UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1998
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
COMMISSION FILE NUMBERS 33-67390; 33-67390-01; 33-81088;
33-81088-01; 33-81088-02; 33-93808; 33-93808-01
MARCUS CABLE COMPANY, L.L.C.
MARCUS CABLE OPERATING COMPANY, L.L.C.
MARCUS CABLE CAPITAL CORPORATION
MARCUS CABLE CAPITAL CORPORATION II
MARCUS CABLE CAPITAL CORPORATION III
(Exact name of registrants as specified in their charters)
DELAWARE 75-2337471
DELAWARE 75-2495706
DELAWARE 75-2546077
DELAWARE 75-2546713
DELAWARE 75-2599586
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2911 TURTLE CREEK BOULEVARD, SUITE 1300
DALLAS, TEXAS 75219-6257
(Address of principal executive offices) (Zip Code)
(214) 521-7898
(Registrants' telephone number, including area code)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject
to such filing requirements for the past 90 days. Yes X No
There is no established trading market for any of the registrants' voting
securities. As of the date of this report, there were 1,000 shares of common
stock of Marcus Cable Capital Corporation and 1,000 shares of common stock
of Marcus Cable Capital Corporation III outstanding, all of which are owned
by Marcus Cable Company, L.L.C., and 1,000 shares of common stock of Marcus
Cable Capital Corporation II outstanding, all of which are owned by Marcus
Cable Operating Company, L.L.C.
<PAGE>
MARCUS CABLE COMPANY, L.L.C.
MARCUS CABLE OPERATING COMPANY, L.L.C.
MARCUS CABLE CAPITAL CORPORATION
MARCUS CABLE CAPITAL CORPORATION II
MARCUS CABLE CAPITAL CORPORATION III
INDEX TO QUARTERLY REPORT FORM 10-Q
JUNE 30, 1998
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
Definitions 3-4
PART I FINANCIAL INFORMATION
Item 1: Financial Statements - Marcus Cable
Company, L.L.C. and Subsidiaries
Consolidated Balance Sheets as of
June 30, 1998 and December 31, 1997 5
Consolidated Statements of Operations for the
periods from April 23, 1998 to June 30, 1998,
April 1, 1998 to April 22, 1998 and the three
months ended June 30, 1997 6
Consolidated Statements of Operations for the
periods from April 23, 1998 to June 30, 1998,
January 1, 1998 to April 22, 1998 and the six
months ended June 30, 1997 7
Consolidated Statements of Cash Flows for the
periods from April 23, 1998 to June 30, 1998,
January 1, 1998 to April 22,1998 and for the six
months ended June 30, 1997 8
Notes to the Consolidated Financial Statements 9-15
Consolidating Schedules 16-18
</TABLE>
Separate financial statements of Operating as issuer of the 13 1/2%
Notes have not been presented, as the aggregate net assets, earnings
and partners' capital of Operating are substantially equivalent to
the net assets, earnings and partners' capital of the Company on a
consolidated basis. Additionally, separate financial statements of
Capital, Capital II and Capital III have not been presented because
these entities have no operations and substantially no assets or
equity.
The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for forward looking statements. Certain information
included in this Form 10-Q contains statements that are forward
looking, such as statements relating to the effects of future
regulation, future capital commitments and future acquisitions.
Such forward-looking information involves important risks and
uncertainties that could significantly affect expected results in
the future from those expressed in
1
<PAGE>
any forward-looking statements
made by, or on behalf of the Company. These risks and uncertainties
include, but are not limited to, uncertainties relating to economic
conditions, acquisitions and divestitures, government and regulatory
policies, the pricing and availability of equipment, materials,
inventories and programming, technological developments and changes
in the competitive environment in which the Company operates.
Investors are cautioned that all forward-looking statements involve
risks and uncertainties.
<TABLE>
<CAPTION>
<S> <C> <C>
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 19-30
PART II OTHER INFORMATION
Item 1: Legal Proceedings 31
Item 2: Changes in Securities 31
Item 3: Defaults Upon Senior Securities 31
Item 4: Submission of Matters to a Vote of Security Holders 31
Item 5: Other Information 31
Item 6: Exhibits and Reports on Form 8-K 31
</TABLE>
2
<PAGE>
<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 the Company and
Capital
13 1/2% Notes 13 1/2% Senior Subordinated
Guaranteed Discount Notes, due
August 1, 2004, which are
obligations of Operating and
Capital II that are guaranteed by
the Company
14 1/4% Notes 14 1/4% Senior Discount Notes, due
December 15, 2005, which are
obligations of the Company and
Capital III
1992 Cable Act Cable Television Consumer
Protection and Competition Act of
1992
1996 Telecom Act Telecommunications Act of 1996
Capital Marcus Cable Capital Corporation
Capital II Marcus Cable Capital Corporation II
Capital III Marcus Cable Capital Corporation
III
Charter Charter Communications, Inc.
CPST Cable Programming Service Tier
EBITDA Earnings Before Interest, Taxes,
Depreciation and Amortization
Eunit Specially designated Class B units
in MCC granted to certain employees
in past periods by the general
partner of MCC.
FCC Federal Communications Commission
Harron Harron Communication Corp. and
certain of its subsidiaries
Harron Acquisition The July 1,1997 purchase of the
Harron Systems
Harron Systems Certain cable television systems
purchased from Harron
Goldman Sachs Goldman, Sachs & Co.
HBO Home Box Office
HFC Hybrid Fiber Coaxial
LIBOR London InterBank Offered Rate
Maryland Cable Maryland Cable Partners, L.P.
Maryland Cable Agreement The management agreement between
Operating and Maryland Cable
Maryland Cable System Cable system owned by Maryland
Cable
MCC Marcus Cable Company, L.P. and
subsidiaries
Marcus (or the "Company") Marcus Cable Company, L.L.C. and
subsidiaries
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MCA Marcus Cable Associates, L.L.C.
MCOA Marcus Cable of Alabama, L.L.C.
MCDM Marcus Cable of Delaware and
Maryland, L.P.
MCP Marcus Cable Partners, L.L.C.
MCPI Marcus Cable Properties, Inc., the
ultimate General Partner of the
Company
MCPLP Marcus Cable Properties, L.P.
MCPLLC Marcus Cable Properties, L.L.C.
Mountain Brook Acquisition Certain cable system purchased from
Mountain Brook and Shelby Cable on
April 1, 1998
Mountain Brook Mountain Brook Cablevision, Inc.
Mountain Brook and
Shelby Cable System Cable television system serving the
Mountain Brook and Shelby County
area in and around Birmingham,
Alabama purchased from Mountain
Brook and Shelby Cable
Operating Marcus Cable Operating Company,
L.L.C.
Operating Divisions MCP, MCDM, MCOA and MCA
PPV Pay-per-view
Predecessor Period The period from January 1, 1998 to
April 22, 1998
Senior Credit Facility $1,150,000,000 Credit Agreement
among Operating, the Company,
Banque Paribas, Chase Manhattan
Bank, Citibank, N.A., The First
National Bank of Boston, Goldman
Sachs, Union Bank and certain other
lenders referred to therein, dated
as of August 31, 1995, as amended
Shelby Cable Shelby Cable, Inc.
SFAS Statement of Financial Accounting
Standards
Successor Period The period from April 23, 1998 to
June 30, 1998
Systems Cable television systems owned by
the Company
Time Warner Time Wagner Entertainment Company,
L.P. and certain of its
subsidiaries
Time Warner Exchange Exchange of certain cable
television systems with Time Warner
on December 1, 1997
Vulcan Vulcan Cable, Inc.
