus exchanged his ownership position in WestMarc for the original
Wisconsin systems previously owned by Badger CATV. Mr. Hanson is a longtime
board member and past President of both the North Central Cable Television
Association (serving Minnesota, Wisconsin, Michigan, Iowa, North Dakota and
South Dakota) and the Wisconsin Cable Communications Association. He also
has served as a regional Vice-Director on the national board of the Community
Antenna Television Association.
Edwin F. Comstock, III is Vice President of Operations of MCPI with
responsibility for the daily operations of the Southeast and East Regions.
Mr. Comstock brings 20 years of experience in the cable television industry
to MCPI. Prior to joining the Company, he spent his cable career with
Sammons. Most recently he was the Vice President of Business Development.
From 1986 to 1993, Mr. Comstock was Vice President of Regional Operations
overseeing all aspects of operations and management of ten cable systems.
He also served as Director of Operations, in 1986, Manager of Plant
Development, from 1982 to 1986, and Director of Security Operations, in 1982.
Mr. Comstock holds a Bachelor of Arts degree from Alfred University, Alfred,
New York.
J. Christian Fenger is Vice President of Operations of MCPI with
responsibility for the daily operations of the Southwest, Midwest and West
Regions. Mr. Fenger and brings over 16 years of diverse operating experience
in the cable television business. Prior to joining the Company in the Fall
of 1992, he served as Regional Manager for Simmons Cable TV for its systems
throughout Maryland and Delaware since 1986(including those systems that now
comprise the Company's Delaware/Maryland systems). Previously, he served
from 1985 to 1986 as General Manager for the Warner Amex cable system in
Nashua, New Hampshire, where he was responsible for upgrading system
operations, and from 1980 to 1985, he served as Marketing Manager for Rogers
Cablesystems in Syracuse, New York. He has held various volunteer positions
with the Delaware/Maryland/DC Cable Associations and is a past President of
the Board of Directors of Easton Community Television. Mr. Fenger earned his
undergraduate and Masters Degree in Communications Management from Syracuse
University.
Steven P. Brockett is Vice President of Operations - Administration,
with responsibility for the coordination of operating activities common to
all operating Regions. Prior to joining the Company in February of 1995, Mr.
Brockett worked for two years as Vice President - Administration and one year
as Vice President - Controller for Crown. Mr. Brockett began his cable
career in 1978 with Heritage Communications, Inc., where he gained experience
in both Accounting (Cable Division Controller) and Operations (Director of
System Training). Mr. Brockett has held various positions at the cable
system operating level including System Controller in New Castle County,
Delaware (125,000 customers). Mr. Brockett holds a Bachelors of Science
Degree in Accountancy from the University of South Dakota and is an active
member of the Cable Television Administration Marketing Society (National and
Texas).
Cynthia J. Mannes is Vice President of MCPI, with responsibility for
human resources, employee benefits, general administration and insurance
matters. Ms. Mannes began her cable television career in 1984 as a
receptionist with Marcus Communications, Inc., expanding her role with the
Company in later years by becoming Assistant to the President, with
responsibility for corporate administration. Upon the merger of Marcus
Communications, Inc. with WestMarc in 1988, Ms. Mannes was named Assistant
to the Chairman. At the end of 1988, Ms. Mannes left WestMarc to become Vice
President of Corporate Affairs at Marcus Communications, Inc., with
responsibility for day-to-day operations and administration. Ms. Mannes is
an active member of Women in Cable & Telecommunications, Dallas Human
Resource Management Association, and the Cable Television Human Resource
Association. Ms. Mannes is also a charter fellow of The Betsy Magness
Leadership Institute.
David M. Intrator is Vice President of Marketing and Programming with
responsibility for the Company's programming, marketing, advertising sales
and ancillary revenue business. Prior to joining the Company in October of
1994, Mr. Intrator has had a diverse 15 year career in the cable television
industry, managing systems for Acton, Capital Cities, Post-Newsweek and
Centel, and working in cable programming with Home Shopping Network, where
he was Director, Affiliate Relations from 1986 to 1990 and with Viewer's
Choice Pay-Per-View where he was Vice President, Affiliate Relations from
1990 to 1994. Mr. Intrator is a member of the Cable Television Administration
and Marketing Society ("CTAM") and is a Board member of the CTAM Texas
chapter. Mr. Intrator is a graduate of the University of Connecticut and
holds a Masters Degree in Public Administration from the Maxwell School of
Public Administration of Syracuse University.
John C. Pietri is Vice President of Engineering and Technology of MCPI,
with responsibility for the technical operations and standards of the
Company's cable television systems including: new construction and rebuild
projects; routine maintenance and installation practices; capital control and
purchasing; and regulatory compliance and reporting. Mr. Pietri has spent
the past 19 years in the cable television industry in a variety of technical
management positions. Prior to joining the Company, Mr. Pietri was Regional
Plant Manager for WestMarc, managing all technical operations, budgeting and
purchasing. Mr. Pietri also held positions as Operations Manager of
Minnesota Utility Contracting, General Manager of Double "A" Enterprises and
President of the Milwaukee Division of Mullen Communications Construction
Company. Mr. Pietri attended the University of Wisconsin.
John P. Klingstedt, Jr. is Vice President and Controller of MCPI, with
responsibility for the accounting and financial reporting of the Company.
Mr. Klingstedt joined Marcus Communications, Inc. in 1987 and became
Controller in 1989, with the election to Vice President following in 1994.
Mr. Klingstedt holds a Bachelors of Science Degree in Accountancy from
Oklahoma State University and is a member of the Cable Television Tax
Professionals Institute and the National Cable Television Association
Accounting Committee.
Daniel J. Wilson is Vice President of Finance and Development with
responsibility for the treasury, finance and acquisition and divestiture
activities of the Company. Mr. Wilson joined MCPI in March 1995 as Director
of Finance and Development and was promoted to Vice President of Finance and
Development in June 1995. Prior to joining the Company, Mr. Wilson served
for three years in various positions at Crown, including as Director of
Regulatory Affairs and Director of Finance and Development. Prior thereto,
Mr. Wilson served for three years in various positions with Cencom, most
recently as Senior Financial Analyst. Prior to joining Cencom in 1989, Mr.
Wilson served for four years with Arthur Andersen & Co., certified public
accountants. Mr. Wilson received his Bachelor of Science in Business
Administration with majors in Finance and Accounting from Saint Louis
University.
Susan C. Holliday is Vice President of Regulatory Compliance and
Planning of MCPI, with responsibility for all FCC rate regulatory compliance
and procedures; the budgeting process and operational audit procedures.
Prior to joining the Company in 1993, Ms. Holliday had been an audit manager
with KPMG Peat Marwick. Ms. Holliday holds a Bachelors Degree in Business
Administration with concentration in Accounting from the College of William
and Mary, and is a Certified Public Accountant (CPA).
ITEM 11. EXECUTIVE COMPENSATION
MCPI presently does not pay any compensation to its director or
officers. The executives of MCPI are compensated in their capacity as
officers of Operating. The following table summarizes the compensation paid
by Operating to its Chief Executive Officer and to each of its four other
most highly compensated executive officers receiving compensation in excess
of $100,000 for services rendered during the fiscal years ended December 31,
1994, 1995, and 1996.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation All Other
Name and Principal Position Year Salary Bonus Compensation (1)
<S> <C> <C> <C> <C>
Jeffrey A. Marcus 1994 $163,949 $200,000 $575,765(2)
President and 1995 $583,196 - -
Chief Executive Officer 1996 $980,781 $500,000 $38,186(3)
Louis A. Borrelli, Jr. 1994 $176,275 $263,942 $4,620(3)
Executive Vice President, 1995 $276,235 $185,000 $6,464(3)
Chief Operating Officer 1996 $353,099 $52,000 $15,377(3)
Thomas P. McMillin 1994 $36,050 $69,567 -
Senior Vice President, 1995 $172,680 $200,000 $6,214(3)
Chief Financial Officer 1996 $255,000 $32,000 $15,244(3)
Richard A.B. Gleiner 1994 $48,799 $10,667 -
Senior Vice President, 1995 $170,816 $200,000 $6,526(3)
General Counsel 1996 $220,673 $32,000 $16,662(3)
David L. Hanson 1994 $86,034 $93,380 $2,368(3)
Senior Vice President 1995 $150,350 $55,000 $17,646(3)
of Operations 1996 $155,263 $40,000 $19,024(3)
<FN>
(1) During 1995: (a) Mr. Marcus was issued 16,670 Employee Units with a Strike Price
(hereinafter defined) of $1,750 per Unit (the "Series II Employee Units"); (b) Mr.
Borrelli was issued 1,235 Series II Employee Units; (c) Mr. McMillin was issued 973.7
Employee Units with a Strike Price of $1,600 per Unit (the "Series I Employee Units") and
1,035 Series II Employee Units; (d) Mr. Gleiner was issued 973.7 Series I Employee Units
and 300 Series II Employee Units; and (e) Mr. Hanson was issued 110 Series I Employee
Units. Mr. Marcus' Employee Units are fully vested. The Series I Employee Units issued
in 1995 vested 20% on the date of issuance and the remaining 80% will vest in equal
amounts on the first through fourth anniversaries of the date of issuance thereof. The
Series II Employee Units issued in 1995 (other than those held by Mr. Marcus) vest 10%,
10%, 20%, 30% and 30% on November 1, 1996, 1997, 1998, 1999 and 2000, respectively. The
first year in which Employee Units were issued was 1995. The Company believes that the
Employee Units issued in 1995 and 1996 have no current value. See "Incentive Performance
Plans-Employee Unit Plan" and "Security Ownership of Certain Beneficial Owners and
Management-Principal Security Holders."
(2) Represents distribution to Jeffrey A. Marcus and Nancy C. Marcus as the stockholders of
the Management Company. MCPI, which is owned by Mr. and Mrs. Marcus, had contracted with
the Company to provide services relating to the planning and negotiation of acquisitions
in the merger of Marcus Management, Inc. into MCPI in December 1993.
(3) Represents the employer matching contribution under the Company's 401(k) matched savings
plan, vehicle expense for each of the executive officers named other than Mr. Marcus and
the value of term life insurance premiums paid by the Company for the benefit of the named
executive. See "Management-Pension and Profit Sharing Plans". Other compensation for Mr.
Marcus also includes amounts paid by the Company for airplane usage. Other compensation
for Mr. Hanson and Mr. Gleiner also includes amounts paid by the Company for relocation
expenses incurred in 1995 and 1996.
