<PAGE>
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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 September 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 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 jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classifi- Identification No.)
cation Code Number)
HELICON CAPITAL CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 4841 22-3248702
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classifi- Identification No.)
cation 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 NOVEMBER 10, 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
September 30, 1998 (Unaudited) 3
Unaudited Condensed Consolidated Statements of Operations for
the three-month and nine-month periods ended September 30, 1997 and 1998 4
Unaudited Condensed Consolidated Statement of Changes in Partners'
Deficit for the nine-month period ended September 30, 1998 5
Unaudited Condensed Consolidated Statements of Cash Flows for the
three-month and nine-month periods ended September 30, 1997 and 1998 6
Notes to Unaudited Condensed Consolidated Financial Statements 7 - 8
Management's Discussion and Analysis of Financial Condition and
Results of Operations 9 - 13
PART II.
OTHER INFORMATION
None
Signature Page 14
2
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
Condensed Consolidated Balance Sheet
DECEMBER 31, SEPTEMBER 30,
1997 (A) 1998
------------ ------------
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 3,693,625 $ 5,853,302
Receivables from subscribers 997,231 1,013,076
Prepaid expenses and other assets 1,409,724 2,272,964
Property, plant and equipment, net 35,080,302 35,557,610
Intangible assets and deferred costs, net 30,628,407 28,997,874
Due from affiliates 797,590 98,674
------------ ------------
Total assets $ 72,606,879 $ 73,793,500
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable $ 3,159,022 $ 3,549,275
Accrued expenses 760,609 1,068,584
Subscriptions received in advance 697,633 497,647
Accrued interest 2,173,590 5,331,536
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 20,268,652
Other notes payable 3,064,854 4,712,605
Due to affiliates 427,282 430,343
------------ ------------
Total liabilities 150,559,631 155,858,642
Partners' deficit:
Accumulated partners' deficit (77,951,752) (82,064,142)
Less capital contribution receivable (1,000) (1,000)
------------ ------------
Total partners' deficit (77,952,752) (82,065,142)
------------ ------------
Total liabilities and
partners' deficit $ 72,606,879 $ 73,793,500
============ ============
(a) Balance Sheet at December 31, 1997 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 Statement of Operations
for the Three-Month and Nine-Month Periods Ended
September 30, 1997 and 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1997 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 11,120,491 $ 12,910,374 $ 31,816,821 $ 36,774,321
------------- ------------- ------------- -------------
Operating expenses:
Operating expenses 3,156,855 3,769,812 8,985,707 10,865,891
General and administrative expenses 1,662,219 2,188,071 4,849,817 6,011,372
Marketing expenses 363,412 691,396 1,001,283 1,437,458
Depreciation and amortization 3,084,267 3,327,992 8,187,073 9,058,819
Management fee charged by affiliate 556,019 645,522 1,590,837 1,838,712
Corporate and other expenses 106,063 67,297 301,625 158,798
------------- ------------- ------------- -------------
Total operating expenses 8,928,835 10,690,090 24,916,342 29,371,050
------------- ------------- ------------- -------------
Operating income 2,191,656 2,220,284 6,900,479 7,403,271
------------- ------------- ------------- -------------
Interest expense (3,860,069) (3,892,386) (10,634,895) (11,567,554)
Interest income 27,438 15,473 96,506 51,893
------------- ------------- ------------- -------------
(3,832,631) (3,876,913) (10,538,389) (11,515,661)
------------- ------------- ------------- -------------
Net loss $ (1,640,975) $ (1,656,629) $ (3,637,910) $ (4,112,390)
============= ============= ============= =============
</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
for the Nine-Month Period Ended September 30, 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 (41,124) (4,071,266) -- (4,112,390)
------------ ------------ ------------ ------------
Balance at September 30, 1998 $ (454,113) (81,610,029) (1,000) $(82,065,142)
============ ============ ============ ============
</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 Nine-Month Periods Ended September 30, 1997 and 1998
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,637,910) $ (4,112,390)
