<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________TO __________
COMMISSION FILE NUMBER: 333-63643
CLASSIC CABLE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
For a list of Co-Registrants, refer to the page immediately following this page.
THE CO-REGISTRANTS MEET THE GENERAL CONDITIONS SET FORTH IN GENERAL
INSTRUCTION H(1)(a) and (b) of FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH
THE REDUCED DISCLOSURE FORMAT.
DELAWARE 74-2750981
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
515 CONGRESS AVENUE, SUITE 2626
AUSTIN, TEXAS 78701
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (512) 476-9095
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
Number of shares of common stock of Classic Cable, Inc. outstanding as of
November 15, 1999: 1,000.
<PAGE> 2
TABLE OF CO-REGISTRANTS
<TABLE>
<CAPTION>
PRIMARY STANDARD
INDUSTRIAL IRS EMPLOYER
STATE OF CLASSIFICATION IDENTIFICATION
NAME ORGANIZATION CODE NUMBER NUMBER
- ---- ------------ -------------------- -----------------
<S> <C> <C> <C>
Classic Cable Holding, Inc................ Delaware 4841 74-2807609
Ponca Holdings, Inc....................... Delaware 4841 76-0337883
Classic Telephone, Inc.................... Delaware 4841 75-2590205
Universal Cable Holdings, Inc............. Delaware 4841 75-2077867
Universal Cable Communications, Inc....... Delaware 4841 84-0913858
Universal Cable of Beaver Oklahoma, Inc... Delaware 4841 75-2243788
Universal Cable Midwest, Inc.............. Delaware 4841 75-2205815
WT Acquisition Corporation................ Delaware 4841 74-2644608
W.K. Communications, Inc.................. Kansas 4841 48-1037491
Television Enterprises, Inc............... Texas 4841 74-1532349
Black Creek Communications, L.P........... Delaware 4841 74-2881867
Black Creek Management, L.L.C............. Delaware 4841 74-2881870
Buford Group, Inc......................... Texas 4841 75-1988843
Friendship Cable of Texas, Inc............ Texas 4841 75-2237583
Buford Television, Inc.................... Texas 4841 75-1020533
Correctional Cable TV Inc................. Texas 4841 75-2443515
CallCom 24, Inc........................... Texas 4841 75-2774129
Buford Television Inc. of Fort Smith...... Arkansas 4841 71-0441918
Friendship Cable of Arkansas, Inc......... Texas 4841 71-0634055
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PART I -- FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS OF CLASSIC CABLE, INC.
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Notes to Unaudited Consolidated Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
</TABLE>
<PAGE> 4
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS OF CLASSIC CABLE, INC.
CLASSIC CABLE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 7,497 $ 2,779
Accounts receivable, net 9,281 5,474
Prepaid expenses 1,018 424
Property, plant, and equipment 284,743 127,169
Less accumulated depreciation (54,517) (39,977)
------------- ------------
230,226 87,192
Deferred financing costs 18,602 6,454
Advances to parent 857 306
Intangible assets:
Subscriber relationships 190,753 95,180
Franchise rights 171,834 71,464
Noncompete agreements 16,555 8,425
Goodwill 42,473 40,575
------------- ------------
421,615 215,644
Less accumulated amortization (83,662) (65,828)
------------- ------------
337,953 149,816
------------- ------------
Total assets $ 605,434 $ 252,445
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 599 $ 647
Subscriber deposits and unearned income 7,513 4,846
Accrued expenses 13,475 6,106
Accrued interest 6,501 5,883
Long-term debt 454,330 220,804
Deferred taxes, net 48,623 1,017
------------- ------------
Total liabilities 531,041 239,303
Stockholders' equity:
Common stock -- --
Additional paid-in capital 183,766 86,142
Accumulated deficit (109,373) (73,000)
------------- ------------
Total stockholders' equity 74,393 13,142
------------- ------------
Total liabilities and stockholders' equity $ 605,434 $ 252,445
============= ============
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE> 5
CLASSIC CABLE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 33,105 $ 18,190 $ 72,391 $ 50,404
Operating expenses:
Programming 8,845 4,673 19,272 12,891
Plant and operating 3,645 2,198 8,046 6,063
General and administrative 5,518 2,811 11,273 8,168
Marketing and advertising 503 216 955 555
Corporate overhead 7,406 1,499 9,131 2,758
Depreciation and amortization 14,209 7,513 32,305 21,682
----------- ----------- ----------- -----------
Total operating expenses 40,126 18,910 80,982 52,117
----------- ----------- ----------- -----------
Loss from operations (7,021) (720) (8,591) (1,713)
Interest expense (10,585) (5,202) (21,260) (15,425)
Other income (expense) 95 57 110 121
----------- ----------- ----------- -----------
Loss before income taxes and extraordinary item (17,511) (5,865) (29,741) (17,017)
Income tax benefit -- 734 -- 2,105
----------- ----------- ----------- -----------
Loss before extraordinary item (17,511) (5,131) (29,741) (14,912)
Extraordinary loss on extinguishment of debt (6,632) (5,524) (6,632) (5,524)
----------- ----------- ----------- -----------
Net loss $ (24,143) $ (10,655) $ (36,373) $ (20,436)
=========== =========== =========== ===========
</TABLE>
