<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 33-72468
33-72468-01
THE HELICON GROUP, L.P.
(Exact name of registrant as specified in its charter)
Delaware 4841 22-3248703
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
HELICON CAPITAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 4841 22-3248702
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
630 Palisade Avenue
Englewood Cliffs, New Jersey 07632
(201) 568-7720
(Address, including Zip Code and telephone number,
including area code, of registrants' principal executive offices)
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
----- -----
The number of shares outstanding of the common stock of Helicon Capital
Corp., as of August 12, 1997: 100.
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
--------------------- ----
<S> <C>
Unaudited Condensed Consolidated Balance Sheets as at
December 31, 1996 and June 30, 1997................................ 3
Unaudited Condensed Consolidated Statements of Operations for
the three-month and six-month periods ended June 30, 1996
and 1997............................................................. 4
Unaudited Condensed Consolidated Statement of Changes in
Partners' Deficit for the six-month period ended
June 30, 1997........................................................ 5
Unaudited Condensed Consolidated Statements of Cash
Flows for the six-month period ended June 30, 1996
and 1997............................................................. 6
Notes to Unaudited Condensed Consolidated Financial Statements....... 7 and 9
Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 10-16
PART II. OTHER INFORMATION
Exhibits and Reports on Form 8-K..................................... 16
Signature Page....................................................... 17
</TABLE>
2
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31, 1996(a) JUNE 30, 1997
-------------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents.................................................... $ 5,751,189 $ 2,749,834
Receivables from subscribers................................................. 795,568 851,979
Prepaid expenses and other assets............................................ 959,916 1,574,920
Property, plant and equipment, net........................................... 28,887,133 36,040,091
Intangible assets and deferred costs, net.................................... 21,751,852 33,288,589
-------------------- -------------
Total assets........................................................... $ 58,145,658 $ 74,505,413
-------------------- -------------
-------------------- -------------
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable........................................................... $ 2,907,235 $ 2,444,381
Accrued expenses........................................................... 518,625 878,632
Subscriptions received in advanced......................................... 371,464 400,334
Accrued interest........................................................... 2,155,526 2,241,790
Due to principal owner..................................................... 5,000,000 5,000,000
Senior secured notes....................................................... 115,000,000 115,000,000
Loans payable to bank...................................................... 1,497,223 20,281,293
Other notes payable........................................................ 2,885,044 2,803,287
Due to affiliates.......................................................... 406,304 48,394
-------------------- -------------
Total liabilities...................................................... 130,741,421 149,098,111
-------------------- -------------
Partners' deficit:
Accumulated partners' deficit.............................................. (72,594,763) (74,591,698)
Less capital contribution receivable....................................... (1,000) (1,000)
-------------------- -------------
Total partners' deficit................................................ (72,595,763) (74,592,698)
-------------------- -------------
Total liabilities and partners' deficit................................ $ 58,145,658 $ 74,505,413
-------------------- -------------
-------------------- -------------
</TABLE>
- ------------------------
(a) Balance Sheet at December 31, 1996 has been derived from Audited
Consolidated Financial Statements at that date.
See accompanying notes to unaudited condensed consolidated financial
statements.
