<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 13, 1997
TCA Cable TV, Inc.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 0-11478 75-1798185
-------------- ------------ ------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation File Number) Identification No.)
3015 S.S.E. Loop 323, Tyler, Texas 75701
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (903) 595-3701
-------------------------
<PAGE> 2
Item 5. Other Events.
On November 13, 1997, TCA Holdings II, L.P., a Texas limited partnership ("TCA")
and wholly-owned affiliate of TCA Cable TV, Inc. (the "Company"), entered into a
General Partnership Agreement (the "Agreement") with TCI American Cable Holdings
IV, L.P., a Colorado limited partnership and an affiliate of Tele-
Communications, Inc. (the "TCI Affiliate"), pursuant to which TCA and the TCI
Affiliate agreed to form TCA Cable Partners II general partnership (the
"Partnership") to operate cable television systems in Texas, Louisiana and New
Mexico. In exchange for TCA's contribution of approximately $46.6 million of
debt and certain assets of the cable television systems (the "Company Systems")
owned by it in the cities and adjacent unincorporated areas set forth below, TCA
acquired an 80% partnership interest in the Partnership. The estimated fair
value of the Company Systems contributed is $315 million. The cities and
adjacent unincorporated areas where the Company Systems are located are: Cannon
AFB, NM, Clovis, NM, Texico, NM, Amarillo, TX, Andrews, TX, Athens, TX,
Ballinger, TX, Big Springs, TX, Canyon, TX, Clarksville, TX, Coahoma, TX, Como,
TX, Dalhart, TX, Farwell, TX, Floydada, TX, Gladewater, TX, Goodfellow AFB, TX,
Grand Saline, TX, Henderson, TX, Hide A Way Lake, TX, Honey Grove, TX, Lake
Tanglewood, TX, Lindale, TX, Miles, TX, Mineola, TX, Paris, TX, Plainview, TX,
Quitman, TX, Reno, TX, Roxton, TX, San Angelo, TX, Snyder, TX, Sulphur Springs,
TX, Toco, TX, Union Grove, TX, Warren City, TX, White Oak, TX, Winnsboro, TX,
and Winters, TX.
In exchange for the TCI Affiliate's contribution to the Partnership of
approximately $247.9 million of debt and certain assets of the cable television
systems (the "TCA Systems") owned by it in the cities or adjacent unincorporated
areas set forth below, the TCI Affiliate acquired a 20% partnership interest
in the Partnership. The estimated fair value of the TCA Systems contributed is
also $315 million. The cities and adjacent unincorporated areas where the TCA
Systems are located are: Barksdale AFB, LA, Bossier City, LA, Bossier Parish,
LA, Calcasieu Parish, LA, Fillmore, LA, Haughton, LA, Lake Charles, LA,
Pinceton, LA, Sulfur, LA, Abilene, TX, Bowie County, TX, Camp, TX, Cherokee,
TX, Cooke County, TX, DeKalb, TX, Dyess AFB, TX, Franklin County, TX,
Gainesville, TX, Grayson, TX, Hooks, TX, Jacksonville, TX, Maud, TX, Mineral
Wells, TX, Mt. Pleasant, TX, Mt. Vernon, TX, Nolan County, TX, New Boston, TX,
Oak Ridge, TX, Palo Pinto County, TX, Perryton, TX, Pittsburg, TX, Red River
Army Depot, TX, Sadler, TX, Smith County, TX, Sweetwater, TX, Titus County, TX,
Tye, TX, Tyler, TX, Whitesboro, TX, and Whitehouse, TX.
The transfer to the Partnership of the Company Systems and the TCA Systems is
expected to be consummated on February 2, 1998.
The assets contributed to the Partnership included, with certain exceptions as
set forth in the Agreement, all the assets and properties, real and personal,
tangible and intangible, used in the operation of the Company Systems and the
TCA Systems. Pursuant to the Agreement, the Partnership assumed certain
liabilities of the Company Systems and the TCA Systems.
The percentage interest received by TCA in the Partnership in consideration of
the contribution of the Company Systems was determined based on arm's length
negotiations among TCA and the TCI Affiliate.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements
The audited combined balance sheets, combined statements of
operations and retained earnings, and combined statements of cash flows
of the TCA Systems as of September 30, 1997 and December 31, 1996 and
1995, and for the nine months ended September 30, 1997 and the years
ended December 31, 1996 and 1995, are attached hereto as Annex A and
made a part hereof.
(b) Pro Forma Financial Information
The unaudited pro forma condensed consolidated balance sheet of
the Company attached hereto as Annex B has been adjusted to give effect
to the acquisition of the TCA Systems scheduled to be closed on February
2, 1998, as though such acquisition had occurred on October 31, 1997.
