UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --------
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended September 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 33-95298
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. AND SUBSIDIARY
FORM 10-Q/A
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
PAGE
------------
PART I. Financial Information
Item 1. Consolidated Financial Statements
Galaxy Telecom, L.P. and Subsidiary ..................3
Notes to Consolidated Financial Statements............7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........11
PART II. Other Information....................................16
Signatures....................................................17
Exhibit Index.................................................18
2
<PAGE>
GALAXY TELECOM, L.P. AND SUDSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
ASSETS 1997 1996
------------- ------------
(Unaudited)
Cash and cash equivalents $ 5,510,192 $ 2,338,345
Subscriber receivables, net of allowance
for doubtful accounts of $199,631 and
$411,950, respectively 5,348,311 5,998,127
Systems and equipment, net 142,092,754 144,822,616
Intangible assets, net 58,878,839 62,330,152
Prepaids and other 2,434,353 2,008,768
------------ ------------
Total assets $214,264,449 $217,498,008
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 21,658,218 $ 17,738,261
Subscriber deposits and deferred revenue 5,023,107 4,763,327
Long-term debt and other obligations 177,102,613 169,737,608
Total liabilities 203,783,938 192,239,196
------------ ------------
Commitments and contingencies
Partners' Capital:
General partners 3,479,511 18,257,812
Limited partners 7,001,000 7,001,000
------------ ------------
Total partners' capital 10,480,511 25,258,812
------------ ------------
Total liabilities and partners' capital $214,264,449 $217,498,008
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
GALAXY TELECOM, L.P. AND SUDSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
-------------- ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 17,362,684 $ 15,889,468 $ 51,333,357 $ 45,909,789
------------ ------------ ------------ ------------
Operating expenses:
Systems operations 8,069,528 7,451,611 23,420,184 20,783,320
Selling, general and administrative 2,189,666 1,508,784 5,980,386 4,780,868
Management fee to affiliate 781,321 714,786 2,310,119 2,065,645
Depreciation and amortization 6,198,209 5,468,178 18,473,534 15,769,583
--------- --------- ---------- ----------
Total operating expenses 17,238,724 15,143,359 50,184,223 42,710,645
------------ ------------ ------------ ------------
Operating income 123,960 746,109 1,149,134 3,199,144
Interest expense (5,285,888) (5,181,112) (15,635,671) (14,643,448)
Interest income and other (129,225) 54,873 (291,764) 87,919
Net loss $ (5,291,153) $ (4,380,130) $(14,778,301) $(11,356,385)
============ ============ ============ ============
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
GALAXY TELECOM, L.P. AND SUBSIDIARY
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>
Balance at January 1,
1997 18,257,812 1,000 416,000 6,384,000 200,000 7,001,000 25,258,812
Net loss for period
(unaudited) (14,778,301) -- -- -- -- -- (14,778,301)
------------ ----------- ------------ ------------ ------------ ------------ ------------
Balance at September 30,
1997 (unaudited) $ 3,479,511 $ 1,000 $ 416,000 $ 6,384,000 $ 200,000 $ 7,001,000 $ 10,480,511
============ =========== ============ ============ ============ ============ ============
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
5
<PAGE>
GALAXY TELECOM, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended
September 30,
-----------------------
1997 1996
---------- ---------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $(14,778,301) $(11,356,385)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation expense 15,394,589 12,209,164
Amortization expense 3,078,945 2,779,551
Amortization of debt issue costs 701,082 780,868
Financeable interest -- 404,670
Provision for doubtful accounts receivable 1,496,115 845,290
Loss on sale of assets 93,954 28,477
Changes in assets and liabilities:
Subscriber receivables (846,299) (3,672,571)
Prepaids and other (425,585) (855,746)
Accounts payable and accrued expenses 3,919,957 195,661
Subscriber deposits and deferred revenue 259,780 2,962,453
Net cash provided by operating activities 8,894,237 4,321,432
------------ ------------
Cash flows from investing activities:
Acquisition of cable systems -- (13,171,100)
Capital expenditures (13,620,486) (13,123,006)
Proceeds from sale of assets 921,280 54,990
Other intangible assets (343,189) (166,154)
------------ ------------
Net cash used in investing activities (13,042,395) (26,405,270)
Cash flows from financing activities:
Borrowings under revolver 7,925,000 21,185,000
Payments on revolver (801,377) --
Net borrowings (payments) on other debt 196,382 (121,026)
------------ ------------
Net cash provided by financing activities 7,320,005 21,063,974
------------ ------------
Net increase (decrease) in cash 3,171,847 (1,019,864)
Cash and cash equivalents, beginning of period 2,338,345 3,430,835
Cash and cash equivalents, end of period $ 5,510,192 $ 2,410,971
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
GALAXY TELECOM, L.P. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. STATEMENT OF ACCOUNTING PRESENTATIONS AND OTHER INFORMATION
The accompanying unaudited interim financial statements and related
disclosures are prepared in accordance with generally accepted accounting
principles applicable to interim financial information and with the instructions
to 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, 1997, and for the three months and
nine months then ended are not necessarily indicative of the results to be
expected for the entire 1997 fiscal year. The accompanying financial statements
should be read in conjunction with the Partnership's Annual Report on Form
10-K/A for the year ended December 31, 1996.
