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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: April 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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COMMISSION FILE NO.: 0-11478
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TCA CABLE TV, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1798185
(State of other jurisdiction of (IRS Employer Identification Number)
Incorporation or organization)
3015 SSE LOOP 323, TYLER, TEXAS 75701
(Address of principal executive offices) (Zip Code)
(903) 595-3701
Registrant's telephone number, including area code
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
<S> <C>
None None
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF
THE ACT: COMMON STOCK, $.10 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ----
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The number of shares outstanding of the registrant's common stock as of
June 10, 1998 was:
24,945,356 shares of common stock.
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TCA CABLE TV, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets - April 30, 1998 and October 31, 1997 3
Consolidated Statements of Operations -
Three and Six months ended April 30, 1998 and 1997 4
Consolidated Statement of changes in Shareholders' Equity -
Six months ended April 30, 1998 5
Consolidated Statements of Cash Flows -
Six months ended April 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
PART II - OTHER INFORMATION 12
SIGNATURES 13
</TABLE>
2
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TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, October 31,
ASSETS 1998 1997
--------------- ---------------
(Unaudited)
<S> <C> <C>
Cash $ 3,982,310 $ 3,270,190
--------------- ---------------
Accounts receivable, subscribers 18,322,358 15,852,757
--------------- ---------------
Accounts receivable, other 2,393,645 1,017,070
--------------- ---------------
Income tax receivable 1,894,790 529,830
--------------- ---------------
Property, plant and equipment, at cost:
Land 4,646,424 4,110,347
Distribution systems 423,474,337 380,864,913
Transportation equipment 13,887,221 11,277,388
Other 47,196,019 40,994,072
--------------- ---------------
489,204,001 437,246,720
Less accumulated depreciation (224,080,148) (208,416,640)
--------------- ---------------
265,123,853 228,830,080
--------------- ---------------
Other assets:
Intangibles, net of accumulated
amortization of $107,595,616 and
$98,669,961, respectively 795,628,221 464,602,414
Prepaid expenses and other assets 13,337,618 7,029,979
--------------- ---------------
808,965,839 471,632,393
--------------- ---------------
$ 1,100,682,795 $ 721,132,320
=============== ===============
LIABILITIES
Accounts payable $ 13,528,690 $ 12,047,781
Accrued expenses 26,529,273 23,653,545
Subscriber advance payments 5,359,542 3,522,240
Deferred income taxes 131,080,000 71,580,000
Term debt 549,020,798 317,025,181
--------------- ---------------
725,518,303 427,828,747
--------------- ---------------
Redeemable minority interest 189,255,763 122,636,878
Contingencies and commitments
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value,
5,000,000 shares authorized; none
issued
Common stock, $.10 par value, 60,000,000
shares authorized; 25,036,794 and
24,991,048 shares issued, respectively 2,503,679 2,499,105
Additional paid-in capital 54,045,956 51,845,522
Retained earnings 131,722,145 119,108,443
--------------- ---------------
188,271,780 173,453,070
Less treasury stock, at cost,
93,758 and 113,000 shares, respectively (2,363,051) (2,786,375)
--------------- ---------------
185,908,729 170,666,695
--------------- ---------------
$ 1,100,682,795 $ 721,132,320
=============== ===============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
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TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
-------------------------------- --------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 96,580,112 $ 74,983,934 $ 177,454,243 $ 148,473,222
------------- ------------- ------------- -------------
Operating expenses:
Salaries, wages and benefits 16,648,307 14,262,737 31,687,907 27,411,267
Programming costs 25,849,798 19,976,561 47,709,777 38,330,364
Other operating expenses 3,463,956 2,598,909 6,333,569 4,709,990
Selling, general and administrative 7,673,258 5,261,069 13,698,666 11,650,931
Depreciation and amortization 14,171,832 10,969,665 25,629,836 21,642,303
------------- ------------- ------------- -------------
67,807,151 53,068,941 125,059,755 103,744,855
------------- ------------- ------------- -------------
Operating income 28,772,961 21,914,993 52,394,488 44,728,367