The unaudited pro forma condensed consolidated statement of operations
of the Company for the year ended October 31, 1997 attached hereto as
Annex B present the consolidated results of the Company as if the
Company had acquired the TCA Systems on November 1, 1996. Such pro forma
information is not necessarily indicative of results that would have
been obtained had the acquisition been consummated on the dates
indicated and should not be construed as representative of future
operations.
The unaudited pro forma financial statements should be read in
conjunction with the historical financial statements of the Company and
the financial statements included in Item 7(a) herein.
(c) Exhibits.
The following is a list of exhibits filed as part of this Current Report on
Form 8-K:
Exhibit No. Description
----------- -----------
2 General Partnership Agreement of TCA Cable Partners II dated as
of November 13, 1997.(5)
3.1 Articles of Incorporation.(2)
3.2 Articles of Amendment to Articles of Incorporation.(3)
3.3 Articles of Amendment to Articles of Incorporation.(3)
3.4 Articles of Amendment to Articles of Incorporation.(4)
3.5 Amended and Restated Bylaws.(5)
4.1 Form of Stock Certificate.(2)
4.2 Rights Agreement dated January 15, 1998, between the Company and
ChaseMellon Shareholder Services, L.L.C. which includes the
Certificate of Designations for the Series A Junior Participating
Preferred Stock as Exhibit A, the Form of Right Certificate as
Exhibit B and the Summary of Rights to Purchase Shares as
Exhibit C.(6)
16 None.
17 None.
20 None.
23 Consent of KPMG Peat Marwick LLP.(1)
24 None.
27 None.
99 Press release dated November 13, 1997.(1)
- -------------------------
(1) Filed herewith.
(2) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-1, File No. 2-75516, and incorporated herein
by reference.
(3) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-8, File No. 33-21901, and incorporated
herein by reference.
(4) Previously filed as an exhibit to the Registrant's Form 10-K for
the fiscal year ended October 31, 1993, filed January 27, 1994
and incorporated herein by reference.
(5) Previously filed as an exhibit to the Registrant's Form 10-K for
the fiscal year ended October 31, 1997, filed January 27, 1998
and incorporated herein by reference.
(6) Previously filed as an exhibit to the Registrant's Form 8-K
dated January 15, 1998 and incorporated herein by reference.
2
<PAGE> 3
ANNEX A
<TABLE>
<CAPTION>
TCA Systems Page
----
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . 1
Combined Balance Sheets as of September 30, 1997 and
December 31, 1996 and 1995 . . . . . . . . . . . . . . . 2
Combined Statements of Operations and Retained
Earnings for the nine-months ended September 30, 1997
and the years ended December 31, 1996 and 1995 . . . . . 3
Combined Statements of Cash Flows for the nine-months
ended September 30, 1997 and the years ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . 4
Notes to Combined Financial Statements . . . . . . . . . . 5-10
</TABLE>
<PAGE> 4
[KPMG PEAT MARWICK LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
TCI COMMUNICATIONS, INC.:
We have audited the accompanying combined balance sheets of the TCA Systems (as
defined in Note 1 to the combined financial statements) as of September 30, 1997
and December 31, 1996 and 1995, and the related combined statements of
operations and retained earnings and cash flows for the period and years then
ended. These combined financial statements are the responsibility of the TCA
Systems' management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the TCA Systems as
of September 30, 1997 and December 31, 1996 and 1995, and the results of their
operations and their cash flows for the period and years then ended in
conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Denver, Colorado
November 21, 1997
1
<PAGE> 5
TCA SYSTEMS
(DEFINED IN NOTE 1)
COMBINED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
September 30, -------------------
ASSETS 1997 1996 1995
- ------ ---- ---- ----
amounts in thousands
<S> <C> <C> <C>
Cash $ 118 1,423 228
Trade and other receivables, net 2,176 1,470 1,727
Prepaid expenses and other assets 211 165 129
Property and equipment, at cost:
Land 368 368 368
Cable distribution systems 81,050 79,062 75,537
Support equipment and buildings 10,200 10,323 8,794
--------- --------- ---------
91,618 89,753 84,699
Less accumulated depreciation 42,389 36,966 30,022
--------- --------- ---------
49,229 52,787 54,677
--------- --------- ---------
Franchise costs 185,418 185,418 185,418
Less accumulated amortization 39,821 36,346 31,713
--------- --------- ---------
145,597 149,072 153,705
--------- --------- ---------
$ 197,331 204,917 210,466
========= ========= =========
LIABILITIES AND PARENT'S INVESTMENT
- -----------------------------------
Accounts payable and accrued expenses $ 3,299 3,397 3,456
Deferred income taxes (note 3) 65,009 66,290 68,145
--------- --------- ---------
Total liabilities 68,308 69,687 71,601
--------- --------- ---------
Parent's investment (notes 2 and 5):
Due to TCI Communications, Inc. ("TCIC") 86,723 101,764 114,207
Retained earnings 42,300 33,466 24,658
--------- --------- ---------
Total parent's investment 129,023 135,230 138,865
--------- --------- ---------
Commitments and contingencies (note 4)
$ 197,331 204,917 210,466
========= ========= =========
</TABLE>
See accompanying notes to combined financial statements.