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, 1997.
The following notes, insofar as they are applicable to the three months
and nine months ended September 30, 1997 and September 30, 1996, are not
audited. In management's opinion, all adjustments, consisting of only normal
recurring accruals considered necessary for a fair presentation of such
financial statements are included.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share" and No. 129, "Disclosure of Information about Capital Structure." SFAS
No. 128 specifies the computation, presentation and disclosure requirements for
earnings per share and is designed to improve earnings per share information by
simplifying the existing computational guidelines and revising the previous
disclosure requirements. SFAS No. 129 consolidates the existing disclosure
requirements to disclose certain information about an entity's capital
structure. Both statements are effective for periods ending December 15, 1997.
7
<PAGE>
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those business
enterprises report information about operating segments in interim financial
statements issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS No. 131 is effective for financial statements for years beginning after
December 15, 1997.
Management does not believe the implementation of SFAS No. 130
and No. 131 will have a material effect on its financial statements.
3. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest during the nine months ended September 30, 1997 was
approximately $9.2 million. Cash paid for interest during the nine months ended
September 30, 1996 was approximately $16.3 million.
During the first nine months of 1996, the Partnership traded the Shawnee
County Systems located in Shawnee and Jefferson counties in Kansas for the TCI
Systems located in various counties in northern Mississippi.
During the first nine months of 1997, the Partnership entered into a
capital lease agreement with McLeod Network Services for approximately $288,000.
This agreement allows connectivity among various towns and cities located in
central Iowa within the Partnership's systems until March 31, 2002.
4. 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. Management
fees are calculated at 4.5% of gross revenues as defined in the management
agreement. Management fees totaled $714,786 for the three months ended September
30, 1996 and $781,321 for the three months ended September 30, 1997. Management
fees totaled $2,065,645 for the nine months ended September 30, 1996 and
$2,310,119 for the nine months ended September 30, 1997.
8
<PAGE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
September 30, December 31,
1997 1996
------------ ------------
(Unaudited)
Revolving Credit Facility $57,000,000 $49,876,377
Senior Subordinated Notes 120,000,000 120,000,000
Unamortized discount (480,000) (525,000)
Other 582,613 386,231
------------ ------------
Total $177,102,613 $169,737,608
============ ============
Under the Revolving Credit Facility, the Partnership may make revolving
borrowings of up to $68.0 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.
6. SALE OF CABLE TELEVISION SYSTEMS
On April 7, 1997, the Partnership sold its cable television system
located in Five Points, South Carolina (the "Five Points Sale"), representing
311 basic subscribers for $372,645, or approximately $1,200 per subscriber. The
Partnership used most of the proceeds from the Five Points Sale to pay down the
principal of the Revolving Note.
On August 1, 1997, the Partnership sold its cable television systems
located in Lake Murray, South Carolina (the "Lake Murray Sale"), representing
587 subscribers for $587,000 or $1,000 per subscriber. The Partnership retained
ownership of all related equipment located in the two head-end facilities. The
Partnership used the proceeds from the Lake Murray Sale to pay down the
principal of the Revolving Note.
7. PENDING SALES AND ACQUISITIONS
On October 1, 1997 the Partnership purchased one cable television system
located in Nebraska from Tele-Communications, Inc.("TCI") (the "Harmon System")
for $825,000 of cash considerations. As of September 30, 1997, the Harmon System
passed 3,115 homes in Douglas and Sarpy counties and served 1,683 subscribers,
for a basic penetration rate of 54.0%.
