<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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 numbers 333-35183 and 333-35183-01
JAMES CABLE PARTNERS, L.P.
JAMES CABLE FINANCE CORP.
(Exact name of each Registrant as specified in its charter)
Delaware 38-2778219
Michigan 38-3182724
(State or Other Jurisdiction of
Incorporation or Organization) (I.R.S. Employer Identification No.)
710 North Woodward Avenue, Suite 180 48304
Bloomfield Hills, Michigan (Zip Code)
(Address of principal executive offices)
Registrants' telephone number, including area code: (248) 647-1080
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.
/X/ / /
Yes No
Number of shares of common stock of James Cable Finance Corp. outstanding as of
May 13, 1998: 1,000.
* James Cable Finance Corp. meets the conditions set forth in General
Instruction H(1)(a) and (b) to the Form 10-Q and is therefore filing with
the reduced disclosure format.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements of James
Cable Partners, L.P. and Subsidiary 3
Notes to Consolidated Financial Statements 7
Balance Sheet of James Cable Finance Corp. 10
Notes to Balance Sheet 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 6. Exhibits and Reports on Form 8-K 18
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
JAMES CABLE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
------
Cash & Cash Equivalents $ 6,627,574 $ 9,902,842
Accounts Receivable - Subscribers (Net of allowance for
doubtful accounts of $14,675 in 1998 and $20,872 in 1997) 3,353,487 3,344,345
Prepaid Expenses & Other 105,342 213,816
Property & Equipment:
Cable television distribution systems and equipment 80,756,579 79,248,360
Land and land improvements 229,704 229,704
Buildings and improvements 932,760 932,760
Office furniture & fixtures 1,216,867 1,216,867
Vehicles 3,126,367 3,126,367
------------- -------------
Total 86,262,277 84,754,058
Less accumulated depreciation (72,861,551) (72,086,368)
------------- -------------
Total 13,400,726 12,667,690
Deferred Financing Costs (Net of accumulated amortization of
$378,678 in 1998 and $227,206 in 1997) 3,732,484 3,883,956
Intangible Assets, Net 12,898,545 13,883,699
Deposits 17,382 15,782
------------- -------------
Total Assets $ 40,135,540 $ 43,912,130
============= =============
LIABILITIES & PARTNERS' DEFICIT
-------------------------------
Liabilities:
Debt $ 100,000,000 $ 100,000,000
Accounts payable 72,997 245,835
Accrued expenses 1,975,228 2,333,228
Accrued interest on 10-3/4% Senior Notes 1,343,749 4,031,249
Unearned revenue 3,044,960 2,987,979
Subscriber deposits 24,804 25,279
------------- -------------
Total 106,461,738 109,623,570
Commitments and Contingencies (Notes 2 and 3)
Partners' Deficit:
Limited partners (60,085,070) (59,500,005)
General partner (6,241,128) (6,211,435)
------------- -------------
Total (66,326,198) (65,711,440)
------------- -------------
Total Liabilities & Partners' Deficit $ 40,135,540 $ 43,912,130
============= =============
</TABLE>
See notes to consolidated financial statements.
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JAMES CABLE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
1998 1997
------------ -----------
(Unaudited)
<S> <C> <C>
Revenues $ 9,278,973 $ 8,849,806
System Operating Expenses (Excluding
Depreciation and Amortization) 4,592,364 4,170,393
Non-System Operating Expenses:
Management fee 465,738 450,941
Other 310,567 173,310
------------ -----------
Total nonsystem operating
expenses 776,305 624,251
Depreciation and Amortization 1,760,337 1,797,148
------------ -----------
Operating Income 2,149,967 2,258,014
Interest and Other:
Interest expense (2,838,972) (2,117,569)
Interest income 102,372 2,344
Other (28,125) (27,678)
------------ -----------
Total interest and other (2,764,725) (2,142,903)
------------ -----------
Net (Loss) Income $ (614,758) $ 115,111
============ ===========
</TABLE>
See notes to consolidated financial statements.
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JAMES CABLE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
------------- ------------ -------------
<S> <C> <C> <C>
Balance, December 31, 1997 $ (59,500,005) $ (6,211,435) $ (65,711,440)
Net loss (unaudited) (585,065) (29,693) (614,758)
------------- ------------ -------------
Balance, March 31, 1998 (unaudited) $ (60,085,070) $ (6,241,128) $ (66,326,198)
============= ============ =============
</TABLE>
See notes to consolidated financial statements.