2
<PAGE> 6
TCA SYSTEMS
(DEFINED IN NOTE 1)
COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine months Years ended
ended December 31,
September 30, ------------
1997 1996 1995
---- ---- ----
amounts in thousands
<S> <C> <C> <C>
Revenue $ 51,022 65,731 61,453
Operating costs and expenses:
Operating (note 2) 17,844 23,318 22,837
Selling, general and administrative (note 2) 9,252 14,826 14,165
Depreciation 5,545 7,400 7,229
Amortization 3,475 4,633 4,633
-------- -------- --------
36,116 50,177 48,864
-------- -------- --------
Operating income 14,906 15,554 12,589
Other, net 9 (320) (56)
-------- -------- --------
Earnings before income taxes 14,915 15,234 12,533
Income tax expense (note 3) (6,081) (6,426) (5,365)
-------- -------- --------
Net earnings 8,834 8,808 7,168
Retained earnings:
Beginning of period 33,466 24,658 17,490
-------- -------- --------
End of period $ 42,300 33,466 24,658
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
3
<PAGE> 7
TCA SYSTEMS
(DEFINED IN NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended
Nine months ended December 31,
September 30, ------------
1997 1996 1995
---- ---- ----
amounts in thousands
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 8,834 8,808 7,168
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 9,020 12,033 11,862
Deferred income tax benefit (1,281) (1,855) (1,522)
Changes in operating assets and liabilities:
Receivables (706) 257 (1,977)
Prepaid expenses and other assets (46) (36) (3)
Accounts payable and accrued expenses (98) (59) 1,031
-------- -------- --------
Net cash provided by operating activities 15,723 19,148 16,559
-------- -------- --------
Net cash used in investing activities -
capital expended for property and equipment (2,129) (5,722) (6,307)
-------- -------- --------
Net cash used in financing activities -
change in amounts due to TCIC (14,899) (12,231) (10,485)
-------- -------- --------
Net increase (decrease) in cash (1,305) 1,195 (233)
Cash at beginning of period 1,423 228 461
-------- -------- --------
Cash at end of period $ 118 1,423 228
======== ======== ========
Non-cash transactions:
Transfer of property and equipment $ (142) (212) 5,473
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
4
<PAGE> 8
TCA SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The combined financial statements include the accounts of certain cable
television systems, indirectly wholly-owned by TCIC through its
subsidiaries TCI Central, Inc. ("Central") and United Artist Entertainment
Company ("UAE") in and around Texas and Louisiana serving approximately
149,000 basic customers as of September 30, 1997. Such systems are
collectively referred to herein as the "TCA Systems." TCIC is a subsidiary
of Tele-Communications, Inc. ("TCI"). The TCA Systems are principally
engaged in the development and operation of cable television systems.
These combined financial statements include an allocation of certain
purchase accounting adjustments, including the related deferred tax
effects, from TCIC's original acquisition of Central and UAE. This
allocation and the related franchise cost amortization is based on the
number of subscribers in these cable television systems to the total
number of subscribers in all of Central's and UAE's cable television
systems. In addition, certain operating costs of TCI recorded at the
corporate level are charged to the TCA Systems based on their number of
subscribers (see note 2). Although such allocations are not necessarily
indicative of the costs that would have been incurred by the TCA Systems
on a stand alone basis, management believes that the resulting allocated
amounts are reasonable. All significant inter-entity accounts and
transactions have been eliminated in combination.
On August 14, 1997, TCIC entered into a definitive agreement ("the TCA
Agreement") pursuant to which TCIC will contribute the TCA Systems to a
newly formed venture (the "Venture") between TCIC and TCA in exchange for
an approximate 20% ownership interest in the Venture. In addition, the
Venture will assume certain intercompany debt. Consummation is subject
to, among other matters, regulatory approvals. There is no assurance that
such transaction will be consummated.
The accompanying combined financial statements include the accounts for
certain cable television assets in and around Abilene, TX for which
separate accounting records are not maintained and which are not a part of
the TCA Agreement. Such cable television assets served approximately 2,100
basic customers as of September 30, 1997.
RECEIVABLES
Receivables are reflected net of an allowance for doubtful accounts. Such
allowance at September 30, 1997 and December 31, 1996 and 1995 was not
material.
LONG-LIVED ASSETS
(a) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, including acquisition costs
allocated to tangible assets of the cable television system acquired.
Construction costs, including interest during construction and
applicable overhead, are capitalized. Interest capitalized during
5
<PAGE> 9
TCA SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the nine months ended September 30, 1997 and the years ended December
31, 1996 and 1995 was not material.
Depreciation is computed on a straight-line basis using estimated
useful lives of 3 to 15 years for cable distribution systems and 3 to
40 years for support equipment and buildings.
