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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: April 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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COMMISSION FILE NO.: 0-11478
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TCA CABLE TV, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1798185
(State of other jurisdiction of (IRS Employer Identification Number)
Incorporation or organization)
3015 SSE LOOP 323, TYLER, TEXAS 75701
(Address of principal executive offices) (Zip Code)
(903) 595-3701
Registrant's telephone number, including area code
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK,
$.10 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
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The number of shares outstanding of the registrant's common stock as of June
10, 1999 was:
49,863,063 shares of common stock.
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TCA CABLE TV, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
PART I - FINANCIAL INFORMATION
<S> <C>
Consolidated Balance Sheets - April 30, 1999 and October 31, 1998 3
Consolidated Statements of Operations -
Three and Six months ended April 30, 1999 and 1998 4
Consolidated Statement of Shareholders' Equity -
Six months ended April 30, 1999 5
Consolidated Statements of Cash Flows -
Six months ended April 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
PART II - OTHER INFORMATION 12
SIGNATURES 13
</TABLE>
2
<PAGE> 3
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, October 31,
ASSETS 1999 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
Cash $ 3,559,866 $ 5,763,140
--------------- ---------------
Accounts receivable, customers 21,913,825 18,929,089
--------------- ---------------
Accounts receivable, other 1,865,495 1,737,397
--------------- ---------------
Income tax receivable 1,354,826 --
--------------- ---------------
Property, plant and equipment, at cost:
Land 5,329,731 5,241,470
Distribution systems 481,146,219 444,642,934
Transportation equipment 18,087,210 16,992,631
Other 55,264,839 49,611,572
--------------- ---------------
559,827,999 516,488,607
Less accumulated depreciation (237,695,426) (217,293,618)
--------------- ---------------
322,132,573 299,194,989
--------------- ---------------
Other assets:
Intangibles, net of accumulated
amortization of $128,160,421 and
$117,552,728, respectively 722,438,917 731,796,648
Prepaid expenses and other assets 15,100,358 13,351,150
--------------- ---------------
737,539,275 745,147,798
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$ 1,088,365,860 $ 1,070,772,413
=============== ===============
<CAPTION>
April 30, October 31,
LIABILITIES 1999 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
Accounts payable $ 26,784,008 $ 15,030,913
Accrued expenses 28,484,249 30,639,397
Subscriber advance payments 2,267,449 2,530,559
Income tax payable -- 1,225,506
Deferred income taxes 89,580,000 83,180,000
Debt 529,011,352 552,016,193
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676,127,058 684,622,568
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Reedemable minority interest 196,134,029 192,687,542
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; 50,172,114 and
50,101,543 shares issued, respectively 5,017,211 5,010,154
Additional paid-in capital 58,089,026 54,823,338
Retained earnings 158,887,063 143,138,112
Accumulated other comprehensive income 1,518,750 --
--------------- --------------
223,512,050 202,971,604
Less treasury stock, at cost,
314,516 and 482,516 shares, respectively (7,407,277) (9,509,301)
--------------- --------------
216,104,773 193,462,303
--------------- --------------
$ 1,088,365,860 $ 1,070,772,413
=============== ===============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE> 4
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
----------------------------------- ----------------------------------
1999 1998 1999 1998
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 106,237,590 $ 96,580,112 $ 211,635,722 $ 177,454,243
---------------- --------------- --------------- ---------------
Operating expenses:
Salaries, wages and benefits 18,868,241 16,648,307 38,045,250 31,687,907
Programming and non-cable direct costs 29,795,231 25,849,798 58,301,503 47,709,777
Other operating expenses 3,622,424 3,463,956 6,815,867 6,333,569
Selling, general and administrative 7,638,376 7,673,258 15,390,349 13,698,666
Depreciation and amortization 15,871,065 14,171,832 31,117,652 25,629,836
---------------- --------------- --------------- ---------------
75,795,337 67,807,151 149,670,621 125,059,755
---------------- --------------- --------------- ---------------
Operating income 30,442,253 28,772,961 61,965,101 52,394,488
Other income 11,541 42,627 107,379 1,128,364