</FN>
</TABLE>
Incentive Performance Plans
Employee Unit Plan. The General Partner may elect at any time and from
time to time to cause MCC to issue a limited number of Class B Units
designated "Employee Units" to the General Partner or to key individuals
providing services to MCC or any of its subsidiaries. Employee Units will
be issued in series, as more fully described in the partnership agreement of
MCC. A series generally will not be entitled to distributions until such
time as all units (other than Convertible Preference Units and subsequently
issued Employee Units) outstanding at the date of a given distribution will
have been distributed an amount equal to the product of all such units
outstanding on the date of a given distribution multiplied by a specified
price (the "Strike Price") related to such Employee Units. The General
Partner is authorized to issue (and reissue to the extent forfeited) up to
a total of 31,517 Employee Units. As of March 26, 1997, MCC had issued
5,602.2 Employee Units with a $1,600 Strike Price and 22,185.0 Employee Units
with a $1,750 Strike Price. The General Partner, in its sole discretion, may
determine the other terms and conditions (e.g., vesting, forfeiture and
restrictions on transfer) governing grants of Employee Units. The General
Partner may, but is not obligated to, require in connection with the grant
of any Employee Units that the holder thereof grant to the General Partner,
Mr. Marcus or any of their affiliates (i) a right of first refusal on such
holder's Employee Units as well as an option to purchase such holder's
Employee Units upon such holder's termination (voluntary or involuntary) of
employment with MCC or any of its subsidiaries and (ii) a proxy, which is
coupled with an interest and is irrevocable, to vote such holder's Employee
Units in such proxy's sole discretion.
Limited Partner Interests in General Partner. The General Partner has
issued certain limited partner interests in the General Partner ("LP Units")
to key employees of MCC and its subsidiaries without requiring such employees
to make capital contributions to the General Partner. As of the date hereof,
most of the outstanding LP Units issued are fully vested and all of the
outstanding LP Units will be fully vested by 1999.
Among the executive officers of MCPI named in the Summary Compensation
Table, Louis A. Borrelli, Jr. and David L. Hanson hold 13.75 and 3.63 vested
LP Units, respectively. Thomas P. McMillin has been granted 2.50 LP Units
and Richard A.B. Gleiner has been granted 1.00 LP Unit. 40% of Mr.
McMillin's and Mr. Gleiner's LP Units are vested and the remaining 60% will
vest equally on each of April 1, 1997, 1998 and 1999. No LP Units were
issued during the year ended December 31, 1996. The total number of units
of general partner interest ("GP Units") will automatically be reduced at
such time as any unvested LP Units vest in order to ensure that the total
number of outstanding GP Units and fully vested LP Units (for which no
capital contribution was required) does not exceed 100%.
Pension and Profit Sharing Plans
The Company sponsors a 401(k) plan for its employees that are age 21 or
older and have been employed by the Company for at least six months.
Employees of the Company can contribute up to 15% of their salary, on a
before-tax basis, with a maximum 1996 contribution of $9,500 (as set by the
Internal Revenue Service). The Company matches participant contributions up
to a maximum of 2% of a participant's salary. All employee-participant
contributions and earnings are fully vested upon contribution and Company
contributions and earnings vest 20% per year of employment with the Company,
becoming fully vested after five years. See "Summary Compensation Table."
Compensation of Directors
Mr. Jeffrey A. Marcus is not compensated for his service as the sole
director of MCPI.
Compensation Committee Interlocks and Insider Participation
Mr. Jeffrey A. Marcus, as the president and sole director of MCPI, the
ultimate general partner, sets the compensation of the executive officers of
MCPI in their executive positions with Operating.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SECURITY HOLDERS
Security Ownership of Certain Beneficial Owners
The following table sets forth, as of March 26, 1997, (i) the units
of general partnership interests and limited partnership interests of MCC
constituting a class of voting security and which are owned by the sole
director and executive officers of MCPI and each person who is known to MCC
to own beneficially more than 5% of any class of MCC's partnership interests
and (ii) the units of the equity securities of MCPI and the General Partner
owned by the sole director and executive officers of MCPI named in the
Summary Compensation Table and by the sole director and all executive
officers of MCPI as a group.
<TABLE>
<CAPTION>
Name and Address of # of Equivalent
Beneficial Owners (1) Units/Shares % of Class (2)
<S> <C> <C> <C>
MCC (3) General Partner 22,577.99 (4) 6.37%
Goldman Sachs & Co.
Affiliates (5)
85 Broad Street
New York, New York 10004 125,866.241 (6) 35.68
Hicks, Muse, Tate &
Furst Equity Fund II, L.P.
200 Crescent Court, Suite 1600
Dallas, Texas 75201 65,714.286 18.63
Freeman Spogli & Co.
Incorporated Affiliates (7)
11100 Santa Monica Boulevard
Los Angeles, California 90025 56,428.571 15.99
Greenwich Street Capital
Partners,Inc. Affiliates (8)
388 Greenwich Street
New York, New York 10013 27,053.571 7.67
Jeffrey A. Marcus (9) 50,365.190 14.28
Louis A. Borrelli, Jr. (10) 1,235.000 *
Thomas P. McMillin (10) 2,008.700 *
Richard A. B. Gleiner (10) 1,273.700 *
David L. Hanson (10) 110.000 *
Sole Director and Executive
Officers as a
Group (14 persons) 50,365.190 14.28
MCPI Jeffrey A. Marcus (9) 1,000.00 100.00%
General
Partner MCPI (9) 67.25 (11) 66.15%
Jeffrey A. Marcus 67.25 (11) 66.15
Louis A. Borrelli, Jr. 13.75 (12) 13.53
Thomas P. McMillin 2.50 (12) 2.46
Richard A. B. Gleiner 1.00 (12) 0.98
David L. Hanson 3.63 (12) 3.57
Sole Director and Executive
Officers as a
Group (14 persons) 100.13 98.50
_______________
<FN>
* Less than 1%.
(1) The address for the General Partner, MCPI and Messrs Marcus, Borrelli, McMillin, Gleiner
and Hanson is 2911 Turtle Creek Blvd., Dallas, Texas 75219.
(2) Assumes all 31,517 Employee Units are outstanding.
(3) As of the date hereof, all partnership interests in MCC, other than Convertible Preference
Units, are designated Class B Units. The interests held by the General Partner are
comprised of different types of Class B Units which are entitled to different distribution
rights and, in certain cases, the Class B Units held by the General Partner do not have
voting rights. MCC has issued 7,500 Convertible Preference Units which have a general
distribution preference over the Class B Units and are convertible, initially, into Class
B Units on a one-for-one basis. The current ownership of Convertible Preference Units
is as follows: Broad Street Investment Fund I, L.P. (5,003.0831 units); Broad Street
Advancement Corporation (1,260.1681 units); The Goldman Sachs Group, L.P. (586.3515
units); Broad Street Strategic Corporation (243.6068 units); Stone Street Fund 1991,
L.P. (233.9071 units); Bridge Street Fund 1991, L.P. (77.9690 units); Stone Street Fund
1990, L.P. (60.3397 units); and Bridge Street Fund 1990, L.P. (34.5747 units). All of
the holders of Convertible Preference Units are affiliates of Goldman Sachs.
(4) Reflects the General Partner's ownership of 18,848.19 units and 3,729.80 unissued Employee
Units.
(5) The current ownership of affiliates of Goldman Sachs of the outstanding Class B Units of
MCC is as follows: Broad Street Investment Fund I, L.P. (53,562.116 units); Broad Street
Investment Fund, L.P. (27,949.580 units); the Goldman Sachs Group, L.P. (7,529.855 units);
GS Capital Partners II, L.P. (6,705.000 units); Broad Street Acquisition Corporation
(5,028.885 units); GS Capital Partners II Offshore Marcus Holding I, L.P. (2,893.000
units); GS Capital Partners II Marcus Holding I, L.P. (1,503.000 units); Bridge Street
Fund 1995, L.P. (1,480.000 units); Broad Street Income Corporation (1,456.490 units);
Stone Street Fund 1992, L.P. (1,416.686 units); Stone Street Fund 1995, L.P. (1,253.100
units); Broad Street Funding Corp. (1,026.000 units); Bridge Street Fund 1994, L.P.
(986.220 units); Stone Street Fund 1994, L.P. (895.740 units); Broad Street Yield
Corporation (866.080 units); Bridge Street Fund 1992, L.P. (831.163 units); Goldman Sachs
& Co. (566.000 units); Stone Street Fund 1990, L.P. (462.834 units); Broad Street
Exploration Corporation (405.405 units); GS Capital Partners II Offshore, L.P. (370.000
units); Bridge Street Fund 1990, L.P. (308.272 units); GS Capital Partners II Germany
Marcus Holding I, L.P. (303.000 units); Stone Street Fund 1991, L.P. (257.670 units);
Broad Street Empire Corporation (121.618 units); Broad Street Value Corporation (79.497
units); Stone Street Marcus Holding, Inc. (49.000 units); Participation Subsidiary
Corporation (46.130 units); and Stone Street 1995 Marcus Holding, Inc. (13.900 units).
(6) Includes 7,500 Convertible Preference Units. See note 3 above.
(7) The current ownership by affiliates of Freeman Spogli & Co. Incorporated of the
outstanding Class B Units of MCC is as follows: FS Equity Partners III, L.P. (54,278.285
units) and MCC International Holdings, Ltd. (2,150.286 units).
(8) The current ownership by affiliates of Greenwich Street Capital Partners, Inc. of the
outstanding Class B Units of MCC is as follows: Greenwich Street Capital Partners, L.P.
(17,146.840 units); TRV Employees Fund, L.P. (7,532.012 units); GSCP Offshore Holdings,
Inc. (1,060.783 units); The Travelers Insurance Company (880.337 units); and The Travelers
Life and Annuity Company (433.599 units).
(9) Mr. and Mrs. Marcus own all the issued and outstanding common stock of MCPI, the general
partner of the General Partner, which stock is subject to a voting trust agreement which
gives Mr. Marcus the right to vote all of such stock. Accordingly, the numbers for Mr.
Marcus reflect all units held by the General Partner. Additionally, such numbers include
27,787.20 issued Employee Units. Mr. Marcus has the right to issue additional authorized
but unissued or forfeited Employee Units to employees, himself or the General Partner.
Mr. Marcus has been granted irrevocable proxies to exercise all voting rights with respect
to issued Employee Units. Mr. Marcus is the record owner of 16,600.00 Employee Units.
Mr. Marcus' address is 2911 Turtle Creek Boulevard, Suite 1300, Dallas, Texas 75219.