Repairs and maintenance are charged to operations, and renewals and
additions are capitalized. At the time of ordinary retirements, sales
or other dispositions of property, the original cost and cost of
removal of such property are charged to accumulated depreciation, and
salvage, if any, is credited thereto. Gains or losses are only
recognized in connection with the sales of systems in their entirety.
(b) FRANCHISE COSTS
Franchise costs include the difference between the cost of acquiring
cable television systems and amounts allocated to the tangible assets.
Such amounts are amortized on a straight-line basis over 40 years.
Costs incurred by the TCA Systems in negotiating and renewing franchise
agreements are amortized on a straight-line basis over the life of the
franchise, generally 10 to 20 years.
In March of 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ("Statement
No. 121"), effective for fiscal years beginning after December 15, 1995.
Statement No. 121 requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and
either the undiscounted future cash flows estimated to be generated by
those assets or the fair market value are less than the assets' carrying
amounts. Statement No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The TCA Systems adopted
Statement No. 121 effective January 1, 1996. Such adoption did not have an
effect on the financial position or results of operations of the TCA
Systems.
Pursuant to Statement No. 121, the TCA Systems periodically review the
carrying amounts of their long-lived assets, including franchise costs, to
determine whether current events or circumstances warrant adjustments to
such carrying amounts. The TCA Systems consider historical and expected
future net operating losses to be their primary indicators of potential
impairment. Assets are grouped and evaluated for impairment at the lowest
level for which there are identifiable cash flows that are largely
independent of the cash flows of other groups of assets ("Assets"). The TCA
Systems deem Assets to be impaired if the TCA Systems are unable to recover
the carrying value of such Assets over their expected remaining useful life
through a forecast of undiscounted future operating cash flows directly
related to the Assets. If Assets are deemed to be impaired, the loss is
measured as the amount by which the carrying
6
<PAGE> 10
TCA SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
amount of the Assets exceeds their fair value. The TCA Systems generally
measure fair value by considering sales prices for similar assets or by
discounting estimated future cash flows. Considerable management judgment
is necessary to estimate discounted future cash flows. Accordingly, actual
results could vary significantly from such estimates.
COMBINED STATEMENTS OF CASH FLOWS
Transactions effected through the intercompany account with TCIC have been
considered constructive cash receipts and payments for purposes of the
combined statements of cash flows.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
(2) TRANSACTIONS WITH AFFILIATES
The amounts due to TCIC consist of various non-interest bearing
intercompany advances and expense allocations. Due to TCIC's ownership of
100% of the parent's investment of the TCA Systems, the amounts due to TCIC
have been classified as a component of parent's investment in the
accompanying combined financial statements. Such amounts are due on demand.
The TCA Systems purchase, at TCIC's cost, certain pay television and other
programming through a subsidiary of TCIC. Charges for such programming were
$10,092,000, $12,100,000, and $10,605,000 for the nine months ended
September 30, 1997 and the years ended December 31, 1996 and 1995,
respectively, and are included in operating expenses in the accompanying
combined statements of operations.
Certain subsidiaries of TCIC provide administrative services to the TCA
Systems and have assumed managerial responsibility of the TCA Systems'
cable television operations and construction. As compensation for these
services, the TCA Systems pay a monthly fee to such subsidiaries based on
the number of the TCA Systems' subscribers. Charges for such administrative
fees were $1,464,000, $3,214,000 and $2,213,000 for the nine months ended
September 30, 1997 and the years ended December 31, 1996 and 1995,
respectively, and are included in selling, general and administrative
expenses in the accompanying combined statements of operations.
7
<PAGE> 11
TCA SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
The intercompany advances and expense allocation activity in amounts due to
TCIC consists of the following:
<TABLE>
<CAPTION>
December 31,
September 30, ------------
1997 1996 1995
---- ---- ----
amounts in thousands
<S> <C> <C> <C>
Beginning of period $ 101,764 114,207 130,165
Programming charges 10,092 12,100 10,605
Administrative services 1,464 3,214 2,213
Tax allocations 6,009 6,702 5,417
Non-cash asset transfers (142) (212) 5,473
Cash transfers (32,464) (34,247) (39,666)
--------- --------- ---------
End of period $ 86,723 101,764 114,207
========= ========= =========
</TABLE>
(3) INCOME TAXES
The TCA Systems are included in the consolidated federal income tax return
of TCI. Income tax expense for the TCA Systems is based on those items in
the consolidated calculation applicable to the TCA Systems as if filed as a
separate return. Intercompany tax allocation represents an apportionment of
tax expense or benefit (other than deferred taxes) among subsidiaries of
TCI in relation to their respective amounts of taxable earnings or losses.
The payable or receivable arising from the intercompany tax allocation is
recorded as an increase or decrease in amounts due to TCIC.