3
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
Unaudited Condensed Consolidated Statements of Operations
Three-Month and Six-Month Periods Ended June 30, 1996 and 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1996 1997 1996 1997
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues.............................................. $ 9,552,425 $ 10,287,323 $ 18,872,174 $ 20,696,330
------------ ------------- ------------- -------------
Operating Expenses:
Operating expenses.................................. 2,575,322 2,862,583 5,144,056 5,828,852
General and administrative expenses................. 1,499,384 1,575,849 2,942,417 3,187,598
Marketing expenses.................................. 289,655 308,266 554,283 637,871
Depreciation and amortization....................... 2,474,091 2,557,504 4,906,993 5,102,806
Management fee charged by affiliate................. 477,622 514,367 943,608 1,034,818
Corporate and other expenses........................ 84,131 108,124 161,927 195,562
------------ ------------- ------------- -------------
Total operating expenses.......................... 7,400,205 7,926,693 14,653,284 15,987,507
------------ ------------- ------------- -------------
Operating income.................................. 2,152,220 2,360,630 4,218,890 4,708,823
Interest expense...................................... (3,377,895) (3,382,778) (6,730,672) (6,774,826)
Interest income....................................... 48,523 23,514 101,031 69,068
------------ ------------- ------------- -------------
Net loss.......................................... $ (1,177,152) $ (998,634) $ (2,410,751) $ (1,996,935)
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
4
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
Unaudited Condensed Consolidated Statement of Changes in Partners' Deficit
Six-Month Period Ended June 30, 1997
<TABLE>
<CAPTION>
ACCUMULATED PARTNERS'
DEFICIT
----------------------
CAPITAL
GENERAL LIMITED CONTRIBUTION
PARTNERS PARTNERS RECEIVABLE TOTAL
--------- ------------- ----------------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996.................................. $(359,419) $ (72,235,344) $ (1,000) $(72,595,763)
Net Loss...................................................... (19,969) (1,976,966) -- (1,996,935)
--------- ------------- ----------------- ------------
Balance at June 30, 1997...................................... $(379,388) $ (74,212,310) $ (1,000) $(74,592,698)
--------- ------------- ----------------- ------------
--------- ------------- ----------------- ------------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
5
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
Unaudited Condensed Consolidated Statements of Cash Flows
Six-Month Period Ended June 30, 1996and 1997
<TABLE>
<CAPTION>
1996 1997
----------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................................... $(2,410,751) $ (1,996,935)
------------ -------------
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization.................................................... 4,906,993 5,102,806
(Gain) loss on sale of equipment................................................. (10,883) 2,310
Amortization of debt discount.................................................... 1,051,867 --
Change in operating assets and liabilities:
Increase in receivables from subscribers....................................... (17,431) (56,411)
Increase in prepaid expenses and other assets.................................. (31,152) (627,158)
Decrease in accounts payable and accrued expenses.............................. (563,980) (120,902)
Increase in subscriptions received in advance.................................. 55,651 28,870
Increase in accrued interest................................................... 83,689 86,264
----------- ------------
Total adjustments............................................................ 5,474,754 4,415,779
----------- ------------
Net cash provided by operating activities.................................... 3,064,003 2,418,844
----------- ------------
Cash flows from investing activities:
Purchases of property, plant and equipment......................................... (1,863,036) (1,901,118)
Proceeds from sales of equipment................................................... 12,456 19,891
Cash paid for net assets of cable television systems acquired...................... -- (21,664,843)
Cash paid for net assets of internet business acquired............................. (40,000) --
Increase in intangible assets and defferred costs.................................. (21,385) (4,680)
----------- ------------
Net cash used in investing activities........................................ (1,911,965) (23,550,750)
----------- ------------
Cash flows from financing activities:
Proceeds from bank loans........................................................... 400,000 20,285,000
Repayment of bank loans............................................................ (136,111) (1,500,930)
Repayment of other notes payable................................................... (230,393) (518,739)
Advances to affiliates............................................................. (434,087) (609,430)
Repayments of advances to affiliates............................................... 651,291 474,650
----------- -------------
Net cash provided by financing activities.................................... 250,700 18,130,551
----------- -------------
Netincrease (decrease) in cash and cash equivalents.......................... 1,402,738 (3,001,355)
Cash and cash equivalents at beginning of period..................................... 3,984,816 4,751,189
----------- -------------
Cash and cash equivalents at end of period........................................... $ 5,387,554 $ 1,749,834
----------- -------------
----------- -------------
Supplemental cash flow information:
Interest paid...................................................................... $ 5,595,116 $ 6,688,562
----------- -------------
----------- -------------
Other non-cash items:
Acquisition of property, plant and equipment through issuance of other notes
payable........................................................................ $ 376,221 $ 436,982
----------- -------------
----------- -------------
Net assets of internet business transferred to affiliate through an
intercompany loan.............................................................. -- $ 223,130
----------- -------------
----------- -------------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
6
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1996 and 1997
(1) ORGANIZATION AND NATURE OF BUSINESS
The Helicon Group, L.P. (the "Partnership" or the "Company") was organized
as a limited partnership on August 10, 1993 under the laws of the State of
Delaware to consolidate the ownership interests of Helicon Group Ltd.
