<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, 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 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)
<TABLE>
<S> <C>
Delaware 38-2778219
Michigan 38-3182724
(State or Other Jurisdiction of Incorporation (I.R.S. Employer Identification No.)
or Organization)
</TABLE>
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 14, 1999: 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
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PAGE NO.
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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 Sheets of James Cable Finance Corp. 10
Notes to Balance Sheets 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 20
</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,
1999 1998
------------------- -------------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash & Cash Equivalents $ 10,237,124 $ 1,465,193
Accounts Receivable - Subscribers (Net of allowance for
doubtful accounts of $8,198 in 1999 and $43,971 in 1998) 3,108,433 3,419,506
Prepaid Expenses & Other 443,683 140,426
Property & Equipment:
Cable television distribution systems and equipment 77,099,342 87,266,805
Land and land improvements 306,426 306,426
Buildings and improvements 1,111,621 1,111,621
Office furniture & fixtures 1,720,616 1,720,616
Vehicles 3,556,304 3,556,304
------------------- -------------------
Total 83,794,309 93,961,772
Less accumulated depreciation (66,335,387) (76,026,758)
------------------- -------------------
Total 17,458,922 17,935,014
Deferred Financing Costs (Net of accumulated amortization of
$1,001,230 in 1999 and $843,508 in 1998) 3,209,932 3,367,654
Intangible Assets, Net 17,706,110 18,026,202
Deposits 9,832 13,232
------------------- -------------------
Total Assets $ 52,174,036 $ 44,367,227
=================== ===================
LIABILITIES & PARTNERS' DEFICIT
Liabilities:
Debt $ 100,000,000 $ 103,500,000
Accounts payable 220 306,658
Accrued expenses 2,081,085 2,416,467
Accrued interest on 10-3/4% Senior Notes 1,343,749 4,031,249
Unearned revenue 2,860,800 3,111,739
Subscriber deposits 22,777 23,424
------------------- -------------------
Total 106,308,631 113,389,537
Commitments and Contingencies (Note 2)
Partners' Deficit:
Limited partners (47,868,711) (62,650,960)
General partner (6,265,884) (6,371,350)
------------------- -------------------
Total (54,134,595) (69,022,310)
------------------- -------------------
Total Liabilities & Partners' Deficit $ 52,174,036 $ 44,367,227
=================== ===================
</TABLE>
See notes to consolidated financial statements.
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JAMES CABLE PARTNERS, L.P. AND SUBSIDIARY
Consolidated Statements of Operations
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For the Three For the Three
Months Ended Months Ended
March 31, March 31,
1999 1998
----------------- -----------------
(Unaudited)
<S> <C> <C>
Revenues $ 9,810,688 $ 9,278,973
System Operating Expenses (Excluding
Depreciation and Amortization) 5,186,050 4,592,364
Non-System Operating Expenses:
Management fee 499,857 465,738
Other 290,117 310,567
------------------ ------------------
Total non-system operating
expenses 789,974 776,305
Depreciation and Amortization 1,901,073 1,760,337
------------------ ------------------
Operating Income 1,933,591 2,149,967
Interest and Other:
Interest expense (2,917,910) (2,838,972)
Interest income 9,745 102,372
Other (24,880) (28,125)
------------------ ------------------
Total interest and other (2,933,045) (2,764,725)
------------------ ------------------
Loss before non-recurring items (999,454) (614,758)
Non-recurring gains on sales of cable
systems (Note 3) 15,887,169 0
------------------ ------------------
Net income (loss) $ 14,887,715 $ (614,758)
================== ==================
</TABLE>
See notes to consolidated financial statements.
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JAMES CABLE PARTNERS, L.P. AND SUBSIDIARY
Consolidated Statements of Partners' Deficit
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<CAPTION>
Limited General
Partners Partner Total
------------------ ------------------ ------------------
<S> <C> <C> <C>
Balance, December 31, 1998 $ (62,650,960) $ (6,371,350) $ (69,022,310)
Net income (unaudited) 14,782,249 105,466 14,887,715
-------------------- -------------------- -------------------
Balance, March 31, 1999 (unaudited) $ (47,868,711) $ (6,265,884) $ (54,134,595)
==================== ==================== ===================
</TABLE>
See notes to consolidated financial statements.