See notes to unaudited consolidated financial statements
<PAGE> 6
CLASSIC CABLE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (36,373) $ (20,436)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Provision for doubtful accounts 916 642
Depreciation 14,471 8,650
Amortization of intangibles 17,834 13,032
Amortization of deferred financing costs 693 777
Discount accretion on long-term debt 43 227
Non-cash compensation 1,920 776
Deferred tax benefit -- (2,096)
Extraordinary loss 6,632 5,524
Change in operating assets and liabilities:
Accounts receivable (1,823) (1,300)
Prepaid expenses (98) 287
Advances to parent (551) (175)
Accounts payable (1,752) (503)
Subscriber deposits and unearned income 326 1,727
Accrued expenses 386 (564)
Accrued interest 618 1,152
-------------- -------------
Net cash provided by (used in) operating activities 3,242 7,720
INVESTING ACTIVITIES
Payments for other intangibles (425) --
Acquisition of cable television systems (291,942) (41,747)
Purchases of property, plant and equipment (15,971) (7,658)
-------------- -------------
Net cash provided by (used in) investing activities (308,338) (49,405)
FINANCING ACTIVITIES
Proceeds from long-term debt 420,500 221,227
Repayment of long-term debt (187,377) (190,292)
Payment of premium on redeemed notes (860) --
Financing costs (18,153) (6,441)
Redemption of preferred stock -- (1,267)
Cash dividends paid on preferred stock -- (93)
Capital contribution from parent 95,704 22,763
-------------- -------------
Net cash provided by (used in) financing activities 309,814 45,897
-------------- -------------
Increase (decrease) in cash and cash equivalents 4,718 4,212
Cash and cash equivalents at beginning of period 2,779 616
-------------- -------------
Cash and cash equivalents at end of period $ 7,497 $ 4,828
============== =============
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE> 7
CLASSIC CABLE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Classic
Cable, Inc. (the "Company"), have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three- and nine-month periods ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1999.
For further information, refer to the consolidated financial statements and
footnotes thereto for the year ended December 31, 1998 included in the Company's
Form S-4 Registration Statement (dated September 3, 1999).
2. ACCOUNTS RECEIVABLE
The activity in the Company's allowance for doubtful accounts for the
nine months ending September 30, 1999 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning of Costs and at End of
FOR THE NINE MONTHS ENDED Period Expenses Deductions Period
<S> <C> <C> <C> <C>
September 30, 1999 $ 737 $ 916 $ (915) $ 738
September 30, 1998 262 642 (581) 323
</TABLE>
3. INCOME TAXES
The Company did not record an income tax benefit for the nine months
ended September 30, 1999. The effective tax rates for the nine months ended
September 30, 1999 and September 30, 1998 differ primarily due to an increase in
the valuation allowance on deferred tax assets. The Company believes it is more
likely than not that such deferred tax assets will not be utilized in the near
term.
The Company's benefit for income taxes differs from the amount computed
by applying the statutory rate to loss before income taxes primarily due to the
impact of permanent differences, an increase in the valuation allowance and
other items as discussed above.
<PAGE> 8
4. BUFORD ACQUISITION
On July 28, 1999, the Company acquired all of the outstanding stock and
partnership interests of the Buford Group, Inc., for approximately $300 million
in cash. The acquisition was financed through (a) a $95.7 million capital
contribution from the Company's parent, Classic Communications ("CCI") (b) the
proceeds from the Company's 1999 credit facility and (c) the proceeds from a
private debt offering of $150 million of the Company's 9.375% senior
subordinated notes, which were registered in August 1999 as described below. The
transaction is accounted for as a purchase transaction and the assets and
liabilities assumed are recorded at fair value.
The following summarized unaudited pro forma financial information assumes
the Buford acquisition had occurred on January 1, 1999 and 1998, respectively
and that the acquisition of certain systems of Cable One had occurred on January
1, 1998. The following pro forma information is not necessarily indicative of
the results that would have occurred had the transaction been completed at the
beginning of the period indicated, nor is it indicative of future operating
results (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1999 1998
---------- ----------
(UNAUDITED)
<S> <C> <C>
Revenues................................................... $ 117,292 $ 108,612
Net loss before extraordinary item......................... (48,855) (33,805)
Net loss................................................... (55,487) (39,329)
</TABLE>
The allocation of purchase price reflected in the September 30, 1999
consolidated balance sheet is preliminary. The Company has arranged to obtain an
independent valuation of the Buford Group, Inc.'s property, plant and equipment
and intangible assets. Management expects to receive the completed report during
the fourth quarter of 1999.