Vulcan Acquisition The acquisition, by Vulcan, of the
outstanding partnership interests
in MCC, MCPLP and MCPI, excluding
the controlling interest in MCPI
</TABLE>
4
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
MARCUS CABLE COMPANY, L.L.C. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
<CAPTION>
Successor(note 2) || Predecessor (note 2)
-------------------||--------------------
Assets June 30, ||
1998 ||
(Unaudited) || December 31,
(note 1) || 1997
-------------------||--------------------
<S> <C> ||<C>
Current assets: ||
Cash and cash equivalents $ 7,858 ||$ 1,607
Accounts receivable, ||
net of allowance of $1,983 ||
and $1,904, respectively 26,951 || 23,935
Prepaid expenses and other 4,707 || 2,105
-------------------||--------------------
Total current assets 39,516 || 27,647
||
Property and equipment, ||
net (note 3) 757,750 || 706,626
||
Other assets, net (note 4) 2,487,778 || 1,016,195
-------------------||--------------------
$ 3,285,044 ||$ 1,750,468
===================||====================
||
Liabilities and Partners' Capital ||
||
Current liabilities: ||
Current maturities of ||
long-term debt (note 6) $ 73,284 ||$ 68,288
Accrued liabilities (note 5) 118,093 || 60,805
Accrued interest 8,070 || 7,949
-------------------||-------------------
Total current liabilities 199,450 || 137,042
||
Long-term debt (note 6) 1,617,587 || 1,533,645
Carrying-value ||
premium (note 6) 105,154 || ---
-------------------||-------------------
1,722,741 || 1,533,645
||
Subsidiary limited ||
partner interests --- || (246)
||
Partners' capital 1,362,856 || 80,027
||
Commitments and contingencies --- || ---
-------------------||-------------------
$ 3,285,044 ||$ 1,750,468
===================||====================
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
MARCUS CABLE COMPANY, L.L.C. AND SUBSIDIARIES
<TABLE>
Consolidated Statements of Operations
(unaudited)
(in thousands)
<CAPTION>
Successor(note2) Predecessor (note 2)
----------------||--------------------------
Period from || Period from Three
April 23 to || April 1, to Months ended
June 30, || April 22, June 30,
1998 || 1998 1997
----------------||------------ ------------
<S> <C> ||<C> <C>
Revenues: ||
Cable services $ 96,973 ||$ 30,894 $ 115,283
Management fees (note 7) 56 || 19 1,086
----------------||------------ ------------
Total revenues 97,029 || 30,913 116,369
----------------||------------ ------------
||
Operating expenses: ||
Selling, service and ||
system management 37,530 || 11,948 43,413
General and administrative 15,044 || 4,744 17,300
Transaction costs (note 2) --- || 114,167 ---
Depreciation and ||
amortization 54,034 || 12,990 45,028
----------------||------------ ------------
Total operating expenses 106,608 || 143,849 105,741
----------------||------------ ------------
Operating (loss) income (9,579) || (112,936) 10,628
----------------||------------ ------------
||
Other (income) expense: ||
Interest expense, net 27,568 || 9,915 36,799
Gain on sale of assets --- || (43,662) ---
----------------||------------ ------------
Total other ||
(income) expense 27,568 || (33,747) 36,799
----------------||------------ ------------
Net loss $ (37,147) ||$ (79,189) $ (26,171)
================||============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
6
<PAGE>
<TABLE>
MARCUS CABLE COMPANY, L.L.C. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
(in thousands)
<CAPTION>
Successor(note2) Predecessor (note 2)
----------------||--------------------------
Period from || Period from Six
April 23 to || January 1, Months ended
June 30, || to April 22, June 30,
1998 || 1998 1997
----------------||------------ ------------
<S> <C> ||<C> <C>
Revenues: ||
Cable services $ 96,973 ||$ 157,389 $ 225,352
Management fees (note 7) 56 || 374 5,464
----------------||------------ ------------
Total revenues 97,029 || 157,763 230,816
----------------||------------ ------------
||
Operating expenses: ||
Selling, service and ||
system management 37,530 || 60,501 84,845
General and administrative 15,044 || 24,245 34,798
Transaction costs (note 2) --- || 114,167 ---
Depreciation and ||
amortization 54,034 || 64,669 89,174
----------------||------------- ------------
Total operating expenses 106,608 || 263,582 208,817
----------------||------------ ------------
Operating (loss) income (9,579) || (105,819) 21,999
----------------||------------ ------------
||
Other (income) expense: ||
Interest expense, net 27,568 || 49,905 73,347
Gain on sale of assets --- || (43,662) ---
----------------||------------ ------------
Total other ||
(income) expense 27,568 || 6,243 73,347
----------------||------------ ------------
Net loss $ (37,147) ||$ (112,062) $ (51,348)
================||============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
7
<PAGE>
<TABLE>
MARCUS CABLE COMPANY, L.L.C. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
<CAPTION>
Successor(note 2) Predecessor (note 2)
----------------||--------------------------
Period from || Period from Six
April 23 to || January 1, Months ended
June 30, || to April 22, June 30,
1998 || 1998 1997
----------------||------------ ------------
<S> <C> ||<C> <C>
Cash flows from operating ||
activites: ||
Net loss $ (37,147) ||$ (112,062) $ (51,348)
Adjustments to reconcile ||
net loss to net cash ||
provided by operating ||
activities: ||
Depreciation and ||
amortization 54,034 || 64,669 89,174
Accretion of discount ||
of notes 14,191 || 23,710 33,241
Amortization of carrying ||
value premium (3,138) || --- ---
Other non cash interest 94 || 1,289 1,942
Gain on sale of assets --- || (43,662) ---
Changes in assets and ||
liabilities, net of ||
working capital ||
adjustments: ||
Accounts receivable (4,348) || 1,888 (2,556)
Prepaid expenses (776) || (1,914) (1,309)
Other assets 2,058 || (2,371) (47)
Accrued interest 3,351 || (3,230) (75)
Accrued liabilities (15,156) || 117,855 4,157
----------------||------------ ------------
Net cash provided ||
by operating ||
activities 13,163 || 46,172 73,179
----------------||------------ ------------
||
Cash flows from operating ||
activites: ||
Acquisition of ||
cable system --- || (57,324) ---
Proceeds from sale of ||
assets, net of ||
sales costs --- || 64,564 ---
Cash contributed from ||
partners (note 2) 1,400,000 || --- ---
Distributions (note 2) (1,400,000) || --- ---
Additions to property ||
and equipment (45,292) || (66,088) (87,463)
----------------||------------ ------------
Net cash used ||
in investing ||
activities (45,292) || (58,848) (87,463)
----------------||------------ ------------
Cash flows from financing ||
activites: ||
Net borrowings under ||
Senior Credit Facility 38,750 || 12,750 15,000
Repayments of long-term ||
debt (29) || (28) (54)
Payment of debt ||
issuance costs --- || --- (1,392)
Payment of capital ||
lease obligations (113) || (274) (259)
----------------||------------ ------------
Net cash provided ||
by financing ||
activities 36,608 || 12,448 13,295
----------------||------------ ------------
Net (decrease) increase in ||
cash and cash equivalents 6,479 || (228) (989)
Cash and cash equivalents at ||
beginning of period 1,379 || 1,607 6,034
----------------||------------ ------------
Cash and cash equivalents at ||
end of period $ 7,858 ||$ 1,379 $ 5,045
================||============ ============
Supplemental disclosure of ||
cash flow information: ||
Interest Paid $ 12,754 ||$ 28,517 $ 27,307
================||============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
8
<PAGE>
MARCUS CABLE COMPANY, L.L.C. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(1) Summary of Significant Accounting Policies
(a) General
The Company is a Delaware limited liability company,
formerly Marcus Cable Company, L.P., which was formed as
a Delaware limited partnership on January 17, 1990 and
converted to a Delaware limited liability company on June
9, 1998. The Company was formed for the purpose of
acquiring, operating and developing cable television
systems. The Company derives its primary source of
revenues by providing various levels of cable television
programming and services to residential and business
customers. The Company's operations are conducted
through Operating, an operating holding company and a
wholly-owned subsidiary of the Company. Operating, in
turn, conducts its operations through the Operating
Divisions, in which, in the case of MCDM, it, directly or
indirectly, serves as the general partner and owns a
greater than 99.0% interest, and in the case of the other
three Operating Divisions, it serves as the sole member
and owns a 100% interest.
(b) Basis of Presentation
The consolidated financial statements include the
accounts of the Company, Capital, Capital II, Capital
III, Operating and the Operating Divisions. All
significant intercompany accounts and transactions have
been eliminated in consolidation. Certain
reclassifications have been made to prior years'
consolidated balances to conform to the current year
presentation. See also note 2 for a discussion of the
change in accounting basis effective April 23, 1998.
(c) Interim Financial Information
In the opinion of management, the accompanying unaudited
interim consolidated financial information of the Company
contains all adjustments, consisting only of those of a
recurring nature, necessary to present fairly the
Company's financial position and results of operations
for all periods presented. These financial statements
are for interim periods and do not include all of the
detail normally provided in annual financial statements
and should be read in conjunction with the consolidated
financial statements of the MCC for the year ended
December 31, 1997, included in MCC's Annual Report on
Form 10-K.
(2) Acquisitions and Divestitures
Vulcan Acquisition
On April 23, 1998, Vulcan acquired all of the outstanding
partnership interests in MCC, MCPLP and MCPI , excluding the
controlling interest in MCPI, the ultimate general partner.
9
<PAGE>
As a result of the Vulcan Acquisition, the Company has applied
pushdown accounting in the preparation of the accompanying
financial statements. Accordingly, MCC adjusted its equity as
of the Vulcan Acquisition date to reflect the amount paid in
the transaction and allocated that amount to assets acquired
and liabilities assumed based on their relative fair values,
as determined by management using past independent appraisals
and general industry practices. The excess of the purchase
price over the fair value of MCC's tangible and separately
identifiable intangible assets was allocated to franchise
rights. The total transaction was valued at approximately
$3.2 billion and was allocated as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Franchise rights $ 2,511,391
Property and equipment 735,832
Noncompetition agreements 6,344
Other assets 719
---------------
$ 3,254,286
===============
</TABLE>
The transaction was funded through cash contributions of
approximately $1.4 billion from Vulcan and the assumption of
approximately $1.8 billion in net liabilities.
In connection with the Vulcan Acquisition, MCC incurred
transaction costs of approximately $114,200,000, comprised of
approximately $90,200,000 paid to employees of MCC in
settlement of the Eunits and approximately $24,000,000
of transaction fees paid to certain equity partners (see note 7).
These transaction costs have been included in the accompanying
unaudited statement of operations for the period from April 1, 1998
to April 22, 1998.
As a result of the Vulcan Acquisition and the application of
push down accounting, financial information in the
accompanying unaudited condensed consolidated financial
statements and notes thereto as of June 30, 1998 and for the
Successor Period is presented on a different cost basis than
the financial information as of December 31, 1997 and for the
three and six months ended June 30, 1997 and for the
Predecessor Period, and therefore, such information is not
comparable.
Additionally, as a result of the Vulcan Acquisition and in
accordance with the terms and conditions of the indentures
(collectively, the "Indentures") governing the 13 1/2% Notes,
the 11 7/8% Debentures and the 14 1/4% Notes, the Company and the
issuers offered to repurchase such notes and debentures at a
redemption price (i) in the case of the 13 1/2% Notes, of 101%
of the Accreted Value (as defined in the Indenture governing
such notes) thereof, (ii) in the case of the 11 7/8%
Debentures, at a redemption price of 101% of the principal
amount thereof plus accrued but unpaid interest to the date of
purchase and (iii) in the case of the 14 1/4% Notes, at a
redemption price of 101% of the Accreted Value (as defined in
the Indenture governing such notes) thereof. On July 1, 1998,
4,500 of the 14 1/4% Notes and 500 of the 13 1/2% Notes were
tendered for gross tender payments of $3,471,795 and $519,845,
respectively. The tender payments were funded through
borrowings under the Company's Senior Credit Facility.