Interest expense (8,769,835) (9,433,304) (18,021,138) (14,896,656)
Minority interest (2,594,076) (2,761,527) (5,346,487) (4,540,236)
---------------- --------------- --------------- ---------------
Income before income taxes 19,089,883 16,620,757 38,704,855 34,085,960
---------------- --------------- --------------- ---------------
Provision for income taxes:
Current 4,200,000 3,500,000 8,600,000 7,000,000
Deferred 3,200,000 3,200,000 6,400,000 6,500,000
---------------- --------------- --------------- ---------------
7,400,000 6,700,000 15,000,000 13,500,000
---------------- --------------- --------------- ---------------
Net Income $ 11,689,883 $ 9,920,757 $ 23,704,855 $ 20,585,960
================ =============== =============== ===============
Basic earnings per common share $ 0.24 $ 0.20 $ 0.48 $ 0.41
================ =============== =============== ===============
Diluted earnings per common share $ 0.23 $ 0.20 $ 0.47 $ 0.41
================ =============== =============== ===============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
4
<PAGE> 5
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ISSUED ADDITIONAL OTHER
------------------------- PAID-IN RETAINED TREASURY COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS STOCK INCOME
---------- ----------- ---------- ------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1998 50,101,543 $ 5,010,154 54,823,338 $ 143,138,112 $ (9,509,301)
Net income for the six months
ended April 30, 1999 23,704,855
Issuance of common stock 28,518 2,852 949,901
Issuance of treasury stock in
connection with an acquisition 2,097,976 2,102,025
Stock options exercised 42,053 4,205 123,911
Cash dividends at $.16 per share (7,955,903)
Amortization of warrants 93,900
Net unrealized gain on
available-for-sale securities $ 1,518,750
---------- ----------- ---------- ------------- ------------ -----------
Balance, April 30, 1999 50,172,114 $ 5,017,211 58,089,026 $ 158,887,064 $ (7,407,277) $ 1,518,750
========== =========== ========== ============= ============ ===========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
5
<PAGE> 6
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
April 30,
--------------------------------
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 23,704,855 $ 20,585,960
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 20,440,964 16,669,636
Amortization expense 10,676,688 8,960,200
Deferred income taxes 6,400,000 6,500,000
Gain on sale of assets (85,246) (1,062,268)
Minority interest in earnings 5,346,487 4,540,236
Stock warrant amortization 93,900 93,900
Contribution of common stock to retirement plan 675,879 554,804
Employee stock bonus 276,875 270,313
Changes in operating assets and liabilities:
Accounts receivable, customers (2,984,736) (2,469,601)
Accounts receivable, other (128,098) (1,376,575)
Prepaid expenses and other assets (222,658) (1,234,266)
Income tax receivable (1,354,826) (1,364,960)
Accounts payable 11,753,095 1,480,909
Subscriber advance payments (263,110) 1,837,302
Income tax payable (1,225,506)
Accrued expenses (2,155,148) 7,997,802
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Net cash provided by operating activities 70,949,415 61,983,392
------------- -------------
Cash flows from investing activities:
Cash paid for acquisitions (249,890,220)
Capital expenditures (43,216,915) (26,540,283)
Proceeds from sale of assets 2,804,654 3,884,104
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Net cash used in investing activities (40,412,261) (272,546,399)
------------- -------------
Cash flows from financing activities:
Borrowings of debt 40,500,000 605,599,999
Repayments of debt (63,504,841) (373,604,382)
Debt issuance costs (7,800) (10,195,447)
Proceeds from stock options exercised 128,116 747,216
Partnership capital contributions 1,400,000
Partnership distributions (3,300,000) (3,300,000)
Dividends paid (7,955,903) (7,972,259)
------------- -------------
Net cash provided by financing activities (32,740,428) 211,275,127
------------- -------------
Net increase (decrease) in cash (2,203,274) 712,120
Cash at beginning of period 5,763,140 3,270,190
------------- -------------
Cash at end of period $ 3,559,866 $ 3,982,310
============= =============
Supplemental cash flow information:
Interest paid 17,957,126 10,326,989
============= =============
Income taxes paid $ 11,180,332 8,364,960
============= =============
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
6
<PAGE> 7
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. Pursuant to the rules and regulations of the Securities and Exchange
Commission, certain financial information has been condensed and certain
footnote disclosures have been omitted. Such information and disclosures are
normally included in financial statements prepared in accordance with generally
accepted accounting principles.