5. LONG-TERM DEBT
The Company's long-term debt consists of the following as of September 30,
1999 (in thousands):
<TABLE>
<S> <C>
9 7/8% senior subordinated notes....................... 39,005
Discount on 9 7/8% senior subordinated notes........... (160)
9 3/8% senior subordinated notes....................... 150,000
The 1999 credit facility............................... 265,000
Other.................................................. 485
---------
Total long-term debt.................... $ 454,330
=========
</TABLE>
REGISTRATION OF DEBT
On August 24, 1999, the Registration Statements related to the Company's
9.875% senior subordinated notes due in 2008 and CCI's 13.25% senior discount
notes due 2009 were declared effective with the Securities and Exchange
Commission. On September 3, 1999, the Registration Statement of the Company's
9.375% senior subordinated notes due 2009 was declared effective.
CHANGE OF CONTROL OFFERS
Pursuant to CCI's change of control resulting from the Brera investment
discussed below, and in accordance with the indentures of the note agreement,
CCI and the Company offered to redeem all of their outstanding 9.875% senior
subordinated notes due 2008 and 13.25% senior discount notes due 2009. The
Company redeemed $86 million of the 9.875% senior subordinated notes due 2008 at
101% of face value plus accrued interest. This resulted in an extraordinary loss
from the early extinguishment of debt in the third quarter of 1999 equal to the
amount of the unamortized discount and financing costs on the notes and the 1%
premium paid. The Company borrowed $90.0 million under its credit facility to
repurchase the tendered 2008 senior subordinated notes and to pay associated
fees and expenses incurred as a result of the change of control offer. None of
the 13.25% senior discount notes were tendered for redemption.
1999 CREDIT FACILITY
The Company entered into a $350 million credit facility in July 1999. The
facility is composed of a Revolving Credit Facility of $75 million, Term Loan A
of $75 million, Term Loan B of $100 million and a Term Loan C of $100 million.
Interest is based upon either a LIBOR rate plus an applicable margin or, at the
Company's option, a base rate plus an applicable margin.
6. EQUITY
EQUITY INVESTMENT
On July 28, 1999, CCI sold 6,490,734 shares, or 64% of its voting common
stock to Brera Classic LLC ("Brera") for $100 million. The proceeds were
distributed as follows: $95.7 million was contributed to the Company, $3.3
million was paid to Brera pursuant to management and advisory fee agreements,
and approximately $750,000 was paid to Brera as reimbursement for certain of its
fees and expenses incurred in connection with the investment. The agreement
further provides that CCI is to pay an annual management fee of $250,000 to
Brera until CCI is sold or closes an initial public offering, the first payment
of which was made at the closing of the Buford agreement.
<PAGE> 9
7. RELATED PARTY TRANSACTIONS
In accordance with various provisions of executive management's employment
agreements, CCI (through the Company) made payments totaling approximately $5
million in relation to the Buford acquisition and change of control that
resulted from the Brera equity investment. All payments to management were
treated as a current period cost in the third quarter of 1999.
In connection with the Buford acquisition, CCI (through the Company) paid a
transaction fee of $300,000 to The Austin Advisory, a financial consulting firm
in which a former member of executive management is a principal.
8. SUBSEQUENT EVENTS
STAR ACQUISITION
On October 14,1999, a subsidiary of the Company entered into an agreement
with Star Cable Associates ("Star"), to purchase substantially all of the assets
of Star for approximately $110 million in cash and (1) $20 million in Series A
cumulative redeemable convertible preferred stock (the "Preferred Stock") or
(2), in the event of the consummation of the initial public offering ("IPO") of
CCI's Class A voting common stock ("Class A Common Stock") prior to the closing
of the Star acquisition, approximately 555,555 shares of Class A Common Stock of
CCI. The Preferred Stock would have a stated value of $1,000 per share and rank
senior to all classes of junior stock. The holders of the Preferred Stock would
be entitled to cumulative cash dividends at a rate of 6% per annum for the first
18 months from the date of issuance, 8% per annum for the 19th month through the
23rd month from the date of issuance and 10% per annum for the 24th month and
thereafter from the date of issuance, which dividends would be payable in two
semi-annual installments on the last day of June and December of each year. All
Preferred Stock would be converted into shares of Class A Common Stock in the
event of the closing of an initial public offering at a conversion price of
$36.00 per share. CCI would be able to convert all of the Preferred Stock at any
time two years after the date of issuance of the Preferred Stock at a conversion
price of $32.00 per share.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion provides additional information regarding the
financial condition and results of operations of Classic Cable, Inc. (the
"Company") for the nine months ended September 30, 1999 and 1998. This
discussion should be read in conjunction with the Company's "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
the fiscal year ended December 31, 1998 and the six-month period ended June 30,
1999 contained in the Company's Form S-4 Registration Statement dated September
3, 1999. Since its inception, the Company has completed multiple acquisitions
and divestitures of cable systems. As a result, management believes that
period-to-period comparisons of the Company's financial results to date are not
necessarily meaningful and should not be relied upon as an indication of future
performance. In addition, the financial condition and operating results of the
Company could differ materially from those discussed herein and its current
business plans could be altered in response to market conditions and other
factors beyond the Company's control.