Other income 42,627 184,925 1,128,364 446,736
Interest expense (9,433,304) (5,332,655) (14,896,656) (10,776,148)
Minority interest (2,761,527) (1,691,699) (4,540,236) (3,435,618)
------------- ------------- ------------- -------------
Income before income taxes 16,620,757 15,075,564 34,085,960 30,963,337
------------- ------------- ------------- -------------
Provision for income taxes:
Current 3,500,000 2,875,000 7,000,000 5,876,005
Deferred 3,200,000 3,000,000 6,500,000 6,200,000
------------- ------------- ------------- -------------
6,700,000 5,875,000 13,500,000 12,076,005
------------- ------------- ------------- -------------
Net Income $ 9,920,757 $ 9,200,564 $ 20,585,960 $ 18,887,332
============= ============= ============= =============
Basic earnings per common share $ 0.40 $ 0.37 $ 0.83 $ 0.76
============= ============= ============= =============
Diluted earnings per common share $ 0.39 $ 0.37 $ 0.82 $ 0.76
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
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TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Issued Additional
------------- ------------- Paid-In Retained Treasury
Shares Amount Capital Earnings Stock
------------- ------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1997 24,991,048 $ 2,499,105 $ 51,845,522 $ 119,108,443 $ (2,786,375)
Net income for the six months
ended April 30, 1998 20,585,960
Issuance of common stock 16,322 1,632 823,484
Issuance of treasury stock in
connection with an acquisition 538,776 423,324
Stock options exercised 29,424 2,942 744,274
Cash dividends at $.16 per share (7,972,258)
Amortization of warrants 93,900
------------- ------------- -------------- --------------- --------------
Balance, April 30, 1998 25,036,794 $ 2,503,679 $ 54,045,956 $ 131,722,145 $ (2,363,051)
============= ============= ============== =============== ==============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
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TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
April 30,
--------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 20,585,960 $ 18,887,332
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 16,669,636 14,790,627
Amortization expense 8,960,200 6,851,676
Deferred income taxes 6,500,000 6,200,000
Share of (earnings) losses of affiliates (15,893)
Gain on sale of assets (1,062,268)
Minority interest in earnings 4,540,236 3,435,618
Stock warrant amortization 93,900 93,900
Contribution of common stock to retirement plan 554,804 356,347
Employee stock bonus 270,313
Change in accounts receivable, subscribers (2,469,601) (2,385,697)
Change in accounts receivable, other (1,376,575) 209,884
Change in prepaid expenses and other assets (1,234,266) (1,009,876)
Change in income tax receivable (1,364,960) (742,369)
Change in accounts payable 1,480,909 2,371,426
Change in subscriber advance payments 1,837,302 (241,273)
Change in accrued expenses 7,997,802 2,098,316
------------- -------------
Net cash provided by operating activities 61,983,392 50,900,018
------------- -------------
Cash flows from investing activities:
Cash paid for acquisitions (249,890,220) (41,850,000)
Capital expenditures (26,540,283) (23,931,384)
Proceeds from sale of assets 3,884,104
Distribution from affiliate 971,912
------------- -------------
Net cash used in investing activities (272,546,399) (64,809,472)
------------- -------------
Cash flows from financing activities:
Borrowings of term debt 605,599,999 61,699,990
Repayments of term debt (373,604,382) (47,934,324)
Debt issuance costs (10,195,447)
Proceeds from stock options exercised 747,216 26,412
Partnership capital contributions 10,275,000
Partnership distributions (3,300,000) (3,300,000)
Dividends paid (7,972,259) (7,938,468)
------------- -------------
Net cash provided by financing activities 211,275,127 12,828,610
------------- -------------
Net increase (decrease) in cash 712,120 (1,080,844)
Cash at beginning of period 3,270,190 3,473,443
------------- -------------
Cash at end of period $ 3,982,310 $ 2,392,599
============= =============
Supplemental cash flow information:
Interest paid $ 10,326,989 $ 10,668,092
============= =============
Income taxes paid $ 8,364,960 $ 6,618,374
============= =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
6
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TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. Pursuant to the rules and regulations of the Securities and Exchange
Commission, certain financial information has been condensed and certain
footnote disclosures have been omitted. Such information and disclosures are
normally included in financial statements prepared in accordance with generally
accepted accounting principles.