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JAMES CABLE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net (loss) income $ (614,758) $ 115,111
Adjustments to reconcile net (loss) income to net cash flows
(used in) from operating activities:
Depreciation 775,183 547,798
Amortization 985,154 1,249,350
Noncash interest expense 151,472 168,167
Decrease (Increase) in assets:
Accounts receivable (9,142) 75,953
Prepaid expenses 108,474 68,972
Deposits (1,600) (13,765)
(Decrease) Increase in liabilities:
Accounts payable (172,838) 563,084
Accrued expenses (358,000) (671,845)
Accrued interest on 10-3/4% Senior Notes (2,687,500) 0
Unearned revenue 56,981 30,688
Subscriber deposits (475) (550)
------------ ------------
Total adjustments (1,152,291) 2,017,852
------------ ------------
Cash flows (used in) from operating activities (1,767,049) 2,132,963
Cash Flows used in Investing Activities:
Additions to property and equipment (1,508,219) (1,434,118)
------------ ------------
Cash flows used in investing activities (1,508,219) (1,434,118)
Cash Flows used in Financing Activities:
Principal payments on debt 0 (375,000)
Proceeds from debt borrowings 0 0
Payments on capital lease obligation 0 (24,531)
------------ ------------
Cash flows used in financing activities 0 (399,531)
------------ ------------
Net (Decrease) Increase in Cash and Cash Equivalents (3,275,268) 299,314
Cash and Cash Equivalents, Beginning of Period 9,902,842 100,813
------------ ------------
Cash and Cash Equivalents, End of Period $ 6,627,574 $ 400,127
============ ============
Supplemental Disclosure of Cash Flow Information -
Cash paid for interest during the period $ 5,375,000 $ 1,748,601
============ ============
</TABLE>
See notes to consolidated financial statements.
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JAMES CABLE PARTNERS, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL - James Cable Partners, L.P. (the "Partnership") was organized as
a Delaware limited partnership in 1988. James Cable Finance Corp., a Michigan
corporation ("Finance Corp."), was organized on June 19, 1997 and became a
wholly-owned subsidiary of the Partnership. References to the "Company" herein
are to the Partnership and Finance Corp. consolidated, or to the Partnership
prior to the organization of Finance Corp., as appropriate.
UNAUDITED INTERIM STATEMENTS - The accompanying interim financial
statements and related notes are unaudited, and reflect all adjustments
(consisting only of normal recurring adjustments) which, in the opinion of
management, are necessary for a fair presentation of the financial position and
results of operations of the Company for the interim periods. The December 31,
1997 balance sheet data is derived from audited financial statements, but the
notes do not include all disclosures required for audited statements by
generally accepted accounting principles. These interim financial statements
should be read in conjunction with the audited financial statements and related
notes for the year ended December 31, 1997 included in the Company's 1997 Form
10-K/A (Amendment No. 1) filed with the Securities and Exchange Commission. The
results for interim periods are not necessarily indicative of the results for a
full year.
IMPACT OF RECENTLY ADOPTED ACCOUNTING PRINCIPLES - In June 1997, Statement
of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about Segments
of an Enterprise and Related Information" was issued. SFAS No. 131 establishes
standards for the way that public business enterprises report financial and
descriptive information about their reporting operating segments. The Company
has not determined the impact on its financial statement disclosure. SFAS No.
131 is effective for the Company's financial statements for the year ending
December 31, 1998.
(2) REGULATORY MATTERS
The cable television industry is subject to extensive governmental
regulation on the federal, state and local levels (but principally by the
Federal Communications Commission ("FCC") and by local franchising
authorities). Many aspects of such regulation have recently been extensively
revised and are currently the subject of judicial proceedings and
administrative rulemakings, which are potentially significant to the Company.
In this regard, the Company believes that the regulation of cable television
systems, including the rates charged for cable services, remains a matter of
interest to Congress, the FCC and local regulatory officials. There has been a
recent increase in calls by certain members of Congress and FCC officials to
maintain or even tighten cable regulation in the absence of widespread
effective competition. Accordingly, no assurance can be given as to what
future actions such parties or the courts may take or the effect thereof on the
Company.