These condensed financial statements should be read in conjunction with the
financial statements and notes thereto in the Company's latest report on Form
10-K.
The financial statements as of April 30, 1999 and for the three and six month
periods then ended are unaudited; however, in the opinion of management, such
statements include all adjustments (consisting solely of normal and recurring
adjustments) necessary to present fairly the financial information included
therein.
B. The consolidated statements of operations for the three and six months ended
April 30, 1999, are not necessarily indicative of the operating results to be
expected for the full year.
C. The Company adopted SFAS No. 128, "Earnings per Share" in November 1997.
This statement which replaces APB Opinion No. 15, "Earnings per Share"
establishes simplified accounting standards for computing earnings per share
("EPS") and makes them comparable to international EPS standards.
Basic EPS is computed by dividing net income by the weighted-average number of
common shares outstanding during each period of 49,735,583 shares and
49,819,232 shares for 1999 and 1998, respectively. Diluted EPS is computed by
dividing net income by the weighted-average number of common shares and common
stock equivalents outstanding during the period of 50,641,918 and 50,299,575
for 1999 and 1998, respectively. Common stock equivalents are comprised of
warrants to purchase 394,097 and 264,430 common equivalent shares during the
periods ended April 30, 1999 and 1998, respectively, and options to purchase
512,238 and 215,913 common equivalent shares during the periods ended April 30,
1999 and 1998, respectively. All prior-period EPS amounts presented conform to
the provisions of SFAS No. 128.
D. In June 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income."
SFAS 130 establishes standards for reporting comprehensive income and its
components in a financial statement. Comprehensive income as defined includes
all changes in equity (net assets) during a period from non-owner sources.
Examples of items to be included in comprehensive income, which are excluded
from net income, include foreign currency translation adjustment and unrealized
gain/loss on available for sale securities. For the three and six month period
ended April 30, 1999, the difference between net income, as reported, and
comprehensive income of $11,683,632 and $25,223,604, respectively, relates
solely to the decrease in the unrealized gain on the available for sale
securities of $6,250 during the three months ended April 30, 1999, and the net
increase in the unrealized gain on available for sale securities of $1,518,250
for the six months ended April 30, 1999. There were no differences between
comprehensive income and net income, as reported, during the three and six
months ended April 30, 1998.
E. On May 11, 1999, the Company and Cox Communications, Inc. ("Cox") entered
into an agreement and plan of merger, whereby the Company will be merged into a
subsidiary of Cox. As a result of the merger, each outstanding share of Company
common stock will be converted into the right to receive $31.25 in cash and
.7418 shares of Cox Class A common stock. Each Company shareholder can elect to
receive $62.50 in cash per Company share or 1.4836 shares of Cox Class A common
stock per Company share. In the event that a shareholder elects to receive
$62.50 per TCA share in cash or 1.4836 shares of Cox Class A common stock per
TCA share, such shareholders election is subject to proration in the event that
such elections would otherwise result in the payment of more than approximately
$1.6 billion in cash or the issuance of more than approximately 38.5 million
shares of Cox Class A common stock to Company shareholders. The closing of the
merger is subject to certain conditions, including the approval of the common
stockholders of the Company and the receipt of all necessary regulatory
approvals.