9
<PAGE>
On July 22, 1997, the Partnership signed a Letter of Intent with Eagle
Television, Inc. to sell certain assets of fourteen cable television systems
located in Southern Colorado. The systems currently serve approximately 3,300
subscribers and the total selling price is $3,500,000 and is anticipated to
close in December, 1997.
On September 12, 1997, the Partnership signed an Asset Purchase Agreement
with NewPath Communications, L.C. to sell certain assets of 140 of the
Partnership's smallest cable television systems located in Missouri, Kansas,
Iowa, and Nebraska. Certain terms of the agreement are contingent upon the
approval of the Partnership's Board of Directors. Such approval is expected to
be secured in the first quarter of calendar 98. The systems currently serve
approximately 18,000 subscribers and the total selling price is $16,200,000.
On October 3, 1997, the Partnership signed a Letter of Intent with Jones
Financial Group, Ltd. to sell certain assets of two cable television systems
located in Kansas (Jefferson Place Apts.) and Missouri (Williamsburg Apts.). The
systems currently serve approximately 280 subscribers and the total selling
price is $225,000 and is anticipated to close in December, 1997. The Letter of
Intent calls for seller to retain ownership of all equipment located at the
transmission site.
On October 28, 1997 the Partnership signed an Asset Exchange Agreement
with High Country Cablevision Partnership to trade certain assets of four cable
television systems located in Western Nebraska serving approximately 850
subscribers for one cable television system located in Colorado serving
approximately 800 subs. The closing is expected to take place in December, 1997.
On November 10, 1997, the Partnership signed a Letter of Intent with The
Southern Kansas Telephone Compnay, Inc. to sell certain assets of twelve cable
television systems located in Southern Kansas. The systems currently serve
approximately 1,300 subscribers and the total selling price is $1,210,750. The
closing is expected to take place in December, 1997.
On November 11, 1997, the Partnership signed a Letter of Intent with
Comcast to sell certain assets of one cable television system located in
Lauderdale County, Mississippi. The system currently serves approximately 900
subscribers and the total selling price is $1,150,000. The Letter of Intent
calls for the Partnership to retain ownership of all equipment located at the
transmission site. The closing is expected to take place in December, 1997.
10
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
During the second quarter of 1996, Galaxy Telecom, L.P. (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 $13.4 million.
On June 14, 1996, the Partnership traded certain of its assets located in
Shawnee County and Jefferson County, Kansas for certain assets comprising
approximately six cable television systems of TCI located in northern
Mississippi.
On November 1, 1996, Galaxy acquired certain assets comprising five cable
television systems of C-S Cable for a purchase price of approximately $2.27
million, serving approximately 3,450 subscribers in five franchise areas in and
around Marion and Sumter Counties in Florida.
On November 1, 1996, Galaxy traded assets comprising the Ranburn cable
system in Ranburn, Alabama serving approximately 110 subscribers for a similar
system in Mexia, Alabama serving approximately 230 subscribers. This trade
allowed Galaxy to trade a small system out of a non-targeted service area for a
similar system in proximity to our targeted service areas.
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, 1997 and September 30, 1996. Amounts shown are in
thousands.
<TABLE>
<CAPTION>
For the three months ended September 30, For the nine months ended September 30,
1997 1996 1997 1996
-------------- --------------- ---------------- ---------------
Amount %age Amount %age Amount %age Amount %age
-------- ----- -------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 17,363 100.0% $ 15,889 100.0% $ 51,333 100.0% $ 45,910 100.0%
-------- ----- -------- ----- -------- ----- -------- -----
Operating expenses:
System operations 8,070 46.5% 7,452 46.9% 23,420 45.6% 20,783 44.6%
Selling, general and administrative 2,190 12.6% 1,509 11.5% 5,980 11.7% 4,873 11.2%
Management fees to affiliate 781 4.5% 715 4.5% 2,310 4.5% 2,066 4.5%
Depreciation and amortization 6,198 35.7% 5,468 35.2% 18,474 36.0% 14,989 32.6%
-------- ----- -------- ----- -------- ----- -------- -----
Total operating expenses 17,239 99.3% 15,143 95.1% 50,184 97.8% 42,711 92.9%
-------- ----- -------- ----- -------- ----- -------- -----
Operating income 124 0.7% 746 4.9% 1,149 2.2% 3,199 7.1%
Interest expense (5,286) (30.4%) (5,181) (30.6%) (15,636) (30.5%) (14,643) (32.0%)
Other income (expense) (129) (0.7%) 55 (0.1%) (291) (0.6%) 88 0.1%
-------- ----- -------- ----- -------- ----- -------- -----
Net loss $ (5,291) (30.5%) $ (4,380) (25.8%) $(14,778) (28.8%) $(11,356) (24.8%)
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
11
<PAGE>
The following table sets forth demographic information as of September 30,
1997 as compared to December 31, 1996, March 31, 1997 and June 30, 1997.
