UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 1996
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 33-95298
GALAXY TELECOM, L.P.
(Exact name of Registrant as specified in its charter)
Delaware 43-1697125
-------------------------- -------------------
(States or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1220 North Main, Sikeston, Missouri 63801
(Address of principal executive offices) (zip code)
Registrant telephone number, including area code: (573) 472-8200
Indicate by check mark whether the Registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
previous 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days:
Yes X No
------ -------
<PAGE>
GALAXY TELECOM, L.P.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
INDEX
PAGE
----
PART I. Financial Information
Item 1. Consolidated Financial Statements
Galaxy Telecom, L.P. .........................................3
Notes to Consolidated Financial Statements .....................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ..................9
PART II. Other Information .........................................14
Signatures .........................................................15
<PAGE>
GALAXY TELECOM, L.P.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 2,410,971 $ 3,430,835
Subscriber receivables, net of allowance for
doubtful accounts of $309,223 and
$834,425, respectively 6,339,421 3,512,141
Systems and equipment, net 137,439,391 126,312,055
Intangible assets, net 64,612,437 65,047,002
Prepaids and other 2,466,904 1,611,158
------------ ------------
Total assets $213,269,124 $199,913,191
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 9,764,733 $ 9,569,072
Subscriber deposits and deferred revenues 5,608,866 2,646,413
Long-term debt 167,081,159 145,526,955
------------ ------------
Total liabilities 182,454,758 157,742,440
------------ ------------
Commitments and contingencies
Partners' capital:
General partners 23,813,366 35,169,751
Limited partners 7,001,000 7,001,000
Total partners' capital 30,667,313 42,170,751
------------ ------------
Total liabilities and partners' capital $213,122,071 $199,913,191
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
GALAXY TELECOM, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 15,889,468 $ 7,100,486 $ 45,908,602 $ 20,807,762
Operating expenses:
Systems operations 7,451,611 3,243,728 20,783,320 9,319,528
Selling, general and administrative 1,508,784 897,843 4,872,965 2,430,106
Management fee to affiliate 714,786 390,550 2,065,645 1,144,286
Depreciation and amortization 5,468,178 2,898,048 14,988,715 7,641,809
------------ ------------ ------------ ------------
Total operating expenses 15,143,359 7,430,169 42,710,645 20,535,729
Operating income 746,109 (329,683) 3,199,144 272,033
Interest expense (5,181,112) (1,471,796) (14,643,448) (5,264,828)
Interest income and other 54,873 40,343 87,919 96,211
------------ ------------ ------------ ------------
Net loss $ (4,380,130) $ (1,761,136) $(11,356,385) $ (4,896,584)
============ ============ ============ ============
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
<PAGE>
GALAXY TELECOM, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Limited Partners
General ----------------------------------------------------------------------
Partners Class B Class C Class D Class E Total Total
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Contributions $ 29,625,000 $ 1,000 $ 416,000 $ 6,384,000 $ 6,801,000 $ 36,426,000
Syndication and trans-
action costs (730,171) (730,171)
Net loss for period (175,311) (175,311)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31,
1994 28,719,518 1,000 416,000 6,384,000 6,801,000 35,520,518
Contributions 15,000,000 $ 200,000 200,000 15,200,000
Net loss for period (8,549,767) (8,549,767)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31,
1995 35,169,751 1,000 416,000 6,384,000 200,000 7,001,000 42,170,751
Net loss for period (11,356,385) (11,356,385)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at September 30,
1996 $ 23,813,366 $ 1,000 $ 416,000 $ 6,384,000 $ 200,000 $ 7,001,000 $ 30,814,366
============ ============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
GALAXY TELECOM, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended