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JAMES CABLE PARTNERS, L.P. AND SUBSIDIARY
Consolidated Statements of Cash Flows
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For the Three For the Three
Months Ended Months Ended
March 31, March 31,
1999 1998
------------------ -------------------
(Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 14,887,715 $ (614,758)
Adjustments to reconcile net income (loss) to net cash
flow used in operating activities:
Depreciation 1,165,981 775,183
Amortization 735,092 985,154
Noncash interest expense 157,722 151,472
Non-recurring gains on sales of cable systems (15,887,169) 0
Decrease (Increase) in assets:
Accounts receivable 311,073 (9,142)
Prepaid expenses (303,257) 108,474
Deposits 3,400 (1,600)
(Decrease) Increase in liabilities:
Accounts payable (306,438) (172,838)
Accrued expenses (335,383) (358,000)
Accrued interest on 10-3/4% Senior Notes (2,687,500) (2,687,500)
Unearned revenue (250,939) 56,981
Subscriber deposits (647) (475)
-------------------- ------------------
Total adjustments (17,398,065) (1,152,291)
----------------- ------------------
Cash flows used in operating activities (2,510,350) (1,767,049)
Cash Flows from (used in) Investing Activities:
Additions to property and equipment (1,555,719) (1,508,218)
Increase in intangible assets (415,000) 0
Net proceeds from sales of systems 16,753,000 0
----------------- ------------------
Cash flows from (used in) investing activities 14,782,281 (1,508,218)
Cash Flows used in Financing Activities:
Principal payments on debt (3,500,000) 0
----------------- ------------------
Cash flows used in financing activities (3,500,000) 0
----------------- ------------------
Net Increase (Decrease) in Cash and Cash Equivalents 8,771,931 (3,275,267)
Cash and Cash Equivalents, Beginning of Period 1,465,193 9,902,842
----------------- ------------------
Cash and Cash Equivalents, End of Period $ 10,237,124 $ 6,627,575
================= ==================
Supplemental Disclosure of Cash Flow Information -
Cash paid for interest during the period $ 5,464,835 $ 5,375,000
================== ===================
</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,
1998 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, 1998 included in the Company's 1998 Form
10-K 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 1998,
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" was issued. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. The standard is effective for the first quarter of the Company's
fiscal year beginning January 1, 2000. The Company does not anticipate that the
adoption of SFAS No. 133 will have a material impact on its financial position
or results of operations.
(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. Critics of the cable television industry
continue to seek to maintain or even tighten cable rate 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
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service" in cases where the latter methodology appears favorable. The FCC also
established a vastly simplified cost of service methodology for small cable
companies.
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 the provision of cable television related equipment. 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 terminated rate regulation of the CPST
for all cable systems on March 31, 1999.
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. In this regard, a rulemaking is now pending at the FCC regarding
the imposition of dual digital and analog must carry provisions.
(3) SALES OF CABLE SYSTEMS
On March 5, 1999, pursuant to an Asset Purchase Agreement dated as of
July 31, 1998, the Company sold its cable television systems, serving
approximately 9,500 subscribers, in Pickett County, Scott County, Morgan County,
Roane County, Fentress County and Cumberland County, Tennessee to Rapid
Communications, L.P. for $14.7 million in cash.
On March 31, 1999, pursuant to an Asset Purchase Agreement dated as of
February 2, 1999, the Company sold its cable television systems, serving
approximately 1,700 subscribers, in Forsyth and Monroe County, Georgia to the
City of Forsyth for $2.3 million in cash.
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The net gains on the above sales are calculated as follows:
<TABLE>
<CAPTION>
Tennessee Forsyth Totals
--------- ------- ------
<S> <C> <C> <C>
Net sale proceeds $14,453,000 $2,300,000 $16,753,000
Basis of assets sold 569,083 296,748 865,831
---------------------------------------------------
Gain of sale $13,883,917 $2,003,252 $15,887,169
===================================================
</TABLE>
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JAMES CABLE FINANCE CORP.