These condensed financial statements should be read in conjunction with the
financial statements and notes thereto in the Company's latest report on Form
10-K.
The financial statements as of April 30, 1998 and for the three and six month
periods then ended are unaudited; however, in the opinion of management, such
statements include all adjustments (consisting solely of normal and recurring
adjustments) necessary or present fairly the financial information included
therein.
B. The consolidated statements of operations for the three and six months
ended April 30, 1998, are not necessarily indicative of the operating results
to be expected for the full year.
C. The Company adopted SFAS No. 128, "Earnings per Share" in November 1997.
This statement, which replaces APB Opinion No. 15, "Earnings per Share",
establishes simplified accounting standards for computing earnings per share
("EPS") and makes them comparable to international EPS standards.
Basic EPS is computed by dividing net earnings by the weighted-average number
of common shares outstanding during each period of 24,909,616 shares and
24,822,798 shares for 1998 and 1997, respectively. Diluted EPS is computed by
dividing net earnings by the weighted-average number of common shares and
common stock equivalents outstanding during the period of 25,167,060 and
24,863,635 for 1998 and 1997, respectively. All prior-period EPS amounts
presented conform to the provisions of SFAS No. 128.
D. On January 14, 1998, the Company signed a definitive agreement to exchange
the assets of selected TCA Cable Partners systems in Oklahoma, serving
approximately 15,000 subscribers, for the assets of selected Cable ONE systems
in Texas, serving approximately 14,000 subscribers. Cable ONE is a Washington
Post subsidiary. The exchange is expected to close on June 15, 1998.
E. On February 2, 1998, the Company formed a partnership, TCA Cable Partners
II (the "TCI Transaction") with TCI American Holdings IV, L.P. (the "TCI
Affiliate"), an affiliate of TCI Communications, Inc. The Company contributed
certain cable systems in Texas and New Mexico serving approximately 155,000
subscribers and $46.6 million in unsecured debt and the TCI affiliate
contributed its cable 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 contributed by the Company and the TCI
Affiliate are each valued at approximately $315 million. The Company financed
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 $200 million in
public debt. TCA Cable Partners II will be consolidated in the financial
statements of the Company 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 February 2003 through February 2023 (the "Put and Call
Period"), the termination date of the partnership agreement. The Company has a
corresponding right to require the TCI Affiliate 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 Partners II will be managed by the
Company. At the closing of the TCI Transaction, the Company served
approximately 860,000 subscribers. In connection with the TCI transaction, the
Company recorded a deferred tax liability and a corresponding intangible asset
of $53 million.
F. On February 2, 1998, the Company issued $200 million in bonds with a coupon
of 6.53% to finance the TCI transaction. On July 24, 1997, the Company
filed a shelf registration with the SEC for a public debt offering of up to
$300 million. The bondholders have the option to require the Company to
repurchase the bonds on the tenth anniversary date at face value.
G. On April 1, 1998, the Company acquired Web International, Inc., doing
business as Internet Tyler, an internet service provider serving the Tyler,
Texas area. The Company issued 19,242 shares of common stock valued at
$962,100 and paid approximately $260,000 in cash.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THREE MONTHS ENDED APRIL 30, 1998 COMPARED TO THREE MONTHS ENDED APRIL 30,
1997.
REVENUES. Revenues increased by $21.6 million, or 28.8%, during the
three months ended April 30, 1998 compared to the three months ended April 30,
1997. Management attributes approximately $2.4 million, or 11.3%, of the
revenue increase to internal growth in cable systems, $16.3 million, or 75.5%
to cable system acquisitions, $3.3 million, or 15.1%, to internal growth in the
Company's advertising insertion business, $0.6 million, or 2.8% to the
acquisition of two internet service providers and $0.1 million, or 0.4% to
internal growth in the Company's internet access business. These increases in
revenue were offset by a decrease of $1.1 million, or 5.1% resulting from the
Company's sale of its long distance business.