The statements, other than statements of historical fact, included in this
Report are forward-looking statements. These statements include, but are not
limited to:
- statements regarding the Company's plans for future acquisitions;
- statements regarding integration of the Company's cable systems and
future acquired systems;
- statements regarding the Company's planned capital expenditures and
system upgrades;
- statements regarding the offering of video and internet access on
the Company's systems; and
- statements regarding the Company's preparations for the year 2000 date
change.
Forward-looking statements generally can also be identified by the use of
forward-looking terminology such as "may," "will," "expect," "intend,"
"estimate," "anticipate," "plan," "seek," or "believe." The Company believes
that the expectations reflected in such forward-looking statements are accurate.
However, the Company cannot assure you that such expectations will occur. The
Company's actual future performance could differ materially from such
statements. Factors that could cause such or contribute to such differences
include, but are not limited to:
- the uncertainties and/or potential delays associated with respect to
integrating Buford and Star and future acquisitions;
- the Company's ability to acquire additional cable systems on favorable
terms;
- the passage of legislation or court decisions adversely affecting the
cable industry;
- the Company's ability to repay or refinance outstanding indebtedness;
- the timing, actual cost and allocation of the Company's capital
expenditures and system upgrades;
- the Company's potential need for additional capital;
- competition in the cable industry;
- the advent of new technology; and
- seasonality.
Investors should not unduly rely on these forward-looking statements, which
speak only as of the date of this Report. Except as required by law, the Company
is not obligated to publicly release any revisions to these forward-looking
statements to reflect events or circumstances occurring after the date of this
Report or to reflect the occurrence of unanticipated events. Important factors
that could cause the Company's actual results to differ materially from its
expectations are discussed in this Report. All subsequent written and oral
forward-looking statements attributable to the Company, or persons acting on its
behalf, are expressly qualified in their entirety by the statements in this
Report.
All percentage amounts and ratios were calculated using the underlying data
in thousands. Operating results for the three and nine month periods ended
September 30, 1999, are not necessarily indicative of the results that may be
expected for the full fiscal year.
Results of Operations
REVENUES. Revenues increased $22.0 million, or 44%, for the nine months
ended September 30, 1999, as compared to the corresponding prior year period.
Basic revenues increased by $7.5 million due to increased subscribers of
approximately 28,000 in July 1998 and 170,000 in July 1999 and basic rate
increases. The increase in subscribers was due to the acquisition of systems
from Cable One in July 1998 and the acquisition of Buford Group, Inc. in July
1999. In addition, there was a rate increase of approximately 7% affecting
approximately two-thirds of our customers in February 1999 which resulted in an
increase in basic revenues per subscriber of 7% from $27.74 to $29.69 period to
period. Classic Cable has historically increased rates in February in order to
offset increases in operating costs such as programming which occur primarily in
January of each year.
OPERATING EXPENSES. Operating expenses increased $28.9 million, or 55%, for
the nine months ended September 30, 1999, as compared to the corresponding prior
year period. Programming expense increased $6.4 million due to the continued
escalation in rates charged by programming vendors as well as an increase in the
subscriber base over the same period in 1998. Plant and operating and general
and administrative expenses increased $5.1 million, or 36%, as a result of the
additional costs associated with the systems acquired in 1998 and 1999.
Corporate overhead increased $6.4 million primarily due to $6.6 million of
acquisition related compensation expenses incurred in connection with the Buford
acquisition. Depreciation and amortization expense for the nine months ended
September 30, 1999 was $32.3 million, an increase of $10.6 million over the same
period in 1998. The increase represents the effect of acquisitions and capital
expenditures.
OTHER INCOME AND EXPENSES. Interest expense increased $5.8 million, or
38%, for the nine months ended September 30, 1999, as compared to the
corresponding prior year period. This increase is primarily the result of the
debt issued in conjunction with the July 1999 and 1998 acquisitions and
subsequent refinancing of debt.
INCOME TAX BENEFIT. The income tax benefit decreased $2.1 million for the
nine months ended September 30, 1999, as compared to the corresponding prior
year period. No tax benefit was recognized in 1999. The effective tax rates for
the nine months ended September 30, 1999 and September 30, 1998 differ from
the statutory rates primarily due to an increase in the valuation allowance on
deferred tax assets.