("Helicon"); Terrebonne Cablevision, L.P., Roxboro Cablevision Associates,
L.P., and Vermont Cablevision Associates, L.P. (collectively, the
"Predecessor Companies") in connection with a roll-up plan completed on
November 3, 1993 (the "roll-up"). As a result of the roll-up, the
Partnership acquired substantially all of the operating assets and
agreements of all the cable television systems which were previously owned
by the Predecessor Companies and the stockholders and the partners of the
Predecessor Companies became limited partners of the Partnership. The
Company operates under the name of "Helicon Cable Communications". The
general partner of the Company is Baum Investments, Inc., a Delaware
Corporation, which is 100% owned by Mr. Baum. On April 8, 1996, the
Company became 99% owned by Helicon Partners I, L.P. ("HPI") and 1% owned
by Baum Investments, Inc., the general partner. The Company is managed by
Helicon Corp., an affiliated management company.
The Partnership operates cable television systems located in Pennsylvania,
West Virginia, North Carolina, Louisiana, Vermont and New Hampshire.
(2) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of the Partnership and its wholly owned
incorporated entity, Helicon Capital Corp. ("HCC"), reflect all
adjustments, consisting of normal recurring accruals, necessary to present
fairly the Partnership's Consolidated financial position as at June 30,
1997, and their results of operations for the three month and six month
periods ended June 30, 1996 and 1997 and cash flows for the six month
periods ended June 30, 1996 and 1997. Information included in the condensed
consolidated balance sheet at December 31, 1996 has been derived from the
audited consolidated balance sheet in the Partnership's and HCC's Annual
Report on Form 10-K for the year ended December 31, 1996 (the "1996 Form
10-K") filed with the Securities and Exchange Commission. The unaudited
consolidated financial statements and these notes have been condensed;
therefore, they do not contain all of the disclosures required by generally
accepted accounting principles and should be read in conjunction with the
consolidated financial statements and the other information in the 1996
Form 10-K.
HCC had nominal assets as of June 30, 1997 and had no operations from the
date of incorporation to June 30, 1997. All intercompany accounts have been
eliminated in consolidation. The results of operations for the six month
periods ended June 30, 1996 and 1997 are not necessarily indicative of the
results for a full year.
7
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1996 and 1997
3) ACQUISITIONS
On March 22, 1996, the Partnership acquired the net assets of a telephone
dial-up internet access provider, serving approximately 350 customers in and
around the area of Uniontown, Pennsylvania. The aggregate purchase price was
$40,000.
On January 31, 1997, the Partnership acquired a cable television system,
serving approximately 823 subscribers in the West Virginia counties of Wirt
and Wood. The aggregate purchase price was $1,053,457 and was allocated
to the net assets acquired which included property and equipment and
intangible assets.
On April 8, 1996, the Company acquired a 1% interest in HPI Acquisition Co.,
LLC ("HPIAC"), a Delaware limited liability company for $1,000. The balance
of HPIAC is owned by HPI. HPIAC was formed to acquire interests in cable
television systems and related businesses. The Company's 1% interest in
HPIAC's net loss to date is not material.
On June 26, 1997, the Partnership acquired the net assets of a cable
television system serving approximately 13,500 subscribers in the North
Carolina communities of Watauga County, Blowing Rock, Beech Mountain and
the town of Boone. The aggregate purchase price was $20,611,386 and was
allocated to the net assets acquired which included, property, equipment
and intangible assets. The Company utilized its available cash and the
proceeds from a new credit facility it entered into with Banque Paribas
consisting of $20,000,000 senior secured term loan facility to complete
the acquisition (see Loans Payable--Banks below).
