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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED OCTOBER 31, 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
COMMISSION FILE NUMBER: 0-11478
TCA CABLE TV, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-1798185
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3015 S.S.E. LOOP 323, TYLER, TEXAS 75701
(Address of principal executive (Zip Code)
offices)
</TABLE>
(903) 595-3701
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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The aggregate market value of the voting stock held by non-affiliates of
the registrant as computed by reference to the average of the closing bid and
asked prices of such stock, as reported by the Nasdaq, on January 8, 1999
($37.63) was $1,459,498,741. Shares of voting stock held by each officer and
director and by each person who owns 10% or more of the Company's outstanding
voting stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
The number of shares outstanding of the registrant's Common Stock as of
January 8, 1999 was:
49,637,873 SHARES OF COMMON STOCK.
Documents incorporated by reference: Part III Items 10, 11, 12 and 13 of
this Form 10-K are incorporated herein by reference to the Registrant's
definitive Proxy Statement for its Annual Meeting of Shareholders presently
scheduled to be held March 30, 1999.
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PART I
ITEM 1. BUSINESS
OVERVIEW
TCA Cable TV, Inc. ("TCA") is engaged in the development, acquisition,
ownership, operation and management of cable television systems. As of October
31, 1998, based on number of subscribers, the Company is the sixteenth largest
cable television system operator, serving approximately 865,000 subscribers,
which passed approximately 1.2 million households. Approximately 95% of the
Company's subscribers are located in regional clusters in Texas, Louisiana and
Arkansas. The Company also operates three systems in Oklahoma and has one system
in each of Idaho, Mississippi and New Mexico. The Company intends to continue to
concentrate its activities in these and similar non-urban markets where
residents rely on cable television to provide quality reception and services,
referred to by the Company as "classic cable markets." By acquiring and
developing systems in geographic proximity, the Company has realized operating
efficiencies through the consolidation of various managerial, administrative and
technical functions. The Company believes that the geographic clustering of its
cable systems makes it a cost effective cable service provider.
The following table sets forth certain operating data as of October 31,
1998:
<TABLE>
<CAPTION>
NUMBER EQUIVALENT
OF HOMES BASIC BASIC PREMIUM PREMIUM
LOCATION SYSTEMS PASSED SUBSCRIBERS PENETRATION UNITS* PENETRATION*
-------- ------- --------- ----------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Texas......................... 29 502,615 349,773 70% 212,685 61%
Louisiana..................... 16 316,709 236,293 75% 209,222 89%
Arkansas...................... 23 321,890 237,257 74% 127,033 54%
New Mexico.................... 1 16,550 10,869 66% 5,652 52%
Mississippi................... 1 18,823 13,966 74% 10,922 78%
Oklahoma...................... 3 11,038 8,440 76% 4,822 57%
Idaho......................... 1 7,350 8,321 113% 3,550 43%
--------- ------- -------
Subtotal.................... 74 1,194,975 864,919 xx% 573,886 66%
Managed Systems............... 2 7,378 5,151 70% 2,243 44%
--------- ------- -------
Total............... 76 1,202,353 870,070 xx% 576,129 66%
========= ======= =======
</TABLE>
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* Premium units are calculated based upon the number of premium services
subscribed to per basic subscriber. Premium penetration equals the ratio of
premium units to basic subscribers. Premium services include single channel
services offered for a monthly fee per channel or a combination of these
channels offered as a package.
Through its wholly-owned subsidiary, VPI Communications, Inc. d/b/a
CableTime ("CableTime"), the Company is the largest third party turnkey
advertising insertion provider serving the cable television industry. As of
October 31, 1998, CableTime served 83 cable television operators in 486 systems,
including the Company's systems, collectively reaching approximately 3.1 million
subscribers.
The Company believes it is a low-cost provider of video entertainment in
its markets, a concept embodied in its current marketing plan, "The Best
Entertainment Value in Town." The Company typically offers its customers a range
of 35 to 82 channels including such premium channels as Home Box Office(R),
Cinemax(R), Showtime(R), The Movie Channel(R) and The Disney Channel(R). The
Company's focus on community involvement, locally available high-quality service
and repairs, and local programming assures close ties with its customer base and
enables the Company to maintain a competitive advantage.
The Company was organized as a Texas corporation in 1981 to consolidate the
ownership of four corporations which had been developing and operating cable
television systems since 1965, 1973, 1975 and 1976, respectively. Members of
senior management of the Company are highly experienced in the cable television
industry and have spent the majority of their respective careers at the Company.
The Chairman,
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Chief Executive Officer and President; Chief Financial Officer; and Senior Vice
President of the Company have spent 18, 14 and 16 years, respectively, with the
Company or its predecessors. The Company completed its initial public offering
of Common Stock in 1982.
RECENT DEVELOPMENTS
Consistent with the Company's regional clustering strategy, in February
1998 the Company formed a partnership, TCA Cable Partners II (the " TCI
Transaction") with TCI American Cable Holdings IV, L.P. (the "TCI Affiliate"),
an affiliate of Tele-Communications, Inc. The Company contributed to TCA Cable
Partners II certain cable systems in Texas and New Mexico serving approximately
155,000 subscribers and $46.6 million in unsecured debt in exchange for an 80%
interest in TCA Cable Partners II and the TCI Affiliate contributed its systems
in North Texas and Western Louisiana serving approximately 150,000 subscribers
and $249.7 million in unsecured debt, in exchange for a 20% interest in TCA
Cable Partners II. The cable systems contributed by the Company and the TCI
Affiliate were 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. Upon closing the TCI Transaction, the Company extended a loan to
TCA Cable Partners II in the aggregate amount of the unsecured debt of TCA Cable
Partners II. TCA Cable Partners II in turn used the proceeds of the loan to
retire such debt. TCA Cable Partners II is consolidated in the financial
statements of TCA and 20% of the estimated fair value of TCA Cable Partners II
net assets were 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 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 is managed by the Company.
In September 1997, Mr. Robert M. Rogers, the founder, Chairman of the Board
and former Chief Executive Officer, and largest shareholder of the Company,
passed away. Approximately 15.2% of the Company's outstanding common stock was
bequeathed by Mr. Rogers to a trust (the "Trust"), of which Kanaly Trust Company
(the "Trustee") is trustee. The life beneficiary of the Trust is Robyn M.
Rogers, Mr. Rogers' widow, and the remainder beneficiaries are the grandchildren
of Mr. Rogers and The Rogers Foundation, a charitable foundation established by
Mr. Rogers. The executor of Mr. Rogers' estate is the Trustee. On April 29,
1998, the Trust sold a total of 7,614,588 shares of TCA common stock ( as
adjusted for the two-for-one stock split on July 15, 1998) pursuant to a
Registration Statement filed by TCA on behalf of the Trust. The shares sold
represent all of the shares of TCA common stock held by the Trust.
THE CABLE TELEVISION INDUSTRY
Cable television is a service which delivers, to the home, varied
entertainment and information programming, either as transmitted by licensed
radio and television stations or programming designed specifically for cable
distribution. Radio and television signals are received by "off-air" antennae,
microwave relay systems and satellite earth stations and are modulated and
amplified at an electronic control center, or "headend," for distribution
through a network of aerial or underground coaxial cables or optical fiber, to
television sets owned by subscribers. Subscribers generally pay a monthly fee
for the service. Cable television systems generally operate under non-exclusive
franchises granted by local or state governmental authorities. The growth of the
cable television industry has been accompanied by a number of operator
consolidations.
The cable television industry began in the early 1950s. The industry's
founding and subsequent growth were the result of consumer demand for additional
programming and improved signal reception. The use of cable television as the
means of providing additional programming and improved over-the-air reception is
now generally referred to as "basic service," and typically consists of
programming available from local over-the-air television channels, public
channels, and a limited number of channels relayed from out of region cities,
typically by satellite. Additional satellite programming services are offered in
a separate "expanded basic" service for an additional charge. For an additional
monthly or individual event charge, cable operators also
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provide subscribers a choice of "premium services" (referred to as "pay tv" or
"pay-per-view"), generally consisting of feature films, sporting and other
special entertainment events. The availability of cable specific channels and
premium service has established cable television as an entertainment medium in
addition to fulfilling its original purpose to provide better over-the-air
television reception. This development has led to significant growth of cable
television across the United States.
More recently, cable operators have been upgrading existing cable plant in
an effort to introduce other revenue producing services to their subscribers.
Such services are expected to include high speed internet access, telephony,
video conferencing, video on demand, and business-to-business communications.
BUSINESS STRATEGY
The Company's systematic approach of acquiring, operating and developing
cable television systems is based on the principal of increasing operating cash
flow while maintaining a high standard of subscriber service. In meeting this
objective, the Company employs the following strategies:
Regional Clustering. Approximately 95% of the Company's subscribers are
located in regional clusters in three states. By acquiring and developing
systems in geographic proximity, the Company has realized significant operating
efficiencies through the consolidation of various managerial, administrative and
technical functions including the ability to serve a number of systems within a
single region through a central headend facility. Consistent with its clustering
strategy, the Company intends to continue its emphasis on growth regionally
through acquisitions of existing systems and is also considering potential joint
venture and partnership arrangements with other cable system operators. The
formation of TCA Cable Partners II is another example of this clustering
strategy. See "-- Recent Developments."
Technological Innovation and New Services. The Company has actively
invested in technological advances and system upgrades over the past several
years. The Company considers technological innovation to be an important
component of its service offerings and customer satisfaction and is continually
evaluating the technical and economic feasibility of providing enhanced or new
subscriber services. Such services are expected to include high speed internet
access, digital video, expanded pay-per-view and other interactive services.
During fiscal 1998, the Company began offering high-speed Internet access over
its cable plant in 3 markets and anticipates offering this service in 17 new
markets in 1999. The Company launched digital services to its subscribers in 7
markets in fiscal 1998 and anticipates 12 new markets in 1999. At October 31,
1998, the Company had 1,600 high-speed Internet customers and 4,000 digital
subscribers. In addition, TCA serves approximately 14,000 standard dial-up
Internet subscribers. At October 31, 1998, high-speed Internet and digital
services are available to 400,000 TCA subscribers.
Conservative Capital Structure. The Company adheres to a policy of
conservative leverage relative to other cable television operators in the United
States. As of October 31, 1998, the Company had a ratio of debt to EBITDA of
3.1x. By maintaining a conservative capital structure, the Company has been able
to generate a strong cash flow, which has provided the Company with the
flexibility to upgrade its systems and to pursue acquisitions opportunistically.
Emphasis on Local Subscriber Service. The Company believes that maintaining
a strong local presence with a focus on timely subscriber service is a key
element to its long-term success. The Company has historically emphasized
subscriber service in all facets of its operations and has been recognized by
cable industry organizations as an industry leader. In 1995, TCA was awarded the
Cable Operator of the Year award by Cable Vision Magazine. A cornerstone of the
Company's operating strategy is to maintain local offices where the Company can
provide timely customer service. In its cable systems, the Company maintains one
manager per approximately 10,000 subscribers, which it believes to be among the
highest ratios in the industry. The Company strives to respond to service calls
on a same day basis and has a policy of calling each subscriber following a
service call to determine the level of customer satisfaction. Through these
initiatives, the Company has been able to achieve consistently high levels of
subscriber satisfaction and the ability to compete more effectively against
alternative video entertainment offerings.
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DEVELOPMENT OF CABLE SYSTEMS
Subscriber growth experienced by the Company in recent years has been
derived from a combination of internally generated growth and selective
acquisitions of existing systems. System acquisitions are chosen to fit the
Company's strategy of geographically clustering cable systems in markets outside
of major metropolitan areas. Prior to and upon its acquisition of a system, the
Company conducts a review of the acquired system's cable plant and operating
policies and procedures. On the basis of its review, the Company typically makes
modifications, repairs and upgrades to the plant, and additionally institutes
operating policies and procedures designed to expand the system and improve its
profitability.
Recent significant acquisitions include the Company's acquisitions in 1995,
when it acquired systems serving approximately 72,000 subscribers in and around
San Angelo, Texas and El Dorado, Fayetteville and Russellville, Arkansas. In
1996, the Company contributed 22 systems in Arkansas and Mississippi, serving
approximately 175,000 subscribers, to TCA Cable Partners in exchange for a 75%
interest in TCA Cable Partners. The remaining 25% interest in TCA Cable Partners
is held by DR Partners ("Donrey") who contributed five systems in Arkansas,
Oklahoma and California serving approximately 60,000 subscribers. The Vallejo,
California system, one of the systems contributed by Donrey, was subsequently
traded in 1996 for the Fort Smith, Arkansas system. Following its formation, TCA
Cable Partners has acquired cable systems serving 8,100 subscribers in Van Buren
and 21,000 subscribers in Jonesboro, Arkansas. In 1998, the Company contributed
certain cable systems in Texas and New Mexico serving approximately 155,000
subscribers and $46.6 million in debt to TCA Cable Partners II in exchange for
an 80% interest. The remaining 20% interest in TCA Cable Partners II is held by
the TCI Affiliate who contributed systems in North Texas and Western Louisiana
serving approximately 150,000 subscribers and $249.7 million in debt. The
Company believes that partnerships and joint ventures are advantageous to
acquiring strategic systems located near Company owned systems that the Company
would otherwise not be in a position to purchase outright. In any future
partnership or joint venture, the Company currently intends to maintain a
majority ownership interest and to manage the systems held by each partnership.
The Company believes that its future acquisitions are likely to include
partnership and joint venture transactions as well as more conventional system
acquisitions. See "-- Recent Developments."
The following table provides historical data on the development of the
Company's cable television systems. Information with respect to systems managed
but not owned by the Company are excluded from the table. Systems owned by TCA
Cable Partners and TCA Cable Partners II are included in the table.