Income tax benefit (expense) for the nine months ended September 30, 1997
and the years ended December 31, 1996 and 1995 consists of:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
amounts in thousands
<S> <C> <C> <C>
Nine months ended September 30, 1997:
Intercompany allocation $(6,009) - (6,009)
Federal - 1,045 1,045
State and local (1,353) 236 (1,117)
------- ------- -------
$(7,362) 1,281 (6,081)
======= ======= =======
Year ended December 31, 1996:
Intercompany allocation $(6,702) - (6,702)
Federal - 1,514 1,514
State and local (1,579) 341 (1,238)
------- ------- -------
$(8,281) 1,855 (6,426)
======= ======= =======
Year ended December 31, 1995:
Intercompany allocation $(5,417) - (5,417)
Federal - 1,243 1,243
State and local (1,470) 279 (1,191)
------- ------- -------
$(6,887) 1,522 (5,365)
======= ======= =======
</TABLE>
8
<PAGE> 12
TCA SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
Income tax expense differs from the amount computed by applying the federal
income tax rate of 35% as a result of the following:
<TABLE>
<CAPTION>
Years ended
Nine months ended December 31,
September 30, ---------------------
1997 1996 1995
---- ---- ----
amounts in thousands
<S> <C> <C> <C>
Computed "expected" tax expense $ 5,220 5,332 4,387
Amortization not deductible for tax purposes 118 157 157
State and local income taxes, net of federal 726 805 774
income tax benefit
Other 17 132 47
------- ------- -------
$ 6,081 6,426 5,365
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities at September 30, 1997 and December
31, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
December 31,
September 30, ---------------------
1997 1996 1995
---- ---- ----
amounts in thousands
<S> <C> <C> <C>
Deferred tax liabilities:
Provision for bad debts $ 96 110 105
Property and equipment, principally due (12,842) (13,108) (13,639)
to differences in depreciation
Franchise costs, principally due to (52,263) (53,380) (54,611)
differences in amortization
Other -- 88 --
-------- ------- -------
Deferred tax liability $(65,009) (66,290) (68,145)
======== ======= =======
</TABLE>
(4) COMMITMENTS AND CONTINGENCIES
On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"). In 1993 and
1994, the Federal Communications Commission ("FCC") adopted certain rate
regulations required by the 1992 Cable Act and imposed a moratorium on
certain rate increases. As a result of such actions, the TCA Systems' basic
tier service rates and its equipment and installation charges (the
"Regulated Services") are subject to the jurisdiction of local franchising
authorities and the FCC. Basic and tier service rates are evaluated against
competitive benchmark rates as published by the FCC, and equipment and
installation charges are based on actual costs. Any rate for Regulated
Services that exceeded the benchmarks were reduced as required by the 1993
and 1994 rate regulations. The rate regulations do not apply to the
relatively few systems which are subject to "effective competition" or to
services offered on an individual service basis, such as premium movie and
pay-per-view services.
9
<PAGE> 13
TCA SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
The TCA Systems believe that they complied in all material respects with
the provisions of the 1992 Cable Act, including its rate setting
provisions. However, the TCA Systems' rates for Regulated Services are
subject to review by the FCC, if a complaint has been filed, or the
appropriate franchise authority, if such authority has been certified. If,
as a result of the review process, a system cannot substantiate its rates,
it could be required to retroactively reduce its rates to the appropriate
benchmark and refund the excess portion of rates received. Any refunds of
the excess portion of tier service rates would be retroactive to the date
of the complaint. Any refunds of the excess portion of all other Regulated
Service rates would be retroactive to one year prior to the implementation
of the rate reductions.
Certain plaintiffs have filed separate class action complaints against
certain of the TCA Systems in Texas and Louisiana alleging that the
systems' practice of assessing an administrative fee to subscribers whose
payments are delinquent constitutes an invalid liquidated damage provision,
a breach of contract and violates local consumer protection statues.
Plaintiffs seek recovery of all late fees paid to the subject systems as a
class purporting to consist of all subscribers who were assessed such fees
during the applicable limitation period, plus attorney fees and costs.
Although it is possible that the TCI Systems may incur losses upon
conclusion of such matters, an estimate of any loss or range of loss cannot
be made. Based upon the facts available, management believes that, although
no assurance can be given as to the outcome of these actions, the ultimate
disposition should not have a material adverse effect upon the combined
financial condition of the TCA Systems.
The TCA Systems have entered into pole rental agreements and use certain
equipment under lease arrangements. Rental expense under such arrangements
amounted to $667,000, $640,000 and $575,000 for the nine months ended
September 30, 1997, and the years ended December 31, 1996 and 1995,
respectively. It is expected that in the normal course of business,
expiring leases will be renewed or replaced. Accordingly, it is anticipated
that annual commitments after 1997 will not decrease.