September 30, September 30,
1996 1995
------------- -------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $ (11,356,385) $ (4,896,584)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization expense 14,988,715 7,332,829
Amortization of debt issue costs 780,868 308,980
Financeable interest 404,670 350,352
Provision for doubtful accounts receivable 845,290 217,537
Loss on sale of assets 28,476 9,238
Changes in assets and liabilities:
Subscriber receivables (3,672,571) (1,488,485)
Prepaids and other (855,746) (370,647)
Accounts payable and accrued
expenses 195,661 1,079,263
Subscriber deposits and deferred revenues 2,962,453 1,048,338
------------- -------------
Net cash provided by operating activities 4,321,432 3,590,821
------------- -------------
Cash flows from investing activities:
Acquisition of cable systems (13,171,100 (4,277,857)
Capital expenditures (13,123,006) (3,523,339)
Proceeds from sale of assets 54,990 350
Other intangible assets (166,154) (45,862)
------------- -------------
Net cash used in investing activities (26,405,270) (7,846,708)
------------- -------------
Cash flows from financing activities:
Proceeds from Senior Subordinated Notes 120,000,000
Net borrowings-Revolving Credit Facility 21,185,000 3,467,510
Payments of debt issue costs (4,545,366)
Payments on other debt (121,026) (59,000,000)
------------- -------------
Net cash provided by financing activities 21,067,408 59,922,144
------------- -------------
Net increase (decrease) in cash (1,019,864) 55,666,257
Cash and cash equivalents, beginning of period 3,430,835 2,890,410
------------- -------------
Cash and cash equivalents, end of period $ 2,410,971 $ 58,556,667
============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
GALAXY TELECOM, L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. STATEMENT OF ACCOUNTING PRESENTATIONS AND OTHER INFORMATION
The attached interim financial statements are presented in accordance
with the requirements of Form 10-Q and consequently do not include all of the
footnote disclosures required for audited financial statements by generally
accepted accounting principles. The results for September 30, 1996, and for the
three and nine months then ended are not necessarily indicative of the results
for the entire 1996 fiscal year. It is suggested that the accompanying financial
statements be read in conjunction with the Partnership's Annual Report on Form
10-K for the year ended December 31, 1995.
Galaxy Telecom Capital Corp. ("Capital Corp."), a Delaware corporation, was
formed July 26, 1995 and was funded August 1, 1995 as a wholly owned subsidiary
of the Partnership. Capital Corp. did not have any significant operations for
the period ended September 30, 1996.
The following notes, insofar as they are applicable to the three and nine
months ended September 30, 1996 and September 30, 1995, are not audited. In
management's opinion, all adjustments, consisting of only normal recurring
accruals considered necessarily for a fair presentation of
such financial statements are included.
2. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid during the three months ended September 30, 1996 was
approximately $8.5 million. Interest paid during the nine months ended September
30, 1996 was approximately $16.3million. Interest paid during the three months
ended September 30, 1995 was approximately $2.7 million. Interest paid during
the nine months ended September 30, 1995 was approximately $3.5 million.
3. RELATED PARTY TRANSACTIONS
The Partnership incurs management fees and expenses pursuant to the
terms of a management agreement with Galaxy Systems Management, Inc., an
affiliate of a general partner, under which it manages the Partnership's
business. Beginning December 1, 1995, management fees are calculated at 4.5% of
gross revenues as defined in the management agreement. Prior to December 1,
1995, the fees were calculated at 5.5%. Management fees totaled $714,786 for the
three months ended September 30, 1996 and $390,550 for the three months ended
September 30, 1995. Management fees totaled $2,065,645 for the nine months ended
September 30, 1996 and $1,144,286 for the nine months ended September 30, 1995.