Other Acquisitions
On April 1, 1998, the Company completed the acquisition of the
Mountain Brook and Shelby Cable System from Mountain Brook and
Shelby Cable for an aggregate purchase price of $57,300,000.
The communities served by this system are adjacent to the
Company's existing systems in the suburban Birmingham, Alabama
area. As of the date of the acquisition, this system served
approximately 23,000 basic customers.
10
<PAGE>
Divestitures
On April 1, 1998, the Company completed the sale of its cable
television systems located in Delaware and Maryland to an
affiliate of Comcast Corporation for a sales price of
approximately $65,500,000. As of the date of the sale, the
systems served approximately 26,500 customers.
Pro Forma Financial Information
Unaudited pro forma financial information for the periods from
April 23, 1998 to June 30, 1998 and January 1, 1998 to April 22,1998
and the six month period ended June 30, 1997 as though all
acquisitions and divestitures completed during the period from
January 1, 1997 through June 30, 1998 had occurred at January
1, 1997 follows (in thousands):
<TABLE>
<CAPTION>
April 23 to January 1,
June 30, to April 22, June 30,
1998 1998 1997
---------------- ------------ ------------
<S> <C> <C> <C>
Revenue $ 96,973 $ 156,692 $ 232,553
Operating (loss) income (9,635) (6,975) 5,007
Net loss (37,203) (48,965) (60,107)
</TABLE>
The pro forma financial information has been prepared for
comparative purposes only and does not purport to indicate the
results of operations which would actually have occurred had
the acquisitions and divestitures been made at the
beginning of the period indicated, or which may occur in the
future.
(3) Property and Equipment
Property and equipment consists of the following (in
thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------- ------------
(Successor) (Predecessor)
<S> <C> <C>
Cable systems $ 733,389 $ 878,721
Vehicles and other 32,254 37,973
Land and buildings 14,841 17,271
-------------- ------------
780,484 933,935
Accumulated depreciation (22,734) (227,309)
-------------- ------------
$ 757,750 $ 706,626
============== ============
</TABLE>
11
<PAGE>
4) Other Assets
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------- ------------
(Successor) (Predecessor)
<S> <C> <C>
Franchise rights $ 2,511,325 $ 1,209,725
Debt issuance costs --- 45,225
Going concern value of acquired
cable systems --- 37,274
Noncompetition agreements 6,344 25,914
Other 746 1,090
-------------- ------------
2,518,415 1,319,228
Accumulated amortization (30,637) (303,033)
-------------- ------------
$ 2,487,778 $ 1,016,195
============== ============
</TABLE>
(5) Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------- ------------
(Successor) (Predecessor)
<S> <C> <C>
Accrued operating costs $ 46,477 $ 27,923
Accrued transaction costs 44,667 ---
Accrued programming costs 10,902 9,704
Accrued franchise fees 7,226 10,131
Accrued property taxes 3,635 5,125
Other accrued liabilities 5,186 7,922
-------------- ------------
$ 118,093 $ 60,805
============== ============
</TABLE>
12
<PAGE>
(6) Long-term Debt and Carrying Value Premium
The Company had outstanding borrowings and a carrying value
premium as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------- ------------
(Successor) (Predecessor)
<S> <C> <C>
At historical carrying amounts:
Senior Credit Facility $ 1,001,250 $ 949,750
13 1/2% Senior Subordinated
Discount Notes, due
August 1, 2004 359,004 336,304
14 1/4% Senior Discount
Notes, due December 15, 2004 228,573 213,372
11 7/8% Senior Debentures, due
December 15, 2004 100,000 100,000
Capital leases and other notes 2,044 2,507
-------------- ------------
1,690,871 1,601,933
Less current maturities 73,284 68,288
-------------- ------------
1,617,587 1,533,645
Carrying value premium 105,154 ---
-------------- ------------
$ 1,722,741 $ 1,533,645
============== ============
</TABLE>
In conjunction with the Vulcan Acquisition and in accordance
with push down accounting, the Company was required to record
a carrying value premium (estimated fair market value less
historical carrying amount) of approximately $108,292,000 as
of the date of the Vulcan Acquisition. The carrying value
premium is being amortized to interest expense over the
estimated remaining lives of the related indebtedness using
the interest method.
Amounts outstanding under the Senior Credit Facility bear
interest at either the (i) Eurodollar rate, (ii) prime rate or
(iii) CD base rate or Federal Funds rate, plus a margin of up
to 2.25% subject to certain adjustments based on the ratio of
Operating's total debt to annualized operating cash flow, as
defined. At June 30, 1998, borrowings under the Senior Credit
Facility bore interest at rates ranging from 7.04% to 8.63%
under the Eurodollar and prime rate options. The Company pays
a commitment fee ranging from .250% to .375% on the unused
commitment under the Senior Credit Facility.
To reduce the impact of changes in interest rates on its
floating rate long-term debt, the Company has entered into
certain interest rate swap agreements with certain of the
participating banks under the Senior Credit Facility. At June
30, 1998, interest rate swap agreements covering a notional
balance of $400,000,000 were outstanding which require the
Company to pay fixed rates ranging from 5.75% to 5.77%, plus
the applicable interest rate margin. These agreements mature
from 1998 through 2000, and allow for the optional extension
by the counterparty for additional periods and certain of the
agreements provide for the automatic termination in the event
that one month LIBOR exceeds 6.75% on any monthly reset date.
The Company has also entered into an interest rate swap
agreement covering an aggregate notional principal amount of
$100,000,000 which matures in the year 2000 whereby the
Company receives one month LIBOR plus 0.07% and is required to
pay the higher of one month LIBOR at either the beginning or
end of the interest period, plus the applicable interest rate
margin.
As interest rates change under the interest rate swap
agreements, the differential to be paid or received is
recognized as an adjustment to interest expense. During the
period from January 1,
13
<PAGE>
1998 to April 22, 1998 and for the
period from April 23, 1998 to June 30, 1998, the Company
recognized additional interest expense of approximately
$17,000 and $62,000, respectively, under its interest rate
swap agreements. During the three and six months ended June
30, 1997, the Company recognized additional interest
expense of $66,000 and $587,000, respectively, under its
interest rate swap agreements.
(7) Related Party Transactions
Prior to the consummation of the Vulcan Acquisition,
affiliates of Goldman Sachs owned limited partnership
interests in MCC. Maryland Cable, which is controlled by an
affiliate of Goldman Sachs, owned the Maryland Cable System.
Operating managed the Maryland Cable System under the Maryland
Cable Agreement. Pursuant to such agreement, Operating earned
a management fee equal to 4.7% of the revenues of Maryland Cable.
Effective January 31, 1997, the Maryland Cable System was sold
to Jones Communications of Maryland, Inc. Pursuant to the
Maryland Cable Agreement, Operating recognized incentive
management fees of $280,000 during the six months ended June
30, 1998 and $986,000 and $5,069,000 during the three and six
months ended June 30, 1997, respectively, in conjunction with
the sale. Additional incentive management fees may be
recognized upon the dissolution of Maryland Cable, which is
anticipated to occur during 1998. There is no assurance that
any of such additional fees will be realized. Although Operating
is no longer involved in the active management of the Maryland
Cable System, Operating has entered into an agreement with
Maryland Cable to oversee the activities, if any, of Maryland
Cable through the liquidation of the partnership. Pursuant to
such agreement, Operating earns a nominal monthly fee.
Including the incentive management fees noted above, during
the period from January 1, 1998 to April 22, 1998 and for the
period from April 23, 1998 to June 30, 1998, Operating earned
total management fees of approximately $373,000 and $57,000,
respectively. During the three and six month periods ended
June 30, 1997, Operating earned total management fees of
$1,087,000 and $5,464,000, respectively.
In connection with the Vulcan Acquisition, certain equity
partners were paid approximately $24,000,000 for investment
banking services.
(8) Comprehensive Income
In June 1997, SFAS No. 130, Reporting Comprehensive Income,
was issued. SFAS No. 130 establishes standards for reporting
and displaying comprehensive income and its components in an
annual financial statement that is displayed with the same
prominence as other annual financial statements.
Reclassification of financial statements for earlier periods,
provided for comparative purposes, is required. The statement
also requires the accumulated balance of other comprehensive
income to be displayed separately from retained earnings and
additional paid-in-capital in the equity section of the
statement of financial position. SFAS No. 130 is effective
for fiscal years beginning after December 15, 1997. There are
no differences between comprehensive loss and actual net loss
on the Company's financial statements.
14
<PAGE>
(9) Subsequent Events
Proposed Combination with Charter
On July 30, 1998, Paul G. Allen, the sole owner of Vulcan,
announced that he has entered into an agreement to acquire
Charter, and that he intends to integrate the operations of
the Company and Charter. The resulting combined company will
be the seventh largest cable operator in the United States,
serving approximately 2.4 million customers. The timing and
structure of such proposed integration has not been
established.
Pending Divestitures
On July 31, 1998, the Company completed the sale of its cable
television assets located in Mississippi, the Texas Panhandle
and Oklahoma to Cable One, Inc. for a sales price of
approximately $129,000,000. As of the date of the sale, these
systems served an aggregate of approximately 72,400 customers.
On April 16, 1998, the Company entered into a definitive
agreement with Triax Midwest Associates, L.L.C. to sell certain
cable television assets located in Illinois for a sales price of
Approximately $61,000,000. These systems serve an aggregate of
approximately 32,500 customers. The transaction is subject to
regulatory approval and is expected to be completed during the
third quarter of 1998.
On March 4, 1998, the Company announced that it has entered
into a definitive agreement with TMC Holdings, Inc. to sell
certain cable television assets located in Connecticut and
Virginia for approximately $150,000,000. The systems serve
approximately 63,000 customers. The transaction is subject to
regulatory approval and the closing is expected to occur during the
third quarter of 1998.