<TABLE>
<CAPTION>
MILES OF NUMBER NUMBER OF
ACTIVE HOMES OF BASIC BASIC PREMIUM PREMIUM
PLANT PASSED SUBSCRIBERS PENETRATION UNITS* PENETRATION*
-------- --------- ----------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Period Ended October 31,
1994....................... 10,413 651,250 486,852 75% 321,076 66%
1995....................... 12,671 761,621 573,951 75% 356,836 62%
1996....................... 15,226 891,458 670,500 75% 390,457 58%
1997....................... 16,275 935,438 702,659 75% 417,423 59%
1998....................... 20,049 1,194,975 864,919 72% 573,886 66%
</TABLE>
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* Premium units are calculated based on the number of premium services
subscribed to per basic subscriber. Premium penetration equals the ratio of
premium units to basic subscribers. Premium services include single channel
services offered for a monthly fee per channel and each channel offered in a
package.
The Company currently owns and operates a total of 74 cable systems and
manages two additional systems for third parties. The Company's cable systems
primarily have bandwidth capacities ranging from 300 MHZ to 750 MHZ, which
permit its systems to carry from 35 to 82 channels. The Company's current
upgrade program calls for the continued implementation of fiber optic cable
which has served a major role in expanding channel capacity, improving system
reliability, reducing operating expenses and providing additional
revenue-producing services. As of October 31, 1998, approximately 60% of the
Company's subscribers are in systems with bandwidth of 450mhz or greater, all of
which are capable of two-way interactive service.
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The Company has launched digital compression technology in some of its systems
to increase the channel capacity to in excess of 100 channels. At October 31,
1998, the Company had approximately 4,000 digital subscribers in 6 systems. The
Company has plans to launch digital services in an additional 12 systems in
1999.
SUBSCRIBER SERVICES
The Company offers services to its subscribers that are generally
comparable to those offered by other cable television operators. The basic
service offered by the Company typically includes signals of nearby over-
the-air television stations carrying the major commercial networks; independent,
specialty and educational stations; sports and educational programming; and
additional satellite programming such as signals of out of region independent
stations, news, sports and religious programming, and continuous news and
weather information. The monthly service fee for basic service generally ranges
from $9 to $14.
The Company offers an additional level of service known as "expanded basic"
service. Under this level of service the Company makes available to subscribers
a variety of packaged programming, including news, sports, educational and
entertainment channels and programs purchased from independent suppliers and
combined in different formats to appeal to different tastes. Expanded basic
service is provided at an additional monthly charge to basic service and the
incremental fee generally ranges from $8.50 to $14.50. A new product tier, known
as the "premier package," is now being introduced in systems where fiber optic
rebuilds are either finished or nearing completion. The premier package offers
the five to twelve channels most requested by customers in the system's area of
service and the fee generally ranges from $5.95 to $6.95.
As of October 31, 1998, approximately 90% of the Company's systems offer
four premium service channels. Premium services include channels such as: The
Movie Channel(R), Home Box Office(R), Showtime(R), Cinemax(R) and The Disney
Channel(R), which offer feature motion pictures, concerts and other special
features without commercial interruption. The Company's services do not include
adult programming.
Rates charged subscribers vary with the type of service selected. All of
the Company's cable systems are subject to rate regulation. See "-- Legislation
and Regulation." The Company's average monthly revenue per subscriber for the
year ended October 31, 1998 was $32.48. In addition to monthly subscriber fees,
the Company charges a one-time installation fee of approximately $38 to new
subscribers. Monthly charges for equipment furnished to the customers generally
range from $1.95 to $3.36. Additionally, the Company generally charges $8 to $11
per month for each premium subscription service. Premium service charges are
sometimes discounted for multiple services. Subscribers are free to terminate
service at any time.
The Company also services commercial subscribers such as hotels, motels,
hospitals, and apartments. The Company individually negotiates the installation
and monthly fees for commercial subscribers.
ADVERTISING
In addition to its cable systems, the Company owns CableTime, the largest
third party turnkey advertising insertion provider for cable operators in the
United States. CableTime services approximately 83 cable television operators in
486 systems, including the Company's systems, collectively reaching
approximately 3.1 million subscribers. In 1996, the Company expanded its
CableTime cable advertising insertion business through the acquisition of Cable
One, a Pennsylvania-based cable advertising insertion provider serving
approximately 46 cable television operators in over 200 systems.
CableTime currently services select systems owned and operated by some of
the largest cable system operators in the United States, including Cox, TCI and
Time-Warner. CableTime concentrates its advertising services in single
geographic areas targeting a variety of cable operators in those areas to
achieve maximum efficiencies. CableTime provides a complete cable advertising
solution to both local and national advertisers by furnishing the components
necessary to create commercials from start to finish including concept
origination, design and production. Revenues from CableTime represented
approximately 18%, 17% and 14% of total revenue in fiscal years 1998, 1997, and
1996, respectively.
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PROGRAMMING AND SUPPLIERS
TCA seeks and services long-term programming contracts for premium and
basic service options from independent suppliers generally for a fixed fee per
customer or for a fee equal to a specific portion of the amount charged by the
Company for the service. Programming costs increase in the ordinary course of
the Company's business as a result of increases in the number of subscribers,
expansion of the number of channels provided to customers and contractual rate
increases from programming suppliers. In order to improve programming buying
efficiencies, the Company is a member of TeleSynergy, Inc., a consortium of
twelve cable system operators who negotiate and purchase programming in bulk.
The fees paid by the Company to independent suppliers are believed by the
Company to be comparable to those paid by similarly situated cable television
companies.
National manufacturers of electronic equipment are the primary suppliers of
equipment and materials utilized in the rebuild and upgrade of the Company's
cable systems. Rebuild and upgrade costs of the Company's systems have increased
during recent years and are expected to remain at or near the same level for the
next several years, until the current expansion process is completed. The
Company anticipates it will continue to be able to fund construction costs out
of internally generated funds and available bank lines of credit. The Company
historically has not experienced any difficulty in obtaining equipment or
supplies.
The programming provided under premium service, and in some cases under
basic service, is acquired by the Company from independent sources for fees
based on viewing subscribers.
MANAGEMENT SERVICES
In addition to operating its own cable television systems, the Company
provides general management services for two systems owned by entities
affiliated with the Company ("Affiliated Companies"). The Company's management
services include: accounting, auditing, billing, marketing, computer operations,
purchasing, engineering, and other technical and administrative support services
which the Company performs pursuant to management contracts. These services are
charged to the systems on a fee basis equal to specified amounts per subscriber
for each particular service performed or a specified percentage of revenue.
Total revenues earned by the Company for management services in fiscal years
1998, 1997 and 1996 were $63,201, $62,602 and $61,975, respectively.
The Company's management contract with one of the Affiliated Companies
provides the Company a right of first refusal with respect to any proposed sales
of any of the Affiliated Company's cable systems or with respect to any cable
system acquisition opportunities which come to the attention of the Affiliated
Company. The Company does not intend to exercise its right of first refusal with
respect to relatively small cable systems which are contiguous to, or in the
vicinity of, systems owned by the Affiliated Company.
The Company believes that the terms of its management contracts with
Affiliated Companies are at least as favorable to the Company as could be
obtained with unaffiliated third parties in arm's-length transactions.
COMPETITION
The Company encounters competition for the acquisition of existing systems
and may encounter similar competition at the time of franchise renewal. The
cable television industry has undergone significant consolidation in recent
years. At the same time, the number of municipal authorities that have not
awarded cable television franchises has rapidly diminished, and thus the
competition for renewal of existing franchises has intensified. Furthermore,
certain regulations restricting competition in the industry have recently been
relaxed or rescinded, reflecting current and future policy objectives of the
Federal Communications Commission ("FCC") and in Congress with respect to
developing competition to cable operators. As a result of the foregoing, it may
be expected that the Company will encounter increased competition from other
entities having substantially greater resources than the Company. See
"-- Legislation and Regulation."
Competition for the Company's cable services arises from numerous
alternative entertainment and information sources such as movie theaters,
terrestrial broadcast television stations, direct broadcast satellite ("DBS")
operators, wireless cable operators, video cassette recorders, and other sources
of home entertain-
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ment. Cable operators face additional competition from private satellite master
antenna television ("SMATV") systems that serve condominiums, apartment and
office complexes and private residential developments. The ability of the
Company to compete for subscribers in residential and commercial developments
served by SMATV operators is uncertain. Due to changes in technology and
regulatory policies encouraging competition, the Company anticipates
significantly increased competition, particularly from DBS, as well as telephone
companies, providing video programming to subscribers.
The Cable Television Consumer Protection and Competition Act of 1992
("Cable Act of 1992") contains provisions, which the FCC has implemented with
regulations, to enhance the ability of cable competitors to purchase and make
available to home satellite dish earth station ("HSD") owners certain
satellite-delivered cable programming at competitive costs. The FCC and Congress
have adopted policies providing a more favorable operating environment for new
and existing technologies that provide, or have the potential to provide,
substantial competition to cable systems. These technologies include, among
others, DBS service whereby signals are transmitted by satellite to receiving
facilities located on customer premises.
DBS systems use video compression technology to increase the channel
capacity of their systems to provide movies, broadcast stations and other
program services comparable to those of cable systems. Digital satellite service
offered by DBS systems currently has certain advantages over cable systems with
respect to programming capacity and digital quality, as well as certain current
disadvantages that include high up-front customer equipment costs, line of sight
problems and a lack of local programming, local service and equipment
distribution. While this service presents a competitive threat to cable, the
Company currently is increasing channel capacity in many of its systems and
upgrading its local customer service and technical support.
Cable operators also compete with wireless distribution services such as
multichannel, multipoint distribution services ("MMDS") which use low-power
microwave frequencies to transmit video programming over-the-air to subscribers.
Certain MMDS operators are authorized to provide or are providing broadcast and
satellite programming to subscribers in areas served by the Company's cable
systems. In addition, the Telecommunications Act of 1996 ("1996 Telecom Act")
allows telephone companies and electric utility companies to provide video
services in competition with services provided by cable systems. See
"-- Legislation and Regulation."
Advances in communications technology as well as changes in the marketplace
and the regulatory and legislative environment are constantly occurring. Such
changes could have an adverse effect on the Company's financial condition and
results of operations. At this time, the impact of such changes is not known or
estimable.
EMPLOYEES
On October 31, 1998, the Company had 2,147 full-time employees, none of
whom was represented by a union. The Company has not experienced any work
stoppages and considers its employee relations to be good. The Company's
customer services are provided by employees rather than independent contractors.
LEGISLATION AND REGULATION
Regulation
General. Cable television systems are regulated extensively by federal,
local and sometimes state authorities. Local and state regulations generally
relate to the awarding of franchises, rate regulation, customer service
standards and other operational requirements.
Federal Regulation
General. Federal regulation of cable television systems is affected
primarily through the FCC. Regulations promulgated by the FCC contain detailed
provisions relating to virtually all aspects of the cable industry including
rate regulations, must carry and retransmission consent for carriage of
broadcast signals, technical standards, customer service standards, competition,
programming, franchise issues, commercial leased access
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channels, ownership of cable television systems, non-duplication of network
programming, syndicated program exclusivity, sports program blackouts, equal
employment opportunities, comprehensive reporting requirements, signal leakage
standards emergency alert systems and other matters. The FCC is authorized to
impose monetary fines on cable system operators for violations of FCC rules and
may also issue cease and desist orders.
Cable Communications Policy Act of 1984; the Cable Act of 1992; and the
1996 Telecom Act. On October 11, 1984, Congress passed the Cable Communications
Policy Act of 1984 ("Cable Act of 1984"). A major objective of Congress in
passing that law was to clarify the regulatory relationship between franchising
authorities and cable operators. On October 5, 1992 Congress enacted the Cable
Act of 1992, which expands the scope of cable industry regulation beyond that
imposed by the Cable Act of 1984. The 1996 Telecom Act was signed into law on
February 8, 1996. This law alters the regulatory structure governing the
nation's telecommunications providers. It removes barriers to competition in
both the cable television market and the local telephone market. Among other
things, it reduces the scope of cable regulation. Provisions of these laws which
the Company believes may have a significant impact on its operations are
summarized below.
Rate Regulations. All of the Company's cable systems are or will be subject
to rate regulation. Pursuant to the Cable Act of 1992, the FCC has established
rate standards and procedures governing regulation of basic cable service rates.
Franchising authorities may "certify" to the FCC that they will follow the FCC
standards and procedures in regulating basic rates and, once such certification
is made, the franchising authorities will assume rate regulation authority over
basic rates. The Cable Act of 1992 also requires that the FCC, upon complaint
from a franchising authority, review the "reasonableness" of rates for
additional tiers of cable service. However, the 1996 Telecom Act ends FCC rate
regulation of such additional tiers of service as of March 31, 1999, although
legislation is pending before Congress, which, if enacted, would extend that
date. Only rates for premium pay channels and single event pay-per-view services
are excluded entirely from rate regulation. Additionally, the Cable Act of 1992
imposes rate regulation pursuant to an FCC formula for the sale and lease of
cable equipment such as converters, remote controls and additional outlets "on
the basis of actual cost." It is impossible to predict the exact impact of rate
regulation upon existing and future rates of the Company, but such rate
regulation could result in denial of requested rate increases and in reduction
of existing rate levels. In addition, proposals for even more stringent rate
regulation, including a rate freeze, are pending before Congress and the FCC.
The Company can not predict whether or to what extent new rate regulation may be
adopted.
The Cable Act of 1992 prohibits cable systems which have addressable
technology and addressable converters in place from requiring cable subscribers
to purchase service tiers above the basic level of service as a condition to
purchasing premium movie channels. If cable systems do not have such addressable
technology or addressable converters in place, they are given until December
2002 to comply.
Retransmission Consent. The Cable Act of 1992 establishes a choice for
broadcasters between "must carry" rights (as described below) or "retransmission
consent" rights. As of October 1993, cable operators are required to secure
permission from broadcasters that have selected retransmission consent before
retransmitting the broadcaster's television signals. Local and distant
broadcasters can require cable operators to make payments as a condition to
granting such consent for carriage of the broadcast stations on the Company's
cable systems.
The Cable Act of 1992 imposes obligations to carry "local" broadcast
stations should such stations choose a "must carry" right as opposed to the
"retransmission consent" right described above. Generally, the cable operator
must dedicate up to approximately one-third of its channel capacity for carriage
of local commercial television stations and additional channels for
non-commercial television stations. The constitutionality of these must carry
requirements was affirmed in March 1997 by the U.S. Supreme Court.