4. NOTES PAYABLE
Notes Payable consist of the following:
September 30, December 31,
1996 1995
------------- -------------
(Unaudited)
Revolving Credit Facility $ 38,685,000 $ 17,500,000
Term Loan 8,000,000 8,000,000
Financeable interest 850,716 446,046
Senior Subordinated Notes 120,000,000 120,000,000
Unamortized discount (495,661) (585,000)
Other 41,103 165,909
------------- -------------
Total Notes Payable $ 167,081,160 $ 145,526,955
============= =============
5. PENDING ACQUISITIONS
On August 16, 1995, the Partnership signed a letter of intent to
purchase certain assets comprising a cable television system of Five Rivers
Cable Company (the "Five Rivers System") for a purchase price of $.5 million
which is subject to reduction in the event fewer than 588 basic subscribers
exist at closing. As of December 31, 1995, the Five Rivers System passed
approximately 730 homes located in Tennessee, with 24 miles of plant, for a
density of 30.4 homes per mile. The Five Rivers System served approximately 600
basic subscribers and had a basic penetration rate of approximately 82.2% as of
March 31, 1996. As of September 30, 1996, this acquisition is still pending.
6. SUBSEQUENT EVENTS
On November 1, 1996, the Partnership purchased certain cable television
systems of C-S Cable Company ("C-S Cable") for a $2.3 million. C-S Cable passes
approximately 4,200 homes located in Florida and serves approximately 3,400
basic subscribers, a basic penetration rate of approximately 81.0% at closing.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
Galaxy Telecom, L.P. (the "Partnership") began operations on December 23,
1994. The Partnership acquired certain cable television systems of Galaxy
Cablevision, L.P., Vantage Cable Associates, L.P., Vista Communications Limited
Partnership III and Chartwell Cable on December 23, 1994, and
certain other cable systems of Galaxy Cablevision on March 31, 1995, for
aggregate consideration of $98.8 million.
The Partnership completed, in September 1995, a public offering of 12.375%
Senior Subordinated Notes due 2005, in the face amount of $120,000,000 (the
"Notes"). The Partnership received proceeds from the Notes, net of expenses, in
the amount of $115,800,000. The proceeds of the Notes were used for
restructuring debt and the expansion of the business of the Partnership through
acquisitions of additional cable systems described herein.
During the second quarter of 1996, the Partnership acquired certain
cable television systems of Cablevision of Texas III, Empire Communications,
Empire Cable of Kansas, Hurst Communications, Midcontinent Cable Systems and
High Plains Cable for an aggregate consideration of $12.9 million. During the
fourth quarter of 1995, the Partnership acquired certain cable television
systems of Douglas Cable Communications Limited Partnership, Friendship Cable
Southeast, Vista/Narragansett Cable, L.P., Vista Communications Limited
Partnership I, and Phoenix Cable for aggregate consideration of $88.7 million.
On June 15, 1996, the Partnership traded certain of its assets located
in Shawnee County and Jefferson County, Kansas (the "Shawnee County System") for
certain assets comprising approximately 7 cable television systems of TCI (the
"TCI Systems") located in northern Mississippi.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of selected
income statement items as a percent of revenues for the three months and nine
months ended September 30, 1996 and September 30, 1995. Amounts shown are in
thousands.
<TABLE>
<CAPTION>
For the three months ended September 30, For the nine months ended September 30,
---------------------------------------- ---------------------------------------
1996 1995 1996 1995
---------- --------- ------------ -----------
Amount %age Amount %age Amount %age Amount %age
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 15,889 100.0% $ 7,100 100.0% $ 45,910 100.0% $ 20,808 100.0%
-------- -------- -------- -------- -------- -------- -------- --------
Operating expenses:
System operations 7,451 46.9% 3,244 45.7% 20,783 45.3% 9,320 44.8%
Selling, general and administrative 1,509 9.5% 898 12.6% 4,873 10.6% 2,430 11.7%
Management fees 715 4.5% 390 5.5% 2,066 4.5% 1,144 5.5%
Depreciation and amortization 5,468 34.4% 2,898 40.8% 14,989 32.6% 7,642 36.7%
-------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses 15,143 95.3% 7,430 104.6% 42,711 93.0% 20,536 98.7%
Operating income 746 4.7% (330) (4.6%) 3,199 7.0% 272 1.3%
Interest expense (5,181) (32.6%) (1,471) (20.8%) (31.9%) (5,265) (25.3%)
Other income 54 0.3% 40 .6% 88 0.2% 96 0.5%
-------- -------- -------- -------- -------- -------- -------- --------
Net loss $ (4,380) (27.6%) $ (1,761) (24.8%) (11,356) (24.7%) (4,897) (23.5%)
======== ======== ======== ======== ======== ======== ======== =======
</TABLE>
The following table sets forth demographic information as of June 30, 1996
and September 30, 1996. Information prior to these dates are not comparable.