(10) Reflects the executive officers' ownership of Employee Units. Such Employee Units are
subject to certain vesting schedules. The address for all executive officers is 2911
Turtle Creek Boulevard, Suite 1300, Dallas, Texas 75219.
(11) Reflects the number of GP Units currently owned by MCPI, assuming full vesting of all LP
Units.
(12) Reflects the current ownership of vested and unvested LP Units. Thomas P. McMillin also
holds 1.50 unvested LP Units and Richard A.B. Gleiner also holds 0.60 unvested LP Units.
These units are currently scheduled to vest equally on each of April 1, 1997, 1998 and
1999.
</FN>
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There have been no significant transaction, new relationships or
indebtedness between the Company and related parties during 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
<S> <C> <C>
(a) (1) Financial Statements
Included in this Report: Page
Independent Auditors' Report F-1
Consolidated Balance Sheets
December 31, 1996 and 1995 F-2
Consolidated Statements of Operations
Years ended December 31, 1996, 1995, and 1994 F-3
Consolidated Statements of Partners' Capital (Deficit)
Years ended December 31, 1996, 1995, and 1994 F-4
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995, and 1994 F-5
Notes to Consolidated Financial Statements F-6
</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 (deficit) of Operating are
substantially equivalent to the net assets, earnings and partners'
capital (deficit) of the Company and its subsidiaries 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.
Financial statement schedules have been omitted because they are
either inapplicable or the requested information is shown in the
financial statements or notes thereto.
<TABLE>
<CAPTION>
(2) Exhibits
Included in this Report:
<S> <C>
Exhibit:
(9)3.1 Fifth Amended and Restated Agreement of
Limited Partnership of MCC, dated as of August
31, 1995. (Exhibit 99.1)
(1)3.2 Certificate of Limited Partnership of MCC.
(Exhibit 3.2)
(11)3.3 First Amended and Restated Agreement of
Limited Partnership of Operating, dated as of
June 9, 1995. (Exhibit 3.3)
(2)3.4 Certificate of Limited Partnership of
Operating. (Exhibit 3.20)
(1)3.5 Certificate of Incorporation of Capital.
(Exhibit 3.16)
(1)3.6 Bylaws of Capital. (Exhibit 3.17)
(2)3.7 Certificate of Incorporation of Capital II.
(Exhibit 3.13)
(2)3.8 Bylaws of Capital II. (Exhibit 3.14)
(4)3.9 Certificate of Incorporation of Capital III.
(Exhibit 3.10)
(4)3.10 Bylaws of Capital III. (Exhibit 3.11)
(1)4.1 Form of Indenture by and among MCC, Capital
and the U.S. Trust Company of Texas, N.A., as
Trustee, related to the 11 7/8% Debentures.
(Exhibit 4.1)
(3)4.2 Indenture by and among MCC, Operating, Capital
II and the U.S. Trust Company of Texas, N.A.,
as Trustee, relating to the 13 1/2% Notes.
(Exhibit 4.1)
(4)4.3 Indenture by and among MCC, Capital III and
Norwest Bank Minnesota National Association,
relating to the 14 1/4% Notes.
(1)10.1 Investment Banking Agreement, dated as of
January 17, 1990, by and among MCC, MCPI,
Jeffrey A. Marcus and Goldman Sachs (the
"Investment Banking Agreement"). (Exhibit
10.8)
(1)10.2 Amendment to the Investment Banking Agreement,
dated as of August 1, 1990. (Exhibit 10.9)
(5)10.6 Purchase Agreement, dated as of July 1, 1994
between Crown, MCP and the Other Crown Buyers.
(Exhibit 10.18).
(6)10.7 Funding and Adjustment Agreement dated as of
January 18, 1995 among Crown and MCP. (Exhibit
99.2)
(10)10.8 Asset Purchase Agreement, dated March 24,
1995, among Marcus Cable of San Angelo, L.P.
and Teleservice Corporation of America.
(Exhibit 10.30)
(7)10.9 Asset Purchase Agreement dated as of April 5,
1995, among MCA and Sammons. (Exhibit 2.1)
(8)10.10 Unit Purchase Agreement dated as of May 12, 1995,
among MCC, CALP, MCALP, Marcus Cable of
Alabama, Inc. and the sellers listed
therein.(Exhibit 99.1)
(9)10.12 Senior Credit Facility. (Exhibit 99.2)
(4)10.13 1995 Long-Term Incentive Plan (compensatory
plan). (Exhibit 10.20)
(6)10.14 Form of Subscription Agreement for the
Purchase and Sale of Class B LP Units dated as
of January 11, 1995, among MCC, the General
Partner and a new investor. (Exhibit 4.2)
(3)10.15 Form of Subscription Agreement for the
Purchase and Sale of Class B LP Units dated as
of April 25, 1995, among MCC and certain
customers. (Exhibit 10.17)
10.16 Form of Amendment to the Senior Credit
Facility, dated March 14, 1997.
12.1 Computation of Ratio of Earnings to Fixed
Charges.
21.1 Subsidiaries.
<FN>
(1) Incorporated by reference to the exhibit shown in parenthesis
contained in the Registrants' Registration Statement on Form S-1
(File Nos. 33-67390 and 33-67390-01).
(2) Incorporated by reference to the exhibit shown in parentheses
contained in the Registrants' Registration Statement on Form S-1
(File Nos. 33-74104 and 33-74104-01).
(3) Incorporated by reference to the exhibit shown in parentheses
contained in the Registrants' Registration Statement on Form S-1
(File Nos. 33-81008, 33-81008-01 and 33-81008-02).
(4) Incorporated by reference to the exhibit shown in parentheses
contained in the Registrants' Registration Statement on Form S-4
(File Nos. 33-93808 and 33-03808-01).
(5) Incorporated by reference to the exhibit shown in parentheses
contained in Form 8-K dated July 29, 1994.
(6) Incorporated by reference to the exhibit shown in parentheses
contained in Form 8-K dated January 18, 1995.
(7) Incorporated by reference to the exhibit shown in parentheses
contained in Form 8-K dated April 5, 1995.
(8) Incorporated by reference to the exhibit shown in parentheses
contained in Form 8-K dated May 12, 1995.
(9) Incorporated by reference to the exhibit shown in parentheses
contained in Form 8-K dated August 31, 1995.
(10) Incorporated by reference to the exhibit shown in parentheses
contained in Form 10-K dated December 31, 1994.
(11) Incorporated by reference to the exhibit shown in parentheses
contained in Form 10-K dated December 31, 1995.
</FN>
</TABLE>
(b) Reports on Form 8-K:
None
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE
NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
No annual report or proxy statement has been sent to the security
holders of the Company.
<TABLE>
INDEX TO EXHIBITS
<CAPTION>
Sequentially
Exhibit Numbered
Number Page
<S> <C>
(9)3.1 Fifth Amended and Restated Agreement of
Limited Partnership of MCC, dated as of
August 31, 1995. (Exhibit 99.1)
(1)3.2 Certificate of Limited Partnership of MCC.
(Exhibit 3.2)
(11)3.3 First Amended and Restated Agreement of
Limited Partnership of Operating, dated June
9, 1995. (Exhibit 3.3)
(2)3.4 Certificate of Limited Partnership of
Operating. (Exhibit 3.20)
(1)3.5 Certificate of Incorporation of Capital.
(Exhibit 3.16)
(1)3.6 Bylaws of Capital. (Exhibit 3.17)
(2)3.7 Certificate of Incorporation of Capital II.
(Exhibit 3.13)
(2)3.8 Bylaws of Capital II. (Exhibit 3.14)
(4)3.9 Certificate of Incorporation of Capital III.
(Exhibit 3.10)
(4)3.10 Bylaws of Capital III. (Exhibit 3.11)
(1)4.1 Form of Indenture by and among MCC, Capital
and the U.S. Trust Company of Texas, N.A.,
as Trustee, related to the 11 7/8%
Debentures. (Exhibit 4.1)
(3)4.2 Indenture by and among MCC, Operating,
Capital II and the U.S. Trust Company of
Texas, N.A., as Trustee, relating to the 13
1/2% Notes. (Exhibit 4.1)
(4)4.3 Indenture by and among MCC, Capital III and
Norwest Bank Minnesota National Association,
relating to the 14 1/4% Notes.
(1)10.1 Investment Banking Agreement, dated as of
January 17, 1990, by and among MCC, MCPI,
Jeffrey A. Marcus and Goldman Sachs (the
"Investment Banking Agreement"). (Exhibit
10.8)
(1)10.2 Amendment to the Investment Banking
Agreement, dated as of August 1, 1990.
(Exhibit 10.9)
(5)10.6 Purchase Agreement, dated as of July 1, 1994
between Crown, MCP and the Other Crown
Buyers. (Exhibit 10.18)
(6)10.7 Funding and Adjustment Agreement dated as of
January 18, 1995 among Crown and MCP.
(Exhibit 99.2)
(10)10.8 Asset Purchase Agreement, dated March 24,
1995, among Marcus Cable of San Angelo, L.P.
and Teleservice Corporation of America.
(Exhibit 10.30)
(7)10.9 Asset Purchase Agreement dated as of April
5, 1995, among MCA and Sammons (Exhibit 2.1)
(8)10.10 Unit Purchase Agreement dated as of May 12,
1995, among MCC, MCALP, Marcus Cable of
Alabama, Inc. and the sellers listed therein
(Exhibit 99.1)
(9)10.12 Senior Credit Facility. (Exhibit 99.2)
(4)10.13 1995 Long-Term Incentive Plan (compensatory
plan).(Exhibit 10.20)
(6)10.14 Form of Subscription Agreement for the
Purchase and Sale of Class B LP Units dated
as of January 11, 1995, among MCC, the
General Partner and a new Investor. (Exhibit
4.2)
(3)10.15 Form of Subscription Agreement for the
Purchase and Sale of Class B LP Units dated
as of April 25, 1995, among MCC and certain
customers. (Exhibit 10.17)
10.16 Form of Amendment to the Senior Credit Facility,
dated March 14, 1997 85
12.1 Computation of Ratio of Earnings to Fixed
Charges. 92
21.1 Subsidiar 93
<FN>
(1) Incorporated by reference to the exhibit shown in parenthesis
contained in the Registrants' Registration Statement on Form S-1
(File Nos. 33-67390 and 33-67390-01).
(2) Incorporated by reference to the exhibit shown in parentheses
contained in the Registrants' Registration Statement on Form S-1
(File Nos. 33-74104 and 33-74104-01).