4) LOANS PAYABLE--BANKS
On June 26, 1997, the Company entered into a $20,000,000 senior secured
credit facility with Banque Paribas (the 1997 Credit Facility). The
facility is non-amortizing and is due November 1, 2000. Borrowings under
the facility financed the acquistion of certain cable television assets in
North Carolina (see acquistion note above). Interest on the $20,000,000
outstanding are payable at specified margins over either LIBOR or the rate
of interest publicly announced in New York City by The Chase Manhattan Bank
from time to time as its prime commercial lending rate. The margins vary
based on the Company's total leverage ratio, as defined, at the time of an
advance. Currently interest is payable at LIBOR plus 2.75%.
The 1997 Credit Facility is secured by a first perfected security interest
in all of the assets of the Company and a pledge of all equity interests of
the Company. The credit agreement contains various restrictive covenants
that include the achievement of certain financial ratios relating to
interest, fixed charges, leverage, limitations on capital expenditures,
incurrence or guarantee of indebtedness, transactions with affiliates
and distributions to members. In addition, management fees accrue at 5%
of gross revenues.
On June 23, 1997, the 1994 Credit Facility was repaid in full and the 1994
Credit Facility was terminated.
8
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1996 and 1997
5) OTHER EVENTS
On April 1, 1997, the Company transferred the net assets of the telephone
dial-up internet access provider business to HPI. The transfer was recorded
at the carrying value of those assets at that date of $223,130 and the
Company made an intercompany loan due on demand to HPI in this amount.
9
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
JUNE 30, 1996 AND 1997
Management's Discussion and Analysis of Financial Condition and Results of
Operations
GENERAL
The Helicon Group, L.P. (the "Partnership") incurred a net loss for the
three and six months ended June 30, 1996 and 1997, respectively. The principal
items contributing to the Partnership's net losses are the high level of
expenses relating to depreciation, amortization and interest. These expenses are
the result of capital expenditures related to continued expansion and rebuilding
of the systems, the Partnership's acquisitions and its financing activities. The
Partnership believes that recurring net losses are common for cable television
companies and expects that such net losses will continue. The Partnership
believes that available working capital and cash flows generated from operations
will be sufficient to meet its operating needs and future commitments. See
"Liquidity and Capital Resources" below.
Recent Cable Regulatory Developments.
The Telecommunications Act of 1996, Public law 104-104, enacted on February
8, 1996 ("1996 Act") instituted sweeping changes in the telecommunications
industries and has significantly increased the potential for competition to
cable television, especially from telephone and electric utilities. The Act
terminated the 1982 federal court consent decree (the "Modified Final Judgment")
that settled the 1974 antitrust suit against AT&T and eliminated the 1984 Cable
Act codification of the FCC telephone cable/ cross-ownership regulations. As a
result, long-distance telephone companies such as AT&T, MCI and Sprint are
eligible to provide local exchange service, and the local exchange carriers,
including the seven Regional Bell Operating Companies, GTE and the smaller
independent telephone carriers, are eligible to provide long-distance service
provided certain pre-conditions are met.
The 1996 Act also permits telephone companies to compete directly with cable
operators by repealing the telephone company-cable television cross-ownership
ban, thereby allowing direct ownership of franchised cable systems. Further, the
FCC's "video dialtone" regulations have been replaced with a more lenient "open
video system" or "OVS" concept. This will allow local exchange carriers
("LEC's"), including the Regional Bell Operating Companies, to compete with
cable both inside and outside their telephone service areas either as common
carrier OVS provider or as a fully franchised cable operator.
The Company anticipates that, over time, it will become subject to
increasing competition from telephone companies, either directly as
franchised operators or as OVS providers. It may also face increasing
competition from electric utilities which have also been permitted to provide
telecommunications services by the 1996 Act. This may have a material, but as
yet undetermined, impact on the Company's operations.
Although the 1996 Act eliminates the telephone/cable cross-ownership
restrictions, it also contains a general prohibition on LEC acquisitions of
cable systems. Cable operators are likewise generally prohibited from acquiring
LEC systems, and joint ventures between cable operators and LEC's are also
banned. There are certain exceptions for cable systems in rural areas and
telephone exchanges and for small telephone companies.