Revenues from basic and expanded basic cable television subscriptions
increased $15.1 million, or 31.6%, during the three months ended April 30, 1998
compared to the three months ended April 30, 1997. As a percentage of
revenues, revenues from basic and expanded basic subscriptions increased to
65.3% of revenues for 1998 compared to 63.9% for 1997. Revenues from premium
subscriptions increased $2.4 million, or 26.8%, during 1998 compared to 1997.
As a percentage of revenues, revenues from premium subscriptions decreased to
11.8% during 1998 compared to 12.0% during 1997. Cable advertising insertion
revenues, including revenues from both the Company's cable advertising business
and net cable advertising revenues from third parties, increased by
approximately $3.0 million, or 24.3%, to $15.5 million for the three months
ended April 30, 1998 compared to $12.4 million for the three months ended April
30, 1997. As a percentage of revenues, cable advertising revenues decreased to
16.0% during 1998 compared to 16.6% during 1997. The decreased percentage of
advertising revenue was a result of the increase in cable television revenue
from the TCI Transaction. Pay-per-view revenues increased $0.4 million, or
42.8%, during 1998 compared to 1997. As a percentage of revenues, revenues
from pay-per-view increased to 1.3% for 1998 compared to 1.2% for 1997. Other
revenues increased $0.6 million, or 13.4%, during 1998 compared to 1997
primarily due to the addition of $0.5 million of internet revenues. As a
percentage of revenues, revenues from other sources decreased to 5.5% in 1998
compared to 6.3% in 1997.
EXPENSES. Operating expenses increased $14.7 million, or 27.8%, during
the three months ended April 30, 1998 compared to the three months ended April
30, 1997. As a percentage of revenues, operating expenses decreased to 70.2%
for 1998 compared to 70.8% for 1997. The increase in operating expenses
during the three months ended April 30, 1998 is primarily due to the
acquisition of cable systems in the TCI Transaction.
Salaries, wages and benefits increased $2.4 million, or 16.7%, during
1998 compared to 1997. As a percentage of revenues, salaries, wages and
benefits were 17.2% for 1998 compared to 19.0% for 1997. Programming costs
increased $5.9 million, or 29.4%, during 1998 compared to 1997. As a
percentage of revenues, programming costs were 26.8% for 1998 and 26.7% for
1997. The increase in programming costs is the result of increases of $1.7
million in cable programming costs in same system operations, $4.2 million in
cable programming costs in acquired systems and $0.6 million in the Company's
payments to other cable operators of a percentage of advertising sales offset
by a decrease of $0.6 million in network access fees in the long distance and
internet access business. Other operating expenses increased $0.8 million, or
33.3%, during 1998 compared to 1997. As a percentage of revenues, other
operating expenses were 3.6% for 1998 and 3.5% for 1997. Selling, general and
administrative expense increased $2.4 million, or 45.9% during 1998 when
compared to 1997. As a percentage of revenues, selling, general and
administrative expenses were 7.9% for 1998 and 7.0% for 1997. Depreciation and
amortization increased $3.2 million, or 29.2%, during 1998 when compared to
1997. As a percentage of revenues, depreciation and amortization was 14.7% for
1998 and 14.6% for 1997. The increase in depreciation and amortization was
primarily due to the properties contributed by the TCI Affiliate in the TCI
Transaction.
Interest expense increased $4.1 million, or 76.9%, in 1998 compared to
1997 as a result of a $247.9 million increase in debt from the TCI Transaction,
offset by a net repayment of debt of $9.9 million. The Company's weighted
average interest rate was 6.8% for the three months ended April 30, 1998
compared to 6.9% for the three months ended April 30, 1997.
OTHER INCOME. The Company's other income decreased $0.1 million during
the three month ended April 30, 1998 compared to the three months ended April
30, 1997.
INCOME TAXES. The Company's provision for income taxes was $6.7 million
and $5.9 million in 1998 and 1997, respectively. The increase in taxes of
14.0% during the three months ended April 30, 1998 compared to the three months
ended April 30, 1997 was a result of a 10.3% increase in income before income
taxes and an increase in the effective tax rate to 40.3% in 1998 compared to
39.0% for fiscal 1997.