(A wholly owned subsidiary of James Cable Partners, L.P.,
a Delaware Limited Partnership)
BALANCE SHEETS
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<CAPTION>
March 31, December 31,
1999 1998
----------------- -----------------
(Unaudited)
ASSETS
<S> <C> <C>
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 sheets.
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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 SHEETS (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. from the date of
inception through March 31, 1999, 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 differences or changes include those
discussed in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 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. Other
revenues are 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, 1999, the Company had 74,305 basic
subscribers and 22,780 premium subscriptions, representing basic penetration of
60.1% and premium penetration of 30.7% as compared to December 31, 1998 at which
time the Company had 84,755 basic subscribers and 26,413 premium subscriptions
which represented basic penetration of 61.4% and premium penetration of 31.2%.
The decrease in the basic subscribers is due to the sale of the Company's
Tennessee and Forsyth and Monroe County, Georgia cable systems (See "Sales of
Cable Systems") which were partially offset by the acquisition of Fannon Cable
T.V., Inc.
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 most 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 associated with cable system upgrades,
and other capital projects, which allow the Company to remain competitive. In
order to provide enough cash to meet these requirements, the Company relies on
operating revenues (e.g. monthly fees paid by subscribers for basic and pay
services) and 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 Operating Activities. Net cash used in operating
activities was $2.5 million for the three months ended March 31, 1999 as
compared to $1.8 million for the three months ended March 31, 1998.
Cash Flows from / used in Investing Activities. Net cash from investing
activities was $14.8 million for the three months ended March 31, 1999 as
compared to net cash used in investing activities of $1.5 million for the three
months ended March 31, 1998. This change in investing cash flow is primarily
attributable to the $16.8 million of net proceeds received upon the sales of the
Tennessee and Forsyth and Monroe County, Georgia cable systems, both of which
occurred during the first quarter of 1999 (See "Sales of Cable Systems").
Cash Flows from / used in Financing Activities. Cash flows used in
financing activities for the three months ended March 31, 1999 amounted to $3.5
million of principal payments on debt. There were no cash flows from or used in
financing activities for the three months ended March 31, 1998.
The Notes. The Company has outstanding an aggregate principal amount of
$100 million of its 10-3/4% Series B Senior Notes due 2004 (the "Notes"). The
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. The Notes are subordinated in
right of payment to all secured indebtedness of the Company. Interest on the
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 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.
There is no public market for the Notes. The Company has not and does not
intend to list the Notes on any securities exchange or to seek approval for
quotation through any automated quotation system.
The Credit Facility. The Company has a Credit Facility with Canadian
Imperial Bank of Commerce, an affiliate of CIBC Wood Gundy Securities Corp., and
NBD Bank, an affiliate of First Chicago Capital Markets, Inc., acting as the
lenders. The 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 Credit Facility will be
available (i) to provide for
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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
Credit Facility requires the Company to maintain the ratio of its total debt to
annualized six-month EBITDA at no more than 7.5 to 1. As of March 31, 1999, this
covenant limited the Company's maximum borrowings thereunder to approximately
$15 million. The Credit Facility requires payments of accrued interest on a
monthly basis throughout the term, with principal payment due at maturity. There
was no indebtedness outstanding under the Credit Facility at March 31, 1999.
The Credit Facility is secured by a first priority lien on and security
interest in substantially all of the assets of the Company. The 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 Credit Facility to annualized six-month EBITDA)
of no more than 1.75 to 1; and (c) maintain the total debt ratio described
above. The Company is in compliance with each of these covenants.
At March 31, 1999, the Company's total indebtedness was $100.0 million,
its total assets were $52.2 million and its partners' deficit was $54.1 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 Notes.