NET LOSS. As a result of the above described fluctuations in the Company's
results of operations and extraordinary losses recognized in connection with
the July 1998 and 1999 refinancing of debt, the net loss of $36.4 million for
the nine months ended September 30, 1999 increased by $15.9 million, as
compared to the net loss of $20.4 million for the corresponding prior year
period.
Liquidity and Capital Resources
Operating income before depreciation and amortization or "operating cash
flow" as commonly referred to in the cable communications business, was $20.0
million and $23.7 million for the nine months ended September 30, 1999 and 1998,
respectively. Operating cash flow less the impact of non-cash operating charges
and cash charges related to acquisition and financing transactions was $31.1
million and $20.7 million for the nine months ended September 30, 1999 and 1998,
respectively. Operating cash flow is a measure of a company's ability to
generate cash to service its obligations including debt service obligations, and
to finance capital and other expenditures. In part due to the capital intensive
nature of the cable communications business and the resulting significant level
of non-cash depreciation and amortization expense, operating cash flow is
frequently used as one of the bases for comparing businesses in the cable
communications industry, although our measure of operating cash flow may not be
comparable to similarly titled measures of other companies. Operating cash flow
is the primary basis used by our management to measure the operating performance
of our business. Operating cash flow does not purport to represent net income or
net cash provided by operating activities, as those terms are defined under
generally accepted accounting principles, and should not be considered as an
alternative to measurements as an indicator of our performance.
For the nine months ended September 30, 1999 and 1998, the Company's
capital expenditures, other than those related to acquisitions, were
approximately $16.0 million and $7.7 million, respectively. Capital expenditures
include expansion and improvements of existing cable properties, plant and
equipment upgrades, as well as cable line drops, line plant extensions and
installations of service to new subscribers.
In July 1999, the Company issued $150.0 million of 9.375% Senior
Subordinated Notes due 2009. Concurrently with the offering, the Company entered
into the 1999 Credit Agreement. The proceeds from these transactions and a sale
of its parent's stock were approximately $425.0 million and were used to (a)
fund the acquisition of Buford Group, Inc., (b) repay the 1998 Credit Agreement
and (c) pay fees and expenses of these transactions. The 1999 Credit Agreement
consists of (a) a $75.0 million revolving credit facility which matures in 2007,
(b) a $75.0 million Term A loan facility which matures in 2007, (c) a $100.0
million Term B loan facility which matures in 2008, and (d) a $100.0 million
Term C loan facility which matures in 2008. Mandatory payments commence in 2001.
Interest is based upon either a LIBOR rate plus an applicable margin or, at the
Company's option, a base rate plus an applicable margin. The Term C loan
facility was utilized in September 1999 to fund the partial redemption of $86.0
million of the 2008 subordinated notes.
The Company and its parent have combined debt service requirements
increasing from approximately $40 million a year to $54 million over the next
eight years. During the next four fiscal years, capital expenditures are
anticipated to average approximately $50 million a year. Debt covenants dictate
that the Company maintain certain ratios related to debt balances and operating
results in addition to limiting the amount that can be used for capital
expenditures. Funds to support the Company's operations and pay the anticipated
debt service and capital expenditure requirements are anticipated to be
primarily generated from the Company's operating activities and from additional
financing activities. On September 30, 1999, the Company had $75.0 million
available under its line of credit, subject to some limitations.
Management believes that the Company has sufficient resources from cash
provided from operations and available borrowings to support is operations and
capital requirements for at least the next 12 months. There can be no assurance,
however, that the Company's business will generate sufficient cash flow from
operations, that currently anticipated cost savings and operating improvements
will be realized on schedule or that future borrowings will be available under
the credit facility in an amount sufficient to enable the Company to pay its
indebtedness or to fund other liquidity needs. The Company may need to refinance
all or a portion of its indebtedness on or before maturity. There can be no
assurance that the Company will be able to refinance any of its indebtedness,
including its credit facility and outstanding notes, on commercially reasonable
terms or at all.
INFLATION
Certain of the Company's expenses, such as programming, wages and benefits,
equipment repair and maintenance, billing and marketing are subject to
inflation. However, because changes in costs are generally passed through to
subscribers, these changes historically have not had a material adverse effect
on the Company's results of operations.
YEAR 2000 COMPLIANCE
Through 1999, most large companies will be facing a potentially serious
business problem because many software applications and computer equipment
developed in the past may not properly recognize calendar dates beginning in the
year 2000. This problem could cause computers to either shut down or provide
incorrect data.
These problems are expected to increase in frequency and severity as the
year 2000 approaches. This issue impacts our owned or licensed computer systems
and equipment used in connection with internal operations, including:
- information processing and financial reporting systems;
- customer billing systems;
- customer service systems;
- telecommunication transmission and reception systems; and
- facility systems
The Company also relies directly or indirectly, in the regular course of
business, on the proper operation and compatibility of third party systems. The
year 2000 problem could cause these systems to fail or become incompatible with
its systems.