------------ ------------
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 8,187,073 9,058,819
Loss (gain) on sale of equipment 2,310 (16,498)
Interest on other notes payable added to principal 185,160 --
Amortization of debt discount and deferred financing costs 30,000 90,000
Financing costs incurred (400,000) --
Change inoperating assets and liabilities:
(Increase) decrease in receivables from subscribers (92,478) 112,831
Increase in prepaid expenses and other assets (739,213) (778,378)
(Decrease) increase in accounts payable and accrued expenses (490,075) 331,100
Increase (decrease) in subscriptions received in advance 36,805 (301,614)
Increase in accrued interest 3,115,306 3,157,946
------------ ------------
Total adjustments 9,834,888 11,654,206
------------ ------------
Net cash provided by operating activities 6,196,978 7,541,816
------------ ------------
Cash flows from investing activities:
Purchases of property, plant and equipment (2,935,814) (4,055,681)
Proceeds from sales of equipment 19,891 106,128
Cash paid fornet assets of cable television systems acquired (21,239,843) --
Increase in intangible assets and deferred costs (27,933) (48,272)
------------ ------------
Net cash used in investing activities (24,183,699) (3,997,825)
------------ ------------
Cash flows from financing activities:
Proceeds from bank loans 20,285,000 --
Repayment of bank loans (1,503,194) (7,989)
Repayment of other notes payable (686,489) (514,115)
Advances to affiliates (1,138,926) (3,162,129)
Repayments of advances to affiliates 1,053,176 2,299,919
------------ ------------
Net cash provided (used) by financing activities 18,009,567 (1,384,314)
------------ ------------
Net increase in cash and cash equivalents 22,846 2,159,677
Cash and cash equivalents at beginning of period 4,751,189 3,693,625
------------ ------------
Cash and cash equivalents at end of period $ 4,774,035 $ 5,853,302
============ ============
Supplemental cash flow information:
Interest paid $ 7,304,429 $ 8,319,608
============ ============
Other non-cash items:
Acquisition of property, plant and equipment through issuance of
Other notes payable $ 654,053 $ 639,093
============ ============
Net assets of internet business transferred to (from) affiliate
through an intercompany loan $ 223,130 $ (1,553,565)
============ ============
</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
September 30, 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. On June
30, 1998, the Partnership acquired from an affiliate the assets of the
telephone dial-up internet access provider business in Pennsylvania and
Vermont.
(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
September 30, 1998, their results of operations for the three-month and
nine-month periods ended September 30, 1997 and 1998 and cash flows for
the nine-month periods ended September 30, 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 September 30, 1998 and had no operations
from the date of incorporation to September 30, 1998. All intercompany
accounts have been eliminated in consolidation. The results of operations
for the nine-month periods ended September 30, 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.
On June 26, 1997, the Partnership acquired the net assets of a cable
television system serving approximately 11,000 subscribers in the North
Carolina communities of Watauga County, Blowing Rock, Beech Mountain and
the town of Boone. The aggregate purchase price was $20,186,386 and was
allocated to the net assets
7
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 1997 and 1998
(3) (CONTINUED)
acquired using the purchase method of accounting and 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.
(4) LOANS PAYABLE - BANKS
On June 26, 1997, the Company entered into a $20,000,000 senior secured
credit facility with Banque Paribas, as Agent (the 19997 Credit
Facility). The facility is non-amortizing and is due November 1, 2000.
Borrowings under the facility financed the acquisition of certain cable
television assets in North Carolina (see acquisition 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, distributions to members and management
fees which 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.
Also included in loans payable to banks is a mortgage note of $268,652
payable to a bank that is secured by THGLP's office building in
Vermont. The interest is payable at Prime plus 1% and the mortgage note
is due March 1, 2012.
(5) OTHER EVENTS
On April 1, 1997, the Partnership 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 Partnership made an inter-company loan due on demand to
HPI in this amount.