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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,
1999 1998
---- ----
Amount % Amount %
------ - ------ -
(Dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $ 9,811 100.0 % 9,279 100.0 %
System operating expenses 5,186 52.9 4,592 49.5
Non-System operating expenses 790 8.0 776 8.3
Depreciation and amortization 1,901 19.4 1,761 19.0
---------- -------- -------- -------
Operating income 1,934 19.7 2,150 23.2
Interest expense, net 2,908 29.6 2,737 29.5
Other expenses 25 0.3 28 0.3
---------- -------- -------- -------
Loss before non-recurring items (999) (10.2) (615) (6.6)
Non-recurring gains on sales
of cable systems 15,887 161.9 0 0.0
---------- -------- -------- -------
Net income (loss) $ 14,888 151.7 % (615) (6.6)%
========== ======== ======== =======
EBITDA(1) $ 3,835 39.1 % 3,910 42.1 %
</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.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Revenues. Revenues for the three months ended March 31, 1999 increased by
$500,000, or 5.7%, to $9.8 million from $9.3 million for the three months ended
March 31, 1998. Average monthly total revenues per subscriber for the three
months ending March 31, 1999 were $40.22, as compared to $39.43 for the same
period last year. These increases are primarily the result of rate increases
which the Company implemented during the fourth quarter of 1998 as well as the
acquisition of the assets of Fannon Cable T.V., Inc. in December 1998.
Subscribers. At March 31, 1999 the Company had 74,305 subscribers which
represents a decrease of 4,622 from the 78,927 subscribers at March 31, 1998.
This decrease is due to the sale of the Company's Tennessee and Forsyth and
Monroe County, Georgia cable systems (See "Sales of Cable Systems"), which
accounted for 11,262 of the March 31, 1998 subscribers, as partially offset by
the acquisition of Fannon Cable T.V., Inc., which accounted for 6,579 of the
March 31, 1999 subscribers. Thus, without the sales and acquisition, the
Company's subscriber base would have remained fairly constant from March 31,
1998 to March 31, 1999.
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System Operating Expenses. System operating expenses for the three months
ended March 31, 1999 were $5.2 million, an increase of $600,000, or 12.9%, over
the three months ended March 31, 1998. As a percentage of revenues, system
operating expenses increased 3.4% from 49.5% in 1998 to 52.9% in 1999. The
primary reason for this increase are expenses associated with the launching of
the Company's Internet services in many of its systems as well as 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 remained
constant at $800,000 for the three months ended March 31, 1998 and for the three
months ended March 31, 1999.
EBITDA. As a result of the foregoing, EBITDA decreased from $3.9 million
for the three months ended March 31, 1998 to $3.8 million for the three months
ended March 31, 1999.
Depreciation and Amortization. Depreciation and amortization increased
$100,000, or 8.0%, from $1.8 million for the three months ended March 31, 1998
to $1.9 million for the three months ended March 31, 1999. This increase in
primarily the result of capital expenditures made as a part of the Company's
ongoing selective upgrade program.
Interest Expense, Net. Interest expense, net increased $200,000, or 6.3%,
from $2.7 million for the three months ended March 31, 1998 to $2.9 million for
the three months ended March 31, 1999. This increase is primarily the result of
$100,000 in interest the Company paid on borrowings against its credit facility
during the quarter ended March 31, 1999. The Company did not have any borrowings
outstanding on its credit facility during the quarter ended March 31, 1998.
Also, the Company's interest revenue decreased by $100,000 from 1998 to 1999.
Loss before Non-recurring Items. As a result of the foregoing factors, the
Company's loss before non-recurring items increased by $400,000 from $600,000
for the three months ended March 31, 1998 to $1.0 million for the three months
ended March 31, 1999.
Net income / (loss). During the three months ended March 31, 1999, the
Company realized $15.9 million in non-recurring gains on the sales of its
Tennessee and Forsyth and Monroe County, Georgia cable systems (See "Sales of
Cable Systems"), which then resulted in net income of $14.9 million as compared
to a net loss of $600,000 for the three months ended March 31, 1998.
EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The standard is effective for the first quarter
of the Company's fiscal year beginning January 1, 2000. The Company does not
anticipate that the adoption of SFAS No. 133 will have a material impact on its
financial position or results of operations.
16
<PAGE> 17
YEAR 2000 COMPLIANCE
The Year 2000 issue impacts the Company in three different areas: (1) The
technical aspects of the Company's business, (2) the Company's accounting and
billing and (3) programming reception. These three areas are discussed below.