10
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
JUNE 30, 1996 AND 1997
Under the 1996 Act the Company qualifies for small cable operator status
that effectively removes it from rate regulation. The 1996 Act defines "small
cable operators", as those with fewer than approximately 600,000 subscribers and
less than $250 million gross annual revenues and defines "small cable systems"
as those with less than 50,000 subscribers in the rate regulated franchise area.
Where a system had only one tier of "basic" service as of December 31, 1994, it
is immediately rate deregulated. Where it had a "basic" tier and an upper "CPS"
tier, the CPS tier is immediately rate deregulated. The Company has a CPS tier
only on its Vermont system where the rates are governed by a Social Contract
entered into among the Company and the State of Vermont. The 1996 Act does not
disturb existing or pending rate inquiries. In April 1997 the FCC declared the
Company to be a "small cable operator" under the foregoing standards thereby
deregulating rates for all but the Vermont system's broadcast basic level of
service .
The 1996 Act amends the requirement that cable rates be uniform throughout a
franchise area to exempt situations where the cable operator faces "effective
competition," and by permitting bulk discounts to multiple dwelling units.
However, the FCC retains jurisdiction to investigate complaints of "predatory
pricing". The 1996 Act eliminates the requirement instituted in the 1992 Cable
Act that cable systems must be held for three years prior to sale. The
definition of "cable system" is amended so that competitive providers of video
services will be regulated as a definitional "cable system" only if they use
public rights-of-way. This frees many SMATV and MMDS providers of cable service
from the FCC's cable regulations and restrictions. In addition to the
elimination of the telephone/cable cross-ownership restrictions, the 1996 Act
eliminates the broadcast network/cable cross-ownership restrictions, but leaves
in place FCC regulations prohibiting cross-ownership between local television
stations and cable systems. The FCC is empowered to adopt rules to ensure
carriage, channel positioning and non-discriminatory treatment of non-affiliated
broadcast stations by cable systems affiliated with a broadcast network. The
MMDS/cable cross-ownership restrictions are eliminated for cable operators
subject to effective competition.
The 1996 Act requires cable operators, upon subscriber request, to fully
scramble or block at no charge the audio and video portion of any channel not
specifically subscribed to by a household. Further, cable operators are
obligated to fully scramble or block both the audio and video of all sexually
explicit programming. If the cable operator cannot fully scramble or block
its signal, it must restrain distribution to those "safe harbor" hours of the
day when children are unlikely to view the programming. The FCC has adopted
an interim "safe harbor" of 10:00 PM to 6:00 AM pending judicial review of
that provision of the Act. Under the "safe harbor" approach, operators may
continue carrying channels primarily dedicated to sexually explicit adult
programming, even if they were not fully scrambled, as long as the indecent,
sexually explicit programming was limited to the designated late night hours.
The Delaware Federal District Court's Temporary Restraining Order, issued
immediately following passage of the Act, was set aside by the Third Circuit
Court of Appeals, which decision was upheld by the U.S. Supreme Court. While
review of the provision will continue in the courts, operators must, in the
meantime, comply with the scrambling or "safe harbor" requirements.
The 1996 Act introduces several changes to the regulation of cable pole
attachments that could have an effect on the Company. The FCC is directed to
establish a new formula for poles used by cable operators which will result in
higher pole rental rates. Any increases pursuant to this formula may not begin
for 5 years and will be phased in over a 5 year period thereafter. This new FCC
formula does not apply in states which certify they regulate pole rents. The
1996 Act also requires pole owners to impute pole rentals to themselves if they
offer telecommunications or cable services. Additionally, cable operators need
not pay for future "makeready" on poles currently used if the makeready is
required to accommodate the attachments of another user, including the pole
owner.
11
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
JUNE 30, 1996 AND 1997
Many provisions of the 1996 Act are still the subject of numerous FCC
proceedings looking toward the implementation or clarification of the statutory
dictates. The Company is unable at this time to assess the impact of those
regulations on its operations.
