- --------------------------------------------------------------------------------
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 March 31, 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 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 (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification
organization) Code Number)
HELICON CAPITAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 4841 22-3248702
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification
organization) Code Number)
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 May 13, 1998: 100.
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<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Condensed Consolidated Balance Sheets as at December 31, 1997
and March 31, 1998 (Unaudited) 3
Unaudited Condensed Consolidated Statements of Operations for
the three-month periods ended March 31, 1997 and 1998 4
Unaudited Condensed Consolidated Statement of Changes in
Partners' Deficit for the three month period ended March 31, 1998 5
Unaudited Condensed Consolidated Statements of Cash Flows for
the three-month periods ended March 31, 1997 and 1998 6
Notes to Unaudited Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations 8 - 10
PART II. OTHER INFORMATION
None
Signature Page 11
2
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
Condensed Consolidated Balance Sheet
December 31, 1997(a) March 31, 1998
-------------------- --------------
(Unaudited)
-----------
Assets
Cash and cash equivalents $ 3,693,625 $ 6,811,806
Receivables from subscribers 997,231 746,620
Prepaid expenses and other assets 1,409,724 1,824,371
Property, plant and equipment, net 35,080,302 34,307,698
Intangible assets and deferred costs, net 30,628,407 29,434,720
Due from affiliates 797,590 707,125
------------- -------------
Total assets $ 72,606,879 $ 73,832,340
============= =============
Liabilities and Partners' Deficit
Liabilities:
Accounts payable $ 3,159,022 $ 2,507,912
Accrued expenses 760,609 834,667
Subscriptions received in advance 697,633 735,501
Accrued interest 2,173,590 5,330,425
Due to principal owner 5,000,000 5,000,000
Senior secured notes 115,000,000 115,000,000
Loans payable to banks 20,276,641 20,274,130
Other notes payable 3,064,854 2,946,606
Due to affiliates 427,282 455,853
------------- -------------
Total liabilities 150,559,631 153,085,094
Partners' deficit:
Accumulated partners' deficit (77,951,752) (79,251,754)
Less capital contribution receivable (1,000) (1,000)
------------- -------------
Total partners' deficit (77,952,752) (79,252,754)
------------- -------------
Total liabilities and
partners' deficit $ 72,606,879 $ 73,832,340
============= =============
(a) Balance Sheet at December 31, 1997 has been derived from Audited
Consolidated Financial Statements at that date.
3
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
Unaudited Condensed Consolidated Statement of Operations
for the Three-Month Periods Ended March 31, 1997 and 1998
1997 1998
------------ ------------
Revenues $ 10,409,007 $ 11,811,381
------------ ------------
Operating expenses:
Operating expenses 2,966,269 3,490,523
General and administrative expenses 1,611,749 1,948,651
Marketing expenses 329,605 389,977
Depreciation and amortization 2,545,302 2,830,270
Management fee charged by affiliate 520,451 590,568
Corporate and other expenses 87,438 45,001
------------ ------------
Total operating expenses 8,060,814 9,294,990
------------ ------------
Operating income 2,348,193 2,516,391
------------ ------------
Interest expense (3,392,048) (3,839,805)
Interest income 45,554 23,412
------------ ------------
(3,346,494) (3,816,393)
------------ ------------
Net loss ($ 998,301) ($ 1,300,002)
============ ============
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
for the Three-Month Period Ended March 31, 1998
<TABLE>
<CAPTION>
Partners' deficit
---------------------------
Capital
General Limited Contribution
Partners Partners Receivable Total
-------- -------- ---------- -----
<S> <C> <C> <C> <C>
Balance at December 31, 1997 ($ 412,989) (77,538,763) (1,000) ($77,952,752)
Net loss (13,000) (1,287,002) -- (1,300,002)
------------ ------------ ------------ ------------
Balance at March 31, 1998 ($ 425,989) (78,825,765) (1,000) ($79,252,754)
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
Unaudited Condensed Consolidated Statement of Cash Flows
for the Three-Month Periods Ended March 31, 1997 and 1998
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 998,301) ($1,300,002)
----------- -----------
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 2,545,302 2,830,270
Gain on sale of equipment (6,500) (1,498)
Amortization of debt discount and deferred financing costs -- 30,000
Change in operating assets and liabilities:
Decrease in receivables from subscribers 164,632 250,611
Increase in prepaid expenses and other assets (606,057) (414,647)
Decrease in accounts payable and accrued expenses (154,533) (577,052)
Increase in subscriptions received in advance 74,700 37,869