The failure or loss of compatibility among systems could cause material
disruptions, including the inability to process transactions, generate invoices,
or to respond to requests for service. The Company could also face similar
disruptions if the year 2000 problem causes general widespread problems or an
economic crisis. The Company cannot now estimate the extent of these potential
disruptions on its results of operations, liquidity or financial condition.
Through the redeployment of internal resources and the selective engagement
of outside consultants, the Company is addressing the year 2000 problem with
respect to its internal operations in three stages:
- conducting an inventory and evaluation of its systems, components, and
other significant infrastructure to identify those elements that it
reasonably believes could be expected to be affected by the year 2000
problem. This stage has been completed.
- remediation or replacing equipment that, based upon such inventory and
evaluation, the Company believes may fail to operate properly in the year
2000. This stage has been completed.
- testing of the remediation and replacement conducted in stage two. This
stage is substantially complete, with further testing to be conducted up
to and through December 31, 1999.
To date, costs incurred that were directly related to addressing the year
2000 problem have not been material. The Company does not expect that the total
cost of its year 2000 remediation will be material.
Much of the Company's assessment efforts have involved, and depend upon,
inquiries to third party service providers, suppliers and vendors of various
parts or components of its systems. The Company has obtained certifications from
third party service providers, suppliers and vendors as to the readiness of
mission critical elements. Certain of these parties have certified the readiness
of their products but will not certify their operability within its fully
integrated systems. The Company cannot assure you that these technologies of
third parties, on which it relies, will be year 2000 ready or timely converted
into year 2000 compliant systems compatible with its systems. The Company has,
however, evaluated the potential impact of third party and/or integration
failure on its systems in connection with the development of its contingency
plans.
The Company's year 2000 plan calls for appropriate contingency planning for
its at-risk business functions. As part of its normal operations, contingency
plans are in place to minimize disruption of service to customers and other
critical business functions, including guidelines for informing the appropriate
personnel in order to accelerate restoration of service.
The Company has negotiated certain contractual rights relating to the year
2000 problem in the Star asset purchase agreement. The Company has included
acquired cable television systems in its year 2000 compliance efforts. The
Company is monitoring the remediation process for the systems it is acquiring to
ensure completion of remediation in a timely manner. The Company has found that
these companies are following a three stage process similar to that outlined
above and are on a similar time line for completion. The Company is not
currently aware of any likely material system failures relating to the year 2000
affecting the acquired systems.
The Company believes its efforts have significantly reduced its level of
uncertainty about the year 2000 problem and, in particular, about the year 2000
compliance and readiness of its material vendors. However, no assurance can be
given that year 2000 compliance can be achieved without costs that might affect
future financial results or cause reported financial information not to be
necessarily indicative of future operating results or future financial
condition.
Factors Affecting the Company's Business and Prospects
There are numerous factors that affect the Company's business and the results
of its operations. These factors include changes in laws and regulations;
changes in the competitive environment; changes in technology; franchise
related matters; market conditions that may adversely affect the availability
of debt and equity financing for working capital, capital expenditures or other
purposes; and other general economic conditions.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company's credit facility bears interest at floating rates.
Accordingly, its earnings are affected by changes in short-term interest rates.
The Company does not enter into derivatives or other financial instruments for
trading or speculative purposes. However, the credit facility does require that
50% of the Company's outstanding debt be effectively subject to a fixed rate. If
the Company has non-fixed rate debt in a principal amount in excess of its
current senior subordinated indebtedness, as set forth in the credit facility,
then the Company must enter into interest rate hedges and/or other arrangements
which are designed solely to protect against fluctuations in interest rates.
These arrangements would be required only with respect to the portion of the
Company's debt in excess of its senior subordinated indebtedness to the extent
necessary to raise the aggregate amount of the Company's fixed rate debt to 50%
of its outstanding debt.
<PAGE> 11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(c) On July 28, 1999, Classic Cable, Inc. (the "Company") issued
$150,000,000 aggregate principal amount 9 3/8% Senior
Subordinated Notes due 2009 to Goldman, Sachs & Co.,
Donaldson, Lufkin & Jenrette Securities Corporation and
Merrill, Lynch, Pierce, Fenner & Smith Incorporated as initial
purchasers.