(3) Incorporated by reference to the exhibit shown in parentheses
contained in the Registrants' Registration Statement on Form S-1
(File Nos. 33-81008, 33-81008-01 and 33-81008-02).
(4) Incorporated by reference to the exhibit shown in parentheses
contained in the Registrants' Registration Statement on Form S-4
(File Nos. 33-93808 and 33-93808-01).
(5) Incorporated by reference to the exhibit shown in parentheses
contained in Form 8-K dated July 29, 1994.
(6) Incorporated by reference to the exhibit shown in parentheses
contained in Form 8-K dated January 18, 1995.
(7) Incorporated by reference to the exhibit shown in parentheses
contained in Form 8-K dated April 5, 1995.
(8) Incorporated by reference to the exhibit shown in parentheses
contained in Form 8-K dated May 12, 1995.
(9) Incorporated by reference to the exhibit shown in parentheses
contained in Form 8-K dated August 31, 1995.
(10) Incorporated by reference to the exhibit shown in parentheses
contained in Form 10-K dated December 31, 1994.
(11) Incorporated by reference to the exhibit shown in parentheses
contained in Form 10-K dated December 31, 1995.
</FN>
</TABLE>
INDEPENDENT AUDITORS' REPORT
The Partners
Marcus Cable Company, L.P.:
We have audited the accompanying consolidated financial
statements of Marcus Cable Company, L.P. as listed in the index
in Item 14(a). These consolidated financial statements are the
responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Marcus Cable Company, L.P. and subsidiaries as of
December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally
accepted accounting principles.
Dallas, Texas
February 21, 1997, except for note 12,
which is as of March 14, 1997
<TABLE>
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
(in thousands)
<CAPTION>
Assets 1996 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,034 $ 17,409
Accounts receivable, net of allowance of
$1,900 in 1996 and $1,564 in 1995 17,043 16,946
Prepaid expenses 2,432 1,860
Total current assets 25,509 36,215
Property and equipment, net (notes 2 and 3) 578,507 538,452
Other assets, net (note 4) 1,083,534 1,185,387
$ 1,687,550 $ 1,760,054
Liabilities and Partners' Capital
Current liabilities:
Current maturities of long-term debt (note 6) $ 41,819 $ 339
Accrued liabilities (note 5) 49,405 50,350
Accrued interest 10,664 12,734
Total current liabilities 101,888 63,423
Long-term debt (note 6) 1,396,652 1,407,551
Subsidiary limited partner interests (note 7) (246) (246)
Partners' capital - redeemable partner
interests (note 8) 189,256 289,326
Commitments and contingencies (notes 6, 8 and 11)
$ 1,687,550 $ 1,760,054
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1996, 1995 and 1994
(in thousands)
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Revenues:
Cable services $ 432,172 $ 195,004 $ 63,629
Management fees 2,335 3,290 1,118
Total revenues 434,507 198,294 64,747
Operating expenses:
Selling, service and
system management 157,197 68,753 21,660
General and administrative 73,017 33,271 9,793
Management fees and expenses
(note - 9) - - 2,165
Depreciation and amortization 166,429 83,723 37,412
396,643 185,747 71,030
Operating income (loss) 37,864 12,547 (6,283)
Other (income) expense:
Interest expense 144,681 82,911 28,105
Gain on sale of cable systems
(note 2) (6,442) (26,409) -
Interest income (305) (768) (407)
Other, net - 1,234 356
137,934 56,968 28,054
Loss before subsidiary
limited partner interest
and extraordinary item (100,070) (44,421) (34,337)
Subsidiary limited partner
interests (note 7) - - 6,034
Loss before extraordinary
item (100,070) (44,421) (28,303)
Extraordinary item - loss on early
retirement of debt - (8,395) (2,307)
Net loss $ (100,070) $ (52,816) $ (30,610)
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Consolidated Statements of Partners' Capital (Deficit)
Years ended December 31, 1996, 1995 and 1994
(in thousands)
<CAPTION>
Redeemable Partner Interests
Class B
General Limited Class A
Partners Partners Partner Total
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $ (7,361) $ - $ (4,309) $ (11,670)
Distribution of preference
returns on Class A
units redeemed (7) (721) - (728)
Redemption of Class A units (25) (2,519) 1,272 (1,272)
Conversion of Class A units (3,844) (166) 4,010 -
Issuance of partnership units - 22,990 - 22,990
Net loss (10,053) (19,584) (973) (30,610)
Balance at December 31, 1994 (21,290) - - (21,290)
Excess of purchase price over
carrying value of certain CALP
assets acquired (note 2) - (14,183) - (14,183)
Issuance of partnership units - 385,000 - 385,000
Syndication costs - (7,385) - (7,385)
Net loss (106) (52,710) - (52,816)
Balance at December 31, 1995 (21,396) 310,722 - 289,326
Net loss (200) (99,870) - (100,070)
Balance at December 31, 1996 $ (21,596) $ 210,852 $ - $ 189,256
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
(in thousands)
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(100,070) $ (52,816) $ (30,610)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Extraordinary item - loss on early
retirement of debt - 8,395 2,307
Gain on sale of assets (6,442) (26,409) -
Depreciation and amortization 166,429 83,723 37,412
Accretion of discount on notes 63,278 43,739 12,264
Subsidiary limited partner interests - - (6,034)
Changes in assets and liabilities,
net of effects of acquisitions:
Accounts receivable (70) (2,610) (2,411)
Prepaid expenses (574) (474) (222)
Other assets (502) 1,721 495
Accrued liabilities (3,063) 30,761 2,688
Net cash provided by operating
activities 118,986 86,030 15,889
Cash flows from investing activities:
Escrow deposit on acquisition of
cable system - - (5,000)
Acquisition of cable systems and
franchises, net of cash acquired (10,272) (1,455,718) (139,130)
Net proceeds from sale of assets 20,638 65,037 -
Additions to property and equipment (110,639) (42,219) (6,592)
Net cash used in investing
activities (110,273) (1,432,900) (150,722)
Cash flows from financing activities:
Proceeds from long-term debt 65,338 1,280,003 215,000
Repayment of long-term debt (95,052) (245,000) (95,000)
Contributions by limited partners, net
of syndication costs - 362,615 22,990
Payment of debt issuance costs - (38,307) (9,666)
Payments on capital leases (374) (360) -
Redemption of Class A partner units - - (2,000)
Net cash provided by (used in)
financing activities (30,088) 1,358,951 131,324
Net increase (decrease) in cash and
cash equivalents (11,375) 12,081 (3,509)
Cash and cash equivalents at beginning of year 17,409 5,328 8,837
Cash and cash equivalents at end of year $ 6,034 $ 17,409 $ 5,328
Supplemental disclosure of cash flow
information - interest paid $ 83,473 $ 27,591 $ 15,868
See accompanying notes to consolidated financial statements.
</TABLE>
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
(1)Summary of Significant Accounting Policies
(a) General
Marcus Cable Company, L.P. ("MCC" or the "Partnership"),
a Delaware limited partnership, and subsidiaries
(collectively, the "Company") was formed on January 17,
1990 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. Other revenues are
derived by providing management services to cable systems
owned by third parties. The Company's operations are
conducted through subsidiary partnerships. In July 1994,
the Company formed Marcus Cable Operating Company, L.P.
("Operating"), a wholly-owned subsidiary. Operating acts
as a holding company and as general partner for its
subsidiary operating partnerships.
(b) Basis of Presentation
The consolidated financial statements include the
accounts of MCC and its subsidiary partnerships and
corporations. 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.
(c) Cash Equivalents
For purposes of the statement of cash flows, the Company
considers all highly liquid investments with original
maturities of three months or less at inception to be
cash equivalents. At December 31, 1996 and 1995, the
Company had cash equivalents of $6,233,000 and
$21,114,000, respectively, consisting of certificates of
deposit and money market funds.
(d) Property and Equipment
Property and equipment are recorded at cost, including
all direct costs and certain indirect costs associated
with the construction of cable television transmission
and distribution systems, and the cost of new customer
installations. Maintenance and repairs are charged to
expense as incurred and equipment replacements and
betterments are capitalized.
Property and equipment are depreciated using the straight-
line method based on estimated useful lives as follows:
buildings, 15 years; cable systems, 3 to 10 years; and
vehicles and other, 3 to 10 years.
(e) Other Assets
Franchise rights and going concern value of acquired
cable systems are amortized on a straight-line basis over
ten to fifteen years. The cost of noncompetition
agreements is amortized by the straight-line method over
the periods of the respective agreements. Deferred debt
issuance costs are amortized to interest expense using
the interest method over the term of the related debt.
The Company assesses the recoverability of goodwill and
other intangible assets as well as the related
amortization lives by determining whether the carrying
value of the intangible assets can be recovered over the
remaining lives through projected undiscounted future
cash flows. To the extent that such projections indicate
that undiscounted future cash flows are not expected to
be adequate to recover the carrying amounts of the
related goodwill and other intangible assets, such
carrying amounts are adjusted for impairment to a level
commensurate with the estimated fair value of the
underlying assets.
(f) Revenues
Revenues from basic and premium service are recognized
when the service is provided.
Installation revenues are recognized to the extent of
direct selling costs incurred. The remainder, if any, is
deferred and amortized to income over the estimated
average period that customers are expected to remain
connected to the cable television system.
Management fee revenues are recognized concurrently with
the recognition of revenues by the managed cable system.
(g) Income Taxes
The Company has not provided for federal income taxes
since such taxes are the responsibility of the individual
partners. The Company's subsidiary corporations are
subject to federal income tax but either have no
operations or have experienced net losses and, therefore,
had no taxable income since their inception.
(h) Subsidiary Limited Partner Interests
Limited partner interests of subsidiary partnerships
which are not directly held by the Company are accounted
for in a manner similar to minority interests. Net
income or loss and preference returns related to the
limited partner interests of subsidiary partnerships are
reflected in the accompanying statements of operations as
"subsidiary limited partner interests."
(i) Derivative Financial Instruments
The Company has only limited involvement with derivative
financial instruments and does not use them for trading
purposes. Any derivative financial instruments are used
to manage well-defined interest rate risk related to the
Company's outstanding debt.
As interest rates change under 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. The fair value of long-term debt was
$1,511,233,000 and $1,511,875,000 at December 31, 1996
and 1995, respectively.
(j) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(k) Impairment of Long-Lived Assets and Long-Lived Assets to
Be Disposed Of
The Company adopted the provisions of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, on January 1,
1996. This Statement requires that long-lived assets and
intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair
value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair
value less costs to sell. The adoption of this Statement
did not have a material impact on the Company's financial
position, results of operations, or liquidity.