On June 29, 1998, Helicon OnLine, L.. P. (HOL) and HPI transferred the
assets of the telephone dial-up internet access provider business to the
Partnership. The transfer was recorded at the carrying value of those
assets at that date of $1,553,565 in settlement of the inter-company
loans the Partnership had made to HOL and HPI.
8
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
SEPTEMBER 30, 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 nine
months ended September 30, 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 upgrading 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 ("PPUC") for
certification as a competitive local exchange carrier in the service
territory of Bentleyville Telephone Company. As of September 30, 1998, this
application was still pending. On June 11, 1998, Helicon Telephone
Pennsylvania, LLC filed an application with the PPUC for certification as a
reseller and facilities based competitive local exchange carrier in the
service territory of Bell of Pennsylvania. On June 27, 1998, the protest
period for this application expired and, since there were no protests
received within the time period, Helicon's application was referred to the
Office of Special Assistants to schedule it for consideration at the next
PPUC hearing.
On October 20, 1998, Helicon Telephone West Virginia, LLC filed an
application with the West Virginia Public Service Commission for
certification as a competitive local exchange carrier throughout the state of
West Virginia.
On October 28, 1998, Helicon Telephone North Carolina, LLC filed an
application with the North Carolina Utilities Commission to provide local
exchange and exchange access services in all portions of North Carolina where
competition is permitted.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997.
REVENUES. Revenues increased $4,957,500 or 15.6% to $36,774,321.
Approximately 60% of the increase in revenues was attributed to the June 26,
1997 acquisition of a cable television system in North Carolina and the
inclusion of the dial-up internet access provider business ("ISP business") as
of June 30, 1998. 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 and the ISP business, the average monthly cable revenue per
basic subscriber increased from $38.95 in 1997 to $41.29 in 1998. The $2.34
increase reflected primarily i) an increase of $0.81 in basic revenues; ii) an
increase of $0.91 due to the new program services; iii) a increase of $0.29 in
advertising revenue; iv) an increase of $0.08 in premium subscription revenue;
and v) an increase of $0.25 in other services, which includes private data
network systems and paging.
9
<PAGE>
OPERATING, MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Operating,
marketing, general and administrative expenses increased $3,477,914 or 23.4% to
$18,314,721. Approximately 35% of the increase in expenses was attributed to the
North Carolina cable television system acquisition, approximately 16% was
attributed to the ISP business and approximately 10% 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 46.6% in 1997 to 49.8% in 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased $871,746 or 10.6% to $9,058,819, primarily as a result of $662,530
higher depreciation charges relating to the North Carolina acquisition, the ISP
business and ongoing capital expenditures in the other cable systems; and,
$209,216 higher amortization expense all attributed to the North Carolina
acquisition.
MANAGEMENT FEE CHARGED BY AFFILIATE. Management fee expenses
increased $247,875 or 15.6% to $1,838,712 consistent with the increase in
revenues.
CORPORATE AND OTHER EXPENSES. Corporate and other expenses decreased
$142,827 or 47.3% to $158,798.
OPERATING INCOME. Operating income for the nine months ended
September 30, 1998 increased $502,792 or 7.3% to $7,403,271 from the
$6,900,479 operating income in the comparable 1997 period. The improvement in
operating results was due to increased profits on higher revenues.
INTEREST EXPENSE. Interest expense increased $932,659 or 8.8% to
$11,567,554 primarily due to interest expense associated with the debt for
the North Carolina acquisition.
INTEREST INCOME. Interest income decreased $44,613 or 46.2% to
$51,893 primarily due to lower average cash balances.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997.
REVENUES. Revenues increased $1,789,883 or 16.1% to $12,910,374.
Approximately 50% of the increase in revenues was attributed to the ISP
business. The balance of the increase was primarily due to higher basic
service and new program service rates. Excluding the effects of the ISP
business, the average monthly cable revenue per basic subscriber increased
from $38.27 in 1997 to $41.15 in 1998. The $2.88 increase reflected primarily
i) an increase of $0.88 in basic revenues; ii) an increase of $0.91 due to
the new program services; iii) an increase of $0.78 in advertising revenue;
iv) an increase of $0.05 in premium subscription revenue; and v) an increase
of $0.26 in other services, which includes private data network systems and
paging.