The Company's main line of business is the collection and distribution of
cable television signals. This collection and distribution of cable television
signals involves many electrical and digital components which gather,
unscramble, interpret and send readable signals to the television sets of the
Company's subscribers. Although some of the Company's technical equipment relies
on date recognition, the loss of such equipment, either temporarily or
permanently, due to the Year 2000 issue, would not cause a material disruption
in the Company's business and the cost of replacing such equipment would not be
material to the operations of the Company.
The Company's accounting software and its billing operations, both of which
are supplied by third party vendors, are at a greater risk with respect to the
Year 2000 issue. The Company uses third party accounting software for all of its
general ledger, payroll, accounts payable and financial statement purposes.
Currently, such software only requires a two digit entry in the year section of
date entries and, thus, cannot recognize the "20" in the year 2000 and may
instead treat the date as 1900. The Company has received both verbal and written
assurance from the third party vendor that the Year 2000 issue will be corrected
in an update which will be received by the Company during 1999. The Company also
believes that even if a working update is not received, the Year 2000 issues
inherent in the accounting software will not have a material effect on its
business operations.
The Company currently uses a third party vendor for its billing and
accounts receivable functions. While the Company does not know the extent of the
Year 2000 issues within the vendor's operations, the Company's risk could be
material if its billing operations ceased to exist for an extended period of
time. The Company has received both verbal and written assurance from this
vendor that the vendor's internal Year 2000 issues will be corrected during
1999. Also, the Company believes that any loss of its billing or accounts
receivable functions could be adequately replaced to avoid material losses in
its business operations.
The Company's ability to provide cable television services is significantly
dependent on its ability to adequately receive programming signals via satellite
distribution and off-air reception from various programmers and broadcasters. If
a significant amount of this programming was interrupted for a period of time
due to Year 2000 issues within the various satellite program or off-air
broadcast companies, it could have a material affect on the Company's
operations. To date, the Company has not received notification from any of its
satellite programmers or off-air broadcasters indicating that Year 2000 issues
exist which cannot be corrected by December 31, 1999. Also, the Company believes
that it would be able to adequately replace any lost signals so that there would
not be a material affect on its operations.
Because the Company's main Year 2000 risks are to be corrected by third
party vendors, its cost is expected to be minimal and immaterial to its
operations. The Company believes, based on its discussions with its third party
vendors, that it will be Year 2000 compliant during 1999. Also, in the event
that either the accounting software or billing system prove to be non-compliant,
the
17
<PAGE> 18
Company believes that it can rectify the situation so as to prevent the
non-compliance from materially affecting its operations.
SALES OF CABLE SYSTEMS
On March 5, 1999, pursuant to an Asset Purchase Agreement dated as of July
31, 1998, the Company sold its cable television systems, serving approximately
9,500 subscribers, in Pickett County, Scott County, Morgan County, Roane County,
Fentress County and Cumberland County, Tennessee to Rapid Communications, L.P.
for $14.7 million in cash.
On March 31, 1999, pursuant to an Asset Purchase Agreement dated as of
February 2, 1999, the Company sold its cable television systems, serving
approximately 1,700 subscribers, in Forsyth and Monroe County, Georgia to the
City of Forsyth for $2.3 million in cash.
The net gains on the above sales are calculated as follows:
<TABLE>
<CAPTION>
Tennessee Forsyth Totals
----------- ----------- -----------
<S> <C> <C> <C>
Net sale proceeds $14,453,000 $ 2,300,000 $16,753,000
Basis of assets sold 569,083 296,748 865,831
---------------------------------------------
Gain on sale $13,883,917 $ 2,003,252 $15,887,169
=============================================
</TABLE>
The total proceeds of $17.0 million received on these two sales, less
$247,000 of brokerage fees, will be used, as permitted in the Indenture to the
Notes (See "Part II. Other Information - Item 6 (a). Exhibits - Exhibit
(4)(a)"), to (i) repay borrowings under the Company's Credit Facility and (ii)
fund the Company's future capital expenditures.