MINORITY INTEREST. Minority interest in earnings was $2.8 million for
1998 and 1.7 million for 1997. Minority interest
8
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represents the portion of income before income taxes due to the minority
partners in the Company's two partnerships. TCA Cable Partners is a
partnership that is owned 75% by the Company and 25% by DR Partners, a division
of Stephens Group, Inc. TCA Cable Partners II is a partnership owned 80% by
the Company and 20% by TCI American Holdings IV, L.P., an affiliate of TCI
Communications, Inc.
NET INCOME. The Company's net income increased $0.7 million, or $7.8%,
during the three months ended April 30, 1998 compared to the three months ended
April 30, 1997. Basic earnings per share were $0.40 during the three months
ended April 30, 1998 compared to $0.37 for the three months ended April 30,
1997. Diluted earnings per share were $0.39 during the three months ended
April 30, 1998 compared to $0.37 for the three months ended April 30, 1997.
SUBSCRIBERS. The Company's basic subscribers were 867,555 at April 30,
1998 compared to 706,967 at January 31, 1998. The increase in subscribers
resulted from 148,436 additional subscribers acquired in the TCI Transaction
and 12,152 subscribers, or a 1.7% increase, from internal growth.
SIX MONTHS ENDED APRIL 30, 1998 COMPARED TO SIX MONTHS ENDED APRIL 30, 1997.
REVENUES. Revenues increased by $29.0 million, or 19.5%, during the six
months ended April 30, 1998 compared to the three months ended April 30, 1997.
Management attributes approximately $5.1 million, or 17.4%, of the revenue
increase to internal growth in cable systems, $18.1 million, or 62.5% to cable
system acquisitions, $5.7 million, or 19.6%, to internal growth in the
Company's advertising insertion business, $0.9 million, or 3.3% to the
acquisition of two internet service providers and $0.2 million, or 0.7% to
internal growth in the Company's internet access business. These increases in
revenue were offset by a decrease of $1.0 million, or 3.5% resulting from the
Company's sale of its long distance business.
Revenues from basic and expanded basic cable television subscriptions
increased $18.5 million, or 19.7%, during the six months ended April 30, 1998
compared to the six months ended April 30, 1997. As a percentage of revenues,
revenues from basic and expanded basic subscriptions increased to 63.6% of
revenues for 1998 compared to 63.5% for 1997. Revenues from premium
subscriptions increased $3.0 million, or 17.1%, during 1998 compared to 1997.
As a percentage of revenues, revenues from premium subscriptions decreased to
11.7% during 1998 compared to 11.9% during 1997. Cable advertising insertion
revenues, including revenues from both the Company's cable advertising business
and net cable advertising revenues from third parties, increased by
approximately $5.6 million, or 21.7%, to $31.4 million for the six months ended
April 30, 1998 compared to $25.8 million for the six months ended April 30,
1997. As a percentage of revenues, cable advertising revenues increased to
17.7% during 1998 compared to 17.4% during 1997. Pay-per-view revenues
increased $0.2 million, or 9.6%, during 1998 compared to 1997. As a percentage
of revenues, revenues from pay-per-view decreased to 1.3% for 1998 compared to
1.4% for 1997. Other revenues increased $1.6 million, or 19.1%, during 1998
compared to 1997 primarily due to the addition of $0.9 million of internet
revenues. As a percentage of revenues, revenues from other sources was 5.7% in
1998 and 1997.
EXPENSES. Operating expenses increased $21.3 million, or 20.6%, during
the six months ended April 30, 1998 compared to the six months ended April 30,
1997. As a percentage of revenues, operating expenses increased to 70.5% for
1998 compared to 69.9% for 1997. The increase in operating expenses during
the six months ended April 30, 1998 is primarily due to the acquisition of
cable systems in the TCI Transaction.