Under the FCC's rate regulations, most cable systems were required to
reduce their basic service and cable programming service tiers ("CPST") rates
in 1993 and 1994, and have since had their rate increases governed by a
complicated price cap scheme. Operators also have the opportunity of bypassing
this "benchmark" regulatory scheme in favor of traditional "cost of service" in
cases where the latter methodology appears favorable. The FCC also established
a vastly simplified cost of service methodology for small cable companies.
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The Company, which qualifies as a small cable company under FCC rules, has
elected to rely on the cost-of service rules as and when the Systems are
required to justify their rates for regulated services and, therefore, has not
implemented the rate reductions that would otherwise have been required if it
were subject to the FCC's benchmarks. Under the cost-of-service rules
applicable to small cable companies, eligible systems can establish permitted
rates under a simple formula that considers total operating expenses (including
amortization expenses), net rate base, rate of return, channel count and
subscribers. If the per channel rate resulting from these inputs for a cable
system is no more than $1.24, the cable system's rates will be presumed
reasonable. If the formula generated rate exceeds the $1.24, the burden is on
the cable operator to establish the reasonableness of its calculations.
Substantially all of the Company's rates are currently under the $1.24 per
channel level, and the Company believes that all of its rates in excess of the
$1.24 per channel level are reasonable using the formula described above.
However, FCC rules permit local franchise authorities to review basic service
rates, and under certain circumstances, challenge CPST rates at the FCC. An
adverse ruling in any such proceeding could require the Company to reduce its
rates and pay refunds. A reduction in the rates it charges for regulated
services or the requirement that it pay refunds could have a material adverse
effect on the Company. Once the maximum permitted rate allowed by FCC rules is
being charged by the Company in regulated communities, future rate increases
may not exceed an inflation-indexed amount, plus increases in certain costs
beyond the cable operator's control, such as taxes, franchise fees and
increased programming costs. The 1996 Telecommunications Act provides for
regulation of the CPST to expire for all cable systems on March 31, 1999.
However, certain members of Congress and FCC officials have called for the
delay of this regulatory sunset and further have urged more rigorous rate
regulation (including limits on programming cost pass-throughs to cable
subscribers) until a greater degree of competition to incumbent cable operators
has developed.
In addition, certain provisions of the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act") could in the
future have a material adverse effect on the Company's business. In
particular, the 1992 Cable Act conveyed to broadcasters the right generally to
elect either to require (i) the local cable operator to carry their signal or
(ii) that such operator obtain the broadcaster's consent before doing so. To
date, compliance with these provisions has not had a material effect on the
Company, although this result may change in the future depending on such
factors as market conditions, channel capacity and similar matters when such
arrangements are renegotiated.
(3) LEGAL PROCEEDINGS
On October 7, 1997, the City Council of Forsyth, Georgia ("Forsyth"), a
community in which the Company provides service, voted to spend $2.7 million to
build a broadband telecommunications plant in competition with the Company. On
December 2, 1997, Forsyth passed a resolution to sell $3 million in revenue
bonds to finance the proposed project. In order to protect its customer base
in Forsyth and surrounding Monroe County, Georgia, the Company sued Forsyth
under the Georgia Open Records Act to force the public disclosure of various
documents concerning, among other things, the feasibility and risk of Forsyth's
proposed project. Forsyth responded by counterclaiming to preliminarily enjoin
the Company from seeking further information under the Georgia Open Records Act
and from making further statements to the public concerning Forsyth's proposed
project. At a hearing before the Superior Court for Monroe County on January
27, 1998, the court denied Forsyth's motion for preliminary injunction. After
the Company moved to have Forsyth's counterclaim dismissed, Forsyth voluntarily
dismissed its counterclaim.
8
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At April 30, 1998, the Company had 1,750 basic subscribers in the City of
Forsyth and Monroe County franchise areas. This represents approximately 2% of
the Company's total basic subscribers and, thus, approximately 2% of the
Company's total cash flow and EBITDA. If the current plans for a competing
system ultimately are implemented, this competition likely would result in a
loss of subscribers to the Company's system and/or make it more difficult for
the Company to maintain its prices for subscriptions to the system.