(5) SUBSEQUENT EVENT
Subsequent to September 30, 1997, UAE and Central caused the TCA Systems to
effect distributions from the TCA Systems to UAE and Central aggregating
$188,277,000. Such distributions will result in increases to the respective
intercompany amounts owed to UAE and Central. If the distributions had been
effected as of September 30, 1997, parent's investment in the TCA Systems
would have been as follows (amounts in thousands):
<TABLE>
<S> <C>
Due to TCIC $ 275,000
Capital deficit (145,977)
Retained earnings --
---------
Total parent's investment $ 129,023
=========
</TABLE>
10
<PAGE> 14
ANNEX B
Unaudited Pro Forma Condensed Consolidated Balance Sheet and Statement of
Operations of TCA Cable TV, Inc. and Subsidiaries.
<PAGE> 15
TCA CABLE TV, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
TCA Systems
TCA Cable September 30, Pro Forma
ASSETS October 31, 1997 1997 Adjustments Total
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Cash $ 3,270,190 $ 118,000 $ $ 3,388,190
Accounts receivable, subscribers 15,852,757 2,176,000 18,028,757
Accounts receivable, other 1,017,070 1,017,070
Income tax receivable 529,830 529,830
Property, plant and equipment, at cost 437,246,720 91,618,000 (44,368,000)(a) 484,496,720
Less accumulated depreciation (208,416,640) (42,389,000) 42,389,000 (a) (208,416,640)
--------------- --------------- --------------- ---------------
228,830,080 49,229,000 (1,979,000) 276,080,080
Intangibles, net 464,602,414 145,597,000 122,153,000 (a) 732,352,414
Prepaid expenses and other assets 7,029,979 211,000 1,500,000 (b) 8,740,979
--------------- --------------- --------------- ---------------
$ 721,132,320 $ 197,331,000 $ 121,674,000 $ 1,040,137,320
=============== =============== =============== ===============
LIABILITIES
Accounts payable $ 12,047,781 $ 3,299,000 $ $ 15,346,781
Accrued expenses 23,653,545 23,653,545
Subscriber advance payments 3,522,240 3,522,240
Deferred income taxes 71,580,000 65,009,000 (65,009,000)(c) 71,580,000
Term debt 317,025,181 248,606,000 (d) 565,631,181
--------------- --------------- --------------- ---------------
427,828,747 68,308,000 183,597,000 679,733,747
Redeemable minority interest 122,636,878 67,100,000 (e) 189,736,878
SHAREHOLDERS' EQUITY
Common stock 2,499,105 2,499,105
Additional paid-in capital 51,845,522 51,845,522
Retained earnings 119,108,443 42,300,000 (42,300,000)(f) 119,108,443
Due to TCI Communications, Inc. 86,723,000 (86,723,000)(f)
--------------- --------------- --------------- ---------------
173,453,070 129,023,000 (129,023,000) 173,453,070
Less treasury stock at cost (2,786,375) (2,786,375)
--------------- --------------- --------------- ---------------
170,666,695 129,023,000 (129,023,000) 170,666,695
--------------- --------------- --------------- ---------------
$ 721,132,320 $ 197,331,000 $ 121,674,000 $ 1,040,137,320
=============== =============== =============== ===============
</TABLE>
See Accompanying Notes
<PAGE> 16
TCA CABLE TV, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
TCA Systems
TCA Cable Year Ended
Year Ended September 30, Pro Forma
October 31, 1997 1997 Adjustments Total
---------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 307,501,312 $ 68,035,000 $ $ 375,536,312
------------- ------------- ------------- -------------
Operating expenses:
Other operating expenses (*) 147,806,854 23,636,000 171,442,854
Selling, general and administrative 23,817,927 13,349,000 37,166,927
Depreciation and amortization 44,255,420 12,099,000 (2,255,250)(g) 54,099,170
------------- ------------- ------------- -------------
215,880,201 49,084,000 (2,255,250) 262,708,951
------------- ------------- ------------- -------------
Operating income 91,621,111 18,951,000 2,255,250 112,827,361
Other income 389,768 (311,000) 78,768
Interest expense (22,182,337) (16,313,572)(h) (39,285,909)
(790,000)(h)
Minority interest (7,088,633) (3,895,081)(i) (10,983,714)
------------- ------------- ------------- -------------
Income before income taxes 62,739,909 18,640,000 (18,743,403) 62,636,506
Provision for income taxes 24,600,000 7,887,000 (7,347,414)(j) 25,139,586
------------- ------------- ------------- -------------
Net income $ 38,139,909 $ 10,753,000 $ (11,395,989) $ 37,496,920
============= ============= ============= =============
Earnings per common share $ 1.53 $ 1.50
============= =============
</TABLE>
(*)Includes salaries, wages and benefits; programming costs; and other operating
expenses.