(2) Acquisitions and Dispositions
On January 11, 1996, the Company completed the purchase of
cable television systems in Texas for $875,000. On July 8,
1996, the Company acquired cable television systems in
Mississippi for an aggregate purchase price of $2,600,000.
On July 31, 1996, the Company acquired cable television
systems in Indiana for a purchase price of $6,700,000.
Combined acquisition costs for these systems were
approximately $97,000.
On January 18, 1995, the Company acquired cable television
systems in Wisconsin and Minnesota owned and operated by
Crown Media, Inc. ("Crown") and Cencom of Alabama, L.P.
("CALP") limited partner units held by Crown for an aggregate
purchase price of $331,717,000. On August 31, 1995, the
Company acquired all remaining CALP ordinary limited partner
interests held by outside parties in exchange for convertible
preference units of MCC with a $15,000,000 distribution
preference and caused the redemption of all outstanding CALP
special limited partnership interests and the retirement of
all outstanding bank indebtedness of CALP for $138,280,000 in
cash. On November 1, 1995, the Company acquired certain
cable television systems owned and operated by Sammons
Communications, Inc. ("Sammons") for a purchase price of
$961,701,000 plus direct acquisition costs of $31,187,000 and
less assumed liabilities of $4,524,000. Other miscellaneous
acquisitions of cable television systems were also completed
in 1995 for $2,357,000.
On July 29, 1994, the Company acquired cable television
systems in Wisconsin and Minnesota from Star Cablevision
Group ("Star"), an unaffiliated third party, for
$139,232,000. On September 1, 1994, the Company acquired
from Crown the general partner interest in CALP, the
management contract pursuant to which the Company provided
management services to CALP, and accrued and unpaid
management fees, for total cash consideration of $2,878,000.
Management fees earned by the Company under the management
contract during the years ended December 31, 1995 and 1994
were $1,082,000 and $532,000, respectively.
The acquisitions discussed above were accounted for as
purchases and, accordingly, the purchase prices were
allocated to tangible and intangible assets based on
estimated fair market values at the dates of acquisition.
Fair market values were determined using independent
appraisers, or in the case of the smaller acquisitions,
estimated based on previous acquisitions. Operating results
of the acquired companies are included in the accompanying
financial statements from the dates of acquisition except for
operating results of Crown, which are included as of January
1, 1995. In connection with the acquisitions, the Company
also assumed responsibility for settling outstanding
receivables and payables of the cable television systems
acquired. Net assets acquired as a result of these
acquisitions are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Working capital deficit $ - $ (15,900) $ -
Property and equipmen 5,004 485,410 34,147
Franchise rights 4,861 959,651 94,437
Going concern value - 33,055 10,412
Noncompetition agreements 383 12,160 100
Other assets 24 1,342 3,014
Total purchase price (1995
includes $5,000 from
escrow paid in 1994 and
1994 includes $2,980 from
escrow paid in 1993) $10,272 $1,475,718 $142,110
</TABLE>
Prior to the final CALP acquisition, certain partners in MCC
who hold a controlling interest in MCC also held an interest
in CALP. Because of this common ownership interest, the
predecessor cost was used to value the assets acquired to the
extent of the investment held in CALP by the partners in MCC.
A charge of $14,183,000 which was made to partners' capital
represents the excess of the consideration paid over the
carrying value of the investment in CALP held by partners in
MCC. For accounting purposes, such excess is reflected as a
reduction in the partners' capital accounts of MCC.
On October 11, 1996, the Company sold the cable television
systems operating in Washington for a cash purchase price of
$20,638,000, net of selling costs. The sale resulted in a
gain of $6,442,000.
On June 30, 1995, the Company sold the cable television
systems operating in and around San Angelo, Texas to
TeleService Corporation of America for a cash purchase price
of $65,037,000, net of selling costs. The sale resulted in a
gain of $26,409,000. Net proceeds from the sale were used to
retire outstanding borrowings under Operating's then existing
senior credit facility.
Unaudited pro forma financial information for the years ended
December 31, 1996 and 1995 as though the acquisitions and
dispositions discussed above had occurred at January 1, 1995
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Revenues $ 432,698 $ 398,141
Operating income 37,310 11,263
Net loss (100,624) (140,186)
</TABLE>
(3)Property and Equipment
Property and equipment consists of the following at December
31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cable systes $ 670,829 $ 567,542
Vehicles and other 26,008 19,826
Land and buildings 13,256 10,362
710,093 597,730
Accumulated depreciation (131,586) (59,278)
$ 578,507 $ 538,452
</TABLE>
(4)Other Assets
Other assets consist of the following at December 31, 1996
and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Franchise rights $ 1,175,009 $ 1,181,243
Going concern value of acquired
cable systems 45,969 45,856
Noncompetition agreements 31,914 32,633
Debt issuance costs 43,500 43,246
Other 1,069 1,071
1,297,461 1,304,049
Accumulated amortization (213,927) (118,662)
$ 1,083,534 $ 1,185,387
</TABLE>
(5)Accrued Liabilities
Accrued liabilities consist of the following at December 31,
1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Accrued property taxes $ 3,830 $ 3,552
Accrued acquisition costs 2,838 3,438
Accrued programming cost 8,301 8,371
Accrued franchise fees 9,429 8,730
Accrued operating liabilities 20,377 18,916
Other accrued liabilities 4,630 7,343
$ 49,405 $ 50,350
</TABLE>
(6)Long-term Debt
The Company has outstanding borrowings on long-term debt
arrangements at December 31, 1996 and 1995 as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Senior Credit Facility $ 855,000 $ 885,000
13 1/2% Senior Subordinated Discount Notes 295,119 258,979
14 1/4% Senior Discount Notes 185,862 162,027
11 7/8% Senior Debentures 100,000 100,000
Capital leases and other notes 2,490 1,884
1,438,471 1,407,890
Less current maturities 41,819 339
$1,396,652 $1,407,551
</TABLE>
On August 31, 1995, the Company entered into the Senior
Credit Facility, which provides for two term loan facilities,
one of which is in the principal amount of $490,000,000 and
matures on December 31, 2002 ("Tranche A") and the other of
which is in the principal amount of $300,000,000 and matures
on April 30, 2004 ("Tranche B"). The Senior Credit Facility
provides for scheduled amortization of the two term loan
facilities beginning in September 1997. The Senior Credit
Facility also provides for a $310,000,000 Revolving Credit
Facility, with a maturity date of December 31, 2002. At
December 31, 1996, there were borrowings of $790,000,000
under the two term loan facilities and $65,000,000 under the
Revolving Credit Facility. 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 2.75% subject to certain
adjustments based on the ratio of Operating's total debt to
annualized operating cash flow, as defined. At December 31,
1996, borrowings under the Senior Credit Facility bore
interest at rates ranging from 6.75% to 8.25% under the
Eurodollar rate option. The Senior Credit Facility, among
other things, provides for (i) a pledge by Operating of all
partnership interests in the subsidiary operating
partnerships and (ii) a pledge by Operating of intercompany
notes payable to it by the subsidiary operating partnerships.
All borrowings outstanding under the Senior Credit Facility
are guaranteed by MCC on an unsecured basis. The Company
pays a commitment fee of .250% to .375% on the unused
commitment under the facilities. Commitment fees on the
unused portion of credit facilities amounted to $866,000,
$788,000 and $225,000 for the years ended December 31, 1996,
1995 and 1994, respectively.
On June 9, 1995, MCC issued $299,228,000 of 14 1/4% Senior
Discount Notes due December 15, 2005 (the "14 1/4% Notes")
for net proceeds of $150,003,000. The 14 1/4% Notes are
unsecured and rank pari passu to the 11 7/8% Debentures
(defined below). The 14 1/4% Notes are redeemable at the
option of MCC at amounts decreasing from 107% to 100% of par
beginning on June 15, 2000. No interest is payable until
December 15, 2000. Thereafter interest is payable semi
annually until maturity. The discount on the 14 1/4% Notes
is being accreted using the interest method. The unamortized
discount was $113,365,000 and $137,201,000 at December 31,
1996 and 1995, respectively. Proceeds from the 14 1/4% Notes
were used to retire outstanding borrowings under Operating's
then existing senior credit facility.
On July 29, 1994, the Company, through Operating, issued
$413,461,000 face amount of 13 1/2% Senior Subordinated
Discount Notes due August 1, 2004 (the "13 1/2% Notes") for
net proceeds of approximately $215,000,000. The 13 1/2%
Notes are unsecured, are guaranteed by MCC and are
redeemable, at the option of Operating, at amounts decreasing
from 105% to 100% of par beginning on August 1, 1999. No
interest is payable on the 13 1/2% Notes until February 1,
2000. Thereafter, interest is payable semiannually until
maturity. The discount on the 13 1/2% Notes is being
accreted using the interest method. The unamortized discount
was $118,341,000 and $154,482,000 at December 31, 1996 and
1995, respectively. Proceeds from the 13 1/2% Notes were
used to retire outstanding borrowings under the Company's
then existing senior credit facility and to fund the 1994
acquisitions.
On October 13, 1993, the Company issued $100,000,000
principal amount of 11 7/8% Senior Debentures due October 1,
2005 (the "11 7/8% Debentures"). The 11 7/8% Debentures are
unsecured and are redeemable at the option of the Company on
or after October 1, 1998 at amounts decreasing from 105.9% to
100% of par at October 1, 2002, plus accrued interest, to the
date of redemption. Interest on the 11 7/8% Debentures is
payable semiannually each April 1 and October 1 until
maturity. Proceeds from the 11 7/8% Debentures, together
with borrowings under the Company's then existing senior
credit facility, were used to repay indebtedness of
subsidiary operating partnerships and to redeem certain MCC
preference units.
The 14 1/4% Notes, 13 1/2% Notes, 11 7/8% Debentures and
Senior Credit Facility all require the Company and/or its
subsidiaries to comply with various financial and other
covenants, including the maintenance of certain operating and
financial ratios. These debt instruments also contain
substantial limitations on, or prohibitions of,
distributions, additional indebtedness, liens, asset sales
and certain other items.