Programming Costs and Exclusivity. Pursuant to the Cable Act of 1992, the
FCC has adopted regulations regarding the sale and acquisition of cable
programming in which a cable operator has an attributable interest. The
legislation and the subsequent FCC regulations preclude most exclusive
programming contracts, limit to some degree "volume discounts" for programming
that can be offered to affiliated cable operators, and require that such cable
programmers make their programming services available to
8
<PAGE> 10
competing video technologies such as wireless cable systems and direct to the
home broadcast satellite operators on terms and conditions that do not
discriminate against such competing technologies.
Ownership Restrictions and Market Entry. The 1996 Telecom Act allows
telephone companies to compete directly with cable operators by repealing the
historic telephone company/cable cross-ownership ban and the FCC's video dial
tone regulations. This allows local exchange carriers ("LECs"), including the
regional Bell Operating Companies, to compete with cable operators both inside
and outside their telephone service areas. Cable systems could be placed at a
competitive disadvantage if the delivery of video services by LECs becomes
widespread since LECs are not required, under certain circumstances, to obtain
local franchises to deliver such video services or to comply with the variety of
obligations imposed upon cable systems under such franchises. Because of their
resources and cross-subsidization issues, LECs could be formidable competitors
to traditional cable operators, and certain LECs have begun offering cable
service.
The 1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services (including cable
television) notwithstanding the Public Utilities Holding Company Act. Electric
utilities must establish separate subsidiaries, known as "exempt
telecommunications companies" and must apply to the FCC for operating authority.
Again, because of their resources, electric utilities could be formidable
competitors to traditional cable systems.
The 1996 Telecom Act eliminates statutory restrictions on broadcast/cable
cross-ownership (including broadcast network/cable restrictions), but leaves in
place existing FCC regulations prohibiting local cross-ownership between
television stations and cable systems. The 1996 Telecom Act also eliminates the
three year holding period required under the 1992 Cable Act's "anti-trafficking"
provision. The 1996 Telecom Act leaves in place existing restrictions on cable
cross-ownership with SMATV and MMDS facilities, but lifts those restrictions
where the cable operator is subject to effective competition. In January 1995,
however, the FCC adopted regulations which permit cable operators to own and
operate SMATV systems within their franchise area, provided that such operation
is consistent with local cable franchise requirements.
The FCC recently adopted rules relating to the ownership of cable wiring
located inside multiple dwelling unit complexes. The FCC has concluded that such
wiring can, in certain cases, be unilaterally acquired by the complex owners,
making it easier for complex owners to terminate service from the incumbent
cable operator in favor of a new entrant.
Pursuant to the 1992 Cable Act, the FCC adopted rules precluding a cable
system from devoting more than 40% of its activated channel capacity to the
carriage of affiliated national program services. A companion rule establishing
a nationwide ownership cap on any cable operator equal to 30% of all domestic
cable subscribers has been stayed pending further judicial review. The FCC is
currently reconsidering these requirements and it is possible that changes will
be made in both the ownership and in the manner in which subscribers are
attributed to a particular cable company.
The 1996 Telecom Act provides that no state or local laws or regulations
may prohibit or have the effect of prohibiting any entity from providing any
interstate or intrastate telecommunications service. States are authorized,
however, to impose "competitively neutral" requirements regarding universal
service, public safety and welfare, service quality, and consumer protection.
State and local governments also retain their authority to manage the public
rights-of-way. Although the 1996 Telecom Act clarifies that traditional cable
franchise fees may be based only on revenues related to the provision of cable
television services, it also provides that local franchising authorities
("LFAs") may require reasonable, competitively neutral compensation for
management of the public rights-of-way when cable operators provide
telecommunications service. The 1996 Telecom Act prohibits LFAs from requiring
cable operators to provide telecommunications service or facilities as a
condition of a franchise grant, renewal or transfer, except that LFAs can seek
"institutional networks" as part of such franchise negotiations. The favorable
pole attachment rates afforded cable operators under federal law can be
gradually increased by utility companies owning the poles (beginning in 2001) if
the cable operator provides telecommunications service, as well as cable
service, over its facilities.
Cable entry into telecommunications will be affected by the regulatory
landscape now being fashioned by the FCC and state regulators. One critical
component of the 1996 Telecom Act to facilitate the entry of new
9
<PAGE> 11
telecommunications providers (including cable operators) is the interconnection
obligation imposed on all telecommunications carriers. However, many of the
specific terms and conditions for such interconnection will remain uncertain
until they are resolved by the courts, the FCC and state regulatory commissions.
Customer Service/Technical Standards. Pursuant to the Cable Act of 1992,
the FCC has adopted regulations establishing comprehensive standards for
customer service and technical system performance. Franchising authorities are
allowed to enforce stricter customer service requirements than the FCC
standards.
Access Channels. LFAs can include franchise provisions requiring cable
operators to set aside certain channels for public, educational and governmental
access programming. Federal law also requires a cable system with 36 or more
channels to designate a portion of its channel capacity (up to 15% in some
cases) for commercial leased access by unaffiliated third parties.
Other Provisions. The Cable Act of 1992 contains a host of other regulatory
provisions. Together with the Cable Act of 1984 and the 1996 Telecom Act, the
comprehensive regulatory framework for cable television systems has been
created. Violation by a cable operator of the statutory provisions or the rules
and regulations of the FCC can subject the operator to substantial monetary
penalties and other significant sanctions.
The majority of the Cable Act of 1984 remains in place. The Cable Act of
1984 continues to: (a) affirm the right of franchising authorities to award one
or more franchises for cable; (b) require cable television systems with 36 or
more "activated" channels to reserve a percentage of such channels for
commercial use by unaffiliated third parties; (c) permit franchise authorities
to require the cable operator to provide channel capacity, equipment and
facilities for public, educational and government access; (d) provide
subscribers an opportunity to lock out offensive channels from personal
reception; (e) establish a federal policy for use of subscriber lists and
subscriber information; (f) establish civil and criminal liability for
unauthorized reception or interception of programming offered over a cable
television system or satellite delivered services; and (g) contain provisions
governing cable operator's compliance with equal employment opportunity
programs.
Many of the specific obligations imposed on cable television systems under
these laws and regulations are complex, burdensome and will continue to increase
the Company's cost of doing business. Various provisions of the Federal laws and
regulations applicable to cable television have been appealed in the courts. The
outcome of some of those appeals and the potential impact on the Company is
uncertain. In addition, regulatory requirements for cable television are subject
to continual changes through actions of Federal, state and local governmental
authorities.
ENVIRONMENTAL REGULATION
As an owner, lessee and operator of real property, the Company is subject
to Federal, state and local environmental laws and regulations relating to
disposal of waste and hazardous materials, cleanup of contaminated property and
operation of underground storage tanks. The Company believes that it is in
material compliance with all applicable environmental laws and regulations.
COPYRIGHT ACT
Cable television systems are subject to the Copyright Act of 1976 (the
"Copyright Act"). The Copyright Act requires the carrier of television signals
to have a copyright license. The license for television broadcast signals is
compulsory under the provisions of the Copyright Act and requires the licensee
to be in compliance with certain copyright and FCC regulations. Additionally, a
semiannual royalty payment must be made to the U.S. Copyright Office and is
generally calculated as a percentage of each system's gross receipts. The U.S.
Copyright Office is empowered to review and increase copyright rates.
Carriage of any television broadcast station by a cable system in a manner
inconsistent with applicable FCC regulations, the Copyright Act, or copyright
regulations, can subject the cable system operator to full copyright liability,
including a potential copyright infringement action for material damages and
suspension of the operator's compulsory license. Cable systems do not receive a
compulsory license and are subject to the general copyright laws, with respect
to the transmission of non-broadcast programming.
10
<PAGE> 12
Various legislative proposals have been introduced and considered from time
to time in Congress that, if adopted, would materially revise the Copyright Act.
The proposals include, among other things, a significant increase in the rate
structure for royalty fees, imposition of restrictions on carriage of television
broadcast programming and elimination of the compulsory license for cable system
carriage of television broadcast signals. The U.S. Copyright Office has
recommended to Congress substantial changes in the cable compulsory license and
similar recommendations have been made by other government agencies and
interested parties. Although none of these proposals has been enacted, it can be
expected that similar proposals to change the Copyright Act and royalty fee
structure will be made in the future, and if enacted, could have an unfavorable
impact on the Company.
FRANCHISES
Each local government authority typically issues a non-exclusive permit or
enacts a non-exclusive franchise ordinance for the construction and operation of
a cable television system within its borders after considering presentations by
competing cable television companies. The Company's franchises normally require
that 2% to 5% of the gross revenues of the cable system be paid to the
franchising authority.
Effective January 1, 1987, rates charged to subscribers could no longer be
regulated by local authorities in areas where the FCC determined that cable
television systems were subject to "effective competition." Congress in the
Cable Act of 1992 amended the effective competition standard in a manner that
subjects virtually all of the Company's systems to rate regulation. See
"-- Legislation and Regulation."
FCC rules and some franchises generally require approval by the franchising
authority for the sale of a system. See "-- Legislation and Regulation." Most of
the Company's franchises can be terminated prior to their stated expiration for
breach of material provisions. The Company holds approximately 273 franchises
with unexpired terms ranging generally from one to 30 years. No one franchise
accounts for more than 10% of the Company's total revenue.
Franchises have historically been renewed for companies that have provided
adequate service and have complied generally with the franchise terms.
Additionally, the Cable Act of 1984 established renewal procedures designed to
protect incumbent franchisees against arbitrary denial of renewal. The Company
believes that it has provided satisfactory levels of service and has maintained
favorable relationships with local communities and anticipates that all or
substantially all of its franchises will be renewed, although there can be no
assurance of such renewals. In addition, other applicants have an opportunity to
compete for the franchise upon its expiration. See "-- Competition." In
connection with a renewal, the franchising authority may impose different and
more stringent terms, the impact of which cannot be predicted. To date, however,
all of the Company's franchises have been renewed or extended, generally at, or
prior to, their stated expirations, and on modified, but not unduly burdensome,
terms.
PRIVATE SECURITIES LITIGATION REFORM ACT
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Report and other materials filed or to be filed by the Company with the
Securities and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the Company)
contains statements that are forward-looking, such as statements relating to
plans for future expansion and other business development activities as well as
other capital spending, financing sources and the effects of regulation and
competition. Such forward-looking information involves important risks and
uncertainties that could significantly affect anticipated results in the future
and, accordingly, such results may differ from those expressed in any
forward-looking statements made by or on behalf of the Company. These risks and
uncertainties include, but are not limited to, those relating to development and
construction activities, dependence on existing management, leverage and debt
service (including sensitivity to fluctuations in interest rates), domestic or
global economic conditions, changes in federal or state tax laws or the
administration of such laws and changes in laws or regulations.
11
<PAGE> 13
ITEM 2. PROPERTIES
The Company's principal physical assets consist of operating plant and
equipment, including signal receiving apparatus, headends and distribution plant
and equipment for each of its cable television systems. The signal receiving
apparatus typically includes a tower, antennae and ancillary electronic
equipment for reception of over-the-air broadcast television signals, and earth
stations and ancillary electronic equipment for reception of satellite signals.
Headends, consisting of associated electronic equipment necessary for the
reception, amplification and modulation of signals, are located near the
receiving devices. The Company's distribution systems consist of coaxial cables,
optical fibers and related electronic equipment and customer connection devices
(principally converters). The Company owns the receiving equipment, headends and
distribution equipment and property, and owns or leases small parcels of
property for the receiving sites and for business offices.
The Company's cables are generally attached to utility poles covered by
rental agreements with local utility companies, although approximately 17% of
the Company's cables are buried in trenches.
After the expiration of an initial term of one to three years, pole rental
agreements generally are terminable by the utility companies upon six months
notice or less. The Company's activities are dependent upon its pole agreements,
and substantially increased pole attachment fees or the termination of pole
agreements would have a material adverse effect on the Company. Although the
Company believes that any such termination is unlikely and knows of no situation
in which such a termination of rights has been exercised, no assurance can be
given that the utility companies will not attempt to exercise their termination
rights.
The Company believes that its properties are in good condition and are
suitable to and adequate for its business. The physical components of cable
television systems require maintenance and also require upgrading to keep pace
with technological advances.
The Company leases a building in Tyler, Texas, which houses its
headquarters. The building is owned by a corporation partially owned by a
director of the Company, and the Company may cancel the lease at any time. The
Company believes the terms of such lease are at least as favorable as would be
obtainable from a third party lessor. The Company also owns and leases various
offices, tower sites, microwave locations, test equipment and service vehicles,
no one of which is considered material to the Company or its business.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to certain legal proceedings arising in the ordinary
course of business, none of which are believed to be material to the Company's
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
12
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Price Range of Common Stock
The Company's common stock is traded in the over-the-counter market and is
quoted on the Nasdaq National Market System under the symbol "TCAT." The
following table shows the range of high and low bids for the Common Stock of the
Company in the over-the-counter market for each fiscal quarter beginning with
the quarter ended January 31, 1997, as reported by Nasdaq. The quotations
represent prices in the over-the-counter market between dealers in securities,
and do not include retail markup, markdown or commission, and do not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
QUARTER ENDED: HIGH LOW
-------------- ----- -----
<S> <C> <C>
01/31/97.................................................... 16.00 13.19
04/30/97.................................................... 16.82 14.75
07/31/97.................................................... 20.19 15.75
10/31/97.................................................... 21.38 18.50
01/31/98.................................................... 24.50 20.50
04/30/98.................................................... 31.88 23.00
07/31/98.................................................... 31.38 27.09
10/31/98.................................................... 29.75 21.38
</TABLE>
Per share amounts have been adjusted retroactively for a two-for-one stock
split effective July 15, 1998.