OPERATING, MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Operating,
marketing, general and administrative expenses increased $1,466,793 or 28.3% to
$6,649,279. Approximately 50% of the increase in expenses was attributed to the
ISP business and approximately 10% 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 46.6% in 1997 to 51.5% in 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased $243,725 or 7.9% to $3,327,992, primarily as a result of $275,149
higher depreciation charges relating to the ISP business and ongoing capital
expenditures in the other cable systems; and, $31,424 lower amortization
expense.
MANAGEMENT FEE CHARGED BY AFFILIATE. Management fee expenses
increased $89,503 or 16.1% to $645,522 consistent with the increase in
revenues.
CORPORATE AND OTHER EXPENSES. Corporate and other expenses
decreased $38,766 or 36.6% to $67,297.
OPERATING INCOME. Operating income for the three months ended
September 30, 1998 increased $28,628 or 1.3% to $2,220,284 from the
$2,191,656 operating income in the comparable 1997 period. The improvement
in operating results was due to increased profits on higher revenues.
10
<PAGE>
INTEREST EXPENSE. Interest expense increased $32,317 or .8% to
$3,892,386 primarily due to interest expense associated with the debt of the
ISP business.
INTEREST INCOME. Interest income decreased $11,965 or 43.6% to
$15,473 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
September 30, 1998, secured pari passu with the Senior Secured Notes 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
$268,652 was outstanding at September 30, 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 $6,196,978
and $7,541,816 for the nine-month periods ended September 30, 1997 and 1998,
respectively. The increase in cash generated from operations in the 1998
period compared to the 1997 period resulted primarily from increased revenues
that were in excess of the increase in cash operating costs and by favorable
changes in working capital items.
Net cash used in investing activities amounted to $24,183,699 and
$3,997,825 for the nine-month periods ended September 30, 1997 and 1998,
respectively, and included the following:
- - In the 1997 period, the Partnership incurred $2,935,814 in capital
expenditures related to the expansion and rebuilding of the systems, paid
$21,239,843 in connection with the acquisition of a cable television
system, received $19,891 in proceeds from the sales of equipment in the
ordinary course of business and incurred $27,933 in other deferred costs.
- - In the 1998 period, the Partnership incurred $4,055,681 in capital
expenditures related to the expansion and rebuilding of the systems,
received $106,128 in proceeds from sales of equipment in the ordinary
course of business and incurred $48,272 in other deferred costs.
- - Net cash provided by financing activities amounted to $18,009,567 in the
nine months ended September 30, 1997 compared to $1,384,314 net cash used
in financing activities in the nine months ended September 30, 1998 which
included the following:
- - In the 1997 period, the Partnership borrowed $20,285,000 from banks and
made $1,503,194 in principal repayments under the 1994 Credit Facility.
- - In the 1997 and 1998 period, the Partnership made repayments of notes
payable in the amounts of $686,489 and $514,115 respectively, which
represented principal repayments under the Partnership's equipment credit
facilities.
11
<PAGE>
- - Advances to other affiliates and repayments of such advances result from
management fees and other reimbursable expenses.
CREDIT AGREEMENTS OF THE PARTNERSHIP. On September 30, 1998, the
Partnership had cash and cash equivalents of $5,853,302 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 $268,652 was outstanding, bearing interest at Prime Plus 1.0% due March
1, 2012, used to finance the Partnership's new office building in Vermont; (vi)
$1,119,332 non-interest bearing promissory notes issued in connection with the
acquisition of the internet business, which were assumed by the Partnership on
June 29, 1998, and are reported net of imputed interest of $173,217; and (vii)
$1,556,508 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.