Salaries, wages and benefits increased $4.3 million, or 15.6%, during
1998 compared to 1997. As a percentage of revenues, salaries, wages and
benefits were 17.9% for 1998 compared to 18.5% for 1997. Programming costs
increased $9.4 million, or 24.5%, during 1998 compared to 1997. As a
percentage of revenues, programming costs were 26.9% for 1998 and 25.8% for
1997. The increase in programming costs is the result of increases of $2.8
million in cable programming costs in same system operations,$4.7 million in
cable programming costs in acquired systems, $1.6 million in the Company's
payments to other cable operators of a percentage of advertising sales and $0.2
million in network access fees in the long distance and internet access
business. Other operating expenses increased $1.6 million, or 34.5%, during
1998 compared to 1997. As a percentage of revenues, other operating expenses
were 3.6% for 1998 and 3.2% for 1997. Selling, general and administrative
expense increased $2.0 million, or 17.6% during 1998 when compared to 1997. As
a percentage of revenues, selling, general and administrative expenses were
7.7% for 1998 and 7.9% for 1997. Depreciation and amortization increased $4.0
million, or 18.4%, during 1998 when compared to 1997. As a percentage of
revenues, depreciation and amortization was 14.4% for 1998 and 14.6% for 1997.
The increase in depreciation and amortization was primarily due to the
properties contributed by the TCI Affiliate in the TCI Transaction.
Interest expense increased $4.1 million, or 38.2%, in 1998 compared to
1997 as a result of a $247.9 million increase in debt from the TCI Transaction,
offset by a net repayment of debt of $15.9 million. The Company's weighted
average interest rate was 7.0% for the six months ended April 30, 1998 compared
to 7.0% for the six months ended April 30, 1997.
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OTHER INCOME. The Company's other income increased $0.7 million during
the six months ended April 30, 1998 compared to the six months ended April 30,
1997. The increase was due to the sale of the assets of the Company's long
distance business in December 1997. The sale resulted in a gain of
approximately $1.1 million.
INCOME TAXES. The Company's provision for income taxes was $13.5
million and $12.1 million in 1998 and 1997, respectively. The increase in
taxes of 11.8% during the six months ended April 30, 1998 compared to the six
months ended April 30, 1997 was a result of a 10.1% increase in income before
income taxes and an increase in the effective tax rate to 39.6% in 1998
compared to 39.0% for fiscal 1997.
MINORITY INTEREST. Minority interest in earnings was $4.5 million for
1998 and 3.4 million for 1997. Minority interest represents the portion of
income before income taxes due to the minority partners in the Company's two
partnerships. TCA Cable Partners is a partnership that is owned 75% by the
Company and 25% by DR Partners, a division of Stephens Group, Inc. TCA Cable
Partners II is a partnership owned 80% by the Company and 20% by TCI American
Holdings IV, L.P., an affiliate of TCI Communications, Inc.
NET INCOME. The Company's net income increased $1.7 million, or $9.0%,
during the six months ended April 30, 1998 compared to the six months ended
April 30, 1997. Basic earnings per share were $0.83 during the six months
ended April 30, 1998 compared to $0.76 for the six months ended April 30, 1997.
Diluted earnings per share were $0.82 during the six months ended April 30,
1998 compared to $0.76 for the six months ended April 30, 1997.
SUBSCRIBERS. The Company's basic subscribers were 867,555 at April 30,
1998 compared to 699,684 at April 30, 1997. The increase in subscribers
resulted from 148,436 additional subscribers acquired in the TCI Transaction
and 19,435 subscribers, or a 2.8% increase, from internal growth.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically been able to meet its current and long-term
liquidity and capital requirements, including dividends and fixed charges,
through cash flow generated from operating activities, existing cash, bank
lines of credit, and other external financing.
Net cash flow from operating activities increased 21.7% to $62.0 million
in 1998 from $50.9 million in 1997. The increase was principally due to cable
system acquisitions and internal growth in cable operations and advertising..