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THREE MONTHS ENDED APRIL 30, 1999 COMPARED TO THREE MONTHS ENDED APRIL 30,
1998.
REVENUES. Revenues increased by $9.7 million, or 10.0%, during the three
months ended April 30, 1999 compared to the three months ended April 30, 1998.
Management attributes approximately $5.6 million, or 57.3%, of the revenue
increase to internal growth in cable systems, $3.2 million, or 33.2%, to
internal growth in the Company's advertising insertion business and $0.9
million, or 9.5%, to growth in the Company's Internet access business.
Revenues from basic and expanded basic cable television subscriptions
increased $5.2 million, or 8.2%, during the three months ended April 30, 1999
compared to the three months ended April 30, 1998. As a percentage of revenues,
revenues from basic and expanded basic subscriptions decreased to 64.3% of
revenues for 1999 compared to 65.3% for 1998. Revenues from premium
subscriptions decreased $0.4 million, or 3.2%, during 1999 compared to 1998. As
a percentage of revenues, revenues from premium subscriptions decreased to
10.4% during 1999 compared to 11.8% during 1998. Cable advertising insertion
revenues, including revenues from both the Company's cable advertising business
and net cable advertising revenues from third parties, increased by
approximately $3.2 million, or 20.9%, to $18.7 million for the three months
ended April 30, 1999 compared to $15.5 million for the three months ended April
30, 1998. As a percentage of revenues, cable advertising revenues increased to
17.6% during 1999 compared to 16.0% during 1998. Pay-per-view revenues
increased $0.4 million, or 32.4%, during 1999 compared to 1998. As a percentage
of revenues, revenues from pay-per-view increased to 1.6% during 1999 compared
to 1.3% during 1998. Other revenues increased $1.2 million, or 22.0%, during
1999 compared to 1998 primarily due to an increase of $1.1 million in Internet
access revenues. As a percentage of revenues, revenues from other sources
increased to 6.1% in 1999 compared to 5.5% in 1998.
EXPENSES. Operating expenses increased $8.0 million, or 11.8%, during the
three months ended April 30, 1999 compared to the three months ended April 30,
1998. As a percentage of revenues, operating expenses increased to 71.4% for
1999 compared to 70.2% for 1998.
Salaries, wages and benefits increased $2.2 million, or 13.3%, during 1999
compared to 1998. As a percentage of revenues, salaries, wages and benefits
were 17.8% for 1999 compared to 17.2% for 1998. Programming and non- cable
direct costs increased $3.9 million, or 15.3%, during 1999 compared to 1998. As
a percentage of revenues, programming and non-cable direct costs were 28.1% for
1999 and 26.8% for 1998. The increase in programming costs is the result of
increases of $3.0 million in cable programming costs, $0.8 million in the
Company's payments to other cable operators of a percentage of advertising
sales and $0.1 million in network access fees in the Internet access business.
Other operating expenses increased $0.2 million, or 4.6%, during 1999 compared
to 1998. As a percentage of revenues, other operating expenses were 3.4% for
1999 and 3.6% for 1998. Selling, general and administrative expensedecreased
$0.1 million, or 0.5% during 1999 when compared to 1998. As a percentage of
revenues, selling, general and administrative expenses were 7.2% for 1999 and
7.9% for 1998. Depreciation and amortization increased $1.7 million, or 12.0%,
during 1999 when compared to 1998. As a percentage of revenues, depreciation
and amortization was 14.9% for 1999 and 14.7% for 1998.
Interest expense decreased $0.7 million, or 7.0%, in 1999 compared to 1998
as a result of the repayment of debt and a reduction in the Company's weighted
average interest rate. The Company's weighted average interest rate was 6.6%
for the three months ended April 30, 1999 compared to 6.8% for the three months
ended April 30, 1998.