9
<PAGE> 10
JAMES CABLE FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF JAMES CABLE PARTNERS,
L.P., A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
------
Cash and cash equivalents $1,000 $1,000
====== ======
SHAREHOLDER'S EQUITY
--------------------
Shareholder's equity - Common stock (1,000 shares issued and outstanding) $1,000 $1,000
====== ======
</TABLE>
See notes to balance sheet.
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JAMES CABLE FINANCE CORP.
(A wholly owned subsidiary of James Cable Partners,
L.P., a Delaware Limited Partnership)
NOTES TO THE BALANCE SHEET (UNAUDITED)
(1) ORGANIZATION
James Cable Finance Corp. ("Finance Corp."), a Michigan corporation, is a
wholly-owned subsidiary of James Cable Partners, L.P., a Delaware limited
partnership (the "Partnership"), and was organized on June 19, 1997 for the
sole purpose of acting as co-issuer with the Partnership of $100 million
aggregate principal amount of the 10-3/4% Senior Notes. Finance Corp. has
nominal assets and currently does not have (and it is not expected to have) any
material operations.
(2) STATEMENTS OF OPERATIONS, SHAREHOLDER'S EQUITY AND CASH FLOWS
Since there were no operations in the Finance Corp. for the three months
ended March 31, 1998, a Statement of Operations, a Statement of Shareholder's
Equity and a Statement of Cash Flows have not been presented.
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PART I. FINANCIAL INFORMATION
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion of the financial condition and results of
operations of the Company contains certain forward-looking statements relating
to anticipated future financial conditions and operating results of the Company
and its current business plans. In the future, 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. Important factors
that could cause or contribute to such difference or changes include those
discussed in the Company's Annual Report on Form 10-K/A (Amendment No. 1) for
the fiscal year ended December 31, 1997 under "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations."
OVERVIEW
Revenues. The Company's revenues are primarily attributable to
subscription fees charged to subscribers to the Company's basic and premium
cable television programming services. Basic revenues consist of monthly
subscription fees for all services (other than premium programming and internet
service) as well as monthly charges for customer equipment rental. Premium
revenues consist of monthly subscription fees for programming provided on a
per-channel basis. Internet revenues consist of monthly subscription fees for
internet access, modem installation fees and fees for leased lines. In
addition, other revenues are primarily derived from installation and
reconnection fees charged to subscribers to commence or discontinue cable
service, late payment fees, franchise fees, advertising revenues and
commissions related to the sale of goods by home shopping services. At March
31, 1998, the Company had 78,927 basic subscribers and 25,174 premium
subscriptions, representing basic penetration of 61.0% and premium penetration
of 31.9% as compared to December 31, 1997 at which time the Company had 78,197
basic subscribers and 24,076 premium subscriptions which represented basic
penetration of 60.5% and premium penetration of 30.8%.
System Operating Expenses. System operating expenses are comprised of
variable operating expenses and fixed selling, service and administrative
expenses directly attributable to the Company's systems. Variable operating
expenses consist of costs directly attributable to providing cable services to
customers and therefore generally vary directly with revenues. Variable
operating expenses include programming fees paid to suppliers of programming
the Company includes in its basic and premium cable television services, as
well as expenses related to copyright fees, franchise operating fees and bad
debt expenses. Selling, service and administrative expenses directly
attributable to the Company's systems include the salaries and wages of the
field and office personnel, plant operating expenses, office and administrative
expenses and sale costs.
Non-System Operating Expenses. Non-system operating expenses consist
primarily of general overhead expenses which are not directly attributable to
any one of the Company's systems. These expenses include all legal, audit and
tax fees, an incentive bonus accrual for the General Managers of the Company's
systems and amounts paid to its general partner for management expenses.
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LIQUIDITY AND CAPITAL RESOURCES
General. Liquidity describes the ability to generate sufficient cash
flows to meet the cash requirements of continuing operations which for the
Company includes both day-to-day operating costs (e.g. programming fees,
salaries and marketing) and capital costs (e.g. 750 Mhz upgrades in certain
systems) which allow the Company to remain competitive. In order to provide
enough cash to meet these requirements, the Company relies on both operating
revenues (e.g. monthly fees paid by subscribers for basic and pay services) as
well as the debt financing discussed below. The Company continuously monitors
available cash and cash equivalents in relation to projected cash needs to
maintain adequate balances for current payments while maximizing cash available
for investment opportunities.