The Company entered into certain interest rate swap
agreements with certain of the participating banks under the
Company's Senior Credit Facility in order to reduce the
impact of changes in interest rates on its floating rate long-
term debt. At December 31, 1996, interest rate swap
agreements covering a notional balance of $650,000,000 are
outstanding. These outstanding swap agreements mature during
1997 and 1998 and require the Company to pay a fixed rate of
5.77% to 5.81% while the counterparty pays a floating rate
based on the one or three-month London Interbank Borrowing
Offered Rate ("LIBOR"). Extensions for additional periods
are available at the option of the counterparties. During
the year ended December 31, 1996, the Company recognized
additional expenses under its interest rate swap agreements
of $130,000. During the year ended December 31, 1995, the
Company recognized benefits of $95,000 under its interest
rate swap agreements. There are no significant differences
between the fair value and carrying value of the interest
rate swaps.
A summary of the future maturities of long-term debt follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
1997 $ 41,819
1998 68,124
1999 78,134
2000 89,405
2001 106,255
Thereafter 1,054,734
$ 1,438,471
</TABLE>
(7) Subsidiary Limited Partner Interests
Subsidiary limited partner interests represent limited
partner units of the subsidiary partnerships held by entities
affiliated with, but not a part of, the Company. These
limited partner units have voting rights and share in the
profit or loss of the respective partnerships. Certain of
the subsidiary limited partner interests receive preference
returns on their capital contributions. A summary of
transactions in subsidiary limited partner interests during
the three years ended December 31, 1996 follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year $(246) $(246) $ 5,788
Accrued preference returns (through
July 29, 1994) - - 764
Net loss - - (6,798)
Balance at end of year $(246) $(246) $ (246)
</TABLE>
Certain subsidiary limited partner interests were allocated
losses in excess of their contributed capital to the extent
that the fair value of assets contributed by the subsidiary
limited partners exceeded the book value at the date of
contribution. As of July 29, 1994, preference returns are no
longer accrued on subsidiary limited partner interests.
(8) Partners' Capital - Redeemable Partner Interests
(a)Classes of Partnership Interests
The MCC partnership agreement (the "partnership
agreement") requires the dissolution of the Partnership
no later than December 31, 2005, unless extended on an
annual basis by the affirmative vote of holders of 51% or
more of the outstanding Class B Units and the written
consent of the General Partner. Class B Units consist of
General Partner Units ("GP Units") and Limited Partner
Units ("LP Units"). GP Units include GP Profits Units,
DCA Class B Units and Class B Units, and LP Units consist
of Class B LP Units. To the extent that GP Units have
the right to vote, GP Units vote as Class B Units
together with Class B LP Units. Voting rights of Class B
LP Units are limited to items specified under the
partnership agreement including, but not limited to,
certain amendments to the partnership agreement, the
issuance of additional GP Profits Units or Class B LP
Units, dissolution of the Partnership or removal of the
General Partner. At December 31, 1996, 294,937.67 Class
B LP Units and 18,848.19 GP Units were outstanding.
The partnership agreement also provides for the issuance
of a class of Convertible Preference Units. These units
are entitled to a general distribution preference over
the Class B LP Units and are convertible into Class B LP
Units. The Convertible Preference Units vote together
with Class B Units as a single class, and the voting
percentage of each Convertible Preference Unit, at a
given time, will be based on the number of Class B LP
Units into which such Convertible Preference Unit is then
convertible. In connection with the acquisition of CALP
in August 1995, MCC issued 7,500 Convertible Preference
Units with a distribution preference and conversion price
of $2,000 per unit.
The partnership agreement permits the General Partner, at
its sole discretion, to issue up to 31,517 Employee Units
(classified as Class B Units) to key individuals
providing services to the Company. Employee Units are
not entitled to distributions until such time as all
units have received certain distributions as calculated
under provisions of the partnership agreement
("subordinated thresholds"). At December 31, 1996 and
1995, 27,758.2 and 27,705.2 Employee Units, respectively,
were outstanding with a subordinated threshold ranging
from $1,600 to $1,750 per unit. The Company believes
that the Employee Units issued have no current value.
(b) Redemption Rights
Upon the occurrence of certain key events (as defined in
the partnership agreement), the GP Units held by the
General Partner shall be immediately converted into an
equivalent number of Class B LP Units. The holders of
the converted Class B LP Units, from and after January 1,
1999, have the right to cause MCC to purchase all units
held by such holders, and MCC has the right to purchase
from the General Partner, upon affirmative vote of 51% or
more of the outstanding Class B LP Units, all such units
held by the General Partner, at a price equal to their
fair market value, to the extent permitted by the 14 1/4%
Notes, 11 7/8% Debentures, 13 1/2% Notes and the Senior
Credit Facility. In addition, in the event the General
Partner fails to timely dissolve the Partnership
following the vote by holders of 51% or more of the Class
B Units, then the holders of the Class B LP Units (other
than Class B Units held by the General Partner) shall
have the right to require MCC to purchase all of the
Class B Units held by such holders at a price equal to
their fair market value, to the extent permitted by the
14 1/4% Notes, 11 7/8% Debentures, 13 1/2% Notes and the
Senior Credit Facility.
(c) General Partner and Class A Partner
Marcus Cable Properties, L.P. ("Properties") is the
General Partner of the Company and was also a Class A
partner through July 29, 1994. On that date, the Company
redeemed 1,272.126 Class A partnership units with a face
value of $1,000 per unit and cumulative unpaid preference
returns of $727,875 for cash of $2,000,000. Also on that
date, the remaining 3,405.944 Class A units with a face
value of $1,000 per unit and cumulative unpaid preference
returns of $1,971,474 were converted into 3,934.53 Class
B Units and 201.95 Class B LP units of MCC, each with a
face value of $1,300 per unit.
(d) Allocation of Income and Loss to Partners
Income and loss are allocated in accordance with the
partnership agreement. Generally, income is allocated as
follows:
(1) First, among the partners whose unreturned capital
contributions exceed their capital accounts in
proportion to such excesses until each partner's
capital account equals such partner's unreturned
capital contributions;
(2) Next, to the holders of Class B Units in the same
proportions, and in the same amounts, as
distributions are or would be made as discussed
below; and
(3) Finally, to the holders of Class B Units in
accordance with their Class B percentage interests.
Generally, losses are allocated as follows:
(1) If any of the partners have capital accounts that
exceed their unreturned capital contributions, among
the partners whose capital accounts exceed their
unreturned capital contributions in proportion to
such excesses until each such partner's capital
account equals its unreturned capital contribution;
and
(2) Next, to the holders of Class B Units in accordance
with their unreturned capital contribution
percentages.
The General Partner is allocated a minimum of .2% to 1%
of income or loss at all times, depending on the level of
capital contributions made by the partners.
(e) Distributions
The amount of distributions is at the discretion of the
General Partner, subject to the restrictions in the 14
1/4% Notes, 11 7/8% Debentures, 13 1/2% Notes and Senior
Credit Facility (see note 6). The manner of distribution
is as follows:
(1) First, to each partner in an amount sufficient to pay
income taxes on net taxable income allocated to each
partner;
(2) Next, to the holders of Convertible Preference Units
in accordance with their unpaid preference amount
(currently $15,000,000) until each partner's unpaid
preference amount is reduced to zero;
(3) Next, to the holders of Class B Units in accordance
with their unreturned capital contribution
percentages until each partner's unreturned capital
contribution is reduced to zero;
(4) Next, to the holders of Class B Units (exclusive of
all or certain Employee Units), in accordance with
their Class B percentage interests until a defined
threshold has been met.
(5) Finally, to the holders of Class B Units in
accordance with the Class B percentage interests.
(f) Capital Contributions
The partnership agreement requires the General Partner to
make such additional contributions to MCC as are
necessary to maintain at all times a minimum capital
account balance equal to either 1% of the aggregate
positive capital account balances of all the partners of
MCC or $500,000, whichever is less. The limited partners
are not required to make additional capital
contributions, and no partner has the right to withdraw
its capital contribution during the term of the
Partnership.
(g) Issuance of Partnership Units
During the year ended December 31, 1994, MCC issued Class
B LP Units for cash of $22,990,000 to partially fund the
purchase of cable television systems from Star. During
the year ended December 31, 1995, MCC issued Class B LP
Units for cash of $362,615,000, net of equity syndication
fees of $7,385,000 paid to certain limited partners, and
Convertible Preference Units with a distribution
preference of $15,000,000 to partially fund the purchases
of Sammons, CALP and Crown.
(9) Related Party Transactions
Through July 29, 1994, each subsidiary partnership had a
management agreement with Marcus Cable Management, Inc.
("MMI"), an affiliated entity, whereby MMI provided various
general, administrative and operating services to the
partnerships. The management fee paid by each subsidiary for
these services was 5.5% of revenues. The Company and its
subsidiary partnerships recorded management fees and expenses
of $2,165,000 for the year ended December 31, 1994, pursuant
to this agreement. The management fees were discontinued on
July 29, 1994, and the employees and related expenses of MMI
became a part of the Company.
In connection with the acquisitions in 1995 and 1994, fees of
$5,250,000 and $1,500,000, respectively, were paid to
Properties for services directly related to the Sammons,
Crown and Star acquisitions. In addition, strategic advisory
fees of $18,309,000 were paid to certain limited partners in
connection with the acquisition of Sammons in 1995. The fees
were capitalized as part of the cost of acquiring the cable
television systems.
(10) Employee Benefit Plan
The Company sponsors a 401(k) plan for its employees whereby
employees that qualify for participation under the plan can
contribute up to 15% of their salary, on a before tax basis,
subject to a maximum contribution limit as determined by the
Internal Revenue Service. The Company matches participant
contributions up to a maximum of 2% of a participant's
salary. For the years ended December 31, 1996, 1995 and
1994, the Company made contributions to the plan of
approximately $480,000, $247,000 and $83,000, respectively.
(11) Commitments and Contingencies
The Company rents pole space from various companies under
agreements which are generally cancelable on short notice and
leases office space for system and corporate offices. Lease
and rental costs charged to expense for the years ended
December 31, 1996, 1995 and 1994 were approximately
$6,775,000, $3,093,000 and $461,000, respectively.
In October 1992, Congress enacted the Cable Television
Consumer Protection and Competition Act of 1992 (the "1992
Cable Act"). During May 1993, pursuant to authority granted
to it under the 1992 Cable Act, the Federal Communications
Commission ("FCC") issued its rate regulation rules which
became effective September 1, 1993. These rate regulation
rules required certain cable systems in franchise areas which
receive certification and are not subject to effective
competition, as defined, to set rates for basic and cable
programming services, as well as related equipment and
installations, pursuant to general cost-of-service standards
or FCC prescribed benchmarks. These FCC benchmarks were
based on an average 10% competitive differential between
competitive and non-competitive systems. Effective September
1, 1993, regulated cable systems not electing cost-of-service
were required to reduce rates to the higher of the prescribed
benchmarks or rates that were 10% below those in effect on
September 1, 1992.