INCOME TAXES. The Company's provision for income taxes was $7.4 million and
$6.7 million in 1999 and 1998, respectively. The increase in taxes of 10.5%
during the three months ended April 30, 1999 compared to the three months ended
April 30, 1998 was a result of a 14.9% increase in income before income tax
offset by a decrease in the effective tax rate to 38.8% in 1999 compared to
40.3% for 1998.
MINORITY INTEREST. Minority interest in earnings was $2.6 million for 1999
and $2.8 million for 1998. Minority interest represents the portion of income
before income taxes due to the minority partners in the Company's two
partnerships. TCA Cable Partners is a partnership that is owned 75% by the
Company and 25% by DR Partners, a division of Stephens Group, Inc. TCA Cable
Partners II is a partnership owned 80% by the Company and 20% by TCI American
Holdings IV, L.P., an affiliate of TCI Communications, Inc.
SIX MONTHS ENDED APRIL 30, 1999 COMPARED TO SIX MONTHS ENDED APRIL 30, 1998.
REVENUES. Revenues increased by $34.2 million, or 19.3%, during the six
months ended April 30, 1999 compared to the six months ended April 30, 1998.
Management attributes approximately $10.3 million, or 30.2%, of the revenue
increase to internal growth in cable systems, $7.5 million, or 21.9%, to
internal growth in the Company's advertising insertion business, $15.0 million,
or 44.0% to cable system acqusitions and $1.8 million, or 5.1%, to growth in
the Company's Internet access business. These increases in revenue were offset
by a decrease of $.4 million, or 1.2%,
<PAGE> 9
resulting from the Company's sale of its long distance business.
Revenues from basic and expanded basic cable television subscriptions
increased $22.2 million, or 19.6%, during the six months ended April 30, 1999
compared to the six months ended April 30, 1998. As a percentage of revenues,
revenues from basic and expanded basic subscriptions increased to 63.8% of
revenues for 1999 compared to 63.6% for 1998. Revenues from premium
subscriptions increased $1.4 million, or 6.9%, during 1999 compared to 1998. As
a percentage of revenues, revenues from premium subscriptions decreased to
10.5% during 1999 compared to 11.7% during 1998. 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 $7.0 million, or 22.2%, to $38.4 million for the six months ended
April 30, 1999 compared to $31.4 million for the six months ended April 30,
1998. As a percentage of revenues, cable advertising revenues increased to
18.2% during 1999 compared to 17.7% during 1998. Pay-per-view revenues
increased $0.7 million, or 31.2%, during 1999 compared to 1998. As a percentage
of revenues, revenues from pay-per-view increased to 1.5% during 1999 compared
to 1.3% during 1998. Other revenues increased $2.9 million, or 28.5%, during
1999 compared to 1998 primarily due to an increase of $2.0 million in Internet
access revenues. As a percentage of revenues, revenues from other sources
increased to 6.1% in 1999 compared to 5.7% in 1998.
EXPENSES. Operating expenses increased $24.6 million, or 19.7%, during the
six months ended April 30, 1999 compared to the six months ended April 30,
1998. As a percentage of revenues, operating expenses increased to 70.7% for
1999 compared to 70.5% for 1998. The increase in operating expenses during the
six months ended April 30, 1999 is primarily due to the acquisition of cable
systems February 1, 1998.
Salaries, wages and benefits increased $6.4 million, or 20.1%, during 1999
compared to 1998. As a percentage of revenues, salaries, wages and benefits
were 18.0% for 1999 compared to 17.9% for 1998. Programming and non- cable
direct costs increased $10.6 million, or 22.2%, during 1999 compared to 1998.