See Accompanying Notes
<PAGE> 17
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On November 13, 1997, the Company entered into an agreement with
TCI American Cable Holdings IV, L. P. (the "TCI Affiliate"), an affiliate of
Tele-Communications, Inc., to form a partnership, TCA Cable Partners II (the
"TCI Transaction"). The Company will contribute to TCA Cable Partners II
certain cable system in Texas and New Mexico serving approximately 155,000
subscribers and $46.6 million in unsecured debt and the TCI Affiliate will
contribute its systems in North Texas and Western Louisiana serving
approximately 150,000 subscribers and $247.9 million in unsecured debt, in
exchange for an 80% and 20% partnership interest, respectively, in TCA Cable
Partners II. The cable systems to be contributed by the Company (the "Company
Systems") and the TCI Affiliate (the "TCA Systems") are each valued at
approximately $315 million. The Company intends to finance the TCI Transaction
with a portion of the proceeds from a $150 million increase in the Company's
primary credit facility and the issuance of $150 million in public debt. Upon
closing, the Company will extend a loan to TCA Cable Partners II in the
aggregate amount of the unsecured debt of TCA Cable Partners II. TCA Cable
Partners II will in turn use the proceeds of the loan to retire such debt. TCA
Cable Partners II will be consolidated in the financial statements of TCA and
20% of the estimated fair value of TCA Cable Partners II net assets will be
recorded by the Company as a redeemable minority interest at the acquisition
date. The TCI Affiliate has the right to require the Company to purchase the
TCI Affiliate's 20% partnership interest at fair market value beginning in
February 2003 through February 2023 (the "Put and Call Period"), the term of the
partnership agreement. The Company has a corresponding right to require TCI to
sell its 20% partnership interest in TCA Cable Partners II to the Company at
fair market value during the Put and Call Period. TCA Cable Partner II will be
managed by the Company, and the Company expects the contribution of assets and
debt from the Company and the TCI affiliate to occur on February 2, 1998.
Assuming the closing of the TCI Transaction, the Company on a pro forma basis
will serve approximately 850,000 subscribers. The closing is conditioned, among
other things, upon the receipt of various regulatory consents and other
approvals. Because, among other things, the TCI Transaction is subject to
receipt of approvals that are outside the control of the Company, there can be
no assurance that the TCI Transaction will be consummated.
The unaudited pro forma condensed consolidated balance sheet
combines the Company's October 31, 1997 consolidated balance sheet and the TCA
Systems September 30, 1997 combined balance sheet assuming the TCI Transaction
occurred on October 31, 1997. The unaudited pro forma condensed consolidated
statement of operations combines the Company's consolidated statement of
operations for the year ended October 31, 1997 and the TCA Systems combined
statement of operations for the year ended September 30, 1997 assuming the TCI
Transaction occurred on November 1, 1996. The fiscal year of the TCA Systems is
December 31. The amounts reported in the TCA Systems combined statement of
operations for the twelve month period ended September 30, 1997 represents the
operating results for the nine months ended September 30, 1997 plus the
difference between the TCA Systems operating results for the twelve months ended
December 31, 1996 and the operating results for the nine months ended September
30, 1996.
A description of the related pro forma adjustments is set forth
below:
(a) Record the TCA Systems property, plant and equipment and
intangibles at their estimated fair value
(b) Record estimated debt issuance costs
(c) Eliminate TCA Systems deferred income taxes
(d) Record incremental borrowings: $150 million of Debentures due
2028 and $98,606,000 Primary Credit Facility
(e) Record redeemable minority interest at 20% of total estimated
fair value of TCA Cable Partners II net assets of $335,500,000
(f) Eliminate TCA Systems retained earnings and due to TCI
Communications, Inc.
(g) Adjust depreciation and amortization of TCA Systems property,
plant and equipment and intangibles based on estimated fair
values of $47,250,000 and $267,750,000, respectively, and
estimated useful lives of 15 and 40 years, respectively
(h) Record interest expense on incremental borrowings and
amortization of related Treasury Locks termination cost
($7,900,000) as follows:
$150,000,000 Debentures due 2028 at 6.8%(*)
$98,606,000 Primary Credit Facility at 6.2%(*)
$7,900,000 Treasury Locks termination cost over 10 years
(*) - estimated interest rates include amortization of debt
issuance costs
(i) Record minority interest in TCA Cable Partners II income as
follows:
<TABLE>
<S> <C>
TCA Systems income before income taxes $ 18,640,000
Company Systems income before income taxes 18,852,526
Interest on TCA contributed debt of $46,600,000 at 6.8% (3,168,800)
Pretax impact of statement of operations pro forma adjustments
(excluding minority interest) (14,848,322)
------------
$ 19,475,404
TCA Cable Partners II pro forma income before income taxes x20%
------------
Minority interest in TCA Cable Partners II
pro forma earnings $ 3,895,081
============
</TABLE>
(j) Tax effect pro forma adjustments at the Company's effective tax
rate of 39.2%
<PAGE> 18
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 hereunto duly authorized.
TCA CABLE TV, INC.