December 31, March 31, June 30, September 30,
1996 1997 1997 1997
---- ---- ---- ----
Homes Passed 292,768 283,948 283,948 289,531
Basic Subscribers 182,552 178,819 177,708 176,057
Basic Penetration 62.35% 62.97% 62.58% 60.81%
Revenue per Subscriber $28.45 $32.06 $32.82 $32.88
Premium Subscribers 92,700 88,150 84,854 84,322
Premium Penetration 50.78% 49.30% 47.75% 47.89%
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,
1997 the Partnership generated revenues in the amount of $17,362,684 and
$51,333,357, respectively. The Partnership was able to realize additional
revenue by increasing basic rates in certain systems during the first three
months of 1997 and, to a lessor extent, by increasing revenue from ancillary
sources such as advertising, managed care services and distance learning. As a
result, average revenue per subscriber increased from $29.58 for the three
months ended September 30, 1996 to $32.88 for the three months ended September
30, 1997.
For the three months ended September 30, 1996 and September 30, 1997
systems operations, consisting of subscriber costs, technician costs and system
maintenance costs, increased from $7,451,611 to $8,069,528, respectively. As a
percentage of revenues, these expenses decreased slightly from 46.9% in 1996 to
46.5% in 1997. For the nine months ended September 30, 1996 and September 30,
1997 system operating expenses increased from $20,783,320 to $23,420,184,
respectively, and, as a percentage of revenues, increased slightly from 45.3% in
1996 to 45.6% in 1997. The increase in these expenses are a result of an
increase in programming fees charged to the Partnership offset partially by a
reduction in costs due to a decrease in the number of subscribers.
Selling, general and administrative expenses, which include office rents and
maintenance, marketing costs and corporate expenses, increased from $1,508,784
to $2,189,666 for the three months ended September 30, 1996 and September 30,
1997, respectively, and from $4,872,965 to $5,980,386 for the nine months ended
September 30, 1996 and September 30, 1997, respectively. For the three-month
period ended September 30, these expenses increased as a percentage of revenue
from 9.5% in 1996 to 12.6% in 1997. This increase is attributable to an increase
in contract marketing expenses in an effort to attract and maintain basic
subscribers within existing systems and a decrease in the amount reimbursed from
programmers. For the nine-month periods ended September 30, 1996 and 1997, these
expenses increased from 10.6% to 11.7%, respectively.
12
<PAGE>
For the three months ended September 30, 1996 and September 30, 1997
depreciation and amortization expense was $5,468,178, or 34.4% of revenues, and
$6,198,209, or 35.7% of revenues, respectively. For the nine months ended
September 30, 1996 and September 30, 1997, depreciation and amortization expense
was $14,988,715, or 32.6% of revenues, and $18,473,534, or 36.0% of revenues,
respectively. The increase in depreciation and amortization expense is
attributable to the increase in fixed assets from purchases and acquisitions.
For the three months ended September 30, 1996 and September 30, 1997,
interest expense was $5,181,112 and $5,285,888, respectively. For the nine
months ended September 30, 1996 and September 30, 1997, interest expense was
$14,643,448 and $15,635,671, respectively. This increase was a result of
additional borrowings under the Partnership's Revolving Credit Facility. For the
three months ended September 30, 1996 and 1997, interest income and other, which
includes interest income, loss on extraordinary items and other expenses, was a
net income of $54,873 in 1996 and a net expense of $129,225 in 1997. For the
nine months ended September 30, 1996 and 1997, interest income and other was a
net income of $87,919 in 1996 and a net expense of $291,764 in 1997,
respectively.