15
<PAGE>
(10) Financial Information
<TABLE>
MARCUS CABLE COMPANY, L.L.C. AND SUBSIDIARIES
Consolidating Schedule - Balance Sheet Information
As of June 30, 1998
(unaudited)
(in thousands)
ASSETS
<CAPTION>
Combined
Operating Capital Elimin- Operating Capital Elimin-
Divisions II Operating ations Consolidated Capital III Company ations Company
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents 5,467 1 1,556 --- 7,024 1 1 832 --- 7,858
Accounts receivable, net 167,287 --- 126,530 (266,866) 26,951 --- --- 356,074 (356,074) 26,951
Prepaid expenses and other 3,911 --- 796 --- 4,707 --- --- --- --- 4,707
--------- ----- --------- --------- --------- ----- ----- ---------- ---------- ---------
Total current assets 176,665 1 128,882 (266,866) 38,682 1 1 356,906 (356,074) 39,516
Property and equipment, net 748,594 --- 9,156 --- 757,750 --- --- --- --- 757,750
Other assets, net 2,488,555 --- 1,636,289 (1,602,640) 2,522,204 --- --- --- (34,426) 2,487,778
Investment in subsidiaries --- --- 1,271,577 (1,271,577) --- --- --- 1,430,907 (1,430,907) ---
--------- ----- --------- --------- --------- ----- ----- ---------- ---------- ---------
Total assets 3,413,814 1 3,045,904 (3,141,083) 3,318,636 1 1 1,787,813 (1,821,407) 3,285,044
========= ===== ========= ========= ========= ===== ===== ========== ========== =========
Liabilities and Partners' Capital
Current liabilities:
Current maturities of
long-term debt 190 --- 73,094 --- 73,284 --- --- --- 0 73,284
Accrued liabilities 357,638 --- 232,862 (115,346) 475,154 --- --- 33,439 (390,500) 118,093
Accrued interest 8,070 --- 5,101 (8,070) 5,101 --- --- 2,969 0 8,070
--------- ----- --------- --------- --------- ----- ----- ---------- --------- ---------
Total current
liabilities 365,898 --- 311,057 (123,416) 553,539 --- --- 36,408 (390,500) 199,447
Long-term debt 1,671,186 --- 1,258,765 (1,640,936) 1,289,015 --- --- 328,572 --- 1,617,587
Carrying value premium 105,154 --- 45,177 (105,154) 45,177 --- --- 59,977 --- 105,154
--------- ----- --------- --------- --------- ----- ----- ---------- --------- ---------
1,776,340 --- 1,303,942 (1,746,090) 1,334,192 --- --- 388,549 --- 1,722,741
Partners' capital 1,271,576 1 1,430,905 (1,271,577) 1,430,905 1 1 1,362,856 (1,430,907) 1,362,856
--------- ----- --------- --------- --------- ----- ----- ---------- --------- ---------
Total liabilities and
partners' capital 3,413,814 1 3,045,904 (3,141,083) 3,318,636 1 1 1,787,813 (1,821,407) 3,285,044
========== ===== ========= ========= ========= ===== ===== ========== ========= =========
(continued)
</TABLE>
16
<PAGE>
<TABLE>
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Consolidating Schedule - Statement of Operations Information
Sucessor
For the period from April 22, 1998 to June 30, 1998
(unaudited)
(in thousands)
<CAPTION>
Combined Operating
Operating Capital Elimin- Consol- Capital Elimin-
Divisions II Operating ations idated Capital III MCC ations Company
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Cable services 96,973 --- --- --- 96,973 --- --- --- --- 96,973
Management fees --- --- 56 --- 56 --- --- --- --- 56
-------- ------ -------- ------- ------ ------ ----- ------- ------- -------
Total revenues 96,973 --- 56 --- 97,029 --- --- --- --- 97,029
-------- ------ -------- ------- ------ ------ ----- ------- ------- -------
Operating expenses:
Selling, service and
system management 37,013 --- 517 --- 37,530 --- --- --- --- 37,530
General and administrative 12,169 --- 2,875 --- 15,044 --- --- --- --- 15,044
Allocated corporate costs 3,760 --- (3,760) --- --- --- --- --- --- ---
Transaction costs --- --- --- --- --- --- --- --- --- ---
Depreciation and amortization 53,698 --- 336 --- 53,034 --- --- --- --- 53,034
-------- ------ ------- ------- ------ ------ ----- ------- ------- -------
Total operating expenses 106,640 --- (32) --- 106,608 --- --- --- --- 106,608
-------- ------ ------- ------- ------ ------ ----- ------- ------- -------
Operating income (loss) (9,667) --- 88 --- (9,579) --- --- --- --- (9,579)
Other (income) expense:
Interest (income) expense, net 27,830 --- (6,587) --- 21,243 --- --- 6,325 --- 27,568
Gain on sale of cable system --- --- --- --- --- --- --- --- --- ---
Equity loss of subsidiaries --- --- 37,497 (37,497) --- --- --- 30,822 (30,822) ---
-------- ------ ------- ------- ------- ------ ----- ------- ------- -------
28,830 --- 30,910 (37,497) 21,243 --- --- 37,147 (30,822) 27,568
-------- ------ ------- ------- ------- ------ ----- ------- ------- -------
Net earnings loss (37,497) --- (30,822) 37,497 (30,822) --- --- (37,147) 30,822 (37,147)
======== ====== ======= ======= ======= ====== ===== ======= ======= =======
</TABLE>
17
<PAGE>
<TABLE>
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Consolidating Schedule - Statement of Operations Information
Predecessor
For the period from January 1, 1998 to April 22, 1998
(unaudited)
(in thousands)
<CAPTION>
Combined Operating
Operating Capital Elimin- Consol- Capital Elimin-
Divisions II Operating ations idated Capital III MCC ations Company
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Cable services 157,389 --- --- --- 157,389 --- --- --- --- 157,389
Management fees --- --- 374 --- 374 --- --- --- --- 374
--------- ------ ------- ------ -------- ------ ------ ------- ------ -------
Total revenues 157,389 --- 374 --- 157,763 --- --- --- --- 157,763
--------- ------ ------- ------ -------- ------ ------ ------- ------ -------
Operating expenses:
Selling, service and
system management 59,671 --- 830 --- 60,501 --- --- --- --- 60,501
General and administrative 19,560 --- 4,685 --- 24,245 --- --- --- --- 24,245
Allocated corporate costs 5,778 --- (5,778) --- --- --- --- --- --- ---
Transaction costs --- --- 114,167 --- 114,167 --- --- --- --- 114,167
Depreciation and amortization 64,147 --- 522 --- 64,669 --- --- --- --- 64,669
--------- ------ ------- ------ -------- ------ ------ ------- ------ -------
Total operating expenses 149,156 --- 114,426 --- 263,582 --- --- --- --- 263,582
--------- ------ ------- ------ -------- ------ ------ ------- ------ -------
Operating income (loss) 8,233 --- (114,052) --- (105,819) --- --- --- --- (105,819)
Other (income) expense:
Interest (income) expense, net 50,492 --- (14,010) --- 36,482 --- --- 13,423 --- 49,905
Gain on sale of cable system (43,662) --- --- --- (43,662) --- --- --- --- (43,662)
Equity (earnings)
loss of subsidiary --- --- (1,403) 1,403 --- --- --- 98,639 (98,639) ---
---------- ------ ------- ------- -------- ------ ------ ------- ------ -------
6,830 --- (15,413) 1,403 (7,180) --- --- 112,062 (98,639) 6,243
---------- ------ ------- ------- -------- ------ ------ ------- ------ -------
Net earnings (loss) 1,403 --- (98,639) (1,403) (98,639) --- --- (112,062) 98,639 (112,062)
========== ====== ======= ======= ======== ====== ====== ======= ====== =======
</TABLE>
18
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
attached consolidated financial statements and notes thereto, and
with the Company's audited consolidated financial statements and
notes thereto for the fiscal year ended December 31, 1997, included
in the Company's Annual Report on Form 10-K.
GENERAL
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
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.
The Company has followed a systematic approach in acquiring,
operating and developing cable television systems based on the
principle of increasing operating cash flow while maintaining a
high quality standard of service. The Company's acquisition
strategy focuses on cable television systems in proximity to its
existing systems or of sufficient size to serve as cores for new
operating regions. The Company believes that increasing its
operating scale through strategic acquisitions, as well as through
internal growth, enhances its ability to reduce the rate of increase
in programming costs, develop new technologies, offer new services
and improve operating margins, and thus improve its long-term competitiveness.
In continuing to implement the Company's acquisition strategy, the
Company acquired the Mountain Brook and Shelby Cable System in
April of 1998. The Mountain Brook and Shelby Cable System serves
approximately 23,000 customers from a single headend through a 550
MHz HFC architecture. This system serves the two broader areas of
Mountain Brook and northern Shelby County, which are adjacent to
the Company's existing systems in the Birmingham, AL market. The
Company intends to interconnect this system with its existing HFC
networks and fully integrate the operations of this system with its
existing operations in the Birmingham area. Funding for the $57.3
million purchase was provided through the proceeds received from
the divestiture of the cable television systems located in Delaware
and Maryland.
Future expansion efforts are expected to focus on acquiring or
exchanging systems, with the strategic goal of forming or expanding
clusters of systems to permit operating efficiencies and economies
of scale. Opportunistic divestitures, in areas where consolidation
opportunities do not exist, are also considered. In implementing
the Company's divestiture strategy, the Company has
entered into agreements to divest certain non-strategic cable
systems. Upon completion of the sales of these non-strategic
systems, the Company will own and operate six core groups of cable
systems. See the discussion concerning system divestitures in note
2 to the unaudited consolidated financial statements.