On March 31, 1997, the U.S. Supreme Court issued a decision upholding the
requirement that cable television systems carry all local television broadcast
stations (the "must carry" rules). Contrary to the expectations of most court
observers, the Supreme Court did not find those rules to be an infringement of
cable operators' First Amendment rights. Because those rules require that the
Company set aside as much as one-third of its channel capacity for carriage of
local television broadcast stations, they could have an impact on the Company's
ability to carry new cable programming.
In February 1997, the FCC released its Second Report and Order implementing
revisions to its "Commercial Leased Access" rules for cable television
operators. The FCC has adopted a revised rate formula and implemented other
rules that will facilitate the mandatory leasing of as much as ten to fifteen
percent of a cable operator's channels by unaffiliated commercial entities. The
Company cannot at this time determine the impact on its operations of these
rules.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996.
Revenues. Revenues increased $1,824,156 or 9.7% to $20,696,330. The
increase in revenues was primarily attributed to increase in basic service
and new program service rates and strong growth in advertising revenue. The
average monthly cable revenue per basic subscriber increased from $35.95 in
the 1996 period to $39.15 in the 1997 period. The $3.20 increase reflected
primarily i) an increase of $1.61 in basic revenues; ii) an increase of $.56
due to the new program services; iii) an increase of $1.00 in advertising
revenue; iv) a increase of $.04 in premium subscription revenue; and v) an
decrease of $.01 in other services.
Operating, Marketing, General and Administrative Expenses. Operating,
marketing, general and administrative expenses increased $1,013,565 or 11.7% to
$9,654,321. Approximately 30% of this increase reflected additional expenses for
new and expanded programming services. The balance of the increase in expenses
was consistent with the growth in revenues, coupled with general cost increases.
As a percentage of revenues, operating, marketing, general and administrative
expenses increased from 45.8% to 46.6% in the 1997 period.
Depreciation and Amortization. Depreciation and amortization expenses
increased $195,813 or 4.0% to $5,102,806, primarily as a result of $125,023
higher depreciation charges relating to capital expenditures made in 1996 and
1997 and $70,790 higher amortization expense.
Management Fee Charged by Affiliate. Management fee expenses increased
$91,210 or 9.7% to $1,034,818 consistent with the increase in revenues.
12
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
JUNE 30, 1996 AND 1997
Corporate and other expenses. Corporate and other expenses increased
$33,635 or 20.8% to $195,562.
Operating Income. Operating income for the six months ended June 30, 1997
increased $489,933 or 11.6% to $4,708,823 from the $4,218,890 operating income
in the comparable 1996 period. The improvement in operating results was due to
increased profits on higher revenues.
Interest Expense. Interest expense increased $44,154 or 0.7% to $6,774,826
primarily due to higher cash interest expense on the Senior Secured Notes, which
after November 1, 1996, pay interest at the rate of 11% per annum, offset in
part by the absence of non-cash interest expense attributed to the original
issue discount on the Senior Secured Notes which became fully amortized on
November 1, 1996 and lower interest expense on the 1994 Credit Facility due to
lower balances outstanding.
Interest Income. Interest income decreased $31,963 or 31.6% to $69,068
primarily due to lower average cash balances.
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30,
1996.
Revenues. Revenues increased $734,898 or 7.7% to $10,287,323. The
increase in revenues was primarily attributed to increase in basic service
and new program service rates and strong growth in advertising revenue. The
average monthly cable revenue per basic subscriber increased from $36.33 in
the 1996 period to $39.04 in the 1997 period. The $2.71 increase reflected
primarily i) an increase of $1.32 in basic revenues; ii) an increase of $.53
due to the new program services; iii) an increase of $.91 in advertising
revenue; iv) a increase of $.03 in premium subscription revenue; and v) an
decrease of $.08 in other services.
Operating, Marketing, General and Administrative Expenses. Operating,
marketing, general and administrative expenses increased $382,337 or 8.8% to
$4,746,698. Approximately 40.0% of this increase reflected additional expenses
for new and expanded programming services. The balance of the increase in
expenses was consistent with the growth in revenues, coupled with general cost
increases. As a percentage of revenues, operating, marketing, general and
administrative expenses increased from 45.7% in the 1996 period to 46.1% in the
1997 period.