Item 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
No disclosures are required with respect to this item because the Company
did not hold, either during the three months ended March 31, 1999 and 1998, or
at March 31, 1999 and December 31, 1998, any market risk sensitive instruments.
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 provided 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
18
<PAGE> 19
dismissed, Forsyth voluntarily dismissed its counterclaim. The Company then
filed a motion with the court to recover its legal costs related to Forsyth's
counterclaim.
On February 2, 1999 the Company and Forsyth entered into an Asset Purchase
Agreement pursuant to which the Company agreed to sell its cable television
system which serves Forsyth, and surrounding Monroe County, to Forsyth for $2.3
million in cash. The transactions contemplated by this agreement, which included
an exchange of mutual releases, were consummated on March 31, 1999, and as a
result, all of the litigation discussed above was dismissed.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of James' limited partners or
Finance Corp.'s sole shareholder during the first quarter of 1999.
19
<PAGE> 20
Item 6.
(a) Exhibits.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 -- Asset Purchase Agreement by and between James Cable
Partners, L.P., a Delaware Limited Partnership, and Rapid
Communications Partners, L.P., a Colorado Limited
Partnership, dated as of July 31, 1998***
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*
4.7 -- First Amendment to the Credit Agreement dated as of August
5, 1998 among James Cable Partners, L.P., the lenders party
thereto, NBD Bank, as documentation agent, and Canadian
Imperial Bank of Commerce, as administrative agent**
27.1 -- Financial Data Schedule****
- ---------------------------
* Incorporated by reference to the corresponding exhibits to the Registrants'
Registration Statement on Form S-4 (Registration No. 333-35183).
20
<PAGE> 21
** Incorporated by reference to Exhibit 4.7 of the registrant's Form 10-Q as
filed with the Securities and Exchange Commission for the quarterly period
ended June 30, 1998.
*** Incorporated by reference to Exhibit 2.1 of the registrant's Form 8-K as
filed with the Securities and Exchange Commission on March 19, 1999.
**** Filed herewith.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated March 5, 1999,
relating to the sale of its Tennessee cable systems to Rapid Communications
Partners, L.P. pursuant to an Asset Purchase Agreement dated as of July 31,
1998.
21
<PAGE> 22
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 14, 1999 By: /s/ William R. James
---------------------------------
William R. James
President
By: James Communications Partners
General Partner
By: DKS Holdings, Inc.
Partner
Date: May 14, 1999 By: /s/ Daniel K. Shoemaker
-------------------------------
Daniel K. Shoemaker
President (Principal financial
officer and chief accounting officer)
Date: May 14, 1999
JAMES CABLE FINANCE CORP.
Date: May 14, 1999 By: /s/ William R. James
---------------------------------
William R. James
President
Date: May 14, 1999 By: /s/ Daniel K. Shoemaker
-------------------------------
Daniel K. Shoemaker
Treasurer (Principal financial
officer and chief accounting officer)
22
<PAGE> 23
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000926283
<NAME> JAMES CABLE FINANCE CORP.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 10,237,124
<SECURITIES> 0
<RECEIVABLES> 3,116,631
<ALLOWANCES> 8,198
<INVENTORY> 0
<CURRENT-ASSETS> 13,789,240
<PP&E> 83,794,309
<DEPRECIATION> 66,335,387
<TOTAL-ASSETS> 52,174,036
<CURRENT-LIABILITIES> 6,308,631
<BONDS> 100,000,000
0
0
<COMMON> 0
<OTHER-SE> (54,134,595)
<TOTAL-LIABILITY-AND-EQUITY> 52,174,036
<SALES> 0
<TOTAL-REVENUES> 9,810,688
<CGS> 0
<TOTAL-COSTS> 7,877,097
<OTHER-EXPENSES> 15,135
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,917,910
<INCOME-PRETAX> (999,454)
<INCOME-TAX> 0
<INCOME-CONTINUING> (999,454)
<DISCONTINUED> 0
<EXTRAORDINARY> 15,887,169
<CHANGES> 0
<NET-INCOME> 14,887,715
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