Cash Flows used in / from Operating Activities. Net cash used in
operating activities was $1.8 million for the three months ended March 31, 1998
as compared to net cash from operating activities of $2.1 million for the three
months ended March 31, 1997.
Cash Flows used in Investing Activities. Net cash used in investing
activities was $1.5 million for the three months ended March 31, 1998 which was
fairly consistent with the net cash used in investing activities of $1.4
million for the three months ended March 31, 1997.
Cash Flows from / used in Financing Activities. There were no cash flows
from or used in financing activities for the three months ended March 31, 1998.
Cash flows used in financing activities for the three months ended March 31,
1997 were $400,000 which was wholly attributable to principal payments on the
Company's long-term debt.
Exchange Notes. Pursuant to an Indenture dated August 15, 1997, the
Company issued, and has outstanding, $100 million of unsecured 10-3/4% Senior
Notes due 2004 (the "Exchange Notes"). The Exchange Notes are general senior
unsecured obligations of the Company that mature on August 15, 2004 and rank
equally in right of payment with all other existing and future unsubordinated
indebtedness of the Company and senior in right of payment to any subordinated
obligations of the Company. Interest on the Exchange Notes accrues at the rate
of 10-3/4% per annum and is payable semi-annually in cash arrears on February
15 and August 15, which commenced on February 15, 1998, to holders of record on
the immediately preceding February 1 and August 1. Interest on the Exchange
Notes accrues from the most recent date to which interest has been paid.
Interest is computed on the basis of a 360-day year comprised of twelve 30-day
months. See also the disclosure appearing herein under "Part II - Other
Information - Item 2. Change in Securities and Use of Proceeds."
The Bank Credit Facility. Simultaneously with the sale of the Exchange
Notes, the Company entered into the Bank Credit Facility with Canadian Imperial
Bank of Commerce (an affiliate of CIBC Wood Gundy Securities Corp., an
underwriter of the Exchange Notes), and NBD Bank (an affiliate of First Chicago
Capital Markets, Inc., an underwriter of the Exchange Notes) acting as the
lenders. The Bank Credit Facility is a $20 million revolving credit facility
(with an option to increase the amount of credit available thereunder to $30
million) that matures on August 15, 2002. Proceeds under the Bank Credit
Facility will be available (i) to provide for working capital and general
corporate purposes, (ii) to fund certain permitted acquisitions of cable
television systems, (iii) to provide for certain permitted repurchases of up to
$5 million in the aggregate of limited partnership interests in the Company,
and (iv) to pay transaction fees and expenses. The Bank Credit Facility
requires payments of accrued interest on a monthly basis throughout the term,
with principal due at maturity.
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The Bank Credit Facility is secured by a first priority lien on and
security interest in substantially all of the assets of the Company. The Bank
Credit Facility contains certain covenants and provides for certain events of
default customarily contained in facilities of a similar type. The financial
covenants which the Company considers most significant require it to: (a)
maintain an interest coverage ratio (that is, the ratio of annualized six-month
EBITDA to interest expense) of at least 1.1 to 1; (b) maintain a senior debt
ratio (that is, the ratio of debt under the Bank Credit Facility to annualized
six-month EBITDA) of no more than 2.5 to 1; and (c) maintain a ratio of its
total debt to annualized six-month EBITDA of no more than 7.0 to 1. The Company
is in compliance with each of these covenants. As of March 31, 1998 the
covenants contained in the Bank Credit Facility would have limited the
Company's maximum borrowings thereunder to approximately $7 million. As of
March 31, 1998 there was no indebtedness outstanding under the Bank Credit
Facility.