Depreciation and Amortization. Depreciation and amortization expenses
increased $83,413 or 3.4% to $2,557,504 primarily as a result of $31,885 higher
depreciation charges relating to capital expenditures made in 1996 and 1997 and
$51,528 higher amortization expense.
Management Fee Charged by Affiliate. Management fee expenses increased
$36,475 or 7.7% to $514,367 consistent with the increase in revenues.
Corporate and Other Expenses. Corporate and other expenses increased
$23,993 or 28.5% to $108,124.
13
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
JUNE 30, 1996 AND 1997
Operating Income. Operating income for the three months ended June 30, 1997
increased $208,410 or 9.7% to $2,360,630 from the $2,152,220 operating income in
the comparable 1996 period. The improvement in operating results was due to
increased profits on higher revenues.
Interest Expense. Interest expense increased $4,883 or 0.1% to $3,382,778
primarily due to higher cash interest expense on the Senior Secured Notes, which
after November 1, 1996, pay interest at the rate of 11% per annum, offset in
part by the absence of non-cash interest expense attributed to the original
issue discount on the Senior Secured Notes which became fully amortized on
November 1, 1996 and lower interest expense on the 1994 Credit Facility due to
lower balances outstanding.
Interest Income. Interest income decreased $25,009 or 51,5% to $23,514
primarily due to lower average cash balances.
LIQUIDITY AND CAPITAL RESOURCES
The cable television business requires substantial financing for
construction, expansion and maintenance of the cable plant as well as for
acquisitions. The Company has historically financed its capital needs and
acquisitions through long-term debt and, to a lesser extent, through cash
provided from operating activities. The general availability of bank financing
has been variable over recent years. In 1993, the Company refinanced its 1992
Credit Facility by issuing $115,000,000 aggregate principal amounts 11% Senior
Secured Notes due 2003. In 1994, the Company utilized its available cash and
also entered into a credit facility with another bank consisting of $2,500,000
three year term loan facility, under which none was outstanding at June 30, 1997
and a $2,500,000 one-year line of credit facility with a bank bearing interest
at Prime Plus 1.5%, none of which was outstanding at June 30, 1997, secured by
all the assets of the Company (the "1994 Credit Facility"). On February 23,
1996, the 1994 Credit Facility was amended to include an additional loan
facility of $318,000 and extended to May 31, 1996. On June 28, 1996, the term
loan of the 1994 Credit Facility was extended to May 31, 1997. On June 23, 1997,
all balances outstanding under the 1994 Credit Facility were repaid in full and
the 1994 Credit Facility was terminated. On June 26, 1997, the Company entered
into a new credit facility (the 1997 Credit Facility) with a new bank consisting
of $20,000,000 senior secured term loan facility due November 1, 2000, bearing
interest at LIBOR plus 2.75%, under which $20,000,000 was outstanding at June
30, 1997, secured by all the assets of the Company. The proceeds of the 1997
Credit Facility was used to acquire certain cable television assets in North
Carolina. On February 24, 1997, the Company entered into a $285,000 loan
agreement with a new bank, under which $281,293 was outstanding at June 30,
1997. The proceeds of this new loan were used to construct the Company's new
office building in Vermont which secures the loan. (See Credit Agreements of the
Company, below).
The Company operates at low and sometimes negative working capital levels.
This is primarily due to account payable balances which often include
significant amounts for capital expenditures. Such payables are paid when due
from available cash balances, including cash generated from operations up to the
date of payment.
14
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
JUNE 30, 1996 AND 1997
Cash flows provided by operating activities amounted to $3,064,003 for
the six months ended June 30, 1996 compared to $2,418,844 net cash provided
by operating activities in the six months ended June 30, 1997. The decline in
cash generated from operations in the 1997 period compared to the 1996 period
resulted primarily from the higher cash interest expense on the Senior
Secured Notes in 1997 and the absence of the 1996 amortization of debt
discount (non cash interest) offset in part by increased revenues that were
in excess of the increases in cash operating costs.