The Partnership 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, 1997, the Partnership had $13,292,856 in current
assets, including $5,510,192 in cash and cash equivalents, $5,348,311 in
subscriber receivables and $2,434,353 in prepaids and other. As of such date,
total current liabilities (other than notes payable) exceeded current assets by
$13,388,469. The Partnership expects to fund this deficiency through its
operating cash flows and available funds under the Revolving Credit Facility.
Due to the results of operations discussed above, the Partnership
generated operating cash flows, defined as earnings before interest,
depreciation and amortization expense and extraordinary items, of $6,214,287 or
39.1% of operating revenues, and $6,322,169, or 36.4% of operating revenues, for
the three months ended September 30, 1996 and 1997, respectively, and
$18,187,859, or 39.6% of operating revenues, and $19,622,668, or 38.2% of
operating revenues, for the nine months ended September 30, 1996 and 1997,
respectively.
13
<PAGE>
The Partnership had aggregate indebtedness of approximately $177.1 million
as of September 30, 1997, representing $120 million of 12.375% Senior
Subordinated Notes due in 2005 (the "Notes") and $57.0 million of bank debt. The
bank debt includes a Revolving Credit Facility under which the Partnership may
make revolving borrowings of up to $68.0 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.
It is anticipated that several of the pending sales will close before year
end, and could generate approximately $11,000,000 of cash to be used to pay down
the revolver. Discussions are in progress with the existing bank group to amend
the loan agreement. Said discussions include, but are not limited to, the
extension of the date to correct the revolving line of credit to a term loan.
As of September 30, 1997, the Partnership had $142.1 million in systems
and equipment consisting of $130.8 million of cable television systems and $11.3
million of vehicles, equipment, buildings and office equipment, all net of
accumulated depreciation. The Partnership had capital expenditures (exclusive of
system acquisitions) of $13.6 million for the nine months ended September 30,
1997. For the nine months ended September 30, 1996, the Partnership had capital
expenditures (exclusive of system acquisitions) of $13.1 million. These capital
expenditures were financed mainly through the Revolving Credit Facility and cash
flows from operations. During the first nine months of 1997, the Partnership's
capital expenditures were primarily used to purchase computers and related
equipment to expand and interconnect administrative offices, add channels,
eliminate headends by interconnecting adjacent systems with fiber-optic cable,
and construct wide-area networks for distance learning and data services.
The Partnership's cash flows have been sufficient to meet its debt
service, working capital and capital expenditure requirements, with the
exception of acquisitions of certain cable systems, which have been funded
principally through the proceeds of the notes and borrowings under the Revolving
Credit Facility. The Partnership expects that it will be able to meet its
short-term 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 its ability to obtain additional capital in the public
and private debt markets in the future.
14
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
For information on the impact of future changes in accounting
standards see note 2 of the Galaxy Telecom, L.P. Consolidated Financial
statements appearing elsewhere herein.
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in the Form 10-Q relating to the Partnership's
operating results, and plans and objectives of management for future operations,
including plans or objectives relating to the Partnership's products and
services, constitute forward looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Actual results of the
Partnership may differ materially from those in the forward looking statements
and may be affected by a number of factors including the receipt of regulatory
approvals, the success of the Partnership's implementation of digital
technology, subscriber equipment availability, tower space availability, and the
absence of interference, as well as other factors contained herein and in The
Partnership's securities filings.
The Partnership's future revenues and profitability are difficult to
predict due to a variety of risks and uncertainties, including (i) business
conditions and growth in the Partnership's existing markets, (ii) the successful
launch of systems and technologies in new and existing markets, (iii) the
Partnership's existing indebtedness and the need for additional financing to
fund subscriber growth and system and technological development, (iv) government
regulation, including FCC regulations, (v) the Partnership's dependence on
channel leases, (vi) the successful integration of future acquisitions and (vii)
numerous competitive factors, including alternative methods of distributing and
receiving video transmissions.
Because of the foregoing uncertainties affecting the Partnership's future
operating results, past performance should not be considered to be a reliable
indicator of future performance, and investors should not use historical results
or trends as determinative of the Partnership's future performance. In addition,
the Partnership's participation in a developing industry employing rapidly
changing technology may result in significant volatility in the market value of
the Notes.