The Company has invested heavily in improving its infrastructure
and strives to maintain high technological standards in its cable
television systems on a cost-effective basis. During 1996 and
1997, the Company invested approximately $309 million in its
infrastructure through its capital spending programs. A
substantial portion of the spending has been dedicated to
upgrading/rebuilding its broadband network to an HFC system
architecture. Depending on market size, the Company's capital
deployment strategy generally centers on rebuilding and upgrading
systems to a minimum technical standard of 550 MHz in small
markets, while the larger markets, representing the majority of the
Systems, are being built utilizing a 750-862 MHz architecture with
an average of 950 homes per fiber node, with 8 optical fibers per
19
<PAGE>
node fiber. In the majority of its rebuilt markets, the Company is
activating two-way network capability to support impulse PPV, high
speed data services and other advanced applications, while also
deploying advanced analog home terminal devices. As part of its
investment, the Company has deployed 4,800 miles of fiber optic
cable and upgraded 15,500 miles of coaxial cable. By the end of
1998, 63% of the homes passed by the Company's broadband networks
will have bandwidth capacity of 550 MHz or greater with more than
50% of the homes passed by the networks at 750 MHz or greater. By
the end of 1999, the Company anticipates that its upgrade/rebuild
program will be substantially complete with almost 84% of the homes
passed by its networks having bandwidth capacity of 550 MHz or
greater and 70% of the homes passed by its networks at 750 MHz or
greater. This capacity will allow the Company to offer its
customers between 80 and 100 channels of traditional analog video
programming while having reserved, across 70% of its technical
infrastructure, 200 MHz of "warehoused" spectrum. Such additional
spectrum can be used for digital services and other advanced
applications. As a further means of providing additional capacity
and investing for the future, the Company's upgrades to 750 MHz and
862 MHz include fiber nodes sized from an average of 350 to 950
homes per fiber node with 8 optical fibers per node fiber. These
multiple fibers per node will provide for excess capacity and allow
the Company to vary the number of homes served from each node to
optimize the service provided based on customer demand. In
addition to expanding revenue opportunities, upgrading network
architecture serves to enhance picture quality and system
reliability, thus improving overall customer satisfaction.
LIQUIDITY AND CAPITAL RESOURCES
The Company has grown significantly over the past several years
through acquisitions as well as through upgrading, extending and
rebuilding its existing cable television systems. Since expansion
by means of these methods is capital intensive, the Company has
relied upon various sources of financing to meet its funding needs.
These sources have included contributions from equity investors,
borrowings under various debt instruments and positive cash flows
from operations.
Uses of Cash
As part of the ongoing business strategy, the Company has invested,
and will continue to invest, significant amounts of capital
rebuilding and upgrading its cable systems so that by the end of
1999, 84% of the existing systems will have a bandwidth of between
550 MHz and 862 MHz. This program should enable the Company to
deliver technological innovations to its customers as such services
become commercially viable. As part of this program, certain
systems, such as those serving the areas in and around Ft.
Worth/Tarrant County (Texas), Glendale/Burbank (California) and
suburban Birmingham (Alabama) together with selected systems in
Wisconsin, Indiana, Tennessee and other states in which the Company
operates cable systems, are being upgraded to 750 MHz or 862 MHz
with two-way communication capabilities.
A significant use of capital in 1998 will be to finance the planned
system upgrades, rebuilds and extensions and the purchase of
digital and data distribution equipment and home terminal devices
for use in customers' homes. Capital expenditures are expected to
approximate $218,097,000 (or approximately $200 per customer) in
1998. The Company expects to fund these capital expenditures
through cash generated from operations and available borrowings
under the Senior Credit Facility. During the period from January 1,
1998 to April 22, 1998 and for the period from April 23, 1998 to
June 30,1998, the Company made capital expenditures of
approximately $66,362,000 and $45,405,000, respectively.
Cash interest is payable monthly, quarterly and semiannually on
borrowings outstanding under the Company's Senior Credit Facility
and the 11 7/8% Debentures. No cash interest is payable on the 13
1/2% Notes until February 1, 2000 and no cash interest is payable
on the 14 1/4% Notes until December 15, 2000. Maturities of long-term
debt approximate $876,612,000 over the next five years. The
Company expects
20
<PAGE>
to cover both interest and principal payments on
its long-term obligations through internally generated funds,
borrowings under the Senior Credit Facility, or the future issuance
of public or private equity or debt. Although in the past the
Company has been able to obtain financing through equity
investments, debt issuances and bank borrowings, there can be no
assurance that the capital resources necessary to accomplish the
Company's business strategy will be available, or that the terms
will be favorable to the Company.
During the period from January 1, 1998 to April 22, 1998 and for
the period from April 23, 1998 to June 30,1998, the Company made
gross payments of approximately $16,278,000 and $16,279,000,
respectively, on the Senior Credit Facility and other long-term
debt.
As a result of the Vulcan Acquisition and in accordance with the
terms and conditions of the indentures (collectively, the
"Indentures") governing the 13 1/2% Notes, the 11 7/8% Debentures
and the 14 1/4% Notes, the Company and the issuers offered to
repurchase such notes and debentures at a redemption price (i) in
the case of the 13 1/2% Notes, of 101% of the Accreted Value (as
defined in the Indenture governing such notes) thereof, (ii) in the
case of the 11 7/8% Debentures, at a redemption price of 101% of
the principal amount thereof plus accrued but unpaid interest to
the date of purchase and (iii) in the case of the 14 1/4% Notes, at
a redemption price of 101% of the Accreted Value (as defined in the
Indenture governing such notes) thereof. On July 1, 1998, 4,500 of
the 14 1/4% Notes and 500 of the 13 1/2% Notes were tendered for
gross tender payments of $3,471,795 and $519,845, respectively.
The tender payments were funded through borrowings under the
Company's Senior Credit Facility.
Sources of Cash
The Company generated cash flows from operating activities of
$22,226,000 and $37,109,000 during the period from January 1, 1998
to April 22, 1998 and for the period from April 23, 1998 to June
30,1998, respectively. During the period from January 1, 1998 to
April 22, 1998 and for the period from April 23, 1998 to June
30,1998, the Company borrowed $29,000,000 and $55,000,000,
respectively, under the Senior Credit Facility. Cash flows from
operating activities, funding from equity contributions and
borrowings have been sufficient to meet the Company's debt service,
working capital and capital expenditure requirements. The Company has
an additional $71,059,000 of borrowing capacity under its Revolving
Credit Facility after considering committed lines of credit of $3,941,000.
RESULTS OF OPERATIONS
The comparability of operating results between the three and six
months ended June 30, 1998 and the corresponding periods for 1997
are affected by several events which occurred during 1997 and 1998
(collectively referred to as the "Pro Forma Adjustments"). These
events include 1) the Harron Acquisition on July 1, 1997; 2) the addition
of approximately 14,000 net basic customers in
Wisconsin and Indiana through the exchange with Time Warner on
December 1, 1997; 3) the sale of the previously managed Maryland
Cable System on January 31, 1997; 4) the sale of the Delaware and
Maryland systems on April 1, 1998; 5) the Mountain Brook Acquisition on
April 1, 1998; and 6) the Vulcan Acquisition on June 23, 1998.
The following table summarizes the operating results for the three
and six months ended June 30, 1998 in comparison to the same
periods in 1997, combining the 1998 results for the Predecessor
Period (January 1 through April 22) with the Successor Period
(April 23 though June 30). The most significant impact of the
Vulcan Acquisition on the operating results was the $114.2 million
of transaction costs, as previously explained in note 2 to
the financial statements, a decrease of $3,138,000 in interest
expense, due to the amortization of the carrying value premium, and
an increase of $11,647,000 in depreciation and amortization
expense, due to an increase in the carrying value of the assets.
21
<PAGE>
Specific trends addressed within the discussion of operating results will
refer to the combined results as presented in this
table (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Cable services $ 127,867 $ 115,283 $ 254,362 $ 225,352
Management fees 75 1,086 430 5,464
--------- --------- --------- ---------
Total revenues 127,942 116,369 254,792 230,816
--------- --------- --------- ---------
Operating expenses:
Selling, service and
system management 49,478 43,413 98,031 84,845
General and
administrative 19,788 17,300 39,289 34,798
Transaction costs 114,167 --- 114,167 ---
Depreciation and
amortization 67,024 45,028 118,703 89,174
--------- --------- --------- ---------
Total operating
expenses 250,457 105,741 370,190 208,817
Operating
income (loss) (122,515) 10,628 (115,398) 21,999
--------- --------- --------- ---------
Other (income) expenses:
Interest expense, ne t 37,483 36,799 77,473 73,347
Gain on divestiture
of cable system (43,662) --- (43,662) ---
--------- --------- --------- ---------
Total other
(income) expense (6,179) 36,799 33,811 73,347
--------- --------- --------- ---------
Net loss $(116,336) $ (26,171) $(149,209) $ (51,348)
========= ========= ========= =========
</TABLE>
The Company generates the majority of its revenues from monthly
customer fees for basic and premium services, installation income
and other ancillary services (such as the rental of home terminal
devices). Additional revenues are generated from pay-per-view
programming, the sale of advertising spots and sales commissions
from home shopping networks. Revenues were also generated from
fees earned in conjunction with the sale of and the management of
Maryland Cable.
Selling, service and system management expenses consist primarily
of labor costs and other expenses associated with programming,
marketing, engineering and plant maintenance and advertising.
General and administrative costs consist primarily of salaries
for administrative personnel, customer billing costs, bad debt
expense, property taxes and copyright fees.
Transaction costs of $114,167,000 consist of $90,221,000 paid in
settlement of the Eunits and $23,946,000 paid to certain equity partners
for investment banking services.
The gain on the divestiture of cable system pertains to the gain
recognized on the sale of the Company's Delaware and Maryland
properties on April 1, 1998.