In February 1994, the FCC announced further changes in its
rate regulation rules and announced its interim cost-of-
service standards. In connection with these changes, the FCC
issued revised benchmark formulas, based on a revised
competitive differential of 17%, which became effective on
May 15, 1994 or if certain conditions were met, on July 14,
1994. Regulated cable systems were required to reduce rates
to the higher of the new FCC prescribed benchmarks or rates
that were 17% below those in effect on September 1, 1992.
On February 1, 1996 Congress passed S.652, "The
Telecommunications Act of 1996" (the "Act"), which was
subsequently signed into law on February 8, 1996. This new
law altered federal, state and local laws and regulations for
telecommunications providers and services, including the
Company. There are numerous rulemakings to be undertaken by
the FCC which will interpret and implement the Act. It is
not possible at this time to predict the outcome of such
rulemakings. Several aspects of the Act impact cable
television, including the elimination of regulation of the
cable programming service tier as of March 31, 1999.
The Company believes that it has complied with all provisions
of the 1992 Cable Act, including the rate setting provisions
promulgated by the FCC. However, in jurisdictions which have
chosen not to certify, refunds covering a one-year period of
basic service may be ordered upon certification if the
Company is unable to justify its rates. The amount of refund
liability, if any, to which the Company could be subject in
the event that these systems' rates are successfully
challenged by franchising authorities is not currently
estimable.
During the year ended December 31, 1994, the Company paid
rate refunds of approximately $944,000 to its cable customers
as a result of rate orders issued by certain franchise
authorities within certain cable systems which have
subsequently been sold.
The Company is involved in various claims and lawsuits which
are generally incidental to its business. The Company is
vigorously contesting all such matters and believes that
their ultimate resolution will not have a material adverse
effect on its consolidated financial position, results of
operations or cash flows.
(12) Subsequent Event
On March 14, 1997, the Company 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. In addition, the availability under the
Revolving Credit Facility was increased from $310,000,000 to
$360,000,000.
(13) Financial Information
The following schedules present balance sheet and statement of
operations information of the Company as of and for the year ended
December 31, 1996:
<TABLE>
Combined Operating
Operating Capital Elimin- Consol- Capital Elimin-
Assets Partnerships II Operating ations idated Capital III MCC ations Company
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents 8,126 1 (2,849) --- 5,278 1 1 754 --- 6,034
Accounts receivable, net 26,649 --- (12,966) 3,360 17,043 --- --- --- --- 17,043
Prepaid expenses and other 1,896 --- 536 --- 2,432 --- --- --- --- 2,432
------ ----- ------- ----- ----- ----- ----- ----- ----- ------
Total current assets 36,671 1 (15,279) 3,360 24,753 1 1 754 --- 25,509
Property and equipment, net 572,990 --- 5,517 --- 578,507 --- --- --- --- 578,507
Other assets, net 1,084,284 --- 1,536,473 (1,527,515 1,093,242 --- --- (3,040) (6,668) 1,083,534
Investment in subsidiaries --- --- 189,573 (189,573) --- --- --- 480,373 (480,373) ---
----- ----- ----- ----- --- ----- ----- ----- ----- -----
Total assets 1,693,945 1 1,716,284 (1,713,728) 1,696,502 1 1 478,087 (487,041) 1,687,550
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Liabilities and Partners' Capital
Current liabilities:
Current maturities of
long-term debt 183 --- 41,636 --- 41,819 --- --- --- --- 41,819
Accrued liabilities 60,179 --- 76,520 (80,626) 56,073 --- --- --- (6,668) 49,405
Accrued interest 10,664 --- 7,695 (10,664) 7,695 --- --- 2,969 --- 10,664
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total current liabilities 71,026 --- 125,851 (91,290) 105,587 --- --- 2,969 (6,668) 101,888
Long-term debt 1,433,347 --- 1,110,308 (1,432,865) 1,110,790 --- --- 285,862 --- 1,396,652
Subsidiary limited
partner interest --- --- (246) --- (246) --- --- --- --- (246)
Partners' capital 189,572 1 480,371 (189,573) 480,371 1 1 189,256 (480,373) 189,256
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total liabilities and
partners' capital 1,693,945 1 1,716,284 (1,713,728) 1,696,502 1 1 478,087 (487,041) 1,687,550
===== ===== ===== ===== ===== ====== ====== ===== ===== =====
</TABLE>
<TABLE>
Combined Operating
Operating Capital Elimin- Consol- Capital Elimin-
Partnerships II Operating ations idated Capital III MCC ations Company
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Cable services 432,172 --- --- --- 432,172 --- --- --- --- 432,172
Management fees --- --- 2,335 --- 2,335 --- --- --- --- 2,335
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total revenues 432,172 --- 2,335 --- 434,507 --- --- --- --- 434,507
Operating expenses:
Selling, service and
system management 155,279 --- 1,918 --- 157,197 --- --- --- --- 157,197
General and administrative 60,870 --- 12,147 --- 73,017 --- --- --- --- 73,017
Allocated corporate
costs 12,150 --- (12,150) --- --- --- --- --- --- ---
Depreciation and
amortization 165,511 --- 918 --- 166,429 --- --- --- --- 166,429
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
393,810 --- 2,833 --- 396,643 --- --- --- --- 396,643
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Operating income (loss) 38,362 --- (498) --- 37,864 --- --- --- --- 37,864
Other (income) expense:
Interest expense 145,353 --- 107,915 (145,272) 107,996 --- --- 36,685 --- 144,681
Interest income 312 --- (145,876) 145,272 (292) --- --- (13) --- (305)
(Gain) on sale of assets (6,442) --- --- --- (6,442) --- --- --- --- (6,442)
Equity earnings of
subsidiaries --- --- 100,861 (100,861) --- --- --- 63,398 (63,398) ---
----- ----- ----- ----- ----- ----- ----- ----- ------ -----
139,223 --- 62,900 (100,861) 101,262 --- --- 100,070 (63,398) 137,934
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net loss (loss) (100,861) --- (63,398) 100,861 (63,398) --- --- (100,070) 63,398 (100,070)
===== ===== ===== ===== ===== ===== ===== ===== ===== ======
</TABLE>
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,
March 26, 1997 By: /s/ Jeffrey A. Marcus
Jeffrey A. Marcus
Its: President and Chief Executive
Officer
By: /s/ Thomas P. McMillin
Thomas P. McMillin
Its: Senior Vice President and
Chief Financial Officer
MARCUS CABLE OPERATING COMPANY, L.P.
(Registrant)
By: Marcus Cable Company, L.P., its general
partner,
By: Marcus Cable Properties, L.P., its
general partner,
By: Marcus Cable Properties, Inc.,
its general partner,
March 26, 1997 By: /s/ Jeffrey A. Marcus
Jeffrey A. Marcus
Its: President and Chief Executive
Officer
By: /s/ Thomas P. McMillin
Thomas P. McMillin
Its: Senior Vice President and
Chief Financial Officer
<PAGE>
MARCUS CABLE CAPITAL CORPORATION
(Registrant)
March 26, 1997 By: /s/ Jeffrey A. Marcus
Jeffrey A. Marcus
Its: President and Chief Executive
Officer
By: /s/ Thomas P. McMillin
Thomas P. McMillin
Its: Senior Vice President and
Chief Financial Officer
MARCUS CABLE CAPITAL CORPORATION II
(Registrant)
March 26, 1997 By: /s/ Jeffrey A. Marcus
Jeffrey A. Marcus
Its: President and Chief Executive
Officer
By: /s/ Thomas P. McMillin
Thomas P. McMillin
Its: Senior Vice President and
Chief Financial Officer
MARCUS CABLE CAPITAL CORPORATION III
(Registrant)
March 26, 1997 By: /s/ Jeffrey A. Marcus
Jeffrey A. Marcus
Its: President and Chief Executive
Officer
By: /s/ Thomas P. McMillin
Thomas P. McMillin
Its: Senior Vice President and
Chief Financial Officer
Exhibit 10.16
FIRST AMENDMENT, dated as of March 14, 1997 (this "First
Amendment"), to the Credit Agreement, dated as of August 31, 1995
(the "Credit Agreement"), among MARCUS CABLE OPERATING COMPANY,
L.P., a Delaware limited partnership (the "Borrower"), MARCUS CABLE
COMPANY, L.P., a Delaware limited partnership (the "Parent"), the
several banks and other financial institutions from time to time
parties thereto (the "Lenders"), FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, as Co-Agent (in such capacity, the "Co-Agent"), BANQUE
PARIBAS, THE CHASE MANHATTAN BANK, CITIBANK, N.A., THE FIRST
NATIONAL BANK OF BOSTON, PEARL STREET L.P. and UNION BANK, as
Managing Agents (in such capacity, the "Managing Agents"), CHASE
SECURITIES INC., CITICORP SECURITIES, INC., THE FIRST NATIONAL BANK
OF BOSTON, GOLDMAN, SACHS & CO., PARIBAS CAPITAL MARKETS and UNION
BANK, as Co-Arrangers (in such capacity, the "Co-Arrangers"), and
THE CHASE MANHATTAN BANK, a New York banking corporation, 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) The definition
of "Applicable ECF Percentage" contained in Section 1.1 of the
Credit Agreement is hereby amended and restated in its entirety as
follows:
"Applicable ECF Percentage": the percentage set forth
below opposite the applicable Status (determined as of the
last day of the fiscal year of the Borrower immediately
preceding the relevant date of determination):
<TABLE>
Status Percentage
<CAPTION>
<S> <C>
Level I, II, III, IV or V 0%
Level VI, VII, VIII, IX or X 50%
</TABLE>
(b) The grid set forth in paragraph (a) of the
definition of "Applicable Margin" contained in Section 1.1 of the
Credit Agreement is hereby replaced by the following grid:
<TABLE>
Applicable Margin - Eurodollar Loans
<CAPTION>
Status Revolving Credit Tranche B Applicable
Loans and Tranche A Term Loan Margin -
Term Loans ABR Loans
<S> <C> <C> <C>
Level I, II or III 0.750% 2.00% 0%
Level IV 0.875% 2.00% 0%
Level V 1.125% 2.00% 0.125%
Level VI 1.375% 2.00% 0.375%
Level VII 1.375% 2.25% 0.375%
Level VIII 1.50% 2.25% 0.500%
Level IX 1.75% 2.25% 0.750%
Level X 2.00% 2.25% 1.000%
(c) Clause (ii) of the proviso to paragraph (a) of the
definition of "Applicable Margin" contained in Section 1.1 of the
Credit Agreement is hereby amended by changing the percentage
"1.25%" to the percentage "1.00%".