IMPACT OF THE YEAR 2000 ISSUE
The Partnership is aware of the issues associated with the programming
code in existing computer systems as the millennium (year 2000) approaches. The
year 2000 issue is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two digit year value to 00.
The issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
THE PARTNERSHIP'S STATE OF READINESS. The Partnership has developed a
remediation plan for its year 2000 issue that involves identification,
assessment and testing of the equipment and systems affected.
a) The Partnership has assessed its information technology (IT) equipment,
which includes signal-receiving, encoding and decoding electronics, and
headend electronic equipment necessary for the reception, amplification
and modulation of cable television signals.
b) The Partnership has identified and assessed non-information technology
(non-IT) embedded system such as security, fire prevention and climate
control systems.
c) The Partnership is analyzing the readiness of significant third party
vendors and suppliers of goods and services.
The Partnership has completed the identification and assessment of year 2000
affected systems and has ranked them as critical and non-critical to the
Partnership's operations. The Partnership has enlisted the help of Cable
Labs, an industry consortium, to continue the testing of these systems. Most
significant vendors to the cable television industry as well as other cable
operators have elected to coordinate their efforts on the year 2000 issue
through Cable Labs which will monitor the vendors' state of readiness. The
Partnership has replaced or upgraded IT equipment which it considers critical
to it's operations and is continuing to test the non-critical IT and non-IT
equipment and systems. The Partnership anticipates that the balance of the
testing, replacement and upgrades will be completed by September 1999.
THE RISK OF THE PARTNERSHIP'S YEAR 2000 ISSUE. Generally the partnership
believes that its systems will be year 2000 compliant in timely matter. Most
critical IT equipment necessary for the transmission of cable television
signals have been or will shortly be replaced or upgraded.
12
<PAGE>
The Partnership believes that the area of greatest risk to its operation
surround the year 2000 issue relates to significant suppliers failing to
remediate their year 2000 issues in a timely matter. The Partnership relies on
its suppliers to deliver the programming signals and to provide customer-billing
services. Cable Labs is monitoring the level of preparedness of significant
suppliers. If a number of significant suppliers are not year 2000 compliant,
this could have a material adverse effect on the Partnership's results of
operations, financial position or cash flow.
THE PARTNERSHIP'S CONTINGENCY PLANS. The Partnership expects to have a
contingency plan completed by September 1999. To mitigate the effects of the
Partnership's significant suppliers potential failure to remediate the year 2000
issue in a timely matter, the Partnership will take appropriate actions. Such
actions may include having arrangements for alternate suppliers and using manual
intervention to insure the continuation of operations. If it becomes necessary
for the Partnership to take these corrective actions, it is uncertain until the
contingency plans are finalized, whether this would result in significant delays
in business operations or have a material adverse effect on the Partnership's
results of operations, financial position or cash flow.
COSTS TO ADDRESS THE PARTNERSHIP'S YEAR 2000 ISSUE. As of September 30, 1998,
the Partnership has incurred approximately $100,000 in year 2000 related capital
expenditures. The Partnership anticipates the total cumulative costs for the
year 2000 compliance to reach approximately $250,000 to $300,000 in capital
expenditures. The Partnership continues to evaluate appropriate courses of
corrective action, including replacement of certain systems whose associated
costs would be recorded as assets and amortized. Accordingly, the Partnership
does not expect the amounts required to be expensed over the next three years to
have a material effect on is financial position or result of operations.
ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities" , was issued. SFAS 133
established accounting and reporting standards for derivative instruments and
for hedging activities. SFAS 133 requires that an entity recognize all
derivatives as either assets or liabilities and measure those instruments at
fair value. SFAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. SFAS 133 can not be applied retroactively to
financial statements of prior periods. At the current time the Company does not
utilize derivative instruments and accordingly it is anticipated that the
adoption of SFAS 133 will not have a material impact on the Company's
consolidated financial position and results of operations.
13
<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: November 10, 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: November 10, 1998 By: /s/ Herbert J. Roberts
--------------------------------
Name: Herbert J. Roberts
Title: Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
14
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