As a percentage of revenues, programming and non-cable direct costs were 27.6%
for 1999 and 26.9% for 1998. The increase in programming costs and non-cable
direct costs is the result of increases of $5.2 million in internal growth in
cable programming costs, $4.5 million in cable programming costs from
acquisitions and $1.3 million in the Company's payments to other cable
operators of a percentage of advertising sales, offset by a decrease of $0.4
million in network access fees in the long distance and Internet access
business. Other operating expenses increased $0.5 million, or 7.6%, during 1999
compared to 1998. As a percentage of revenues, other operating expenses were
3.2% for 1999 and 3.6% for 1998. Selling, general and administrative
expense increased $1.7 million, or 12.4% during 1999 when compared to 1998. As a
percentage of revenues, selling, general and administrative expenses were 7.3%
for 1999 and 7.7% for 1998. Depreciation and amortization increased $5.5
million, or 21.4%, during 1999 when compared to 1998. As a percentage of
revenues, depreciation and amortization was 14.7% for 1999 and 14.4% for 1998.
Interest expense increased $3.1 million, or 20.1%, in 1999 compared to 1998
as a result of increased borrowings to fund acquisitions. The Company's
weighted average interest rate was 6.7% for the six months ended April 30, 1999
compared to 7.0% for the six months ended April 30, 1998.
INCOME TAXES. The Company's provision for income taxes was $15.0 million and
$13.5 million in 1999 and 1998, respectively. The increase in taxes of 11.1%
during the six months ended April 30, 1999 compared to the six months ended
April 30, 1998 was a result of a 13.6% increase in income before income tax
offset by a decrease in the effective tax rate to 38.8% in 1999 compared to
39.6% for 1998.
MINORITY INTEREST. Minority interest in earnings was $5.3 million for 1999
and $4.5 million for 1998. Minority interest represents the portion of income
before income taxes due to the minority partners in the Company's two
partnerships. TCA Cable Partners is a partnership that is owned 75% by the
Company and 25% by DR Partners, a division of Stephens Group, Inc. TCA Cable
Partners II is a partnership owned 80% by the Company and 20% by TCI American
Holdings IV, L.P., an affiliate of TCI Communications, Inc.
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 14.4% to $70.9 million
during the six months ended April 30,1999 from $62.0 million during 1998. The
increase was principally due to internal growth in cable operations and
advertising..
At April 30, 1999, the Company had $223.0 million in borrowings under its
bank credit facilities. The Company had $185.0 million borrowed under its
primary credit facility which provides for up to $350 million in borrowings
<PAGE> 10
by the Company and expires on January 31, 2003. The primary credit facility
provides for interest to be paid quarterly at prime or LIBOR plus an applicable
margin . At April 30, 1999 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 borrowings by
the Company and expire May 2001 and April 2000, respectively. During the six
months ended April 30, 1999 and 1998, the Company borrowed approximately $40.5
million and $605.6 million respectively and repaid approximately $63.5 million
and $373.6 million, respectively. In the six months ended April 30,1999, the
Company's bank debt carried a weighted average interest rate of 6.7%.
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's revolving bank credit agreements and the private placements
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 was not in compliance with the
fixed charge coverage covenant because of increased capital expenditures during
the three months ended April 30, 1999. The Company has obtained waivers of
noncompliance as of April 30, 1999 relating to this covenant. The Company may
be in noncompliance in future periods. The Company believes it can obtain
waivers of noncompliance as needed.
The Company believes that EBITDA, defined as earnings before interest, taxes,
depreciation and amortization, and related measures of cash flow serve as
important financial analysis tools for measuring and comparing cable television
companies in several areas, such as liquidity, operating performance and
leverage. EBITDA is not a measure of financial performance under generally
accepted accounting principles and should not be considered as an alternative to
net income as a measure of performance or as an alternative to cash flows from
operations as a measure of liquidity. The Company's ratio of indebtedness to
EBITDA was 3.0x and 3.4x for the three months ended April 30, 1999 and 1998,
respectively. The Company's interest coverage ratio, defined as the ratio of
EBITDA to total interest expense, was 4.8x and 6.1x for the three months ended
April 30, 1999 and 1998 respectively.