Increase in accrued interest 3,207,721 3,156,835
----------- -----------
Total adjustments 5,225,265 5,312,388
----------- -----------
Net cash provided by operating activities 4,226,964 4,012,386
----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (1,164,627) (965,924)
Proceeds from sales of equipment 6,500 91,128
Cash paid for net assets of cable television systems acquired (1,053,457) --
Increase in intangible assets and deferred costs (1,790) --
----------- -----------
Net cash used in investing activities (2,213,374) (874,796)
----------- -----------
Cash flows from financing activities:
Proceeds from bank loans 213,750 --
Repayment of bank loans (408,333) (2,511)
Repayment of other notes payable (146,171) (135,934)
Advances to affiliates (487,970) (482,097)
Repayments of advances to affiliates 328,475 601,133
----------- -----------
Net cash used by financing activities (500,249) (19,409)
----------- -----------
Net increase in cash and cash equivalents 1,513,341 3,118,181
Cash and cash equivalents at beginning of period 4,751,189 3,693,625
----------- -----------
Cash and cash equivalents at end of period $ 6,264,530 $ 6,811,806
=========== ===========
Supplemental cash flow information:
Interest paid $ 184,327 $ 652,970
=========== ===========
Other non-cash items:
Acquisition of property, plant and equipment through issuance of
other notes payable $ 75,881 $ 17,686
=========== ===========
</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
March 31, 1997 and 1998
(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. The
Company also offers advanced services such as paging, cable modems and
private data network systems to its customers.
(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 March 31,
1998, and their results of operations and cash flows for the three-month
periods ended March 31, 1997 and 1998. Information included in the
condensed consolidated balance sheet at December 31, 1997 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, 1997 (the "1997
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 1997 Form 10-K.
HCC had nominal assets as of March 31, 1998 and had no operations from the
date of incorporation to March 31, 1998. All intercompany accounts have
been eliminated in consolidation. The results of operations for the
three-month periods ended March 31, 1997 and 1998 are not necessarily
indicative of the results for a full year.
(3) Acquisitions
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.
(4) 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 inter-company loan due on demand to HPI in this
amount.
7
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
March 31, 1997 and 1998
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 months ended March 31, 1997 and 1998, 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 cable television industry remains subject to extensive governmental
regulation at the federal, state, and local level. Under the Communications Act
of 1934, as amended, most recently by the Telecommunications Act of 1996, Public
Law 104-104, (the "1996 Act"), extensive federal regulation of the industry
continues, including rate regulation. Although the 1996 Act eliminates such rate
regulations as of March 31, 1999, some members of Congress, officials at the
Federal Communications Commission ("FCC"), and others have advocated the
postponement of this regulatory sunset and have also urged more rigorous rate
regulation generally. In addition, consistent with a primary underlying purpose
of the 1996 Act, the FCC remains on a regulatory approach of strongly
encouraging and supporting competition to cable television. While the Company
anticipates additional legislative and regulatory developments and changes, the
precise nature of these changes and their impact on the cable industry and the
Company cannot be accurately predicted at this time.
On December 16, 1996, Helicon Telephone Pennsylvania, LLC filed an
application with the Pennsylvania Public Utility Commission for certification as
a competitive local exchange carrier in the service territory of Bentleyville
Telephone Company. As of March 31, 1998, this application was still pending.
Results of Operations
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997.
Revenues. Revenues increased $1,402,374 or 13.5% to $11,811,381.
Approximately 70% of the increase in revenues was attributed to the June 26,
1997 acquisition of a cable television system in North Carolina. The balance of
the increase was primarily due to higher basic service and new program service
rates. Excluding the effects of the North Carolina acquisition, the average
monthly cable revenue per basic subscriber increased from $39.13 in 1997 to
$41.12 in 1998. The $1.99 increase reflected primarily i) an increase of $0.95
in basic revenues; ii) an increase of $0.92 due to the new program services;
iii) a decrease of $0.16 in advertising revenue; iv) an increase of $0.12 in
premium subscription revenue; and v) an increase of $0.16 in other services,
which includes private data network systems and paging.