(b) Approximate Number of Equity Security Holders
<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF
EQUITY HOLDERS
TITLE OF CLASS (AS OF DECEMBER 31, 1998)
-------------- -------------------------
<S> <C>
Common Stock $0.10 Par Value.......................... 5,200
</TABLE>
(c) Dividends
During the fiscal year ended October 31, 1998, cash dividends were paid to
shareholders in the amount of $15,956,630 ($.08 per share paid in January,
April, July and October, 1998). During the prior fiscal year, $15,892,884 in
cash dividends were paid to shareholders ($.08 per share paid in January, April,
July, and October, 1997). At the December 9, 1998 regularly scheduled Board of
Directors meeting, a cash dividend of $.08 per share for the quarter ending
January 31, 1999, was declared. This dividend is payable January 21, 1999, to
shareholders of record as of January 7, 1999.
The Board of Directors of the Company intends to continue to declare
comparable dividends and will determine dividend policy, including amounts and
frequency thereof, taking into account, among other things, the amount of funds
legally available, and the Company's earnings, financial condition and other
cash requirements.
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 for this acquisition.
13
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data should be read in conjunction with, and is
qualified in its entirety by reference to, the consolidated financial statements
and the notes thereto set forth elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------------
1998 1997 1996 1995 1994(1)
---------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operations for the year indicated:
Total revenues........................ $ 385,737 $307,501 $253,308 $190,708 $162,300
Costs and expenses.................... 343,246 269,361 218,368 159,419 141,225
Net income............................ 42,491 38,140 34,940 31,289 21,075
Basic earnings per share of common
stock.............................. 0.85 0.77 0.70 0.64 0.43
Diluted earnings per share of common
stock.............................. 0.84 0.77 0.70 0.64 0.43
Financial position at the end of the
periods indicated:
Total assets.......................... 1,070,772 722,354 663,997 454,089 286,213
Debt.................................. 552,016 317,025 314,493 262,213 126,447
Total shareholders' equity............ 193,462 170,667 146,332 118,148 98,897
Cash dividends per common share......... 0.32 0.32 0.28 0.24 0.22
</TABLE>
- ---------------
(1) The Company adopted Statement on Financial Accounting Standards No. 109,
"Accounting for Income Taxes," during the first quarter of 1994 by
recognizing a one-time cumulative effect adjustment which reduced net income
by $1.9 million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with, and is qualified
in its entirety by reference to, the audited consolidated financial statements
of the Company appearing elsewhere herein.
OVERVIEW
The Company is engaged in the development, operation and management of
cable television systems. As of October 31, 1998, based on number of
subscribers, the Company is the sixteenth largest cable television operator in
the United States serving approximately 865,000 subscribers which passed
approximately 1.2 million homes. Over 95% of the Company's subscribers are
located in regional clusters primarily in Texas, Louisiana and Arkansas. The
Company also operates two systems in Oklahoma and has one system in Idaho,
Mississippi and New Mexico, respectively. The Company intends to continue to
concentrate its activities in these and similar non-urban markets where
residents rely on cable television to provide quality reception and services,
referred to by the Company as "classic cable markets." In addition, through
CableTime the Company is the largest third party turnkey advertising insertion
provider serving the cable television industry in the United States.
The Company has recently been experiencing significant growth in its
operations. Over the last three fiscal years, revenues, EBITDA (defined as
earnings before interest, taxes, depreciation and amortization) and net income
have grown at annual compound growth rates of approximately 26%, 19% and 11%,
respectively. Such growth has resulted primarily from strategic acquisitions,
and also from internal subscriber growth, and the introduction of new products
and services.
The Company's cable revenues are derived from subscriber fees for basic,
expanded basic, premium and pay-per-view television services, cable installation
fees, long distance and internet access fees and the sale of local advertising
time on its cable systems. Cable revenues for the year ended October 31, 1998
increased 25%
14
<PAGE> 16
(5.5% excluding acquisitions) compared to the same period for 1997, and
represented 82% of the Company's total revenues in fiscal 1998.
The Company also derives revenues from CableTime. For the fiscal year ended
October 31, 1998, advertising insertion revenues represented 18% of the
Company's total revenues. As of October 31, 1998, CableTime provided services to
83 cable television operators in 486 markets, including the Company's systems,
collectively reaching approximately 3.1 million subscribers. CableTime revenues
for the year ended October 31, 1998 increased 29% compared to the same period
for 1997.
FINANCIAL HIGHLIGHTS
The following table provides segment information for the periods indicated.
<TABLE>
<CAPTION>
ADVERTISING
CABLE INSERTION TOTAL
---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
YEAR ENDED OCTOBER 31, 1998:
Revenues........................................ $ 316,536 $69,201 $ 385,737
Operating income................................ 102,158 10,134 112,292
Depreciation and amortization................... 53,797 2,590 56,387
Capital expenditures, including acquisitions.... 102,062 7,511 109,573
Identifiable assets............................. 1,032,977 37,795 1,070,772
YEAR ENDED OCTOBER 31, 1997:
Revenues........................................ $ 253,813 $53,688 $ 307,501
Operating income................................ 84,718 6,903 91,621
Depreciation and amortization................... 42,280 1,975 44,255
Capital expenditures, including acquisitions.... 58,340 3,410 61,750
Identifiable assets............................. 690,349 32,005 722,354
YEAR ENDED OCTOBER 31, 1996:
Revenues........................................ $ 218,386 $34,922 $ 253,308
Operating income................................ 75,899 6,088 81,987
Depreciation and amortization................... 36,255 1,269 37,524
Capital expenditures, including acquisitions.... 68,631 4,932 73,563
Identifiable assets............................. 635,972 28,025 663,997
</TABLE>
15
<PAGE> 17
The following table sets forth for the periods indicated certain operations
data expressed as a percentage of total revenues.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES FOR
YEAR ENDED OCTOBER 31,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Revenues from:
Basic and expanded basic subscriptions.................... 63.3% 62.9% 65.7%
Premium and Pay-Per-View.................................. 12.3 13.1 14.9
Advertising(1)............................................ 18.4 18.1 14.5
Other sources............................................. 6.0 5.9 4.9
----- ----- -----
Total revenues.................................... 100.0% 100.0% 100.0%
Operating expenses:
Salaries, wages and benefits.............................. 17.9% 18.4% 17.2%
Programming and non-cable direct costs.................... 26.9 26.3 24.4
Other operating expenses.................................. 3.5 3.4 3.3
Selling, general and administrative....................... 8.0 7.7 7.9
Depreciation and amortization............................. 14.6 14.4 14.8
----- ----- -----
Total operating expenses.......................... 70.9% 70.2% 67.6%
Operating income............................................ 29.1% 29.8% 32.4%
Other income................................................ .3 .1 .1
Other expenses:
Interest expense.......................................... 8.8 7.2 8.6
Minority interest......................................... 2.5 2.3 1.3
Income tax................................................ 7.1 8.0 8.8
----- ----- -----
Net income.................................................. 11.0% 12.4% 13.8%
</TABLE>
- ---------------
(1) Includes revenues from both the Company's cable advertising business and net
cable advertising revenues from third parties.
Year Ended October 31, 1998 Compared to Year Ended October 31, 1997
Revenues. Revenues increased by $78.2 million, or 25.4%, during the year
ended October 31, 1998 compared to the year ended October 31, 1997. Management
attributes approximately $13.5 million, or 17.3%, of the revenue increase to
internal growth in cable systems; $49.4 million, or 63.2%, to cable system
acquisitions; $15.5 million, or 19.8%, to internal growth in the Company's
advertising insertion business; $2.8 million, or 3.6%, to growth in the
Company's Internet access business. These increases in revenue were offset by a
decrease of $3.0 million, or 3.9%, resulting from the Company's sale of its long
distance business.
Revenues from basic and expanded basic cable television subscriptions
increased $50.8 million, or 26.3%, during the year ended October 31, 1998
compared to the year ended October 31, 1997. As a percentage of revenues,
revenues from basic and expanded basic subscriptions increased to 63.3% of
revenues for 1998 compared to 62.9% for 1997. Revenues from premium
subscriptions and pay-per-view increased $7.1 million, or 17.5%, during 1998
compared to 1997. As a percentage of revenues, revenues from premium
subscriptions and pay-per-view decreased to 12.3% during 1998 compared to 13.1%
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 $15.3 million, or 27.6%, to $71.0
million for the year ended October 31, 1998 compared to $55.6 million for the
year ended October 31, 1997. As a percentage of revenues, cable advertising
revenues increased to 18.4% during 1998 compared to 18.1% during 1997. Other
revenues increased $5.0 million, or 27.5%, during 1998 compared to 1997. As a
percentage of revenues, revenues from other sources increased to 6.0% in 1998
compared to 5.9% in 1997.
Expenses. Operating expenses increased $57.6 million, or 26.7%, in fiscal
1998 compared to fiscal 1997. As a percentage of revenues, operating expenses
increased to 70.9% for fiscal 1998 compared to 70.2% for
16
<PAGE> 18
fiscal 1997, reflecting the increased significance of the Company's cable
advertising insertion business, which experiences lower margins than the
Company's cable system operations. The increase in operating expenses during the
year ended October 31, 1998 is primarily due to the acquisitions of cable
systems and the increase in the cable advertising insertion business relative to
the cable business.
Salaries, wages and benefits increased $12.7 million, or 22.5%, during
fiscal 1998 compared to fiscal 1997. As a percentage of revenues, salaries,
wages and benefits were 17.9% for fiscal 1998 compared to 18.4% for fiscal 1997.
Programming and non-cable direct costs increased $22.7 million, or 28.0%, during
fiscal 1998 compared to fiscal 1997. As a percentage of revenues, programming
and non-cable direct costs were 26.9% for fiscal 1998 and 26.3% for fiscal 1997.
The increase in programming and non-cable direct costs is the result of
increases of $7.0 million from internal growth in cable programming costs, $12.4
million in cable programming costs from acquisitions, $4.3 million in the
Company's payments to other cable operators of a percentage of advertising sales
and $0.7 million in network access fees in the Internet access business. These
increases were offset by a decrease of $1.7 million resulting from the sale of
the Company's long distance business during the first quarter of 1998. Other
operating expenses increased $3.1 million, or 30.2%, during fiscal 1998 compared
to fiscal 1997. As a percentage of revenues, other operating expenses were 3.5%
for fiscal 1998 and 3.4% for fiscal 1997. Selling, general and administrative
expense increased $6.9 million, or 29.0%, during fiscal 1998 when compared to
fiscal 1997. As a percentage of revenues, selling, general and administrative
expenses were 8.0% for fiscal 1998 and 7.8% for fiscal 1997. Depreciation and
amortization increased $12.1 million, or 27.4%, during fiscal 1998 when compared
to fiscal 1997. As a percentage of revenues, depreciation and amortization was
14.6% for fiscal 1998 and 14.4% for fiscal 1997.
Interest expense increased $11.9 million, or 53.5%, in fiscal 1998 compared
to fiscal 1997 as a result of increased borrowings to fund acquisitions. The
Company's weighted average interest rate was 7.0% for the year ended October 31,
1998 compared to 7.1% for the year ended October 31, 1997.
Income Taxes. The Company's provision for income taxes was $27.2 million
and $24.6 million in fiscal 1998 and 1997, respectively. The increase in taxes
of 10.6% in fiscal 1998 compared to fiscal 1997 was a result of a 11.1% increase
in income before income taxes offset by a decrease in the effective tax rate to
39.0% in fiscal 1998 compared to 39.2% for fiscal 1997.
Minority Interest. Minority interest in earnings related to TCA Cable
Partners was $6.9 million for fiscal 1998 and $7.1 million for 1997. Minority
interest in earnings related to TCA Cable Partners II was $2.6 million for
fiscal 1998. No minority interest existed in TCA Cable Partners II for 1997. TCA
Cable Partners II began operations February 2, 1998. See
"Business -- Development of Cable Systems."
Year Ended October 31, 1997 Compared to Year Ended October 31, 1996
Revenues. Revenues increased by $54.2 million, or 21.4%, during the year
ended October 31, 1997 compared to the year ended October 31, 1996. Management
attributes approximately $15.3 million, or 28.2%, of the revenue increase to
internal growth in cable systems; $16.2 million, or 29.9%, to cable system
acquisitions; $9.9 million, or 18.3%, to internal growth in the Company's
advertising insertion business; $8.9 million, or 16.4%, to advertising insertion
acquisitions; and $3.9 million, or 7.2%, to long distance and internet access.
Revenues from basic and expanded basic cable television subscriptions
increased $26.9 million, or 16.1%, during the year ended October 31, 1997
compared to the year ended October 31, 1996. As a percentage of revenues,
revenues from basic and expanded basic subscriptions decreased to 62.9% of
revenues for 1997 compared to 65.7% for 1996. Revenues from premium
subscriptions and pay-per-view increased $2.5 million, or 6.7%, during 1997
compared to 1996. As a percentage of revenues, revenues from premium
subscriptions and pay-per-view decreased to 13.1% during 1997 compared to 14.9%
during 1996. The reduced percentages of revenues attributable to basic, expanded
basic, premium subscriptions and pay-per-view are the result of the increased
significance of cable advertising insertion revenues to the Company. 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 $19.0 million, or 51.9%, to $55.6 million for the
year ended October 31, 1997 compared to $36.6 million for the year ended October
31, 1996. As a percentage of
17
<PAGE> 19
revenues, cable advertising revenues increased to 18.1% during 1997 compared to
14.5% during 1996. Other revenues increased $5.8 million, or 46.9%, during 1997
compared to 1996 primarily due to the addition of $3.9 million of long distance
and internet access revenues. As a percentage of revenues, revenues from other
sources increased to 5.9% in 1997 compared to 4.9% in 1996.
Expenses. Operating expenses increased $44.6 million, or 26.0%, in fiscal
1997 compared to fiscal 1996. As a percentage of revenues, operating expenses
increased to 70.2% for fiscal 1997 compared to 67.6% for fiscal 1996, reflecting
the increased significance of the Company's cable advertising insertion
business, which experiences lower margins than the Company's cable system
operations. The increase in operating expenses during the year ended October 31,
1997 is primarily due to the acquisitions of cable systems and the increase in
the cable advertising insertion business relative to the cable business.
Salaries, wages and benefits increased $12.9 million, or 29.6%, during
fiscal 1997 compared to fiscal 1996. As a percentage of revenues, salaries,
wages and benefits were 18.4% for fiscal 1997 compared to 17.2% for fiscal 1996.