22
<PAGE>
Three Months Ended June 30, 1998 Compared With Three Months Ended
June 30, 1997
Revenues
Revenues of $127,942,000 for the three months ended June 30, 1998
increased $11,573,000, or 9.9%, over revenues of $116,369,000 for
the three months ended June 30, 1997. Approximately $2,560,000
of such increase was the net result of the Harron Acquisition,
the Time Warner Exchange, the Mountain Brook Acquisition and the
DelMar Divestiture. The remaining increase was primarily
attributable to growth in basic service revenue, equipment sales
and rentals and advertising sales revenue. These increases were
offset by decreases in premium service revenue, pay-per-view
revenue, and a decrease of $1,011,000 in management fee income.
Normalizing the effects of the Pro Forma Adjustments, pro forma
revenue of $127,867,000 increased $9,013,000, or 7.6%, for the
three months ended June 30, 1998, versus the comparable period in
1997.
Basic service revenue of $95,873,000 for the three months ended
June 30, 1998 increased $12,973,000, or 15.6%, over basic service
revenue of $82,900,000 for the three months ended June 30, 1997.
Approximately $3,046,000 of the increase was the net result of
the Harron Acquisition, the Time Warner Exchange, the Mountain
Brook Acquisition and the DelMar Divestiture. The remaining
increase primarily reflects the impact of new product offerings,
channel additions, mid-year rate adjustments and increases in the
number of basic customers. Normalizing the effects of the Pro
Forma Adjustments, pro forma basic service revenues increased
$9,927,000, or 11.5%, for the three months ended June 30, 1998,
versus the comparable period in 1997.
Equipment sales and rentals of $5,328,000 for the three months
ended June 30, 1998 increased $796,000, or 17.6%, from $4,532,000
for the three months ended June 30, 1997. Approximately $96,000
of the increase was the net result of the Harron Acquisition, the
Time Warner Exchange, the Mountain Brook Acquisition and the
DelMar Divestiture. The remaining increase was primarily due to
the deployment of addressable converters, including advanced
analog home terminal devices, in conjunction with the system
upgrades and rebuilds. Normalizing the effects of the Pro Forma
Adjustments, pro forma equipment sales and rentals increased
$700,000, or 15.0%, for the three months ended June 30, 1998,
versus the comparable period in 1997.
Advertising revenue of $5,380,000 for the three months ended June
30, 1998 increased $1,054,000, or 24.4%,from $4,326,000 for the
three months ended June 30, 1997. The Harron Acquisition, the
Time Warner Exchange, the Mountain Brook Acquisition and the
DelMar Divestiture had a minimal impact on advertising revenue.
The positive trend in advertising sales is primarily the result
of increases in the number of insertable channels, improved
channel utilization through the installation of digital insertion
equipment and greater market demand.
Premium service revenue of $13,473,000 for the three months ended
June 30, 1998 decreased $1,841,000, or 12.0%, from $15,314,000
for the three months ended June 30, 1997. The net effect of the
Harron Acquisition, the Time Warner Exchange, the Mountain Brook
Acquisition and the DelMar Divestiture was an increase in premium
service revenue of $156,000. The remaining decrease was primarily
the result of continued losses in premium units, mainly caused by
the migration of Disney from a premium to a basic service as addressed in
the "Customer Information" section. Normalizing
the effects of the Pro Forma Adjustments, pro forma premium
service revenue decreased $1,997,000, or 13.2%, for the three
months ended June 30, 1998, versus the comparable period in 1997.
Pay-per-view revenue of $2,283,000 for the three months ended
June 30, 1998 decreased $484,000, or 17.5%, from $2,767,000 for
the three months ended June 30, 1997. The June 1997
Tyson/Holyfield boxing match resulted in pay-per-view revenue of
approximately $1,000,000. There was not a similar size event
presented in 1998. Absent the Tyson/Holyfield fight in 1997,
pay-per-view revenue would have increased 18.2% from the
23
<PAGE>
deployment of advanced analog home terminal devices, which have
increased the availability of pay-per-view products.
Management fee revenue of $75,000 for the three months ended June
30, 1998 decreased $1,011,000 as a result of the sale of the
Maryland Cable Systems, as discussed in note 7 to the unaudited
consolidated financial statements. The Company will continue to
earn a nominal monthly management fee through the date of
liquidation of the Maryland Cable partnership. Additional
incentive management fees may be recognized upon the termination
of the Maryland Cable partnership, expected to occur during 1998.
Costs and Expenses
Selling, service and system management expenses of $49,478,000
for the three months ended June 30, 1998 increased $6,065,000 or
14.0%, from $43,413,000 for the three months ended June 30, 1997.
Programming costs increased $4,146,000, or 14.3%, for the three
months ended June 30, 1998. Approximately $753,000 of the
programming cost increase was the net result of the Harron
Acquisition, the Time Warner Exchange, the Mountain Brook
Acquisition and the DelMar Divestiture. The remaining
programming cost increase is primarily attributable to increases
in the cost of basic satellite programming as a result of annual
cost increases, incremental basic customer growth and the
addition of satellite programming channels to certain of the
Company's rebuilt systems. Other factors contributing to the
increase in selling, service and system management expenses
resulted from an increase in marketing expenses and plant expense
of $1,471,000, or 66.6%, and $641,000, or 6.3%, respectively, for
the three months ended June 30, 1998. Approximately $143,000 of
the increase in marketing expense was the net result of the
Harron Acquisition, the Time Warner Exchange, the Mountain Brook
Acquisition and the DelMar Divestiture. The remaining increase
in marketing expense for the three months ended June 30, 1998
resulted from increases in printing and direct mail and
advertising costs due to the introduction of several new
marketing campaigns and from a $1,092,000 reduction in channel
launch support. Approximately $502,000 of the plant expense
increase was the net result of the Harron Acquisition, the Time
Warner Exchange, the Mountain Brook Acquisition and the DelMar
Divestiture. The remaining increase in plant expense for the
three months ended June 30, 1998 was primarily the result of
inflationary adjustments. Normalizing the effects of the Pro
Forma Adjustments, pro forma selling, service and system
management expenses increased $4,811,000, or 10.8%, for the three
months ended June 30, 1998, versus the comparable period in 1997.
General and administrative expenses of $19,788,000 for the three
months ended June 30, 1998 increased $2,488,000, or 14.4%, from
$17,300,000 for the three months ended June 30, 1997.
Approximately $588,000 of the increase was the net result of the
Harron Acquisition, the Time Warner Exchange, the Mountain Brook
Acquisition and the DelMar Divestiture. The remaining increase
is mainly attributable to incremental labor costs incurred as the
Company continues to add customer service resources, including
staffing both existing and new customer call centers. Billing
costs have increased as a result of upgrading the Company's
customer care platform. Normalizing the effects of the Pro Forma
Adjustments, pro forma general and administrative expenses
increased $1,899,000, or 10.6%, for the three months ended June
30, 1998, versus the comparable period in 1997.
Depreciation and amortization expense of $67,024,000 for the
three months ended June 30, 1998 increased $21,996,000, or 48.8%,
from $45,028,000 for the three months ended June 30, 1997. The
increase is principally a result of an additional $11,647,000 of
depreciation and amortization expense recognized from the
increase in net assets due to the Vulcan Acquisition, and due to
additional capital expenditures incurred to rebuild and upgrade
the physical plant and equipment of certain of the Systems.
24
<PAGE>
Operating Income
Operating losses of $122,515,000 for the three months ended June
30, 1998 decreased from operating income of $10,628,000 for the
comparable period in 1997, mainly due to the transaction costs of
$114,167,000 and the other factors discussed above.
The cable television industry generally measures the performance
of a cable system in terms of system cash flow before corporate
expenses and depreciation and amortization (often referred to as
"Cable System Cash Flow") and a cable television company in terms
of operating income before depreciation and amortization (often
referred to as "EBITDA"). These measures are not intended to be
a substitute or improvement on the terms disclosed on the
financial statements. Rather, these measures are included as
industry standards. Cable System Cash Flow and EBITDA of
$63,100,000 and $58,676,000, respectively, for the three months
ended June 30, 1998 increased $4,434,000, or 7.6%, and
$3,020,000, or 5.4%, in comparison to the same period in 1997.
Normalizing the effects of the Pro Forma Adjustments, pro forma
Cable System Cash Flow and EBITDA for the three months ended June
30, 1998 increased 4.5% and 4.1%, respectively, over the
comparable period in 1997.
Other (Income) Expenses
Net interest expense of $37,483,000 for the three months ended
June 30, 1998 increased $684,000, or 1.9%, in comparison to the
same period in 1997. This increase was primarily due to the
scheduled increase in accretion for the 13 1/2% Notes and the
1/4% Notes of $2,462,000, combined with an increase in interest
expense from increased borrowings under the Senior Credit
Facility, and offset by the carrying-value premium amortization
of $3,138,000. The weighted average interest rate, including
commitment fees, for total debt outstanding during the three
months ended June 30, 1998 was 9.78 %, compared with 9.84% for
the three months ended June 30, 1997.
Six Months Ended June 30, 1998 Compared With Six Months Ended
June 30, 1997
Revenues
Revenues of $254,792,000 for the six months ended June 30, 1998
increased $23,976,000, or 10.4%, over revenues of $230,816,000
for the six months ended June 30, 1997. Approximately $2,864,000
of such increase was the net result of the Harron Acquisition,
the Time Warner Exchange, the Mountain Brook Acquisition and the
DelMar Divestiture. The remaining increase was primarily
attributable to growth in basic service revenue, equipment sales
and rentals and advertising sales revenue. These increases were
offset by decreases in premium service revenue and a decrease of
$5,034,000 in management fee income. Normalizing the effects of
the Pro Forma Adjustments, pro forma revenue of $253,665,000
increased $21,112,000, or 9.1%, for the six months ended June 30,
1998, versus the comparable period in 1997.