In addition to the matters noted above, certain other statements made in
this Form 10-Q are forward looking. Such statements are based on an assessment
of a variety of factors, contingencies and uncertainties deemed relevant by
management, including technological changes, competitive products and services
and management issues. As a result, the actual results realized by the
Partnership could differ materially from the statements made herein. Readers of
this Form 10-Q are cautioned not to place undue reliance on the forward looking
statements made in this Form 10-Q or in the Partnership's other securities
filings.
15
<PAGE>
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 below.
10. Amendment No. 3 entered into as of November 14, 1997 by and among
Galaxy Telecom, L.P., Galaxy Telecom Capital Corp. and Fleet National
Bank.
27. Financial Data Schedule
(b)Reports of Form 8-K. No reports on Form 8-K were filed during the quarter
ended September 30, 1997.
16
<PAGE>
(c) 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: December 5, 1997 _ \s\ J. Keith Davidson _
-------------------------
BY: J. Keith Davidson
Vice President-Finance
(Principal Financial Officer)
17
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
10 Amendment No. 3 entered into as of November 14,
1997 by and among Galaxy Telecom, L.P., Galaxy
Telecom Capital Corp. and Fleet National Bank
27 Financial Data Schedule
18
AMENDMENT NO. 3
This Amendment No. 3 entered into as of November 14, 1997 (this
"Amendment") by and among GALAXY TELECOM, L.P. ("GTLP"), GALAXY TELECOM CAPITAL
CORP. ("Capital Corp.", and together with GTLP, the "Borrower"), the financial
institutions party to the Amended and Restated Loan Agreement referred to below
(the "Lenders"), and FLEET NATIONAL BANK ("Fleet") a national banking
association organized under the laws of the United Stated of America, as agent
for itself and the other Lenders (the "Agent"). Capitalized terms used but not
otherwise expressly defined herein shall have the meanings assigned thereto in
the Loan Agreement (as such term is defined below).
PRELIMINARY STATEMENTS:
WHEREAS, the Borrower, the Lenders, and the Agent have entered into an
Amended and Restated Loan Agreement dated as of September 28, 1995, as amended
by Amendment No. 1 dated as of October 21, 1996, and Amendment No. 2 dated as of
March 28, 1997 (as amended, the "Loan Agreement"). Capitalized terms used herein
and not otherwise defined shall have the meanings specified in the Loan
Agreement;
WHEREAS, the Borrower has requested that the Lenders amend certain
provisions of the Loan Agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows;
1. Amendment. The parties hereto agree that the Loan Agreement is
hereby amended as follows;
(a) Effective as of the date hereof, section 5.1.10 of the Loan Agreement
is hereby amended by deleting the ratio "6.50:1.00" specified for the
period April 1, 1997 through December 31, 1997, and substituting
therefor the ratio "7.00:1.00."
(b) Effective as of date hereof, clause (A) of Section 5.1.11 of the
Loan Agreement is hereby amended to read as follows:
"(A) $1,050:1.00 during the fiscal year ending December 31, 1997,"
(c) Effective as of the date hereof, Section 5.1.12 of the Loan Agreement
is hereby amended by deleting the table contained therein and substituting
therefor the following:
Period Ratio
------ -----
July 1, 1997 through 1.25:1.00
December 31, 1997
January 1, 1998 through 1.45:1.00
December 31, 1998
January 1, 1999 through 1.60:1.00
December 31, 1999
January 1, 2000 and thereafter 1.90:1.00
(d) Effective as of the date hereof, the table in Section 5.2.17 of the
Loan Agreement is hereby amended by deleting the figure
"$13,500,000" for the fiscal year ending December 31, 1997 and
substituting therefor the figure "$16,500,000."
<PAGE>
2.This Amendment is subject to the provisions of Section 9.5 of the Loan
Agreement, and shall become effective, as of the date first above
written, upon the satisfaction of the following conditions precedent:
(a) receipt by the Agent of counterparts of the Amendment
executed by the Borrowers and the Lenders, and counterparts of the
Consent appended hereto executed by the Guarantors;
(b) such other items or document as may be requested by the Agent or the
Lenders.