Programming and non-cable direct costs increased $19.2 million, or 31.1%, during
fiscal 1997 compared to fiscal 1996. As a percentage of revenues, programming
and non-cable direct costs were 26.3% for fiscal 1997 and 24.4% for fiscal 1996.
The increase in programming and non-cable direct costs is the result of
increases of $10.0 million in cable programming costs, $6.6 million in the
Company's payments to other cable operators of a percentage of advertising sales
and $2.6 million in network access fees in the long distance business. Other
operating expenses increased $1.9 million, or 22.1%, during fiscal 1997 compared
to fiscal 1996. As a percentage of revenues, other operating expenses were 3.4%
for fiscal 1997 and 3.3% for fiscal 1996. Selling, general and administrative
expense increased $3.8 million, or 19.2%, during fiscal 1997 when compared to
fiscal 1996. As a percentage of revenues, selling, general and administrative
expenses were 7.7% for fiscal 1997 and 7.9% for fiscal 1996. Depreciation and
amortization increased $6.7 million, or 17.9%, during fiscal 1997 when compared
to fiscal 1996. As a percentage of revenues, depreciation and amortization was
14.4% for fiscal 1997 and 14.8% for fiscal 1996.
Interest expense increased $0.2 million, or 1.1%, in fiscal 1997 compared
to fiscal 1996 as a result of increased borrowings to fund acquisitions. The
Company's weighted average interest rate approximated 6.8% at both October 31,
1997 and 1996.
Income Taxes. The Company's provision for income taxes was $24.6 million
and $22.2 million in fiscal 1997 and 1996, respectively. The increase in taxes
of 10.8% in fiscal 1997 compared to fiscal 1996 was a result of a 9.8% increase
in income before income tax and an increase in the effective tax rate to 39.2%
in fiscal 1997 compared to 38.9% for fiscal 1996.
Minority Interest. Minority interest in earnings related to TCA Cable
Partners was $7.1 million for fiscal 1997 and $3.2 million for 1996. See
"Business -- Development of Cable Systems."
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 30.9% to $132.0 million
in fiscal 1998 from $100.9 million in fiscal 1997. The increase was principally
due to cable system acquisitions and internal growth in cable operations.
At October 31, 1998, the Company had $240.0 million in borrowings under its
bank credit facilities. The Company had $202 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 October 31, 1998 the Company also had $38.0 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 borrowing by the Company and expire
June 1999 and April 1999, respectively. During fiscal years 1998, 1997 and 1996,
the Company borrowed approximately $673.7 million, $108.9 and $157.6 million,
respectively, and repaid approximately $438.7 million, $106.4 mil-
18
<PAGE> 20
lion, and $105.3 million, respectively. For the year ended October 31, 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 EBITA 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 3.1x, 2.5x and 2.7x
in the fiscal years ended 1998, 1997 and 1996, respectively. The Company's
interest coverage ratio, defined as the ratio of EBITDA to total interest
expense, was 5.2x, 5.8x and 5.3x in the fiscal years ended 1998, 1997 and 1996,
respectively.
The Company's capital expenditures totaled $75.7 million in fiscal 1998,
$51.8 million in fiscal 1997 and $45.9 million in fiscal 1996. 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 expenditures through funds generated by its
operating activities, and to a lesser extent, by bank borrowings and private
placements of debt securities. The Company expects to continue the upgrade of
its cable systems in 1999 and anticipates total capital expenditure requirements
in fiscal 1999 to be comparable to levels experienced in 1998.
As 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
partners in TCA Cable Partners and TCA Cable Partners II. See "Business
-- Development of Cable Systems." In fiscal years 1998, 1997 and 1996, the
Company expended approximately $253.5 million, $41.2 million and $78.1 million,
respectively, on cable system acquisitions. The Company anticipates the
acquisition of additional systems in selected markets in the future. See
"Business -- Development of Cable Systems."
The Company paid dividends on its common stock totaling approximately $16.0
million, or $0.32 per share, in fiscal 1998, $15.9 million, or $0.32 per share,
in fiscal 1997 and $13.8 million, or $0.28 per share, in fiscal 1996.
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 July 24, 1997, the Company filed a shelf registration with the SEC for a
public debt offering of up to $300 million. The Company received a rating of
BBB+ from Standard & Poor's and Baa2 from Moody's. On February 2, 1998, the
Company issued $200 million in bonds due February 1, 2028 with a coupon of 6.53%
to finance the TCI Transaction. In connection with this debt offering, the
Company entered into treasury lock transactions with a notional amount totaling
$100 million in August 1997 (the "Treasury Locks"). The Treasury Locks were
designated 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 is being amortized over the term of the public debt as an
interest rate yield adjustment.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Reporting Comprehensive Income (SFAS 130)
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which
is effective for fiscal years beginning after December 15, 1997. This statement
establishes standards for reporting and display of comprehensive income
19
<PAGE> 21
and its components. Management does not anticipate that SFAS 130 will have a
significant impact on the Company's consolidated financial statements.
Disclosures about Segments of an Enterprise and Related Information (SFAS 131)
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 is effective for
fiscal years beginning after December 15, 1997. This statement establishes
standards for the way that public companies report information about segments in
annual and interim financial statements. Management does not anticipate that
SFAS 131 will have a significant impact on the Company's consolidated financial
statements.
Reporting of the Costs of Start-up Activities (SOP 98-5)
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5"), "Reporting of the Costs of
Start-up Activities." SOP 98-5 is effective for financial statements issued for
years beginning after December 15, 1998. The Company will be required to
implement its provisions by the first quarter of fiscal 2000. Management does
not anticipate that SOP 98-5 will have a significant impact on the Company's
consolidated financial statements.
Accounting for Derivative Instruments and Hedging Activities (SFAS 133)
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" SFAS 133"). SFAS 133 is effective for fiscal years
beginning after December 15, 1998. The Company is currently not involved in
derivative instruments or hedging activities and will measure the impact of this
statement as it becomes necessary.
YEAR 2000 IMPACT
The Year 2000 will have a broad impact on the business environment in which
the Company operates due to the possibility that many computerized systems
across all industries will be unable to process information containing dates
beginning in the Year 2000. The Company has established a program to prepare its
computer systems and applications for the Year 2000. The Company is utilizing
both internal and external resources to identify, correct and test the systems
for Year 2000 compliance. The Company anticipates that its testing efforts will
be substantially completed by June 30, 1999. Additional validation of the
Company's systems through testing will be conducted throughout 1999. The Company
expects that all mission-critical systems will be Year 2000 compliant prior to
the end of the 1999 calendar year.
Because third party failures could have a material impact on the Company's
ability to conduct business, questionnaires have been sent to substantially all
of the Company's vendors to obtain reasonable assurance that plans are being
developed to address the Year 2000 issue. The returned questionnaires are
currently being assessed by the Company, and are being categorized based upon
readiness for the Year 2000 issues and prioritized in order of significance to
the business of the Company. To the extent that vendors do not provide the
Company with satisfactory evidence of their readiness to handle Year 2000
issues, contingency plans will be developed to obtain qualified replacement
vendors.
The Company has substantially completed an inventory of all information
technology and non-information technology equipment, and is addressing the Year
2000 compliance of such equipment. The Company currently believes that all items
of mission-critical equipment which are not Year 2000 compliant have been
identified for replacement or upgrade.
Testing and remediation of all of the Company's systems and applications is
not expected to exceed $1 million from inception in calendar year 1998 through
completion in calendar year 1999. Of these costs, approximately $50,000 was
incurred through October 31, 1998. Approximately $0.5 million is expected to be
20
<PAGE> 22
incurred in fiscal 1999 with the remaining $0.2 million to be incurred in fiscal
2000. All estimated costs have been budgeted and are expected to be funded by
cash flows from operations.
The Company does not believe the costs related to the Year 2000 compliance
project will be material to its financial position or results of operations.
However, the cost of the project and the date on which the Company plans to
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. Unanticipated failures by critical vendors, as well as the
failure by the Company to execute its plans, could have a material adverse
effect on the cost of the project and its completion date. As a result, there
can be no assurance that these forward-looking estimates will be achieved and
the actual cost and vendor compliance could differ materially from those plans,
resulting in material financial risk.
INFLATION
The net impact of inflation on operations has not been material in the last
three years due to the relatively low rates of inflation during this period. If
the rate of inflation increases the Company may increase customer rates to keep
pace with the increase in inflation, although there may be timing delays.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are included under Item 14
of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On March 30, 1998, the Company dismissed Coopers & Lybrand, L.L.P.
("Coopers & Lybrand") as its principal independent accountants. The decision to
dismiss PricewaterhouseCoopers was approved by the Company's Board of Directors
as well as the Audit committee of the Board of Directors. Coopers & Lybrand's
report on the Company's financial statements for each of the fiscal years ended
October 31, 1997 and 1996 did not contain an adverse opinion or disclaimer of
opinion. Neither were such reports qualified or modified as to uncertainty,
audit scope or accounting principles.
During the Company's past two fiscal years and the periods following
October 31, 1997, there were no disagreements between the Company and Coopers &
Lybrand on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure which if not resolved to the
satisfaction of Coopers & Lybrand would have caused it to make reference to the
subject matter(s) of the disagreement(s) in connection with its reports.
On March 27, 1998, the Company retained KPMG LLP ("KPMG") to serve as the
Company's principal independent accountants. During the Company's past two
fiscal years and the periods following October 31, 1997, the Company did not
consult KPMG regarding the application of accounting principles to a specified
transaction or the type of audit opinion that might be rendered on the Company's
financial statements.
ITEMS 10-13.
The information called for by Item 10, Directors and Executive Officers of
the Registrant; Item 11, Executive Compensation; Item 12, Security Ownership of
Certain Beneficial Owners and Management; and Item 13, Certain Relationships and
Related Transactions, is hereby incorporated herein by reference to the
Registrant's definitive Proxy Statement for its Annual Meeting of Shareholders
presently scheduled to be held March 30, 1999, which shall be filed with the
Securities and Exchange Commission within 120 days of the end of the
Registrant's last fiscal year.
21
<PAGE> 23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following consolidated financial statements of TCA Cable TV, Inc. and
Subsidiaries, otherwise includable under Item 8, are included in this Item 14.
14(A)(1) TCA CABLE TV, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
PAGES
-----
<S> <C> <C>
(i) Independent Auditors' Report................................ F-1
Report of Independent Accountants........................... F-2
(ii) Consolidated Balance Sheets as of October 31, 1998 and
1997........................................................ F-3
(iii) Consolidated Statements of Operations for the years ended
October 31, 1998, 1997 and 1996............................. F-4
(iv) Consolidated Statements of Changes in Shareholders' Equity
for the years ended October 31, 1998, 1997 and 1996......... F-5
(v) Consolidated Statements of Cash Flows for the years ended
October 31, 1998, 1997 and 1996............................. F-6
(vi) Notes to Consolidated Financial Statements.................. F-7 -- F-17
</TABLE>
14(A)(2) FINANCIAL STATEMENT SCHEDULES:
None.
22
<PAGE> 24
14(A)(3) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
-------
<C> <S>
2.1 -- General Partnership Agreement of TCA Cable Partners II
dated as of November 13, 1997(8)
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.(7)
4.1 -- Form of Stock Certificate.(2)
4.2 -- Rights Agreement, dated as of 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.(5)
9 -- None.
10.1 -- Asset Exchange Agreement dated January 14, 1998 between
TCA Partners and Cable One, Inc.(9)
10.2 -- First Amendment to Asset Agreement dated June 15, 1998
between TCA Cable Partners and Cable One, Inc.(9)
11 -- None.
12 -- None.
13 -- None.
16 -- Letter dated April 2, 1998 re Change in Certifying
Accountant from PricewaterhouseCoopers LLP.(6)
18 -- None.
21 -- Subsidiaries of the Registrant.(1)
22 -- None.
23.1 -- Consent of KPMG LLP.(1)
23.2 -- Consent of PricewaterhouseCoopers LLP.(1)
24 -- None.
27 -- Financial Schedule.(1)
28 -- None.
99 -- None.
</TABLE>
- ---------------
(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 by reference herein.
(3) Previously filed as an Exhibit to the Registrant's Registration Statement on
Form S-8, File No. 33-21901, and incorporated by reference herein.
(4) 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 by
reference herein.
(5) Previously filed as an exhibit to the Registrant's Form 8-K dated January
15, 1998 and incorporated by reference herein.
(6) Previously filed as an exhibit to the Registrant's Form 8-K dated March 30,
1998 and incorporated by reference herein.
(7) 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 by
reference herein.
(8) Previously filed as an exhibit to the Registrant's form 8-K dated
February 2, 1998 and incorporated by reference herein.
23
<PAGE> 25
(9) Previously filed as an exhibit to Registrant's Form 10-Q for the quarter
ended July 31, 1998 and incorporated by reference herein.
14(B) REPORTS ON FORM 8-K:
The Company filed reports on Form 8-K reporting Item 5 -- Other Events on
January 22, 1998 and Item 2 -- Acquisition or Disposition of Assets on January
27, 1998 and February 13, 1998; and Item 4 -- Changes in the Registrant's
Certifying Accountant on April 2, 1998.
24
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
TCA Cable TV, Inc.
We have audited the 1998 consolidated financial statements of TCA Cable TV,
Inc. and Subsidiaries as listed in item 14(a) of this Form 10-K. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of TCA Cable TV,
Inc. and Subsidiaries as of October 31, 1998 and the consolidated results of
their operations and their cash flows for the year ended October 31, 1998, in
conformity with generally accepted accounting principles.
KPMG LLP
Dallas, Texas
December 18, 1998
F-1
<PAGE> 27
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
TCA Cable TV, Inc.
We have audited the consolidated financial statements of TCA Cable TV, Inc.
and Subsidiaries as of October 31, 1997 and the related consolidated statements
of operations, changes in shareholders' equity and cash flows for each of the
two years in the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of TCA Cable TV,
Inc. and Subsidiaries as of October 31, 1997, and the consolidated results of
their operations and their cash flows for each of the two years in the period
then ended, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND, L.L.P.