The Company's capital expenditures totaled $43.2 million and $26.5 million
in the six months ended April 30, 1999 and 1998, respectively. Funds were
applied primarily toward the upgrade of the Company's cable systems and the
purchase of subscriber equipment, including converter boxes. The Company has
principally financed its capital expenditures through funds generated by its
operating activities, and to a lesser extent, bank borrowings and private
placements of debt securities. The Company expects to continue the upgrade of
its cable systems in 1999 and anticipates total capital expenditure
requirements in fiscal 1999 to be approximately 15% more than in 1998.
As a part of the Company's growth strategy the Company has been actively
acquiring cable systems which meet the Company's acquisition criteria. The
Company has funded its acquisitions through internally generated funds, private
placements of debt securities, bank financing and capital contributions from DR
Partners. The Company anticipates the acquisitions of additional systems in
selected markets in the future.
The Company paid dividends on its common stock totaling approximately $4.0
million, or $0.08 per share in the three months ended April 30, 1999 and 1998.
The Company believes that net cash provided by operating activities,
borrowings under its bank credit facilities and the Company's ability to obtain
financing will provide adequate sources of short-term and long-term liquidity
in the future.
On February 2, 1998, the Company formed a partnership, TCA Cable Partners II
(the "TCI Transaction"), with TCI American Holdings IV, L.P.( the "TCI
Affiliate") , an affiliate of TCI Communications Inc. The Company contributed
certain cable systems in Texas and New Mexico serving approximately 155,000
subscribers and $46.6 million in unsecured debt and the TCI Affiliate
contributed its cable systems in north Texas and western Louisiana, serving
approximately 150,000 subscribers and $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. TCA Cable Partners II is consolidated in the financial statements of the
Company 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 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 July 24, 1997, the Company filed a shelf registration with the SEC for a
public debt offering of up to $300 million. On February 2, 1998, the Company
issued $200 million in bonds with a coupon of 6.53% and a 10 year put to
finance the TCI Transaction. The Company received a rating of BBB+ from
Standard & Poor's and Baa2 from Moody's. In connection with this debt offering,
the Company entered into treasury lock transactions ( the "Treasury Locks")
with a notional amount of $100 million in August 1997. The Treasury Locks were
designated as a hedge
<PAGE> 11
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.
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 $0.1 million
was incurred through April 30, 1999. Approximately $0.5 million is expected to
be 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.
FORWARD LOOKING INFORMATION
The statements contained in this Quarterly Report on Form 10-Q
("Quarterly Report") which are not historical facts, including, but not limited
to, statements found under the captions "Financial Condition and Results of
Operations", and "Liquidity and Capital Resources" above, are forward-looking
statements that involve a number of risks and uncertainties. The actual results
of the future events described in such forward-looking statements in the
Quarterly Report could differ materially from those contemplated by such
forward-looking statements. Among the factors that could cause actual results
to differ materially are the risks and uncertainties discussed in the Quarterly
Report, including without limitation the portions of such statements under the
captions referenced above, and the uncertainties set forth from time to time in
the Company's other public reports and filings and public statements.
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
-----------
<S> <C> <C>
2.1 -- Agreement and Plan of Merger, dated as of May 11,
1999, by and among Cox Communications, Inc., Cox
Classic Cable, Inc. and TCA Cable TV, Inc.(5)
3.1 -- Articles of Incorporation.(1)
3.2 -- Articles of Amendment to Articles of
Incorporation.(2)
3.3 -- Articles of Amendment to Articles of
Incorporation.(2)
3.4 -- Articles of Amendment to Articles of
Incorporation.(3)
3.5 -- Amended and Restated Bylaws.(4)
4.1 -- Form of Stock Certificate.(1)
4.2 -- Voting Agreement, dated as of May 11, 1999, by
and among TCA Cable TV, Inc., Cox communications,
Inc. and certain Stockholders of TCA Cable TV,
Inc.(5)
4.3 -- Form of First Amendment to the Rights Agreement
dated as of January 15, 1998, by and between TCA
Cable TV, Inc. and ChaseMellon Securities
Services, L.L.C.(5)
27.1 -- Financial Data Schedule.*
(b) Reports on Form 8-K.