The Company believes that the sale and issuance of securities
in the above transaction was exempt from registration under
the Securities Act of 1933 by virtue of Rule 144A, as private
resales of securities to institutions. Appropriate legends
were affixed to the notes issued in such transaction. Similar
legends were imposed in connection with any subsequent sales
of any such securities. On September 13, 1999, the Registrant
completed an exchange offer for such unregistered notes for
notes registered under the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
Purchase of Star
On October 14, 1999, a subsidiary of the Company entered into an
agreement with Star Cable Associates ("Star"), to purchase substantially all of
the assets of Star for approximately $110 million in cash and (1) $20 million of
CCI's Series A cumulative redeemable convertible preferred stock (the "Preferred
Stock") or (2), in the event of the consummation of the initial public offering
("IPO") of CCI's Class A voting common stock ("Class A Common Stock") prior to
the closing of the Star acquisition, approximately 555,555 shares of Class A
Common Stock of CCI. The Preferred Stock would have a stated value of $1,000 per
share and rank senior to all classes of junior stock. The holders of the
Preferred Stock would be entitled to cumulative cash dividends at a rate of 6%
per annum for the first 18 months from the date of issuance, 8% per annum for
the 19th month through the 23rd month from the date of issuance and 10% per
annum for the 24th month and thereafter from the date of issuance, which
dividends would be payable in two semiannual installments on the last day of
June and December of each year. All Preferred Stock would be converted into
shares of Class A Common Stock in the event of the closing of an initial public
offering at a conversion price of $36.00 per share. CCI would be able to convert
all of the Preferred Stock at any time two years after the date of issuance of
the Preferred Stock at a conversion price of $32.00 per share.
Star owns 37 systems in Louisiana, Texas and Ohio and serves
approximately 57,000 subscribers. The asset purchase agreement contains
customary representations, warranties, covenants, indemnities and closing
conditions, including closing conditions related to governmental approvals and
the transfer of franchise licenses by Star to the Company. The asset purchase
agreement is terminable by any party to the agreement not in breach of the
agreement on March 31, 2000 if the Star acquisition has not been consummated
prior to such date. The asset purchase agreement is terminable on July 31, 2000
by any party to the agreement if the Star acquisition had not been consummated
prior to such date. CCI issued a press release with respect to the agreement on
October 14, 1999, a copy of which is attached as Exhibit 99.1 to its Form 8-K/A
filed on October 25, 1999.
Filing of IPO
On October 19, 1999, CCI filed for an initial public offering of
approximately $150 million of Class A common shares. Proceeds will be used to
repay a portion of CCI's debt and to finance part of the Star acquisition. CCI
issued a press release with respect to the filing on October 20, 1999, a copy of
which is attached as Exhibit 99.2 to its Form 8-K/A filed on October 25, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
(27) Financial Data Schedule
(b) Reports on Form 8-K.
On October 26, 1999, Classic Cable and its co-registrants
filed a Form 8-K announcing (1) their change in accountants
from Ernst & Young LLP to PricewaterhouseCoopers LLP, (2) the
signing of an asset purchase agreement whereby Universal Cable
Holdings, Inc. will acquire all of the cable assets of Star
Cable Associates and (3) the filing of a Registration
Statement on Form S-1 by Classic. On November 5, 1999, Classic
filed a Form 8-K/A amending the Form 8-K filed on October 26,
1999.
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Classic Cable, Inc. has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CLASSIC CABLE, INC.
Date: November 15, 1999 /s/ Steven E. Seach
--------------------------------------
Steven E. Seach
President and Chief Financial Officer
<PAGE> 13
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, CLASSIC CABLE
HOLDING, INC. HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CLASSIC CABLE HOLDING, INC.
By: /s/ STEVEN E. SEACH
Date: November 15, 1999 ---------------------------------
Steven E. Seach,
President and Chief Financial
Officer
<PAGE> 14
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, PONCA HOLDINGS,
INC. HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED.
PONCA HOLDINGS, INC.
Date: November 15, 1999 By: /s/ STEVEN E. SEACH
---------------------------------
Steven E. Seach,
President and Chief Financial
Officer
<PAGE> 15
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, CLASSIC
TELEPHONE, INC. HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CLASSIC TELEPHONE, INC.
Date: November 15, 1999 By: /s/ STEVEN E. SEACH
---------------------------------
Steven E. Seach,
President and Chief Financial
Officer
<PAGE> 16
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, UNIVERSAL CABLE
HOLDINGS, INC. HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
UNIVERSAL CABLE HOLDINGS, INC.
Date: November 15, 1999 By: /s/ STEVEN E. SEACH
---------------------------------
Steven E. Seach,
President and Chief Financial
Officer
<PAGE> 17
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, UNIVERSAL
CABLE COMMUNICATIONS, INC. HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
UNIVERSAL CABLE COMMUNICATIONS, INC.
Date: November 15, 1999 By: /s/ STEVEN E. SEACH
-------------------------------------
Steven E. Seach
President and
Chief Financial Officer
<PAGE> 18
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, UNIVERSAL
CABLE OF BEAVER OKLAHOMA, INC. HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
UNIVERSAL CABLE
OF BEAVER OKLAHOMA, INC.
Date: November 15, 1999 By: /s/ STEVEN E. SEACH
---------------------------------
Steven E. Seach
President and Chief Financial
Officer
<PAGE> 19
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, UNIVERSAL
CABLE MIDWEST, INC. HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
UNIVERSAL CABLE MIDWEST, INC.