Dallas, Texas
January 15, 1998
F-2
<PAGE> 28
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
-------------- -------------
<S> <C> <C>
Cash........................................................ $ 5,763,140 $ 3,270,190
-------------- -------------
Accounts receivable, customers.............................. 18,929,089 15,852,757
-------------- -------------
Accounts receivable, other.................................. 1,737,397 1,017,070
-------------- -------------
Property, plant and equipment, at cost:
Land...................................................... 5,241,470 4,110,347
Distribution systems...................................... 444,642,934 380,864,913
Transportation equipment.................................. 16,992,631 11,277,388
Other..................................................... 49,611,572 40,994,072
-------------- -------------
516,488,607 437,246,720
Less accumulated depreciation............................. (217,293,618) (208,416,640)
-------------- -------------
299,194,989 228,830,080
-------------- -------------
Other assets:
Intangibles, net of accumulated amortization of
$117,552,728 and $98,669,961, respectively............. 731,796,648 464,602,414
Prepaid expenses and other assets......................... 13,351,150 8,781,388
-------------- -------------
745,147,798 473,383,802
-------------- -------------
$1,070,772,413 $ 722,353,899
============== =============
LIABILITIES
Accounts payable............................................ $ 15,030,913 $ 12,047,781
Accrued expenses............................................ 30,639,397 23,653,545
Subscriber advance payments................................. 2,530,559 3,522,240
Income tax payable.......................................... 1,225,506 1,221,579
Deferred income taxes....................................... 83,180,000 71,580,000
Debt........................................................ 552,016,193 317,025,181
-------------- -------------
684,622,568 429,050,326
-------------- -------------
Redeemable minority interest................................ 192,687,542 122,636,878
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; 50,101,543 and 49,982,096
shares issued, respectively............................... 5,010,154 2,499,105
Additional paid-in capital.................................. 54,823,338 51,845,522
Retained earnings........................................... 143,138,112 119,108,443
-------------- -------------
202,971,604 173,453,070
Less treasury stock at cost, 482,516 and 226,000 common
shares, respectively...................................... (9,509,301) (2,786,375)
-------------- -------------
193,462,303 170,666,695
-------------- -------------
$1,070,772,413 $ 722,353,899
============== =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 29
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues........................................... $385,736,783 $307,501,312 $253,308,282
Operating expenses:
Salaries, wages and benefits..................... 69,205,030 56,489,396 43,581,967
Programming and non-cable direct costs........... 103,720,764 81,010,410 61,792,409
Other operating expenses......................... 13,415,570 10,307,048 8,443,728
Selling, general and administrative.............. 30,716,703 23,817,927 19,978,765
Depreciation and amortization.................... 56,386,834 44,255,420 37,523,989
------------ ------------ ------------
273,444,901 215,880,201 171,320,858
------------ ------------ ------------
Operating income................................. 112,291,882 91,621,111 81,987,424
Other income....................................... 1,001,868 389,768 332,891
Interest expense................................... (34,052,395) (22,182,337) (21,932,562)
Minority interest.................................. (9,550,664) (7,088,633) (3,248,245)
------------ ------------ ------------
Income before income taxes....................... 69,690,691 62,739,909 57,139,508
------------ ------------ ------------
Provision for income taxes:
Current.......................................... 15,600,000 12,600,000 10,800,000
Deferred......................................... 11,600,000 12,000,000 11,400,000
------------ ------------ ------------
27,200,000 24,600,000 22,200,000
------------ ------------ ------------
Net Income......................................... $ 42,490,691 $ 38,139,909 $ 34,939,508
============ ============ ============
Basic earnings per common share.................... $ 0.85 $ 0.77 $ 0.70
============ ============ ============
Diluted earnings per common share.................. $ 0.84 $ 0.77 $ 0.70
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 30
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK ISSUED ADDITIONAL
----------------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK
---------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1995.... 49,564,242 $2,478,212 $43,704,988 $ 75,768,342 $(3,803,754)
Net income................. 34,939,508
Issuance of common stock --
acquisition............. 213,678 10,684 5,285,562 2,703,754
Issuance of common stock --
other................... 53,512 2,676 747,876
Stock options exercised.... 32,430 1,621 151,767
Amortization of warrants
(Note 5)................ 93,900
Cash dividends at $.28 per
share................... (13,846,432)
Treasury stock purchased... (1,906,375)
---------- ---------- ----------- ------------ -----------
Balance, October 31, 1996.... 49,863,862 $2,493,193 $49,984,093 $ 96,861,418 $(3,006,375)
Net income................. 38,139,909
Issuance of common stock in
connection with an
acquisition............. 160,000 220,000
Other issuances of common
stock................... 64,030 3,202 1,071,843
Stock options exercised.... 54,204 2,710 441,786
Amortization of warrants
(Note 5)................ 187,800
Cash dividends at $.32 per
share................... (15,892,884)
---------- ---------- ----------- ------------ -----------
Balance, October 31, 1997.... 49,982,096 $2,499,105 $51,845,522 $119,108,443 $(2,786,375)
Net income................. 42,490,691
Purchase of treasury
stock................... (7,146,250)
Issuance of treasury stock
in connection with an
acquisition............. 538,776 423,324
Other issuances of common
stock................... 55,927 3,431 1,457,464
Stock options exercised.... 63,520 3,226 793,776
Amortization of warrants
(Note 5)................ 187,800
Cash dividends at $.32 per
share................... (15,956,630)
Common stock split effected
in the form of a
dividend................ 2,504,392 (2,504,392)
---------- ---------- ----------- ------------ -----------
Balance, October 31, 1998.... 50,101,543 $5,010,154 $54,823,338 $143,138,112 $(9,509,301)
========== ========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 31
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 42,490,691 $ 38,139,909 $ 34,939,508
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense........................ 36,503,898 30,193,797 25,464,954
Amortization expense........................ 19,882,936 14,061,623 12,059,035
Deferred income taxes....................... 11,600,000 12,000,000 11,400,000
(Gain) loss on sale of assets............... (1,001,868) 127,288 (72,497)
Share of (earnings) losses of affiliates.... (366,235) 385,144
Minority interest in earnings............... 9,550,664 7,088,633 3,248,245
Employee stock bonus........................ 270,312 163,125 138,750
Stock warrant amortization.................. 187,800 187,800 93,900
Contribution of common stock to retirement
plan...................................... 1,190,583 911,920 611,803
Change in prepaid expenses.................. 6,135,050 (706,624) 370,472
Change accounts receivable, customers....... (3,076,332) (3,444,466) (4,434,332)
Change in accounts receivable, other........ (720,327) (350,113) 212,311
Change in income tax payable................ 3,927 471,879 (69,403)
Change in subscriber advance payments....... (991,681) (1,387,696) 1,053,574
Change in accrued expenses.................. 6,985,852 3,860,148 (524,001)
Change in accounts payable.................. 2,983,132 (89,434) 5,640,808
------------- ------------- -------------
Net cash provided by operating activities... 131,994,637 100,861,554 90,518,271
------------- ------------- -------------
Cash flows from investing activities:
Payments for purchases of companies and CATV
systems..................................... (253,494,896) (41,209,854) (78,108,502)
Capital expenditures........................... (75,714,408) (51,762,673) (45,902,219)
Other.......................................... (500,000) (1,000,000)
Distributions from affiliates.................. 400,000
Proceeds from sales of assets.................. 4,327,295 748,510 150,510
------------- ------------- -------------
Net cash used in investing activities....... (325,382,009) (91,824,017) (124,860,211)
------------- ------------- -------------
Cash flows from financing activities:
Borrowings of term debt........................ 673,699,999 108,899,990 157,582,679
Repayments of term debt........................ (438,708,987) (106,367,392) (105,303,151)
Debt issuance costs............................ (10,204,812)
Treasury stock purchased....................... (7,146,250) (1,906,375)
Proceeds from stock options exercised.......... 797,002 444,496 153,388
Partnership capital contributions.............. 10,275,000 3,175,000
Partnership distributions...................... (6,600,000) (6,600,000) (3,300,000)
Dividends paid................................. (15,956,630) (15,892,884) (13,846,432)
------------- ------------- -------------
Net cash provided by (used in) financing
activities................................ 195,880,322 (9,240,790) 36,555,109
------------- ------------- -------------
Net increase (decrease) in cash.................. 2,492,950 (203,253) 2,213,169
Cash at beginning of year........................ 3,270,190 3,473,443 1,260,274
------------- ------------- -------------
Cash at end of year.............................. $ 5,763,140 $ 3,270,190 $ 3,473,443
============= ============= =============
Supplemental Cash Flow Information:
Interest paid.................................. $ 28,348,634 $ 22,459,853 $ 21,694,203
============= ============= =============
Income taxes paid.............................. $ 14,267,450 $ 10,376,712 $ 10,869,403
============= ============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 32
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF FINANCIAL STATEMENT PRESENTATION:
TCA Cable TV, Inc. (the "Company" or "TCA") owns and operates cable
television ("CATV") systems in non-urban areas in Arkansas, Idaho, Louisiana,
Mississippi, New Mexico, Oklahoma and Texas. TCA is also a cable advertising
insertion provider serving the cable television industry throughout the United
States and has begun offering high-speed Internet access in Texas during the
year ended October 31, 1998.
The consolidated financial statements include the accounts of all
wholly-owned subsidiaries of the Company. Beginning May 1996, the consolidated
financial statements also include the accounts of TCA Cable Partners, a
partnership that is owned 75% by TCA and 25% by DR Partners, a division of
Stephens Group, Inc. Effective February 1998, the consolidated financial
statements include the accounts of TCA Cable Partners II, a partnership that is
owned 80% by TCA and 20% by TCI American Cable Holdings IV, L.P., an affiliate
of Tele-Communications, Inc.
All significant intercompany transactions have been eliminated in
consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Property, Plant and Equipment:
Depreciation of property, plant and equipment is computed using the
straight-line method over the estimated useful lives of the related assets as
follows:
<TABLE>
<S> <C>
Distribution systems........................................ 5-15 years
Transportation equipment.................................... 5 years
Buildings and other......................................... 5-32 years
</TABLE>
Maintenance and repair costs are charged to expense as incurred. Major
replacements and betterments are capitalized. Upon sale or retirement, the cost
and accumulated depreciation applicable to the asset is written off and the
resulting gain or loss is reflected in income.
Intangibles:
Intangible assets including franchises, non-compete agreements and goodwill
are recorded at cost. Intangible assets are amortized on a straight-line basis
over the expected useful lives of the assets, which range from 5 to 40 years.
Goodwill represents the excess of the cost of the acquisition over the fair
value of the net assets acquired and is being amortized on a straight-line basis
over 40 years. At each balance sheet date, management assesses whether there has
been a permanent impairment in the value of goodwill by considering current
operating results, estimated non discounted future cash flows, trends and
prospects.
Other Assets:
Debt issuance costs are amortized to interest expense using the interest
method over the terms of the related debt. Net debt issuance costs are
approximately $10.5 million and $0.9 million at October 31, 1998 and 1997,
respectively.
Revenue Recognition:
The Company recognizes cable television revenue as services are provided to
subscribers. Advertising revenues are recognized when commercials are broadcast.
F-7
<PAGE> 33
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes:
The Company and its subsidiaries file a consolidated federal income tax
return. The Company utilizes an asset and liability approach for financial
accounting and reporting for income taxes in accordance with Statement on
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Earnings Per Share:
During fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS No. 128 requires the
presentation of basic and diluted earnings per share. Basic earnings per share
is computed by dividing net income by the weighted average number of common
shares outstanding during the period. The weighted average number of common
shares outstanding was 49,832,928 shares for 1998, 49,671,863 shares for 1997
and 49,435,585 shares for 1996. Diluted earnings per share is computed by
dividing net income by the weighted average number of common shares and common
stock equivalents for stock options outstanding during the period. The weighted
average number of common shares and common stock equivalents outstanding was
50,272,847 shares for 1998, 49,833,151 shares for 1997 and 49,497,959 shares for
1996.
All share and per share data included in the accompanying statements and
related notes have been adjusted retroactively for a two-for-one stock split
effective July 15, 1998.
Treasury Stock:
During fiscal 1998, pursuant to authorization by the Board of Directors and
in accordance with applicable securities regulations, the Company repurchased
295,000 shares of its common stock at a cost of $7.1 million. The repurchased
common stock will be used for acquisitions and other corporate purposes. The
repurchased common stock is reflected as a reduction of shareholders' equity.
Stock Compensation:
The Company accounts for employee stock options under the provisions of APB
Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations and has adopted the "disclosure only" alternative described in
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which requires pro forma disclosure of compensation
expense using a fair value based method of accounting for stock based
compensation plans.
Use of Estimates:
The preparation of the consolidated 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 and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications:
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year presentation.
Concentration of Credit Risk:
The Company maintains cash balances at several financial institutions.
During the year, these balances may exceed federally insured amounts.
F-8
<PAGE> 34
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INTANGIBLE ASSETS:
Intangible assets consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
----------------------------
1998 1997
------------- ------------
<S> <C> <C>
Covenants not to compete................................ $ 38,221,062 $ 38,046,463
Franchises.............................................. 146,207,406 145,192,565
Goodwill................................................ 664,920,908 380,033,347
------------- ------------
849,349,376 563,272,375
Less: Accumulated amortization.......................... (117,552,728) (98,669,961)
------------- ------------
$ 731,796,648 $464,602,414
============= ============
</TABLE>
4. DEBT:
Debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Notes payable to three companies payable in semiannual
installments beginning February 1993, due August 1999,
bearing interest at 9.0%............................... $ 12,000,000 $ 24,000,000
Notes payable to five insurance companies payable in
annual installments beginning June 1999, through June
2005, bearing interest at 7.26%........................ 100,000,000 100,000,000
Bonds due February 1, 2028. Interest payable semiannually
on February 1 and August 1 each year beginning August
1, 1998, bearing interest at 6.53%..................... 200,000,000
Revolving bank credit, terminated January 31, 1998, with
interest at prime or LIBOR plus an applicable margin,
unused portion of $30,000,000 as of October 31, 1997,
with a commitment fee of 1/4% per annum on the unused
portion(a)............................................. 170,000,000
Revolving bank credit, terminating June 1999, with
interest at prime or LIBOR plus an applicable margin,
unused portion of $2,000,000 as of October 31, 1998 and
1997, respectively, with no commitment fees(a)......... 38,000,000 23,000,000
Revolving bank credit, terminating January 31, 2003, with
interest at prime or LIBOR plus an applicable margin,
unused portion of $148,000,000 as of October 31, 1998,
with a commitment fee of .20% per annum on the unused
portion(a)............................................. 202,000,000
Other.................................................... 16,193 25,181
------------ ------------
$552,016,193 $317,025,181
============ ============
</TABLE>
- ---------------
(a) The weighted average interest rate on the Company's revolving bank credit
agreements at October 31, 1998 and 1997 was 6.14% and 6.39%, respectively.