At March 31, 1998, the Company's total indebtedness was $100.0 million,
its total assets were $40.1 million and its partners' deficit was $66.3
million. Due to the Company's high degree of leverage: (a) a substantial
portion of its cash flow from operations will be committed to the payment of
its interest expense and will not be available for other purposes; (b) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or other purposes may be limited;
and (c) the Company is more highly leveraged than many cable television
companies and certain direct broadcast satellite ("DBS") and telephone
companies, which may limit the Company's flexibility in reacting to changes in
its business. However, the Company believes that it will continue to generate
cash or obtain financing sufficient to meet its requirements for debt service,
working capital and capital expenditures contemplated in the near term and
through the maturity of the Exchange Notes.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship that the various
items bear to revenues for the periods indicated:
<TABLE>
<CAPTION>
For the Three Months ended March 31,
1998 1997
---- ----
Amount % Amount %
---- - ---- -
(Dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $ 9,279 100.0% $ 8,850 100.0%
System operating expenses 4,592 49.5% 4,171 47.1%
Non-System operating expenses 776 8.3% 624 7.1%
Depreciation and amortization 1,761 19.0% 1,797 20.3%
------------ ------- ------------ -------
Operating income 2,150 23.2% 2,258 25.5%
Interest expense, net 2,737 29.5% 2,115 23.9%
Other expenses 28 0.3% 28 0.3%
------------ ------- ------------ -------
Net (loss) income $ (615) (6.6%) $ 115 1.3%
============ ======= ============ =======
EBITDA (1) $ 3,910 42.1% $ 4,055 45.8%
</TABLE>
(1) EBITDA represents operating income before depreciation and amortization.
The Company has included EBITDA data (which are not a measure of
financial performance under Generally Accepted Accounting Principles
("GAAP")) because it understands such data are used by certain investors
to determine a company's historical ability to service its indebtedness.
EBITDA should not be considered as an alternative to net income as an
indicator of the Company's performance or as an alternative to cash flow
as a measure of liquidity as determined in accordance with GAAP.
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THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenues. Revenues for the three months ended March 31, 1998 increased by
$400,000, or 4.8%, to $9.3 million from $8.9 million for the three months ended
March 31, 1997. Average monthly total revenues per subscriber for the three
months ending March 31, 1998 were $39.43, as compared to $37.71 for the same
period last year. These increases are primarily the result of rate increases
which the Company implemented during the fourth quarter of 1997.
Subscribers. At March 31, 1998 the Company had 78,927 subscribers which
represents an increase of 313 over the 78,614 subscribers at March 31, 1997.
The Company believes this increase is due to a concentrated marketing effort as
well as strategic capital improvements within certain of the Company's systems.
System Operating Expenses. System operating expenses for the three months
ended March 31, 1998 were $4.6 million, an increase of $400,000, or 10.1%, over
the three months ended March 31, 1997. As a percentage of revenues, system
operating expenses increased 2.4% from 47.1% in 1997 to 49.5% in 1998. The
majority of this increase is due to variable cost increases associated with
higher programming rates and new programming launched in conjunction with rate
increases.
Non-System Operating Expenses. Non-system operating expenses increased
$150,000, or 24.4%, from the three months ended March 31, 1997 to the three
months ended March 31, 1998. This increase was primarily due to increases in
legal and other professional fees.
EBITDA. As a result of the foregoing, EBITDA decreased from $4.1 million
for the three months ended March 31, 1997 to $3.9 million for the three months
ended March 31, 1998.
Depreciation and Amortization. Depreciation and amortization remained
constant at $1.8 million for the three months ended March 31, 1997 and for the
three months ended March 31, 1998. Decreases in depreciation and amortization
resulting from certain assets becoming fully depreciated or amortized were
offset by capital expenditures made as a part of the Company's ongoing
selective upgrade program.
Interest Expense, Net. Interest expense, net increased $600,000, or
29.4%, from $2.1 million for the three months ended March 31, 1997 to $2.7
million for the three months ended March 31, 1998. This is primarily the result
of a change in the Company's debt structure. During the three months ended
March 31, 1997 the Company had an average debt balance of approximately
$82 million and an average interest rate of approximately 9.5%. For the three
months ended March 31, 1998 the Company's average debt balance had increased
to $100 million with an interest rate of 10.75%. These changes in debt resulted
in an increase in interest expense of approximately $700,000 from 1997 to 1998.
This was partially offset by an increase in interest revenues of $100,000 from
the three months ended March 31, 1997 to the three months ended March 31, 1998.
Net (Loss)/Income. As a result of the foregoing factors, the Company had
a net loss of $615,000 for the three months ended March 31, 1998 as compared to
net income of $115,000 for the three months ended March 31, 1997.
EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, Statement of Financial Accounting Standards ("SFAS") No.