Operating, Marketing, General and Administrative Expenses. Operating,
marketing, general and administrative expenses increased $921,528 or 18.8% to
$5,829,151. Approximately 60% of the increase in expenses was attributed to the
North Carolina cable television system acquisition and approximately 25%
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 47.1% in 1997 to
49.4% in 1998.
Depreciation and Amortization. Depreciation and amortization expenses
increased $284,968 or 11.2% to $2,830,270, primarily as a result of $150,712
higher depreciation charges relating to the North Carolina acquisition
8
<PAGE>
and ongoing capital expenditures in the other cable systems; and, $134,256
higher amortization expense all attributed to the North Carolina acquisition.
Management Fee Charged by Affiliate. Management fee expenses increased
$70,117 or 13.5% to $590,568 consistent with the increase in revenues.
Corporate and other expenses. Corporate and other expenses decreased
$42,437 or 48.5% to $45,001.
Operating Income. Operating income for the three months ended March 31,
1998 increased $168,198 or 7.2% to $2,516,391 from the $2,348,193 operating
income in the comparable 1997 period. The improvement in operating results was
due to increased profits on higher revenues, nearly one half of which was
attributed to the North Carolina acquisition.
Interest Expense. Interest expense increased $447,757 or 13.2% to
$3,839,805 primarily due to interest expense associated with the debt for the
North Carolina acquisition.
Interest Income. Interest income decreased $22,142 or 48.6% to $23,412
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 and a $2,500,000 one-year line of credit facility
with a bank bearing interest at Prime Plus 1.5%, 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 March
31, 1998, 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 $274,130 was outstanding at March 31,
1998. 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 amount of capital expenditures. Such payables are paid when due from
available cash balances, including cash generated from operations up to the date
of payment.
Cash flows provided by operating activities amounted to $4,226,964 and
$4,012,386 for the three-month periods ended March 31, 1997 and 1998,
respectively. The decrease in cash generated from operations in the 1998 period
compared to the 1997 period resulted primarily from changes in working capital
items.
Net cash used in investing activities amounted to $2,213,374 and $874,796
for the three month periods ended March 31, 1997 and 1998, respectively, and
included the following:
o In the 1997 period, the Partnership incurred $1,164,627 in capital
expenditures related to the expansion and rebuilding of the systems, paid
$1,053,457 in connection with the acquisition of a cable television system
and incurred $1,790 in other deferred costs.
9
<PAGE>
o In the 1998 period, the Partnership incurred $965,924 in capital
expenditures related to the expansion and rebuilding of the systems and
received $91,128 in proceeds from sales of equipment in the ordinary
course of business.
Net cash used in financing activities amounted to $500,249 and $19,409 for
the three month periods ended March 31, 1997 and 1998 which included the
following:
o In the 1997 period, the Partnership borrowed $213,750 from a bank and made
$408,333 in principal repayments under the 1994 Credit Facility.
o In the 1997 and 1998 period, the Partnership made repayments of notes
payable in the amounts of $146,171 and $135,934 respectively, which
represented principal repayments under the Partnership's equipment credit
facilities.
o Advances to other affiliates and repayments of such advances result from
management fees and other reimbursable expenses.
Credit Agreements of the Partnership. On March 31, 1998, the Partnership
had cash and cash equivalents of $6,811,806 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) $2,036,765 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) $285,000 loan facility from a bank,
of which $274,130 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
(vi) $909,841 of certain other equipment credit facilities with various due
dates not exceeding four years.
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.
10
<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: May 13, 1998 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: May 13, 1998 By: /s/ Herbert J. Roberts
-----------------------------------
Name: Herbert J. Roberts
Title: Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
11
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<NAME> The Helicon Group, LP.
<MULTIPLIER> 1,000
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,812
<SECURITIES> 0
<RECEIVABLES> 747
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,383
<PP&E> 85,180
<DEPRECIATION> 50,872
<TOTAL-ASSETS> 73,832
<CURRENT-LIABILITIES> 9,408
<BONDS> 143,221
0
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<TOTAL-LIABILITY-AND-EQUITY> 73,832
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