The Company's revolving bank credit agreements and the term loan agreements
contain restrictive covenants including minimum cash flow ratios. Under these
covenants, the Company's dividends, capital expenditures and fixed principal
payments could also be limited. The Company has obtained a waiver of non-
compliance as of October 31, 1998 relating to the fixed charges coverage
covenant on its notes payable due
F-9
<PAGE> 35
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
August 1999 and June 2005. The Company may be in noncompliance under these notes
in future periods. The Company believes it can obtain waivers of noncompliance
as needed.
Scheduled maturities of term debt at October 31, 1998, are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 64,295,643
2000........................................................ 14,291,978
2001........................................................ 14,285,714
2002........................................................ 14,285,714
2003........................................................ 216,285,714
Thereafter.................................................. 228,571,430
------------
$552,016,193
============
</TABLE>
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 due February 1, 2028 with a coupon of 6.53% to
finance the TCI Transaction (Note 8). In connection with this debt offering, the
Company entered into treasury lock transactions with a notional amount totaling
$100 million in August 1997 (the "Treasury Locks"). The Treasury Locks were
designated as a hedge against interest rate changes prior to the closing of the
debt offering. At October 31, 1997, the Company's liability associated with the
Treasury Locks approximated $5.1 million as result of declining interest rates.
This liability and the related asset were recorded in accrued liabilities and
other assets, respectively, at October 31, 1997 in the accompanying consolidated
balance sheet. In January 1998, the Treasury Locks were terminated at a cost of
$7.9 million. The cost, which is classified as a debt issuance cost in other
assets in the accompanying balance sheet, is being amortized over the term of
the public debt as an interest rate yield adjustment.
5. TRANSACTIONS WITH AFFILIATES:
TCA Management Company performs all accounting and management services for
two CATV systems owned by affiliated companies (the "affiliated companies").
Revenues received by TCA Management Company from the affiliated companies (which
equal an expense reimbursement plus a profit) are included in revenues and
related expenses are included in operating expenses. These amounts are not
material.
The Company leases its headquarters building from a company partially owned
by an officer and director of TCA. The annual lease expense was $318,515 for
1998, 1997 and 1996.
The Company purchased distribution system construction services from a
partnership partially owned by a director of the Company. During 1997 and 1996,
transactions with the partnership totaled $7.9 million and $7.6 million, all of
which were capitalized. Effective June 1, 1997, this partnership was purchased
and merged with a corporation 100% owned by the Company.
On December 31, 1996, TCA Communications Inc. ("TCAC"), a 50% owned
affiliate of the Company, distributed certain assets of TCAC primarily related
to its long distance operations and Internet operations in East Texas to
Lufkin-Conroe Telecommunications Corporation ("LCT") in exchange for LCT's 50%
ownership interest in TCAC. Effective January 1, 1997, TCAC became a
wholly-owned subsidiary of TCA which provides long distance and Internet
services in West Texas, New Mexico, and Arkansas.
On May 1, 1996, the Company issued warrants to purchase 600,000 shares of
TCA Common Stock at $15 per share to Stephens Group, Inc. (see Note 8) in
exchange for financial advisory services to be provided over a ten year period.
The warrants were valued at $1,878,000 at the issuance date using the
Black-Scholes pricing model. Fifty percent of the warrants are exercisable five
years from the date of issuance and the remaining 50% are exercisable ten years
from the date of issuance. The value assigned to the warrants is being amortized
over a ten year period with a corresponding increase in additional paid-in
capital.
F-10
<PAGE> 36
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. CONTINGENCIES AND COMMITMENTS:
Annual rental expense for utility poles and tower sites for the years ended
October 31, 1998, 1997 and 1996 was approximately $3.3 million, $2.3 million and
$2.1 million, respectively.
Rental expense for all other rental agreements for office equipment and
buildings for the years ended October 31, 1998, 1997 and 1996 was approximately
$1.8 million, $1.5 million, and $1.1 million, respectively.
Various lawsuits are pending against the Company and its subsidiaries. The
Company intends to vigorously contest the liability in all matters brought
against the Company. While no assurance can be given as to the ultimate outcome,
management believes the litigation will not have a material adverse effect on
the results of operations or financial position of the Company.
The Telecommunications Act of 1996 was signed into law on February 8, 1996.
This law alters the regulatory structure governing the nation's
telecommunications providers. It removes barriers to competition in both the
cable television market and the local telephone market. Among other things, it
reduces the scope of cable regulation. The Company's management believes this
legislation may have a significant impact on its future operations and its
competitive environment.
7. INCOME TAXES:
The following is a reconciliation of taxes computed at the statutory
federal income tax rate with the provision for income taxes in the consolidated
financial statements for each of the years ended October 31:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Income before taxes............................ $69,690,691 $62,739,909 $57,139,508
=========== =========== ===========
Statutory federal rate......................... 35.0% 35.0% 35.0%
Provision for federal income taxes at the
statutory federal rate....................... $24,391,742 $21,958,968 $19,998,828
State income taxes, net of federal benefit..... 1,851,853 2,138,966 1,988,949
Amortization of goodwill....................... 236,605 236,605 184,610
Other.......................................... 719,800 265,461 27,613
----------- ----------- -----------
Provision for income taxes..................... $27,200,000 $24,600,000 $22,200,000
=========== =========== ===========
</TABLE>
The deferred income taxes liability balance of $83,180,000 and $71,580,000
at October 31, 1998 and 1997, respectively, is the tax effect of temporary
differences between the tax bases of the Company's property, plant and equipment
and intangibles and their bases for financial reporting purposes. Other
temporary differences are not significant.
8. ACQUISITIONS AND DISPOSITIONS:
On September 1, 1998, the Company acquired the assets of the cable
television system serving approximately 2,500 subscribers in Sallisaw, Oklahoma.
The acquisition was made through TCA Cable Partners, the TCA managed partnership
with DR Partners ("Donrey"), a division of Stephens Group, Inc. The system was
acquired from Tele-Communications, Inc. ("TCI"). The cost of the acquisition was
approximately $3.5 million, $3.1 million of which related to acquired
intangibles. The acquisition was funded by the Company's bank line of credit.
On June 15, 1998, the Company closed on a transaction to exchange the
assets of selected systems owned by TCA Cable Partners for the assets of certain
systems owned by Cable One, Inc. ("Cable One"), a subsidiary of The Washington
Post Company. The Company exchanged its operations in Bartlesville and Tonkawa,
Oklahoma for Cable One's operations in Lufkin, Texas and surrounding areas. The
exchange in
F-11
<PAGE> 37
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
total affects approximately 28,000 TCA and Cable One subscribers. The Company
also agreed to manage Cable One's Livingston and Corrigan, Texas operations.
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 for this acquisition.
On February 2, 1998 the Company formed a partnership, TCA Cable Partners II
( the "TCI Transaction") with TCI American Cable Holdings IV, L.P. (the "TCI
Affiliate"), an affiliate of TCI. 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 systems in North
Texas and Western Louisiana serving approximately 150,000 subscribers and $249.7
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. Upon closing The TCI Transaction, the Company
extended a loan to TCA Cable Partners II in the aggregate amount of the
unsecured debt of TCA Cable Partners II. TCA Cable Partners II in turn used the
proceeds of the loan to retire such debt. TCA Cable Partners II is consolidated
in the financial statements of TCA and 20% of the estimated fair value of TCA
Cable Partners II net assets were 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 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 is managed by the
Company.
On December 15, 1997, the Company sold the assets of its long distance
business to NTS Communications, Inc. The sales price was $4.1 million resulting
in a gain of approximately $0.7 million.
On June 1, 1997, the Company acquired the remaining 60% of its previously
40% owned affiliates M.T. Associates, Inc. ("Media") and Media Technologies,
Ltd. ("Media Tech"). The cost of the acquisition was $932,000. Media is a
wholly-owned subsidiary of the Company engaged in the construction of cable
television plant. All of Media's revenue for 1997 were derived from distribution
system construction services provided to the Company.
On April 2, 1997 the Company acquired the assets of the cable television
system serving approximately 21,000 subscribers in Jonesboro, Arkansas and
surrounding areas. The acquisition was made through TCA Cable Partners. The
system was acquired from East Arkansas Cablevision, Inc. The cost of the
acquisition was approximately $41 million, $35 million of which related to
acquired intangibles. The acquisition was funded by the Company's bank line of
credit and a capital contribution of $10.3 million by Donrey.
On October 2, 1996, the Company, through TCA Cable Partners, completed an
asset exchange with Communications Services, Inc. ("CSI"), a wholly-owned
subsidiary of TCI Communications, Inc. TCA Cable Partners acquired the cable
television system operating in Ft. Smith, Arkansas and surrounding areas in
exchange for its Vallejo, California system.
On September 11, 1996, the Company, through TCA Cable Partners, purchased
the assets of the cable television system serving approximately 8,100
subscribers in Van Buren, Alma and Barling, Arkansas. The system was acquired
from subsidiaries of Classic Cable, Inc. The cost of the acquisition was
approximately $12.7 million, $10 million of which relates to acquired
intangibles. The system is managed by the Company's Ft. Smith, Arkansas system.
The acquisition was funded by the Company's bank line of credit.
F-12
<PAGE> 38
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On May 1, 1996, TCA acquired five additional cable television systems
through TCA Cable Partners. The partnership was originally comprised of 22
systems in Arkansas and Mississippi contributed by TCA and five systems in
Arkansas, Oklahoma and California contributed by Donrey. The partnership served
approximately 240,000 subscribers at closing. The acquisition of the Donrey
systems in exchange for a 25% interest in the partnership was valued at $109
million, $94 million of which related to acquired intangibles. The value of the
Donrey systems was recorded as redeemable minority interest at the acquisition
date, as Donrey has the right to require TCA to purchase their 25% partnership
interest at fair market value in January 2004. TCA has a corresponding right to
require Donrey to sell their 25% partnership interest to TCA at fair market
value in January 2004. In accordance with the partnership agreement, free cash
flow, as defined, will be distributed to the partners in each year. Total
partnership distributions for fiscal 1998, 1997 and 1996 were $26.4 million,
$26.4 million and $13.2 million, respectively, of which $6.6 million, $6.6
million and $3.3 million was distributed to Donrey during 1998, 1997 and 1996,
respectively.
Also on May 1, 1996, the Company acquired Cable One Corporation ("Cable
One"), a cable television advertising sales company based in Williamsport,
Pennsylvania. Cable One represents approximately 200 cable television systems
serving approximately 1.2 million subscribers primarily in the Northeastern
United States. The Company issued 266,667 shares of its Common Stock (159,828
shares of which were issued from treasury), valued at $8 million at the
acquisition date, for 100% of the stock of Cable One. Acquired intangibles
accounted for approximately $6 million of the $8 million purchase price. The
Company also paid $1.8 million for a non-compete agreement. Cable One is managed
by TCA's advertising sales subsidiary VPI Communications, Inc. d/b/a CableTime.
On December 15, 1995, the Company acquired the assets of the cable
television system serving approximately 29,000 subscribers in Alexandria and
Pineville, Louisiana ("Alexandria"). TCA acquired the assets of cable television
systems in North Carolina and South Carolina from Star Cable Associates and
simultaneously exchanged them with Time Warner Entertainment -- Advance/Newhouse
Partnership for Alexandria. The cost of the acquisition was approximately $63
million, $54.9 million of which relates to acquired intangibles. The acquisition
was funded by the Company's bank line of credit.
These acquisitions were accounted for as purchases, and accordingly, the
purchase prices were allocated to tangible and intangible assets based on
estimated fair values at the dates of acquisition. The results of operations of
the acquired assets have been included in the consolidated financial statements
from the dates of acquisition.
The pro forma operating results for the fiscal 1998 and 1997 acquisitions
as though the acquisitions had been made at the beginning of fiscal 1997 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
------------------------------------
1998 1997
--------------------- ------------
<S> <C> <C>
Revenues............................................ $401,029,855 $371,642,474
Net income.......................................... 42,519,896 37,839,664
Basic earnings per share............................ 0.85 0.76
Diluted earnings per share.......................... 0.84 0.76
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisitions had been in effect for the entire periods
presented. In addition, they are not intended to be a projection of future
results and do not reflect any synergies that might be achieved from combined
operations.
9. SHAREHOLDER RIGHTS PLAN:
On January 15, 1998, the Company's Board of Directors adopted a Shareholder
Rights Plan (the "Rights Plan"). In connection with the adoption of the Rights
Plan, the Board declared a dividend of one preferred
F-13
<PAGE> 39
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
share purchase right for each outstanding share of Company common stock. Each
Right, which is not presently exercisable, entitles the holder to purchase one
one-thousandth of a share of Series A Junior Participating Preferred Stock at an
exercise price of $85. In the event that any person acquires 15 percent or more
of the outstanding shares of common stock, each holder of a Right (other than
the acquiring person or group) will be entitled to receive, upon payment of the
exercise price, that number of common stock shares having a market value equal
to two times the exercise price. The distribution of the Rights was made on
January 28, 1998, payable to shareholders of record at the close of business on
that date. The Rights will expire on January 15, 2008.
10. INCENTIVE STOCK OPTION PLAN:
The Company, in fiscal years 1998, 1997 and 1996, granted stock options and
issued shares of common stock under the TCA Cable TV, Inc. Amended and Restated
Incentive Stock Option Plan and the 1996 Non-Employee Directors' Stock Option
Plan (collectively the "Plans") to employees and directors.