Basic service revenue of $190,165,000 for the six months ended
June 30, 1998 increased $27,383,000, or 16.8%, over basic service
revenues of $162,782,000 for the six months ended June 30, 1997.
Approximately $6,188,000 of the increase was the net result of
the Harron Acquisition, the Time Warner Exchange, the Mountain
Brook Acquisition and the DelMar Divestiture. The remaining
increase primarily reflects the impact of new product offerings,
channel additions, mid-year rate adjustments and increases in the
number of basic customers. Normalizing the effects of the Pro
Forma Adjustments, pro forma basic service revenues increased $21,195,000,
or 12.5%, for the six months ended June 30, 1998, versus the comparable
period in 1997.
Equipment sales and rentals of $10,428,000 for the six months
ended June 30, 1998 increased $1,626,000, or 18.5%, from
$8,802,000 for the six months ended June 30, 1997. Approximately
25
<PAGE>
$398,000 of the increase was the net result of the Harron
Acquisition, the Time Warner Exchange, the Mountain Brook
Acquisition and the DelMar Divestiture. The remaining increase
was primarily due to the deployment of addressable converters,
including advanced analog home terminal devices, in conjunction
with the system upgrades and rebuilds. Normalizing the effects
of the Pro Forma Adjustments, pro forma equipment sales and
rentals increased $1,228,000, or 13.5%, for the six months ended
June 30, 1998, versus the comparable period in 1997.
Advertising revenue of $10,703,000 for the six months ended June
30, 1998 increased $2,883,000, or 36.9%,from $7,820,000 for the
three months ended June 30, 1997. The Harron Acquisition, the
Time Warner Exchange, the Mountain Brook Acquisition and the
DelMar Divestiture had a minimal impact on advertising revenue.
The upward trend in advertising sales is primarily the result of
increases in the number of insertable channels, improved channel
utilization through the installation of digital insertion equipment and
greater market demand.
Premium service revenue of $26,931,000 for the six months ended
June 30, 1998 decreased $3,570,000, or 11.7%, from $30,501,000
for the six months ended June 30, 1997. The net effect of the
Harron Acquisition, the Time Warner Exchange, the Mountain Brook
Acquisition and the DelMar Divestiture was an increase in premium
service revenue of $395,000. The remaining decrease was primarily the
result of continued losses in premium units, mainly caused by the
migration of Disney from a premium to a basic service as
addressed in the "Customer Information" section. Normalizing
the effects of the Pro Forma Adjustments, pro forma premium
service revenue decreased $3,965,000, or 13.2%, for the six
months ended June 30, 1998, versus the comparable period in 1997.
Management fee revenue of $430,000 for the six months ended June
30, 1998 decreased $5,034,000 as a result of the sale of the
Maryland Cable Systems, as discussed in note 7 to the unaudited
consolidated financial statements. The Company will continue to
earn a nominal monthly management fee through the date of
liquidation of the Maryland Cable partnership. Additional
incentive management fees may be recognized upon the termination
of the Maryland Cable partnership, expected to occur during 1998.
Costs and Expenses
Selling, service and system management expenses of $98,031,000
for the six months ended June 30, 1998 increased $13,186,000 or
15.5%, from $84,845,000 for the six months ended June 30, 1997.
Programming costs increased $8,719,000, or 15.4%, for the six
months ended June 30, 1998. Approximately $1,700,000 of the
programming cost increase was the net result of the Harron
Acquisition, the Time Warner Exchange, the Mountain Brook
Acquisition and the DelMar Divestiture. The remaining
programming cost increase is primarily attributable to increases
in the cost of basic satellite programming as a result of annual
cost increases, incremental basic customer growth and the
addition of satellite programming channels to certain of the
Company's rebuilt systems. Other factors contributing to the
increase in selling, service and system management expenses
resulted from an increase in marketing expenses and plant expense
of $2,786,000, or 66.4%,and $1,586,000, or 7.9%, respectively,
for the six months ended June 30, 1998. Approximately $340,000
of the increase in marketing expense was the net result of the
Harron Acquisition, the Time Warner Exchange, the Mountain Brook
Acquisition and the DelMar Divestiture. The remaining increase
in marketing expense for the six months ended June 30, 1998
resulted from increases in printing and direct mail and
advertising costs due to the introduction of several new
marketing campaigns and from a $1,785,000 reduction in channel
launch support. Approximately $1,092,000 of the plant expense
increase was the net result of the Harron Acquisition, the Time
Warner Exchange, the Mountain Brook Acquisition and the DelMar
Divestiture. The remaining increase in plant expense for the six
months ended June 30, 1998 was primarily the result of
inflationary adjustments. Normalizing the effects of the Pro
Forma Adjustments, pro forma selling, service and system
management expenses increased $10,187,000, or 11.7%, for the six
months ended June 30, 1998, versus the comparable period in 1997.
26
<PAGE>
General and administrative expenses of $39,289,000 for the six
months ended June 30, 1998 increased $4,491,000, or 12.9%, from
$34,798,000 for the six months ended June 30, 1997.
Approximately $1,251,000 of the increase was the net result of
the Harron Acquisition, the Time Warner Exchange, the Mountain
Brook Acquisition and the DelMar Divestiture. The remaining
increase is mainly attributable to incremental labor costs
incurred as the Company continues to add customer service
resources, including staffing both existing and new customer call
centers. Billing costs have increased as a result of upgrading
the Company's customer care platform. Normalizing the effects of
the Pro Forma Adjustments, pro forma general and administrative
expenses increased $3,240,000, or 9.0%, for the six months ended
June 30, 1998, versus the comparable period in 1997.
Depreciation and amortization expense of $118,703,000 for the six
months ended June 30, 1998 increased $29,529,000, or 33.1%, from
$89,174,000 for the six months ended June 30, 1997. The
increase is principally a result of an additional $11,647,000 of
depreciation and amortization expense recognized from the
increase in net assets due to the Vulcan Acquisition, and due to
additional capital expenditures incurred to rebuild and upgrade
the physical plant and equipment of certain of the Systems.
Operating Income
Operating losses of $115,398,000 for the six months ended June
30, 1998 decreased from operating income of $21,999,000 for the
comparable period in 1997, mainly due to the transaction costs of
$114,167,000 and the other factors discussed above.
Cable System Cash Flow and EBITDA of $125,949,000 and
$117,472,000, respectively, for the six months ended June 30,
1998 increased $12,217,000, or 10.7%, and $6,298,000, or 5.4%, in
comparison to the same period in 1997. Normalizing the effects
of the Pro Forma Adjustments, pro forma Cable System Cash Flow
and EBITDA for the six months ended June 30, 1998 increased 7.3%
and 7.0%, respectively, over the comparable period in 1997.
Other (Income) Expenses
Net interest expense of $77,473,000 for the six months ended June
30, 1998 increased $4,126,000, or 5.6%, in comparison to the same
period in 1997. This increase was primarily due to the scheduled
increase in accretion for the 13 1/2% Notes and the 14 1/4% Notes
of $4,734,000, combined with an increase in interest expense from
increased borrowings under the Senior Credit Facility, and offset
by the carrying-value premium amortization of $3,138,000. The
weighted average interest rate, including commitment fees, for total
debt outstanding during the six months ended June 30, 1998 was 9.75%,
compared with 9.88% for the six months ended June 30, 1997.
Customer Information
The following table illustrates the changes in the Company's
basic customers and premium units which have significantly
contributed to the revenue fluctuations previously noted.
Substantially all of the internal growth in basic customers is
attributable to continued marketing and sales efforts as well as
the continued extension of physical cable plant in order to pass
additional dwelling units. A portion of the decrease in premium
units from December 31, 1997 was anticipated as approximately
60,000 Disney units were converted from a pay service to the
basic service level and as a reaction to a change in the
Company's marketing strategy. In the third quarter of 1997, the
Company decided to no longer promote deep discount sales offers
due to the amount of churn these types of offers produced. In an
effort to renew premium unit growth, the Company has introduced
multiplex premium services at the a la carte level and has
introduced specific marketing campaigns, including the "From the
Earth to the Moon" campaign in conjunction with the HBO
miniseries of the same name. These multiplex services and
marketing campaigns are directed at upgrading existing customers'
service packages and acquiring new customers through discounted
27
<PAGE>
initial service pricing packages. All of the campaigns are
specifically tailored toward customer retention and providing
programming variety and choice at competitive rates.
<TABLE>
<CAPTION>
Actual Actual Pro Forma
June 30, December 31, June 30,
1998 1997 1997 (a)
<S> <C> <C> <C>
Basic Customers 1,238,377 1,232,287 1,226,499
Premium Units 513,720 583,603 647,468
- ----------------------
<FN>
(a) Includes: 1) an increase of approximately 22,200 basic
customers and 13,500 premium units from the Harron
Acquisition on July 1, 1997; 2) an increase of
approximately 14,000 basic customers and a decrease of
approximately 19,100 premium units from the net effect of
the Time Warner Exchange on December 1, 1997; 3) an increase
of approximately 23,000 basic customers and 12,000 premium
units from the Mountain Brook Acquisition on April 1, 1998;
and 4) a decrease of approximately 27,000 basic customers
and 20,000 premium units from the DelMar Divestiture on
April 1, 1998.
</FN>
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133 is effective for fiscal years
beginning after June 15, 1999. This statement establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other
contracts, and for hedging activities. The effective adoption of
SFAS No. 133 is not expected to have a material impact on the
Company's financial statements and related disclosures.
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 June 30, 1998, the Company had $1,001,250,000 of
outstanding borrowings under the Senior Credit Facility,
$601,250,000 are not subject to fixed rate interest swap
agreements. The rates are based on either the Eurodollar rate,
prime rate or CD base rate, plus a margin of up to 2.25% subject
to certain adjustments based on the ratio of Operating's total
debt to annualized operating cash flow.