At April 30, 1998, the Company had $231.0 million in borrowings under
its bank credit facilities. The Company had $190.0 million borrowed under its
primary credit facility which provides for up to $350 million in borrowings by
the Company and expires on January 31, 2003. The primary credit facility
provides for interest to be paid quarterly at prime or LIBOR plus an applicable
margin . At April 30, 1998 the Company also had $41.0 million borrowed under
additional credit facilities with two banks. The additional bank credit
facilities provide for up to $40.0 million and $4.0 million in borrowings by
the Company and expire June 1999 and April 1999, respectively. During the six
months ended April 30, 1998 and 1997, the Company borrowed approximately
$605.6 million and $61.7 million respectively and repaid approximately $373.6
million and $47.9 million, respectively. In the six months ended April
30,1998, the Company's bank debt carried a weighted average interest rate of
6.6%.
On September 27, 1989 the Company completed a $100 million private
placement of debt securities due August 1999 bearing an interest rate of 9.0%.
The terms of the securities call for the repayment of principal in semiannual
installments beginning February 1993. In addition on June 23, 1995, the
Company completed a $100 million private placement of debt securities due June
2005 bearing an interest rate of 7.26%. The terms of these securities call for
the repayment of principal in annual installments beginning in June 1999.
The Company believes that EBITDA, defined as earnings before interest,
taxes, depreciation and amortization, and related measures of cash flow serve
as important financial analysis tools for measuring and comparing cable
television companies in several areas , such as liquidity, operating
performance and leverage. The Company's ratio of indebtedness to EBITDA was
3.4x and 2.6x for the three months ended April 30, 1998 and 1997, respectively.
The Company's interest coverage ratio, defined as the ratio of EBITDA to total
interest expense, was 6.1x and 5.9x for the three months ended April 30, 1998
and 1997 respectively.
The Company's capital expenditures totaled $26.5 million and $23.9
million in the six months ended April 30, 1998 and 1997, respectively. Funds
were applied primarily toward the upgrade of the Company's cable systems and
the purchase of subscriber equipment, including converter boxes. The Company
has principally financed its capital
10
<PAGE> 11
expenditures through funds generated by its operating activities, and to a
lesser extent, bank borrowings and private placements of debt securities. The
Company expects to continue the upgrade of its cable systems in 1998 and
anticipates total capital expenditure requirements in fiscal 1998 to be
approximately 10% more than in 1997.
As a part of the Company's growth strategy the Company has been actively
acquiring cable systems which meet the Company's acquisition criteria. The
Company has funded its acquisitions through internally generated funds, private
placements of debt securities, bank financing and capital contributions from DR
Partners and TCI. The Company anticipates the acquisitions of additional
systems in selected markets in the future.
The Company paid dividends on its common stock totaling approximately
$4.0 million, or $0.16 per share in the three months ended April 30, 1998 and
1997, respectively.
The Company believes that net cash provided by operating activities,
borrowings under its bank credit facilities and the Company's ability to obtain
financing will provide adequate sources of short-term and long-term liquidity
in the future.
On February 2, 1998, the Company formed a partnership, TCA Cable
Partners II ( the "TCI Transaction"), with TCI American Holdings IV, L.P.( the
"TCI Affiliate") , an affiliate of TCI Communications Inc. The Company
contributed certain cable systems in Texas and New Mexico serving approximately
155,000 subscribers and $46.6 million in unsecured debt and the TCI Affiliate
contributed its cable 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 contributed by the Company and the TCI
Affiliate are each valued at approximately $315 million. The Company financed
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 $200 million in
public debt. TCA Cable Partners II will be consolidated in the financial
statements of the Company 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 February 2003 through February 2023 (the "Put and Call
Period"), the termination date of the partnership agreement. The Company has a
corresponding right to require the TCI Affiliate 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 Partners II will be managed by the
Company. At the closing of the TCI Transaction, the Company served
approximately 860,000 subscribers. In connection with the TCI transaction, the
Company recorded a deferred tax liability and a corresponding intangible asset
of $53 million.
On July 24, 1997, the Company filed a shelf registration with the SEC
for a public debt offering of up to $300 million. On February 2, 1998, the
Company issued $200 million in bonds with a coupon of 6.53% and a 10 year put
to finance the TCI Transaction. The Company has received a rating of BBB+ from
Standard & Poor's and Baa2 from Moody's. In August 1997, the Company entered
into treasury lock transactions ( the "Treasury Locks") with a notional amount
of $100 million as a hedge against interest rate changes prior to the closing
of the debt offering. In January 1998, the Treasury Locks were terminated at a
cost of $7.9 million. The cost will be amortized over the term of the public
debt as an interest rate yield adjustment.