All of the options granted to the employees and directors have an exercise
price equal to or greater than the fair market value of the stock at grant date
and become exercisable beginning on the first anniversary of the date of grant.
The options granted to non-employee directors have a contractual term of 10
years and vest immediately on the date of grant. The options granted to
employees have a contractual term of 7 years and vest over four years at the
rate of 25% per year beginning on the first anniversary date of the grant.
A summary of the Company's stock options as of October 31, 1998, 1997 and
1996, and the changes during the years ended on those dates is presented below:
<TABLE>
<CAPTION>
STOCK OPTIONS
------------------------------------------------------------------------
1998 1997 1996
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
# OF SHARES AVERAGE # OF SHARES AVERAGE # OF SHARES AVERAGE
UNDERLYING EXERCISE UNDERLYING EXERCISE UNDERLYING EXERCISE
OPTIONS PRICES OPTIONS PRICES OPTIONS PRICES
----------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
the year.................... 489,644 $13.44 434,500 $12.53 356,718 $11.46
Granted....................... 776,000 29.23 144,000 15.17 135,000 14.04
Exercised..................... (70,490) 14.03 (88,856) 11.79 (57,218) 9.50
Forfeited..................... (31,250) 14.66 -- -- -- --
Expired....................... -- -- -- -- -- --
--------- ------ ------- ------ ------- ------
Outstanding at end of year.... 1,163,904 $23.63 489,644 $13.44 434,500 $12.52
========= ====== ======= ====== ======= ======
Exercisable at end of year.... 323,754 15.15 243,844 13.28 126,400 11.44
========= ====== ======= ====== ======= ======
Weighted-average fair value of
options granted............. -- $ 8.02 -- $ 3.46 $ 3.14
====== ====== ======
</TABLE>
Pursuant to SFAS 123, the fair value of each stock option granted is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions for grants in fiscal 1998, 1997 and
1996: dividend yield of 1.07%; risk free interest rate 5.28%; expected life of
4.9 years; and a volatility of 23.0%.
F-14
<PAGE> 40
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
at October 31, 1998:
<TABLE>
<CAPTION>
TOTAL OPTIONS OUTSTANDING TOTAL OPTIONS EXERCISED
----------------------------------------------- ----------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 9.08-12.11 43,724 1.4 years $10.58 43,724 10.58
12.11-15.14 299,180 3.7 years 13.28 180,030 12.98
15.14-30.28 821,000 6.8 years 28.28 100,000 21.39
--------- -------
1,163,904 323,754
========= =======
</TABLE>
Had the compensation cost for the Company's stock-based compensation plans
been determined consistent with the requirements of SFAS 123, the Company's net
income and earnings per common share for 1998, 1997 and 1996 would approximate
the pro forma amounts below:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1998 1998 1997 1997 1996 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
SFAS 123 Charge...... -- $ 1,082,196 -- $ 448,452 -- $ 94,000
APB 25 Charge........ -- -- -- -- -- --
Net income........... $42,490,691 $41,833,798 $38,139,909 $37,869,099 $34,939,508 $34,845,508
Basic earnings per
common share....... $ 0.85 $ 0.84 $ 0.77 $ 0.76 $ 0.71 $ 0.71
Diluted earnings per
common share....... $ 0.84 $ 0.83 $ 0.77 $ 0.76 $ 0.71 $ 0.71
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards granted prior to
the 1996 fiscal year.
11. DEFERRED SAVINGS AND RETIREMENT PLAN:
Effective September 1, 1983, the Company and several of its affiliates
adopted a deferred savings and retirement plan covering all employees with at
least one year of service.
Employees may elect to contribute a portion of their compensation to the
plan. The Company may contribute up to an amount equal to the employees'
contributions but not in excess of three percent of the employees' earnings. The
Company anticipates that all or substantially all of their discretionary and
matching contributions will consist of registered shares of common stock of the
Company. The Company's contributions for the years ended October 31, 1998, 1997
and 1996 were $1,190,583, $911,920 and $611,803, respectively.
F-15
<PAGE> 41
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------
JANUARY 31 APRIL 30 JULY 31 OCTOBER 31
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Total revenues:
1998................................. $80,874,131 $96,580,112 $101,541,500 $106,741,040
1997................................. 73,489,288 74,983,934 79,181,508 79,846,582
Operating income:
1998................................. 23,621,527 28,772,961 28,044,483 31,852,911
1997................................. 22,813,374 21,914,993 23,479,678 23,413,066
Net income:
1998................................. 10,665,203 9,920,757 9,730,282 12,174,449
1997................................. 9,686,768 9,200,564 9,484,822 9,767,755
Basic earnings per common share:
1998................................. $ 0.21 $ 0.20 $ 0.20 $ 0.24
1997................................. $ 0.19 $ 0.19 $ 0.19 $ 0.20
Diluted earnings per common share:
1998................................. $ 0.21 $ 0.20 $ 0.19 $ 0.24
1997................................. $ 0.19 $ 0.19 $ 0.19 $ 0.20
</TABLE>
13. SEGMENT INFORMATION:
The Company operates primarily in the cable television industry. The
Company's wholly-owned subsidiary, VPI Communications, Inc. d/b/a CableTime,
provides cable advertising sales for the Company and third parties.
<TABLE>
<CAPTION>
ADVERTISING
CABLE INSERTION CONSOLIDATED
-------------- ----------- --------------
<S> <C> <C> <C>
YEAR ENDED OCTOBER 31, 1998
Revenues........................................ $ 316,535,922 $69,200,861 $ 385,736,783
Operating income................................ 102,157,851 10,134,031 112,291,882
Depreciation and amortization................... 53,797,113 2,589,721 56,386,834
Capital expenditures, including acquisitions.... 102,062,235 7,510,876 109,573,111
Identifiable assets............................. 1,032,977,765 37,794,648 1,070,772,413
YEAR ENDED OCTOBER 31, 1997
Revenues........................................ $ 253,812,951 $53,688,361 $ 307,501,312
Operating income................................ 84,718,185 6,902,926 91,621,111
Depreciation and amortization................... 42,280,074 1,975,346 44,255,420
Capital expenditures, including acquisitions.... 58,339,790 3,410,114 61,749,904
Identifiable assets............................. 690,348,897 32,005,002 722,353,899
YEAR ENDED OCTOBER 31, 1996
Revenues........................................ $ 218,385,752 $34,922,530 $ 253,308,282
Operating income................................ 75,899,140 6,088,284 81,987,424
Depreciation and amortization................... 36,255,472 1,268,517 37,523,989
Capital expenditures, including acquisitions.... 68,631,042 4,931,924 73,562,966
Identifiable assets............................. 635,971,570 28,025,061 663,996,631
</TABLE>
14. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of accounts receivable and accounts payable reported
in the accompanying consolidated financial statements approximate fair value due
to their short maturities.
F-16
<PAGE> 42
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amount of borrowings under the revolving bank credit
facilities approximate fair value as the outstanding borrowings bear interest at
market rates.
The fair value of the bonds is approximately $202 million at October 31,
1998 based on quoted market rates. The fair value, based on a discounted cash
flow analysis, of amounts due under the notes payable is approximately $114.5
million and $126.5 million at October 31, 1998 and 1997, respectively.
15. SUBSEQUENT EVENTS:
At the December 9, 1998 Board of Directors' Meeting, a cash dividend of
$0.08 was declared. This dividend is to holders of record on January 7, 1999,
and payable on January 21, 1999.
F-17
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
/s/ FRED R. NICHOLS
------------------------------------
Fred R. Nichols,
Chairman, Chief Executive Officer,
and President
Dated: January 22, 1999
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE POSITION DATE
--------- -------- ----
<C> <S> <C>
/s/ FRED R. NICHOLS Chairman, Chief Executive January 22, 1999
- ----------------------------------------------------- Officer, and President
Fred R. Nichols
/s/ JAMES F. ACKERMAN Director January 22, 1999
- -----------------------------------------------------
James F. Ackerman
/s/ DARRELL L. CAMPBELL Director January 22, 1999
- -----------------------------------------------------
Darrell L. Campbell
/s/ BEN R. FISCH Director January 22, 1999
- -----------------------------------------------------
Ben R. Fisch, M.D.
/s/ ROBERT B. HOLLAND, III Director January 22, 1999
- -----------------------------------------------------
Robert B. Holland, III
/s/ WAYNE J. MCKINNEY Director January 22, 1999
- -----------------------------------------------------
Wayne J. McKinney
/s/ A. W. RITER, JR. Director January 22, 1999
- -----------------------------------------------------
A. W. Riter, Jr.
/s/ RANDALL K. ROGERS Senior Vice President, January 22, 1999
- ----------------------------------------------------- Director
Randall K. Rogers
/s/ MICHAEL S. SHANNON Director January 22, 1999
- -----------------------------------------------------
Michael S. Shannon
/s/ FRED W. SMITH Director January 22, 1999
- -----------------------------------------------------
Fred W. Smith
</TABLE>
<PAGE> 44
TCA CABLE TV, INC. (REGISTRANT)
<TABLE>
<CAPTION>
SIGNATURE POSITION DATE
--------- -------- ----
<C> <S> <C>
/s/ JIMMIE F. TAYLOR Senior Vice President, Chief January 22, 1999
- ----------------------------------------------------- Financial Officer and
Jimmie F. Taylor Treasurer
/s/ SABRINA A. WARR Controller TCA Management January 22, 1999
- ----------------------------------------------------- Company
Sabrina A. Warr
</TABLE>
<PAGE> 45
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
2.1 -- General Partnership Agreement of TCA Cable Partners II
dated as of November 13, 1997(8)
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.(7)
4.1 -- Form of Stock Certificate.(2)
4.2 -- Rights Agreement, dated as of 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.(5)
9 -- None.
10.1 -- Asset Exchange Agreement dated January 14, 1998 between
TCA Partners and Cable One, Inc.(9)
10.2 -- First Amendment to Asset Agreement dated June 15, 1998
between TCA Cable Partners and Cable One, Inc.(9)
11 -- None.
12 -- None.
13 -- None.
16 -- Letter dated April 2, 1998 re Change in Certifying
Accountant from PricewaterhouseCoopers LLP.(6)
18 -- None.
21 -- Subsidiaries of the Registrant.(1)
22 -- None.
23.1 -- Consent of KPMG LLP.(1)
23.2 -- Consent of PricewaterhouseCoopers LLP.(1)
24 -- None.
27 -- Financial Schedule.(1)
28 -- None.
99 -- None.
</TABLE>
- ---------------
(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 by reference herein.
(3) Previously filed as an Exhibit to the Registrant's Registration Statement on
Form S-8, File No. 33-21901, and incorporated by reference herein.
(4) 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 by
reference herein.
(5) Previously filed as an exhibit to the Registrant's Form 8-K dated January
15, 1998 and incorporated by reference herein.
(6) Previously filed as an exhibit to the Registrant's Form 8-K dated March 30,
1998 and incorporated by reference herein.
(7) 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 by
reference herein.
<PAGE> 46
(8) Previously filed as an exhibit to the Registrant's form 8-K dated
February 2, 1998 and incorporated by reference herein.
(9) Previously filed as an exhibit to Registrant's Form 10-Q for the quarter
ended July 31, 1998 and incorporated by reference herein.
<PAGE> 1
EXHIBIT 21
Subsidiaries
TAL Financial Corporation
TCA Management Company
Teleservice Corporation of America
Texas Community Antennas, Inc.
Telecable Associates, Inc.
Sun Valley Cablevision, Inc.
VPI Communications, Inc.
TCA Communications, Inc.
M.T. Associates, Inc.
TCA Interests, L.L.C.
TCA Holdings, L.P.
TCA Interests II, Inc.
TCA Holdings II, L.P.
TCA Cable Partners
TCA Cable Partners II
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
TCA Cable TV, Inc.:
We consent to the incorporation by reference in the Registration Statements
of TCA Cable TV, Inc. on Form S-8 (File Nos. 2-82934, 2-88892, 33-21901,
33-49172, 33-33898, 33-55895, 33-61041, 333-1487, 333-26723, 333-26721 and
333-48095, 333-48783 and 33-51323) and Form S-3 (File Nos. 33-61616, 33-44289,
33-40273, 333-23541, 333-32015, No. 333-44447 and 333-51331) of our report dated
December 18, 1998, on our audit of the consolidated balance sheet of TCA Cable
TV, Inc. and Subsidiaries as of October 31, 1998, and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for the
year then ended, which report appears in the October 31, 1998 Annual Report on
Form 10-K of TCA Cable TV, Inc.
KPMG LLP
Dallas, Texas
January 28, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of TCA Cable TV, Inc. on Form S-8 (File Nos. 2-82934, 2-88892, 33-21901,
33-49172, 33-33898, 33-55895, 33-61041, 333-1487, 333-26723, 333-26721,
333-48095, 333-48783 and 33-51323) and Form S-3 (File Nos. 33-61616, 33-44289,
33-40273, 333-23541, 333-32015, 333-44447 and 333-51331) of our report dated
January 15, 1998, on our audits of the consolidated financial statements of TCA
Cable, TV, Inc. and Subsidiaries as of October 31, 1997 and for the years ended
October 31, 1997 and 1996, which report is included in this Annual Report on
Form 10-K.
PricewaterhouseCoopers LLP
Dallas, Texas
January 28, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<CASH> 5,763,140
<SECURITIES> 0
<RECEIVABLES> 18,929,089
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 516,488,607
<DEPRECIATION> 217,293,618
<TOTAL-ASSETS> 1,070,772,413
<CURRENT-LIABILITIES> 0
<BONDS> 200,000,000
0
0
<COMMON> 5,010,154
<OTHER-SE> 188,452,149
<TOTAL-LIABILITY-AND-EQUITY> 1,070,772,413
<SALES> 0
<TOTAL-REVENUES> 385,736,783
<CGS> 0
<TOTAL-COSTS> 103,720,764
<OTHER-EXPENSES> 169,724,137
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,052,395
<INCOME-PRETAX> 69,690,691
<INCOME-TAX> 27,200,000
<INCOME-CONTINUING> 42,490,691
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,490,691
<EPS-PRIMARY> 0.85
<EPS-DILUTED> 0.84
</TABLE>