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 June 30, 1998, interest
28
<PAGE>
rate swap agreements covering a notional balance of $400,000,000
were outstanding which require the Company to pay fixed rates
ranging from 5.75% to 5.77%, plus the applicable interest rate
margin. These agreements mature from 1998 through 2000, and
allow for the optional extension by the counterparty for
additional periods and certain of these agreements provide for
the automatic termination in the event that one month LIBOR
exceeds 6.75% on any monthly reset date. The Company has also
entered into an interest rate swap agreement covering an
aggregate notional principal balance of $100,000,000 which
matures in the year 2000 whereby the Company receives one month
LIBOR plus 0.07% and is required to pay the higher of one month
LIBOR at either the beginning or end of the interest period, plus
the applicable interest rate margin.
As interest rates change under the interest rate swap agreements,
the differential to be paid or received is recognized as an
adjustment to interest expense. During the period from January
1, 1998 to April 22, 1998 and for the period from April 23, 1998
to June 30, 1998, the Company recognized additional interest
expense of approximately $17,000 and $62,000, respectively, under
its interest rate swap agreements. During the three and six
months ended June 30, 1997, the Company recognized additional
interest expense of $66,000 and $587,000, respectively, under its
interest rate swap agreements.
REGULATION IN THE CABLE TELEVISION INDUSTRY
The operation of cable television systems is extensively
regulated by the FCC, some state governments and most local
governments. On February 8, 1996, the President signed into law
the 1996 Telecom Act. This new law alters the regulatory
structure governing the nation's telecommunications providers.
It removes barriers to competition in both the cable television
market and the local telephone market. Among other things, it
reduces the scope of cable rate regulation.
The 1996 Telecom Act required the FCC to undertake a host of
implementing rulemakings, the final outcome of which cannot yet
be determined. Moreover, Congress and the FCC have frequently
revisited the subject of cable television regulation and may do
so again. Future legislative and regulatory changes could
adversely affect the Company's operations.
The 1996 Telecom Act sunsets FCC regulation of CPST rates for all
cable television systems (regardless of size) on March 31, 1999.
It also relaxes existing uniform rate requirements by specifying
that uniform rate requirements do not apply where the operator
faces "effective competition," and by exempting bulk discounts to
multiple dwelling units, although complaints about predatory
pricing still may be made to the FCC. It is not possible at this
time to predict the outcome of such rulemakings. Until the
various required rulemakings are implemented which amend the
rules under the previous cable acts, the Company continues to be
subject to the provisions of the 1992 Cable Act.
The Company believes that it has materially complied with
provisions of the 1996 Telecom Act and the 1992 Cable Act, including rate
setting provisions promulgated by the FCC on April 1, 1993. However, in
jurisdictions which have chosen not to certify, refunds covering a one-year
period on basic service may be ordered if the Company is 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 six month period ended June 30,
1998, there were no rate refunds issued. The Company currently has rate
filings pending review at the FCC pertaining to the CPST level of service.
For the regulation period from September 1, 1993 through May 15, 1994,
there is one cost-of-service filing pending review at the FCC affecting 341
customers. For the re-regulation time period from May 1994 to
the present, there are filings for 27 franchises under review at
the FCC affecting approximately 200,000 customers. The majority
of these filings are from old outstanding complaints and have
29
<PAGE>
been waiting to be reviewed for over three years. Until the FCC
rules on the complaints, the Company is required to refresh its
filings annually. During 1997 and the first two quarters of 1998, the
Company received favorable rulings (i.e., the FCC confirmed the
Company's rates and denied the complaint) for 23 filings
affecting approximately 135,000 customers. The FCC also issued
several decisions reducing rates for certain of the Company
systems serving approximately 74,000 customers, which the Company
has asked to be reconsidered. If the FCC determines that the
Company's CPST rates for those 74,000 customers are unreasonable,
it has the authority to order the Company to reduce such rates
and to refund to those customers any overcharges with interest
occurring from the filing date of the rate complaint at the FCC.
The amount of refunds, if any, which may be required by the FCC
in the event the Company's CPST rates are found to be
unreasonable for those customers is estimated at approximately
$429,000.
Because the FCC has not yet resolved pending rate complaints
involving the Company and because franchise authorities may
certify in the future, the overall impact of these regulations
and other provisions of the 1996 Telecom Act and the 1992 Cable
Act on the Company's business cannot be determined at this time.
30
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
There were no material legal proceedings instituted during the six
months ended June 30, 1998 to which the Company is a party or of
which any of its property is subject.
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Included in this report:
Exhibit:
27.1 Financial Data Schedule (supplied for the
information of the Commission)
(b) Reports on Form 8-K
The Company filed reports on Form 8-K reporting Item 5 --
Other Events on March 9, 1998, April 1, 1998, April 2, 1998,
April 7, 1998, April 16, 1998, April 28, 1998, which also
contained an Item 2 -- Acquisition or Disposition of Assets
and on April 30, 1998.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, each of the registrants have duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
MARCUS CABLE COMPANY, L.L.C.
(Registrant)
By: Marcus Cable Properties, L.L.C.,
its sole managing member,
By: Marcus Cable Properties, Inc.,
its sole managing member,
August 14, 1998 By: /s/ Jeffrey A. Marcus
Jeffrey A. Marcus
Its: President, Chief Executive Officer
and Sole Director of Marcus Cable
Properties, Inc. (Principal Executive
Officer)
By: /s/ Thomas P. McMillin
Thomas P. McMillin
Its: Executive Vice President and Chief
Financial Officer of Marcus Cable
Properties, Inc. (Principal Financial
Officer)
By: /s/ John P. Klingstedt, Jr.
John P. Klingstedt, Jr.
Its: Senior Vice President and Controller of
Marcus Cable Properties, Inc.(Principal
Accounting Officer)
32
<PAGE>
MARCUS CABLE OPERATING COMPANY, L.L.C.
(Registrant)
By: Marcus Cable Company, L.L.C., its
sole member,
By: Marcus Cable Properties, L.L.C.,
its sole managing member,
By: Marcus Cable Properties, Inc.,
its sole managing member,
August 14, 1998 By: /s/ Jeffrey A. Marcus
Jeffrey A. Marcus
Its: President, Chief Executive Officer
and Sole Director of Marcus Cable
Properties, Inc. (Principal Executive
Officer)
By: /s/ Thomas P. McMillin
Thomas P. McMillin
Its: Executive Vice President and Chief Financial
Officer of Marcus Cable Properties, Inc.
(Principal Financial Officer)
By: /s/ John P. Klingstedt, Jr.
John P. Klingstedt, Jr.
Its: Senior Vice President and Controller
of Marcus Cable Properties, Inc.
(Principal Accounting Officer)
MARCUS CABLE CAPITAL CORPORATION
(Registrant)
August 14, 1998 By: /s/ Jeffrey A. Marcus
Jeffrey A. Marcus
Its: President, Chief Executive Officer
and Sole Director of Marcus Cable
Capital Corporation (Principal
Executive Officer)
By: /s/ Thomas P. McMillin
Thomas P. McMillin
Its: Executive Vice President and Chief
Financial Officer of Marcus Cable
Capital Corporation (Principal
Financial Officer)
By: /s/ John P. Klingstedt, Jr.
John P. Klingstedt, Jr.
Its: Senior Vice President and Controller
of Marcus Cable Capital Corporation
(Principal Accounting Officer)
33
<PAGE>
MARCUS CABLE CAPITAL CORPORATION II
(Registrant)
August 14, 1998 By: /s/ Jeffrey A. Marcus
Jeffrey A. Marcus
Its: President, Chief Executive Officer
and Sole Director of Marcus Cable
Capital Corporation II (Principal
Executive Officer)
By: /s/ Thomas P. McMillin
Thomas P. McMillin
Its: Executive Vice President and Chief
Financial Officer of Marcus Cable
Capital Corporation II (Principal
Financial Officer)
By: /s/ John P. Klingstedt, Jr.
John P. Klingstedt, Jr.
Its: Senior Vice President and Controller
of Marcus Cable Capital Corporation II
(Principal Accounting Officer)
MARCUS CABLE CAPITAL CORPORATION III
(Registrant)
August 14, 1998 By: /s/ Jeffrey A. Marcus
Jeffrey A. Marcus
Its: President, Chief Executive Officer
and Sole Director of Marcus Cable
Capital Corporation III(Principal
Executive Officer)
By: /s/ Thomas P. McMillin
Thomas P. McMillin
Its: Executive Vice President and Chief
Financial Officer of Marcus Cable
Capital Corporation III (Principal
Financial Officer)
By: /s/ John P. Klingstedt, Jr.
John P. Klingstedt, Jr.
Its: Senior Vice President and Controller
of Marcus Cable Capital Corporation III
(Principal Accounting Officer)
34
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Financial Data Schedule represents Consolidated Marcus Cable Company,
L.L.C. and Subsidiaries as reflected in the Form 10-Q for the period ended
June 30, 1998.
</LEGEND>
<CIK> 0000910629
<NAME> MARCUS CABLE COMPANY, L.L.C.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 7,858
<SECURITIES> 0
<RECEIVABLES> 28,934
<ALLOWANCES> (1,983)
<INVENTORY> 0
<CURRENT-ASSETS> 39,516
<PP&E> 780,484
<DEPRECIATION> (22,734)
<TOTAL-ASSETS> 3,285,044
<CURRENT-LIABILITIES> 199,447
<BONDS> 1,722,741
0
0
<COMMON> 0
<OTHER-SE> 1,362,856
<TOTAL-LIABILITY-AND-EQUITY> 3,285,044
<SALES> 254,362
<TOTAL-REVENUES> 254,792
<CGS> 0
<TOTAL-COSTS> 370,190
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77,473
<INCOME-PRETAX> (149,209)
<INCOME-TAX> 0
<INCOME-CONTINUING> (149,209)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (149,209)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