Date: January 26, 1998 /s/ JIMMIE F. TAYLOR
--------------------------
Jimmie F. Taylor
Chief Financial Officer
3
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
Exhibit No. Description
----------- -----------
2 General Partnership Agreement of TCA Cable Partners II dated as
of November 13, 1997.(5)
3.1 Articles of Incorporation.(2)
3.2 Articles of Amendment to Articles of Incorporation.(3)
3.3 Articles of Amendment to Articles of Incorporation.(3)
3.4 Articles of Amendment to Articles of Incorporation.(4)
3.5 Amended and Restated Bylaws.(5)
4.1 Form of Stock Certificate.(2)
4.2 Rights Agreement dated January 15, 1998, between the Company and
ChaseMellon Shareholder Services, L.L.C. which includes the
Certificate of Designations for the Series A Junior Participating
Preferred Stock as Exhibit A, the Form of Right Certificate as
Exhibit B and the Summary of Rights to Purchase Shares as
Exhibit C.(6)
16. None.
17. None.
20. None.
23 Consent of KPMG Peat Marwick LLP.(1)
24 None.
27 None.
99 Press release dated November 13, 1997.(1)
- -------------------------
(1) Filed herewith.
(2) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-1, File No. 2-75516, and incorporated herein
by reference.
(3) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-8, File No. 33-21901, and incorporated
herein by reference.
(4) Previously filed as an exhibit to the Registrant's Form 10-K for
the fiscal year ended October 31, 1993, filed January 27, 1994
and incorporated herein by reference.
(5) Previously filed as an exhibit to the Registrant's Form 10-K for
the fiscal year ended October 31, 1997, filed January 27, 1998
and incorporated herein by reference.
(6) Previously filed as an exhibit to the Registrant's Form 8-K
dated January 15, 1998 and incorporated herein by reference.
</TABLE>
4
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
TCI Communications, Inc.:
We consent to the incorporation by reference in the Registration Statement File
Nos. 2-82934, 2-88892, 33-21901, 33-49172, 33-33898, 33-55895, 33-61041,
333-01487, 333-26723 and 333-26721 on Form S-8 and Registration Statements Nos.
33-44289, 33-61616, 33-40273, 333-32015, 333-23541 and 333-44447 on Form S-3 of
TCA Cable TV, Inc. of our report, dated November 21, 1997, relating to the
combined balance sheets of TCA Systems (as defined in Note 1 to the combined
financial statements) as of September 30, 1997 and December 31, 1996 and 1995,
and the related combined statements of operations and retained earnings and
cash flows for the nine months ended September 30, 1997 and each of the years
in the two-year period ended December 31, 1996, which report appears in the
Form 8-K of TCA Cable TV, Inc. dated January 26, 1998.
/s/ KPMG Peat Marwick LLP
Denver, Colorado
January 26, 1998
<PAGE> 1
EXHIBIT 99
FOR IMMEDIATE RELEASE
November 13, 1997
Contact: TCI Media Relations, LaRae Marsik or Joann Dobbs (303) 267-5273
TCA, Robert A. Roseman (903) 595-3701
TCIC AND TCA COMPLETE DEFINITIVE AGREEMENT TO
FORM TEXAS, LOUISIANA AND NEW MEXICO PARTNERSHIP
ENGLEWOOD, CO -- TCI Communications, Inc. (TCIC) and TCA Cable TV, Inc. (TCA)
today announced that they have signed a definitive agreement to establish a
partnership involving several communities in Texas, Louisiana and New Mexico.
Originally announced in August, TCIC will contribute its systems in mid-Texas
and Western Louisiana and TCA will contribute its adjoining and complementary
systems in the same geographic areas to the partnership.
"We are very pleased to have completed the next step in the process of
establishing this partnership and we look forward to working together with TCA
as a partner to strengthen these assets for both our companies and our
customers," said Bill Fitzgerald, Senior Vice President, Business Development
for TCIC.
"We have been working diligently to create this partnership as a cohesive
agreement that strongly benefits our customers, employees and communities, and
we're there," said Fred Nichols, President and CEO of TCA.
Upon closing of the transaction, TCIC will hold a 20 percent interest in the
partnership and TCA will be the managing partner for the venture.
TCA is publicly traded on the NASDAQ National Market System under the symbol
TCAT.
Tele-Communications, Inc. is traded through the TCI Group (TCOMA/TCOMB), the
TCI Ventures Group and the Liberty Media Group common stocks. TCI
Communications, Inc., Tele-Communications, Inc.'s principal domestic
communications subsidiary (which is attributed to the TCI Group), trades its
Cumulative Exchangeable Preferred Stock, Series A on the National Market tier
of the Nasdaq Stock Market under the symbol TCICP and a special purpose trust
of TCIC trades its 8.72% Trust Originated Preferred Securities on the New York
Stock Exchange under the symbol TFI/pr and its 10% and 9.72% Trust Preferred
Securities on the New York Stock Exchange under the symbols TFII and TFIV,
respectively.
5