June 30, September 30,
1996 1996
---- ----
Homes Passed 292,145 289,254
Basic Subscribers 175,176 177,067
Basic Penetration 59.96% 61.22%
Revenue per Subscriber $29.58 $29.91
Premium Subscribers 89,993 92,887
Premium Penetration 51.37% 52.46%
The Partnership generated revenues in the amount of $15,889,468 and
$45,909,789 for the three month and nine month periods ended September 30, 1996,
respectively. For the three month and nine month periods ended September 30,
1995, the Partnership generated revenues in the amount of $7,100,486 and
$20,807,762, respectively. The Partnership was able to increase rates in certain
systems during 1996, therefore average revenue per subscriber increased from
$29.64 at September 30, 1995 to $30.05 at September 30, 1996. The increase in
revenue was primarily due to the inclusion of revenue from the acquired systems
and revenue generated through internal growth.
For the three months ended September 30, 1996 and September 30, 1995
system operating expenses consisting of subscriber costs, technician costs and
system maintenance costs were $7,451,611, and $3,243,728, respectively, and, as
a percentage of revenues, increased slightly from 45.7% in 1995 to 46.9% in
1996. For the nine months ended September 30, 1996 and September 30, 1995 system
operating expenses were $20,783,320 and $9,319,528, respectively, and, as a
percentage of revenues, increased slightly from 44.8% in 1995 to 45.3% in 1996.
The increases are a result of the acquisitions, increased programming fees and
pole attachment rates charged to the Partnership and internal growth.
Selling, general and administrative expenses, which includes office
rents and maintenance, marketing costs and corporate expenses, increased from
$897,843 to $1,508,784 for the three months ended September 30, 1995 and
September 30, 1996, respectively, and from $2,430,106 to $4,872,965 for the nine
months ended September 30, 1995 and September 30, 1996, respectively. For the
three month period ended September 30, these expenses decreased as a percentage
of revenue from 12.6% in 1995 to 9.5% in 1996. For the nine month periods ended
September 30, these expenses decreased from 11.7% in 1995 to 10.6% in 1996. The
Partnership was able to decrease marketing expenses by sharing costs of
promotions with programmers. Administrative costs decreased as a percentage of
revenue due to the Partnership's ability to serve additional subscribers within
its existing corporate structure. The increase in selling, general and
administrative expenses in absolute terms results in
For the three months ended September 30, 1996 and September 30, 1995
depreciation and amortization expense was $5,468,178, or 34.4% of revenues, and
$2,898,048, or 36.2% of revenues, respectively. For the nine months ended
September 30, 1996 and September 30, 1995 depreciation and amortization expense
was $14,988,715, or 32.6% of revenues, and $7,641,809, or 36.7% of revenues,
respectively. The increase in depreciation and amortization expense is
attributable to the increase in fixed assets from internal purchases and
acquisitions.
For the nine months ended September 30, 1996 and September 30, 1995,
interest expense was $14,643,448 and $5,264,828, respectively. The increase of
$9,378,620 was a result of the issuance of the Notes described above and other
financing. Other income decreased to $87,919 from $96,211 for
the nine months ended September 30, 1995 and 1996, respectively, a decrease of
$8,292.
The Partnership as an entity pays no income taxes, although it is required
to file federal and state income tax returns for informational purposes only.
All income or loss "flows through" to the partners of the Partnership as
specified in the Partnership's limited partnership agreement.
LIQUIDITY AND CAPITAL RESOURCES:
As of September 30, 1996, the Partnership had $2,410,971 in cash and cash
equivalents. Total current liabilities (other than notes payable) exceed cash
and cash equivalents by $12,962,628. The Partnership expects to fund this
deficiency through its operating cash flows.