(d) Section 5.2 of the Credit Agreement is hereby
amended by deleting the date "December 31, 1994" contained therein
and substituting in lieu thereof the date "December 31, 1995".
(e) The amount "$25,000,000" in Section 8.2(l) of the
Credit Agreement is hereby changed to the amount "$75,000,000".
(f) The amount "$1,000,000" in Section 8.3(s) of the
Credit Agreement is hereby changed to the amount "$5,000,000".
(g) The parenthetical "(substantially all of which
consist of cable systems)" is hereby deleted from Sections 8.8(f)
and 8.8(g) of the Credit Agreement.
(h) The words "in any Permitted Line of Business" are
hereby inserted immediately before the proviso in Section 8.8(g) of
the Credit Agreement.
(i) The words "and acquisitions financed with
Reinvestment Deferred Amounts" are hereby inserted immediately
after the reference "IV" in Section 8.8(g) of the Credit Agreement.
(j) The amount "$25,000,000" in Section 8.8(j) of the
Credit Agreement is hereby changed to the amount "$75,000,000".
(k) The amount "$25,000,000" in Section 8.9 of the
Credit Agreement is hereby changed to the amount "$75,000,000".
(l) The reference "(x)" is hereby inserted immediately
after the words "so long as" in Section 8.9 of the Credit Agreement
and the words "and (y) the aggregate amount so expended in
connection with such payments, prepayments, redemptions or
purchases of Indebtedness of the Parent does not exceed
$25,000,000" are hereby added to the end of Section 8.9 of the
Credit Agreement.
(m) The first sentence of Section 8.17 of the Credit
Agreement is hereby replaced with the following sentence:
"Enter into any business, either directly or through any
Subsidiary, except for (a) those businesses in which the
Borrower and its Subsidiaries are engaged on the date of
this Agreement, (b) businesses which are reasonably
similar or related thereto or reasonable extensions
thereof and (c) businesses in which other Persons in the
cable industry are generally engaged (each, a "Permitted
Line of Business").
(n) References in the Credit Agreement to Chemical Bank
are hereby changed to references to The Chase Manhattan Bank.
References in the Credit Agreement to Chemical Securities Inc. are
hereby changed to references to Chase Securities Inc.
(o) Effective on the First Amendment Effective Date (as
defined below), (i) the aggregate Revolving Credit Commitments
shall be increased from $310,000,000 to $360,000,000, (ii) each
Person listed on Annex I hereto that is not already a Lender shall
become a party to the Credit Agreement as a "Lender" thereunder and
shall be bound by the provisions thereof and (iii) the respective
Revolving Credit Commitments, Tranche A Term Loans, Tranche B-1
Term Loans and Tranche B-2 Term Loans of the Lenders shall be as
set forth on Annex I hereto. Increases or decreases of the
respective principal amounts of the Loans owing to the Lenders from
the amounts owing to the Lenders immediately prior to the First
Amendment Effective Date (including, without limitation, increases
or decreases in Revolving Credit Loans to the extent necessary to
cause the outstanding Revolving Credit Loans to be held by the
Revolving Credit Lenders pro rata according to their respective
Revolving Credit Commitments after giving effect to this First
Amendment) shall be effected pursuant to procedures specified in
written notices from the Administrative Agent to the relevant
Lenders. The Borrower agrees to pay to the relevant Lenders
amounts of the type described in Section 4.11 of the Credit
Agreement (or amounts of a similar nature) arising from the
procedures referred to in the preceding sentence.
2. Representations and Warranties on First 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 First Amendment Effective Date,
as if made on and as of the First Amendment Effective Date, except
to the extent such representations and warranties expressly relate
to an earlier date."
3. Conditions to Effective Date. This First Amendment
shall become effective on the date (the "First Amendment Effective
Date") of satisfaction of the following conditions precedent:
(a) First Amendment. The Administrative Agent
shall have received (a) counterparts hereof, executed by
all of the parties listed on the signature pages hereof,
and (b) in the case of each Lender and each Exiting
Lender (as defined in Paragraph 6 below), an Addendum to
this First Amendment executed by such Lender or Exiting
Lender.
(b) Legal Opinion. The Administrative Agent shall
have received the executed legal opinion of Baker & Botts
L.L.P., counsel to the Borrower, substantially in the
form of the opinion of such counsel rendered on the
Initial Term Loan Availability Date with changes therein
to reflect that such opinion is in respect of this First
Amendment and is rendered on the First Amendment
Effective Date.
4. Counterparts. This First Amendment may be executed
by one or more of the parties to this First 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 First Amendment signed by all the parties shall be lodged with
the Borrower and the Administrative Agent.
5. GOVERNING LAW. THIS FIRST 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.
6. Exiting Lenders. Each Lender which after the First
Amendment Effective Date no longer holds Loans or a Revolving
Credit Commitment (an "Exiting Lender") is executing this First
Amendment (through an Addendum) solely for the purpose of
acknowledging that its rights and obligations in respect of its
Loans and Revolving Credit Commitment (if any) will terminate on
the First Amendment Effective Date upon repayment in full (or
purchase by another Lender) of all amounts owing to it under the
Credit Agreement on the First Amendment Effective Date. The
modifications effected by this First Amendment are being approved
by Lenders holding 100% of the Term Loans and Revolving Credit
Commitments after giving effect to the repayment of the Loans and
the termination of the Revolving Credit Commitments of the Exiting
Lenders (or purchase of any such Loans or Revolving Credit
Commitments by other Lenders) on the First Amendment Effective
Date. IN WITNESS WHEREOF, the parties hereto have caused this
First 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.P.
By: MARCUS CABLE COMPANY, L.P.
General Partner
By: MARCUS CABLE PROPERTIES, L.P.
General Partner
By: MARCUS CABLE PROPERTIES,
INC.
General Partner
By:
Name:
Title:
MARCUS CABLE COMPANY, L.P.
By: MARCUS CABLE PROPERTIES, L.P.
General Partner
By: MARCUS CABLE PROPERTIES, INC. General Partner
By:
Name:
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent
By:
Name:
Title:
The Co-Arrangers:
CHASE SECURITIES INC.
By:
Name:
Title:
CITICORP SECURITIES, INC.
By:
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON
By:
Name:
Title:
GOLDMAN, SACHS & CO.
(Goldman, Sachs & Co.)
PARIBAS CAPITAL MARKETS
By:
Name:
Title:
By:
Name:
Title:
UNION BANK
By:
Name:
Title:
The Managing Agents:
BANQUE PARIBAS, as a Managing Agent
By:
Name:
Title:
By:
Name:
Title:
THE CHASE MANHATTAN BANK, as a Managing
Agent and as an Issuing Lender
By:
Name:
Title:<PAGE>
CITIBANK, N.A., as a Managing Agent
By:
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON, as a
Managing Agent
By:
Name:
Title:
GOLDMAN SACHS CREDITOR PARTNERS L.P., as
a Managing Agent
By:
Name:
Title:
UNION BANK, as a Managing Agent
By:
Name:
Title:
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, as Co-Agent
By:
Name:
Title:
</TABLE>
Exhibit 12.1
<TABLE>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
Year Ended December 31,
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net loss $ (100,070) $ (52,816) $ (30,610) $ (9,643) $ (21,323)
Add:
Fixed charges per (b) 144,681 82,911 29,346 16,847 14,939
below
Earnings for computation
purposes (a) $ 44,611 $ 30,095 $ (1,264) $ 7,204 $ (6,384)
Fixed Charges:
Interest Costs $ 141,380 $ 81,094 $ 27,699 $ 12,912 $ 10,687
Amortization of Debt
issue costs 3,301 1,817 406 531 427
Preference Returns --- --- 1,241 3,404 3,825
Total Fixed Charges (b) $ 144,681 $ 82,911 $ 29,346 $ 16,847 $ 14,939
Ratio of earnings to
fixed charges (a)/(b) $ --- $ --- $ --- $ --- $ ---
Deficiency of earnings
to cover fixed charges $ (100,070) $ (52,816) $ (30,610) $ (9,643) $ (21,323)
</TABLE>
Exhibit 21.1
SUBSIDIARIES OF MCC
Listed below are the names of certain subsidiaries, at least 50% owned, dir
of December 31, 1996. Indented subsidiaries are direct subsidiaries of the
indented.
<TABLE>
<CAPTION>
Percentage
Owned by State of
Parent Formation
<S> <C> <C>
Marcus Cable Company, L.P. (Registrant): 100.0% Delaware
Marcus Cable Capital Corporation 100.0% Delaware
Marcus Cable Capital Corporation III 99.0% Delaware
Marcus Fiberlink, L.L.C. 99.8% Delaware
Marcus Cable Operating Company, L.P. 100.0% Delaware
Marcus Cable Capital Corporation II 99.8% Delaware
Marcus Cable Associates, L.P. 99.6% Delaware
Marcus Cable Partners, L.P. 100.0% Delaware
Marcus Cable, Inc. 100.0% Delaware
Marcus Cable of Alabama, Inc. (1) 99.0% Delaware
Marcus Cable of Alabama, L.P. 99.9% Delaware
Marcus Cable of Delaware and Maryland, L.P. 99.9% Delaware
<FN>
(1) Marcus Cable of Alabama, Inc. holds 1% general partner interest in Marcus
Cable of Alabama, L.P.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Financial Data Schedule represents Consolidated Marcus Cable Company, L.P.
and Subsidiaries as reflected in the Form 10-K for the year ended December 31,
1996.
</LEGEND>
<CIK> 0000910629
<NAME> MARCUS CABLE COMPANY, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,034
<SECURITIES> 0
<RECEIVABLES> 18,943
<ALLOWANCES> (1,900)
<INVENTORY> 0
<CURRENT-ASSETS> 25,509
<PP&E> 710,093
<DEPRECIATION> (131,586)
<TOTAL-ASSETS> 1,687,550
<CURRENT-LIABILITIES> 101,888
<BONDS> 1,396,652
0
0
<COMMON> 0
<OTHER-SE> 189,256
<TOTAL-LIABILITY-AND-EQUITY> 1,687,550
<SALES> 432,172
<TOTAL-REVENUES> 434,507
<CGS> 0
<TOTAL-COSTS> 396,643
<OTHER-EXPENSES> (6,747)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144,681
<INCOME-PRETAX> (100,070)
<INCOME-TAX> 0
<INCOME-CONTINUING> (100,070)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (100,070)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