Date: November 15, 1999 By: /s/ STEVEN E. SEACH
---------------------------------
Steven E. Seach
President and Chief Financial
Officer
<PAGE> 20
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, WT ACQUISITION
CORPORATION HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
WT ACQUISITION CORPORATION
Date: November 15, 1999 By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach
President and Chief Financial
Officer
<PAGE> 21
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, W.K.
COMMUNICATIONS, INC. HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
W.K. COMMUNICATIONS, INC.
Date: November 15, 1999 By: /s/ STEVEN E. SEACH
-------------------------------
Steven E. Seach
President and Chief Financial
Officer
<PAGE> 22
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, TELEVISION
ENTERPRISES, INC. HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
TELEVISION ENTERPRISES, INC.
Date: November 15, 1999 By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach,
President and Chief Financial
Officer
<PAGE> 23
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, BLACK CREEK
COMMUNICATIONS , L.P. HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
BLACK CREEK COMMUNICATIONS, L.P.
BY: BLACK CREEK MANAGEMENT, L.L.C.
Its General Partner
Date: November 15, 1999 By: /s/ STEVEN E. SEACH
-----------------------------------
Steven E. Seach,
President and Chief Financial
Officer
<PAGE> 24
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, BLACK CREEK
MANAGEMENT, L.L.C. HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
BLACK CREEK MANAGEMENT, L.L.C.
Date: November 15, 1999 By: /s/ STEVEN E. SEACH
---------------------------------
Steven E. Seach,
President and Chief Financial
Officer
<PAGE> 25
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, BUFORD GROUP,
INC. HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED.
BUFORD GROUP, INC.
Date: November 15, 1999 By: /s/ STEVEN E. SEACH
---------------------------------
Steven E. Seach,
President and Chief Financial
Officer
<PAGE> 26
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, FRIENDSHIP
CABLE OF TEXAS, INC. HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
FRIENDSHIP CABLE OF TEXAS, INC.
Date: November 15, 1999 By: /s/ STEVEN E. SEACH
--------------------------------
Steven E. Seach,
President and Chief Financial
Officer
<PAGE> 27
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, BUFORD
TELEVISION, INC. HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
BUFORD TELEVISION, INC.
Date: November 15, 1999 By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach,
President and Chief Financial
Officer
<PAGE> 28
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, CALLCOM 24,
INC. HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED.
CALLCOM 24, INC.
Date: November 15, 1999 By: /s/ STEVEN E. SEACH
---------------------------------
Steven E. Seach,
President and Chief Financial
Officer
<PAGE> 29
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, CORRECTIONAL
CABLE TV, INC. HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CORRECTIONAL CABLE TV, INC.
Date: November 15, 1999 By: /s/ STEVEN E. SEACH
---------------------------------
Steven E. Seach,
President and Chief Financial
Officer
<PAGE> 30
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, FRIENDSHIP
CABLE OF ARKANSAS, INC. HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
FRIENDSHIP CABLE OF ARKANSAS, INC.
Date: November 15, 1999 By: /s/ STEVEN E. SEACH
---------------------------------
Steven E. Seach,
President and Chief Financial
Officer
<PAGE> 31
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, BUFORD
TELEVISION INC. OF FORT SMITH HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
BUFORD TELEVISION INC. OF FORT SMITH
Date: November 15, 1999 By: /s/ STEVEN E. SEACH
-----------------------------------
Steven E. Seach,
President and Chief Financial
Officer
<PAGE> 32
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CLASSIC
CABLE INC. FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1998 AND 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK>0001069604
<NAME> CLASSIC CABLE INC
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> SEP-30-1998 SEP-30-1999
<CASH> 4,828 7,497
<SECURITIES> 0 0
<RECEIVABLES> 5,585 10,019
<ALLOWANCES> 323 738
<INVENTORY> 0 0
<CURRENT-ASSETS> 10,393 17,796
<PP&E> 122,126 284,743
<DEPRECIATION> 36,861 54,517
<TOTAL-ASSETS> 254,812 605,434
<CURRENT-LIABILITIES> 13,754 28,088
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 254,812 605,434
<SALES> 0 0
<TOTAL-REVENUES> 50,404 72,391
<CGS> 0 0
<TOTAL-COSTS> 52,117 80,982
<OTHER-EXPENSES> (121) (110)
<LOSS-PROVISION> 642 916
<INTEREST-EXPENSE> 15,425 21,260
<INCOME-PRETAX> (17,017) (29,741)
<INCOME-TAX> (2,105) 0
<INCOME-CONTINUING> (14,912) (29,741)
<DISCONTINUED> 0 0
<EXTRAORDINARY> (5,524) (6,632)
<CHANGES> 0 0
<NET-INCOME> (20,436) (36,373)
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