131, "Disclosure about Segments of an Enterprise and Related Information" was
issued. SFAS No. 131 establishes standards for the way that public business
enterprises report financial and descriptive information about their reporting
15
<PAGE> 16
operating segments. The Company has not determined the impact on its financial
statement disclosure. SFAS No. 131 is effective for the Company's financial
statements for the year ending December 31, 1998.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On October 7, 1997, the City Council of Forsyth, Georgia ("Forsyth"), a
community in which the Company provides service, voted to spend $2.7
million to build a broadband telecommunications plant in competition with the
Company. On December 2, 1997, Forsyth passed a resolution to sell $3 million in
revenue bonds to finance the proposed project. In order to protect its customer
base in Forsyth and surrounding Monroe County, Georgia, the Company sued Forsyth
under the Georgia Open Records Act to force the public disclosure of various
documents concerning, among other things, the feasibility and risk of Forsyth's
proposed project. Forsyth responded by counterclaiming to preliminarily enjoin
the Company from seeking further information under the Georgia Open Records Act
and from making further statements to the public concerning Forsyth's proposed
project. At a hearing before the Superior Court for Monroe County on January
27, 1998, the court denied Forsyth's motion for preliminary injunction. After
the Company moved to have Forsyth's counterclaim dismissed, Forsyth voluntarily
dismissed its counterclaim.
At April 30, 1998, the Company had 1,750 basic subscribers in the City of
Forsyth and Monroe County franchise areas. This represents approximately 2% of
the Company's total basic subscribers and, thus, approximately 2% of the
Company's total cash flow and EBITDA. If the current plans for a competing
system ultimately are implemented, this competition likely would result in a
loss of subscribers to the Company's system and/or make it more difficult for
the Company to maintain its prices for subscriptions to the system.
Item 2. Changes in Securities and Use of Proceeds
During the fourth quarter of 1997, the Company exchanged an aggregate
principal amount of $100,000,000 of its 10-3/4% Series B Senior Notes due 2004
(the "Notes") for an equal principal amount of its outstanding 10-3/4% Senior
Notes due 2004 (the "Exchange Notes"). The Notes were initially sold by the
Company for cash on August 15, 1997 in transactions not registered under the
Securities Act of 1933, as amended (the "Securities Act") in reliance upon the
exemption provided in Section 4(2) of the Securities Act. The Notes were sold
to CIBC Wood Gundy Securities Corp. and First Chicago Capital Markets, Inc. and
then subsequently resold to qualified institutional buyers in reliance upon
Rule 144A under the Securities Act and to a limited number of institutional
accredited investors in a manner exempt from registration under the Securities
Act.
The proceeds to the Company from the sale of the Notes, net of the initial
purchasers' discount of $3.0 million, was $97.0 million (before deducting
expenses payable by the Company, estimated to be $1.1 million). These net
proceeds were used (i) to repay all indebtedness outstanding under the
Company's then existing bank credit facility (approximately $66.7 million),
(ii) to repay the Company's then existing subordinated debt, including
additional interest (approximately $18.1 million), (iii) to repurchase certain
warrants previously issued by the Company in conjunction with its then existing
subordinated debt ($4.4 million), and (iv) for general corporate purposes
(including capital expenditures to upgrade certain systems) (approximately $6.7
million). Of the amount allocated to general corporate purposes, approximately
$4.3 million has been spent on capital expenditures (including upgrading
certain systems).
16
<PAGE> 17
The Exchange Notes were registered by the Company under the Securities Act
on November 5, 1997 (registration nos. 333-35183 and 333-35183-01). The
Exchange Notes are substantially identical (including principal amount,
interest rate, maturity and redemption rights) to the Notes for which they were
exchanged, except that (i) the offer and sale of the Exchange Notes was
registered under the Securities Act, and (ii) holders of the Exchange Notes are
not entitled to certain rights of holders of the Notes under the Registration
Rights Agreement of the Company dated as of August 15, 1997 (which terminated
upon the exchange of the Exchange Notes for the Notes). Each of the Notes and
Exchange Notes were issued under an indenture dated as of August 15, 1997 among
the Company and United States Trust Company of New York, as trustee. The
Company did not receive any proceeds from the exchange.