FORWARD LOOKING INFORMATION
The statements contained in this Quarterly Report on Form 10-Q
("Quarterly Report") which are not historical facts, including, but not limited
to, statements found under the captions "Financial Condition and Results of
Operations", and "Liquidity and Capital Resources" above, are forward-looking
statements that involve a number of risks and uncertainties. The actual
results of the future events described in such forward-looking statements in
the Quarterly Report could differ materially from those contemplated by such
forward-looking statements. Among the factors that could cause actual results
to differ materially are the risks and uncertainties discussed in the Quarterly
Report, including without limitation the portions of such statements under the
captions referenced above, and the uncertainties set forth from time to time in
the Company's other public reports and filings and public statements.
11
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
3.1 -- Articles of Incorporation.(1)
3.2 -- Articles of Amendment to Articles of Incorporation.(2)
3.3 -- Articles of Amendment to Articles of Incorporation.(2)
3.4 -- Articles of Amendment to Articles of Incorporation.(3)
3.5 -- Amended and Restated Bylaws.(4)
4.1 -- Form of Stock Certificate.(1)
27.1 -- Financial Data Schedule.*
- ---------------
*Filed herewith.
(1) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-1, File No. 2-75516, and incorporated herein by
reference.
(2) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-8, File No. 33-21901, and incorporated herein by
reference.
(3) Previously filed as an exhibit to Registrant's Form 10-K for the fiscal
year ended October 31, 1993, filed January 27, 1994 and incorporated
herein by reference.
(4) Previously filed as an exhibit to Registrant's Form 10-K for the fiscal
year ended October 31, 1997, filed January 27, 1998 and incorporated
herein by reference.
12
<PAGE> 13
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 thereto duly authorized.
TCA CABLE TV, INC.
/s/ FRED R. NICHOLS
------------------------------------
Fred R. Nichols
Chairman and Chief Executive Officer
Date: June 12, 1998
/s/ JIMMIE F. TAYLOR
------------------------------------
Jimmie F. Taylor
Vice President, CFO, and Treasurer
Date: June 12, 1998
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C> <C>
3.1 -- Articles of Incorporation.(1)
3.2 -- Articles of Amendment to Articles of Incorporation.(2)
3.3 -- Articles of Amendment to Articles of Incorporation.(2)
3.4 -- Articles of Amendment to Articles of Incorporation.(3)
3.5 -- Amended and Restated Bylaws.(4)
4.1 -- Form of Stock Certificate.(1)
27.1 -- Financial Data Schedule.*
</TABLE>
- ---------------
*Filed herewith.
(1) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-1, File No. 2-75516, and incorporated herein by
reference.
(2) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-8, File No. 33-21901, and incorporated herein by
reference.
(3) Previously filed as an exhibit to Registrant's Form 10-K for the fiscal
year ended October 31, 1993, filed January 27, 1994 and incorporated
herein by reference.
(4) Previously filed as an exhibit to Registrant's Form 10-K for the fiscal
year ended October 31, 1997, filed January 27, 1998 and incorporated
herein by reference.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<CASH> 3,982,310
<SECURITIES> 0
<RECEIVABLES> 18,322,358
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 489,204,001
<DEPRECIATION> (224,080,148)
<TOTAL-ASSETS> 1,100,682,795
<CURRENT-LIABILITIES> 0
<BONDS> 549,020,798
0
0
<COMMON> 2,503,679
<OTHER-SE> 183,405,050
<TOTAL-LIABILITY-AND-EQUITY> 1,100,682,795
<SALES> 0
<TOTAL-REVENUES> 96,580,112
<CGS> 0
<TOTAL-COSTS> 25,849,798
<OTHER-EXPENSES> 41,957,353
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,433,304
<INCOME-PRETAX> 16,620,757
<INCOME-TAX> 6,700,000
<INCOME-CONTINUING> 9,920,757
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,920,757
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.39
</TABLE>