Due to the results of operations discussed above, the Partnership
generated operating cash flows, defined as earnings before interest,
depreciation and amortization expense, of $18,187,859, or 39.7% of operating
revenues and $7,913,842, or 38.0% of operating revenues for the nine months
ended September 30, 1996 and 1995, respectively.
On April 1, 1996, the Partnership acquired certain assets from the
Cablevision of Texas Systems for a total purchase price of $10.16 million. In
April 1996, the Partnership also completed the acquisitions of the Hurst
Systems, the High Plains Systems and the Midcontinent Systems for an aggregate
amount of approximately $2.75 million
The Partnership had an aggregate of approximately $167.1 million of
indebtedness as of September 30, 1996, representing $120 million of Notes and
$47.1 million of bank debt. The bank debt includes a Revolving Credit Facility
under which the Partnership may make revolving borrowings of up to $58.5 million
until December 31, 1997, subject to compliance with certain conditions,
including certain financial covenants. On December 31, 1997, outstanding
balances of the Revolving Credit Facility will convert to a term loan amortizing
quarterly until a final maturity on December 31, 2002. The Revolving Credit
Facility requires the Partnership to maintain compliance with certain financial
ratios and other covenants. The financial covenants in the Revolving Credit
Facility may limit the Partnership's ability to borrow under the Revolving
Credit Facility. The Partnership presently intends to utilize the Revolving
Credit Facility to fund capital expenditures, repay the term loan and acquire
additional cable systems. As of September 30, 1996, the Partnership has
borrowings under the Revolving Credit Facility of $38.7 million, which include
borrowings used to fund the acquisitions of the Cablevision of Texas, Hurst,
High Plains and Midcontinent Systems. The bank debt also includes a term loan of
$8.0 million. In December, 1996, when such loan becomes prepayable without a
premium or other charge, the Partnership presently intends to repay the term
loan in full with borrowings under the Revolving Credit Facility.
As of September 30, 1996, the Partnership had $137.4 million in
systems and equipment consisting of $129.9 million of cable television systems
and $7.5 million of vehicles, equipment, buildings and office equipment, all net
of accumulated depreciation. The Partnership had capital expenditures (exclusive
of system acquisitions) of $13.1 million for the nine months ended September 30,
1996. For the nine months ended September 30, 1995, the Partnership had capital
expenditures (exclusive of system acquisitions) of $3.5 million. These capital
expenditures were financed mainly through the Revolving Credit Facility and cash
flows from operations. During the first nine months of 1996, the Partnership's
capital expenditures were primarily used to purchase vehicles and related
equipment, expand office space, eliminate headends by interconnecting adjacent
systems with fiber-optic cable, expand and wire related headend buildings and
electronic equipment, and perform routine maintenance of the existing cable
plant.
The Partnership's cash flows have been sufficient to meet its debt
service, working capital and capital expenditure requirements, with the
exception of the above acquisitions of cable systems, which have been funded
principally through the proceeds of the Note and borrowings under the Revolving
Credit Facility. The Partnership expects that it will be able to meet its short-
and long-term requirements for debt service, working capital and capital
expenditures and to fund future cable system acquisitions through its operating
cash flows and borrowings under the Revolving Credit Facility, and its access to
additional capital in the public and private debt markets.
PART II. OTHER INFORMATION
Items 1 through 5.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are included or incorporated by
reference below.
27. Financial Data Schedule
(b) Reports of Form 8-K. No reports of Form 8-K were filed during the
quarter ended September 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GALAXY TELECOM, L.P.
BY: Galaxy Telecom, Inc.
as General Partner
Date: November 14, 1996 /s/ J. Keith Davidson
BY: J. Keith Davidson
Vice President-Finance
(Principal Financial Officer)
<TABLE> <S> <C>
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<PERIOD-END> SEP-30-1996
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