3.This Amendment shall be governed by and construed in accordance with
the laws of the commonwealth of Massachusetts. All parts of the Loan
Agreement not affected by this Amendment are hereby ratified and
affirmed in all respects, provided that if any provision of the Loan
Agreement shall conflict or be inconsistent with this Amendment, the
terms of this Amendment shall supersede and prevail. Upon and after the
date of this Amendment all references to the Loan Agreement in that
document, or in any Financing Document, shall mean the Loan Agreement
as amended by the Amendment. Except as expressly provided in this
Amendment, the execution and delivery of this Amendment does not and
will not amend, modify or supplement any provision of, or constitute a
consent to a waiver of any noncompliance with the provisions of the
Loan Agreement, and except as specifically provided in this Amendment,
the Loan Agreement shall remain in full force and effect.
4.This Amendment may be executed in one or more counterparts, each of
which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of a signature pate to
this Amendment by telecopier shall be effective as delivery of manually
executed counterpart of the Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written, under seal.
BORROWERS:
GALAXY TELECOM, L.P.
By: Galaxy Telecom, Inc., its general partner
By: \s\ J. Keith Davidson
-----------------------
Name: J. Keith Davidson
Title: Executive Vice President
and Chief Financial Officer
GALAXY TELECOM CAPITAL CORP.
By: \s\ J. Keith Davidson
-----------------------
Name: J. Keith Davidson
Title: Executive Vice President
and Chief Financial Officer
<PAGE>
LENDERS:
FLEET NATIONAL BANK, as Agent and
as a Lender
By: /s/ Jeffrey J. McLaughlin
-----------------------
Name: Jeffrey J. McLaughlin
Title: Senior Vice President
INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION
By: /s/ William James
-----------------------
Name: William James
Title: Vice President
STATE STREET BANK AND TRUST COMPANY
By: /s/ Diane Rooney
-----------------------
Name: Diane Rooney
Title: Vice President
UNION BANK
By: /s/ Bryan G. Petermann
-----------------------
Name: Bryan G. Petermann
Title: Vice President
<PAGE>
CONSENT
Dated as of November , 1997
Each of GALAXY TELECOM, INC., Guarantor under an Unlimited guaranty dated
as of December 23, 1994 (as amended, the "General Partner Guaranty"), as Grantor
under a Security Agreement dated as of December 23, 1994, and as Assignor under
a Collateral Assignment of Contracts, Leases, Licenses, Easements, Permits and
Franchises, a Collateral Assignment of Easements, and a Collateral Assignment
and Pledge of Partnership Interest, each dated as of December 23, 1994 (as
amended, collectively, the "General Partner Security Documents"), and GALAXY
TELECOM INVESTMENTS, L.L.C., as Guarantor under an Unlimited Guaranty dated as
of December 23, 1994 (as amended, the "Investments Guaranty"), as Grantor under
a Security Agreement dated as of December 23, 1994, and as Assignor under a
Collateral Assignment and Pledge of Partnership Interest dated as of December
23, 1994 (as amended, collectively, the "Investments Security Documents"),
hereby consents to the foregoing Amendment No. 2 to the Loan Agreement, and
hereby confirms and agrees that (I) the General Partner Guaranty and the
Investments Guaranty, and each of the General Partner Security Documents and the
Investments security documents is, and shall continue to be, in full force and
effect and is hereby ratified and confirmed in all respects except that, upon
the effectiveness of and on and after the date of Amendment No. 2, each
reference in such Guaranty to the Loan Agreement shall mean and be a reference
to the Loan Agreement as amended by Amendment No. 2, and (ii) each of the
general Partner Security Documents and the Investments Security Documents and
all of the collateral described therein do, shall continue to, secure the
payment of all of the Obligations (as defined therein).
GALAXY TELECOM, INC.
By: /s/ J. Keith Davidson
-----------------------
Name: J. Keith Davidson
Title: Executive Vice President
and Chief Financial Officer
GALAXY TELECOM INVESTMENTS, L.L.C..
By: /s/ J. Keith Davidson
-----------------------
Name: J. Keith Davidson
Title: Executive Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 5510192
<SECURITIES> 0
<RECEIVABLES> 5547942
<ALLOWANCES> 199631
<INVENTORY> 0
<CURRENT-ASSETS> 13292856
<PP&E> 182565109
<DEPRECIATION> 40472355
<TOTAL-ASSETS> 214264449
<CURRENT-LIABILITIES> 26681325
<BONDS> 177102613
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 214264449
<SALES> 0
<TOTAL-REVENUES> 17362684
<CGS> 0
<TOTAL-COSTS> 22524612
<OTHER-EXPENSES> 129225
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5291153)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