</TABLE>
The Company filed a Current Report on Form 8-K filed May 11,
1999, reporting an Item 5. Other Event regarding the Company's
merger with Cox Communications, Inc.
-------------
*Filed herewith.
(1) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-1, File No. 2-75516, and incorporated herein
by reference.
(2) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-8, File No. 33-21901, and incorporated herein
by reference.
(3) Previously filed as an exhibit to Registrant's Form 10-K for the
fiscal year ended October 31, 1993, filed January 27,1994 and
incorporated by reference herein.
(4) Previously filed as an exhibit to Registrant's Form 10-K for the
fiscal year ended October 31, 1997, filed January 27, 1998 and
incorporated herein by reference.
(5) Previously filed as an exhibit to Registrant's Form 8-K filed May
11, 1999 and incorporated herein by reference.
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereto duly authorized.
TCA CABLE TV, INC.
/s/ FRED R. NICHOLS
-------------------
Fred R.Nichols
Date: June 11, 1999 Chairman and Chief Executive Officer
/s/ JIMMIE F. TAYLOR
--------------------
Jimmie F. Taylor
Date: June 11, 1999 Vice President, CFO, and Treasurer
<PAGE> 14
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 -- Agreement and Plan of Merger, dated as of May 11,
1999, by and among Cox Communications, Inc., Cox
Classic Cable, Inc. and TCA Cable TV, Inc.(5)
3.1 -- Articles of Incorporation.(1)
3.2 -- Articles of Amendment to Articles of
Incorporation.(2)
3.3 -- Articles of Amendment to Articles of
Incorporation.(2)
3.4 -- Articles of Amendment to Articles of
Incorporation.(3)
3.5 -- Amended and Restated Bylaws.(4)
4.1 -- Form of Stock Certificate.(1)
4.2 -- Voting Agreement, dated as of May 11, 1999, by
and among TCA Cable TV, Inc., Cox communications,
Inc. and certain Stockholders of TCA Cable TV,
Inc.(5)
4.3 -- Form of First Amendment to the Rights Agreement
dated as of January 15, 1998, by and between TCA
Cable TV, Inc. and ChaseMellon Securities
Services, L.L.C.(5)
27.1 -- Financial Data Schedule.*
</TABLE>
-------------
*Filed herewith.
(1) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-1, File No. 2-75516, and incorporated herein
by reference.
(2) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-8, File No. 33-21901, and incorporated herein
by reference.
(3) Previously filed as an exhibit to Registrant's Form 10-K for the
fiscal year ended October 31, 1993, filed January 27,1994 and
incorporated by reference herein.
(4) Previously filed as an exhibit to Registrant's Form 10-K for the
fiscal year ended October 31, 1997, filed January 27, 1998 and
incorporated herein by reference.
(5) Previously filed as an exhibit to Registrant's Form 8-K filed May
11, 1999 and incorporated herein by reference.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> APR-30-1999
<CASH> 3,559,866
<SECURITIES> 0
<RECEIVABLES> 21,913,825
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 559,827,999
<DEPRECIATION> 237,695,426
<TOTAL-ASSETS> 1,088,365,860
<CURRENT-LIABILITIES> 0
<BONDS> 200,000,000
0
0
<COMMON> 5,017,211
<OTHER-SE> 211,087,562
<TOTAL-LIABILITY-AND-EQUITY> 1,088,365,860
<SALES> 0
<TOTAL-REVENUES> 106,237,590
<CGS> 0
<TOTAL-COSTS> 29,795,231
<OTHER-EXPENSES> 46,000,106
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,769,835
<INCOME-PRETAX> 19,089,883
<INCOME-TAX> 7,400,000
<INCOME-CONTINUING> 11,689,883
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,689,883
<EPS-BASIC> .24
<EPS-DILUTED> .23
</TABLE>