The Exchange Notes are general senior unsecured obligations of the Company
that mature on August 15, 2004 and rank equally in right of payment with all
other existing and future unsubordinated indebtedness of the Company and senior
in right of payment to any subordinated obligations of the Company. Interest
on the Exchange Notes accrues at the rate of 10-3/4% per annum and is payable
semi-annually in cash arrears on February 15 and August 15, which commenced on
February 15, 1998, to holders of record on the immediately preceding February 1
and August 1. Interest on the Exchange Notes accrues from the most recent date
to which interest has been paid.
17
<PAGE> 18
Item 6.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
3.1 -- Amended and Restated Agreement of Limited Partnership of
James Cable Partners, L.P. dated as of June 30, 1995*
3.2 -- Certificate of Limited Partnership of James Cable Partners,
L.P.*
3.3 -- Articles of Incorporation of James Cable Finance Corp.*
3.4 -- Bylaws of James Cable Finance Corp.*
4.1 -- Indenture dated as of August 15, 1997 among James Cable
Partners, L.P., James Cable Finance Corp., and United
States Trust Company of New York, as Trustee*
4.3 -- Credit Agreement dated as of August 15, 1997 among James
Cable Partners, L.P., the lenders party thereto, NBD Bank
as documentation agent and Canadian Imperial Bank of
Commerce as co-agent*
4.4 -- Company Security Agreement dated as of August 15, 1997
between James Cable Partners, L.P. and NBD Bank as
documentation agent*
4.5 -- Guaranty Agreement dated as of August 15, 1997 by James
Cable Finance Corp. in favor of the Lenders and Agents
named therein*
4.6 -- Guarantor Security Agreement dated as of August 15, 1997
between James Cable Finance Corp. and NBD Bank as
documentation agent*
10.1 -- Securities Purchase Agreement dated as of August 12, 1997
among James Cable Partners, L.P., James Cable Finance
Corp. and the Initial Purchasers*
10.2 -- Registration Rights Agreement dated as of August 15, 1997
among James Cable Partners, L.P., James Cable Finance
Corp. and the Initial Purchasers*
27.1 -- Financial Data Schedule**
</TABLE>
- ----------------------
* Incorporated by reference to the corresponding exhibits to the
Registrants' Registration Statement on Form S-4 (Registration No.
333-35183).
** Filed herewith.
18
<PAGE> 19
(b) Reports on Form 8-K
None.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on their behalf by the
undersigned, thereunto duly authorized.
JAMES CABLE PARTNERS, L.P.
By: James Communications Partners
General Partner
By: Jamesco, Inc.
Partner
Date: May 13, 1998 By: /s/ William R. James
---------------------------------------
William R. James
President
By: James Communications Partners
General Partner
By: DKS Holdings, Inc.
Partner
Date: May 13, 1998 By: /s/ Daniel K. Shoemaker
---------------------------------------
Daniel K. Shoemaker
President (Principal financial
officer and chief accounting officer)
Date: May 13, 1998
JAMES CABLE FINANCE CORP.
Date: May 13, 1998 By: /s/ William R. James
---------------------------------------
William R. James
President
Date: May 13, 1998 By: /s/ Daniel K. Shoemaker
---------------------------------------
Daniel K. Shoemaker
Treasurer (Principal financial
officer and chief accounting officer)
20
<PAGE> 21
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27.1 FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000926283
<NAME> JAMES CABLE FINANCE CORP.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,627,574
<SECURITIES> 0
<RECEIVABLES> 3,368,162
<ALLOWANCES> 14,675
<INVENTORY> 0
<CURRENT-ASSETS> 10,086,403
<PP&E> 86,262,277
<DEPRECIATION> 72,861,551
<TOTAL-ASSETS> 40,135,540
<CURRENT-LIABILITIES> 6,461,783
<BONDS> 100,000,000
0
0
<COMMON> 0
<OTHER-SE> (66,326,198)
<TOTAL-LIABILITY-AND-EQUITY> 40,135,540
<SALES> 0
<TOTAL-REVENUES> 9,278,973
<CGS> 0
<TOTAL-COSTS> 7,129,006
<OTHER-EXPENSES> (74,247)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,838,972
<INCOME-PRETAX> (614,758)
<INCOME-TAX> 0
<INCOME-CONTINUING> (614,758)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (614,758)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