Net cash used in investing activities amounted to $1,911,965 and $23,550,750
for the six months ended June 30, 1996 and 1997, respectively, and included the
following:
- - In the 1996 period, the Partnership incurred $1,863,036 in capital
expenditures related to the expansion and rebuilding of the Systems, paid
$40,000 in connection with the acquisition of equipment and intangibles of
an internet access provider and incurred $21,385 in other deferred costs.
- - In the 1997 period, the Partnership incurred $1,901,118 in capital
expenditures related to the expansion and rebuilding of the Systems, paid
$21,664,843 in connection with the acquisition of property, plant and
equipment and intangibles of a cable television system and incurred $4,680
in other deferred costs.
Net cash provided by financing activities amounted to $250,700 and
$18,130,551 for the six months ended June 30, 1996 and 1997, respectively, which
included the following:
- - In the 1996 and 1997 period, the Partnership borrowed $400,000 and
$20,285,000, respectively, and made principal repayments of $136,111 and
$1,500,930 respectively, under its bank credit facilities.
- - In the 1996 and 1997 period, the Partnership made repayments of notes
payable in the amounts of $230,393 and $518,739, respectively, which
represented principal repayments under the Partnership's equipment credit
facilities.
- - Advances to other affiliates and repayments of such advances result from
management fees and other reimbursable expenses.
Credit Agreements Of The Partnership. On June 30, 1997, the Partnership had
cash, cash equivalents and certificates of deposits of $2,749,834 and the
following credit arrangements: (i) $115,000,000 aggregate principal amount of
11% Senior Secured Notes due 2003; (ii) the new 1997 Credit Facility with a bank
which consisted of a $20,000,000 senior secured term loan facility due November
1, 2000, all of which was outstanding, bearing interest at LIBOR plus 2.75%,
secured by all the assets of the Company; (iii) $1,851,604 10% Note due August
20, 2000 to Simmons Communications Partnership, L.P.; (iv) $5,000,000 principal
amount in favor of the principal owner pursuant to a Prime Plus 2% Subordinated
Note which has no due date and may only be repaid, subject to the passage of
certain limiting tests prior to repayment of the Notes; (v) $25,000 of Prime
Subordinated Notes due July 31, 1997 in favor of a non affiliated third party
pursuant to a Non-Negotiable Subordinated Promissory Note; (vi) $285,000 loan
facility from a bank, of which $281,293 was outstanding, bearing interest at
Prime Plus 1.0% due March 1, 2012, used to finance the Partnership's new office
building in Vermont; and (vii) $926,683 of certain other equipment credit
facilities with various due dates not exceeding four years.
15
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
JUNE 30, 1996 AND 1997
The Partnership believes that available working capital and cash flows
generated from operations will be sufficient to allow it to meet its planned
capital expenditures and meet its debt obligations and cover its other short and
long-term liquidity needs. Also, while the Partnership presently sees no reason
to do so, it could adjust scheduled capital expenditures if the Partnership's
liquidity position so warrants.
Inflation
Certain of the Partnership's expenses, such as those for wages and benefits,
for equipment repair and replacement, and for billing and marketing, increase
with general inflation. However, the Partnership does not believe that its
financial results have been, or will be, adversely affected by inflation,
provided that it is able to increase its service rates periodically.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) A Report on Form 8-K was filed on July 11, 1997 reporting an event
under Item 2 on Form 8-K in respect of which financial statements have not
yet been filed with the Commission.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this Report to be signed on their behalf by the
undersigned, thereunto duly authorized.
Dated: August 12, 1997 THE HELICON GROUP, L.P.
(Registrant)
By: /s/ Herbert J. Roberts
----------------------------------
Name: Herbert J. Roberts
Title: Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
HELICON CAPITAL CORP.
Name: Herbert J. Roberts
Dated: August 12, 1997 By: /s/ Herbert J. Roberts
----------------------------------
Name: Herbert J. Roberts
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
17
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