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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 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 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 or (I.R.S. Employer Identification No. of each
Organization of each Registrant) Registrant)
710 North Woodward Avenue, Suite 180 48304
Bloomfield Hills, Michigan (Zip Code)
(Address of principal executive offices)
</TABLE>
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
November 9, 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.
<S> <C> <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 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 19
PART II. OTHER INFORMATION
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>
September 30, December 31,
1999 1998
--------------- --------------
(Unaudited)
<S> <C> <C>
Assets
------
Cash & Cash Equivalents $ 6,809,873 $ 1,465,193
Accounts Receivable - Subscribers (Net of allowance for
doubtful accounts of $12,887 in 1999 and $43,971 in 1998) 3,342,335 3,419,506
Prepaid Expenses & Other 96,572 140,426
Property & Equipment:
Cable television distribution systems and equipment 82,603,902 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 89,298,869 93,961,772
Less accumulated depreciation (68,796,559) (76,026,758)
--------------- --------------
Total 20,502,310 17,935,014
Deferred Financing Costs (Net of accumulated amortization of
$1,316,674 in 1999 and $843,508 in 1998) 2,894,488 3,367,654
Intangible Assets, Net 16,582,907 18,026,202
Deposits 21,582 13,232
--------------- --------------
Total Assets $ 50,250,067 $ 44,367,227
=============== ==============
Liabilities & Partners' Deficit
-------------------------------
Liabilities:
Debt $ 100,000,000 $ 103,500,000
Accounts payable 40,734 306,658
Accrued expenses 2,438,845 2,416,467
Accrued interest on 10-3/4% Senior Notes 1,343,749 4,031,249
Unearned revenue 2,955,871 3,111,739
Subscriber deposits 21,826 23,424
--------------- --------------
Total 106,801,025 113,389,537
Commitments and Contingencies (Note 2)
Partners' Deficit:
Limited partners (50,168,364) (62,650,960)
General partner (6,382,594) (6,371,350)
--------------- --------------
Total (56,550,958) (69,022,310)
--------------- --------------
Total Liabilities & Partners' Deficit $ 50,250,067 $ 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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<CAPTION>
For the Three For the Three For the Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- -------------- ------------- ----------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 9,144,068 $ 9,415,293 $ 28,080,610 $ 28,142,073
System Operating Expenses (Excluding
Depreciation and Amortization) 5,042,265 4,990,678 15,224,818 14,286,443
Non-System Operating Expenses:
Management fee 456,748 475,281 1,414,797 1,415,766
Other 198,955 326,496 676,275 863,215
------------- -------------- ------------- ---------------
Total non-system operating
expenses 655,703 801,777 2,091,072 2,278,981
Depreciation and Amortization 1,853,331 1,896,981 5,565,448 5,467,246
------------- -------------- ------------- ---------------
Operating Income 1,592,769 1,725,857 5,199,272 6,109,403
Interest and Other:
Interest expense (2,845,222) (2,838,971) (8,608,354) (8,516,915)
Interest income 41,915 98,083 82,832 304,404
Other (28,749) (28,750) (89,567) (85,313)
------------- -------------- ------------- ---------------
Total interest and other (2,832,056) (2,769,638) (8,615,089) (8,297,824)
------------- -------------- ------------- ---------------
Loss before non-recurring items (1,239,287) (1,043,781) (3,415,817) (2,188,421)
Non-recurring gains on sales of cable
systems (Note 3) 0 0 15,887,169 0
------------- -------------- ------------- ---------------
Net (Loss) Income $ (1,239,287) $ (1,043,781) $ 12,471,352 $ (2,188,421)
============= ============== ============= ===============
</TABLE>
See notes to consolidated financial statements.
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JAMES CABLE PARTNERS, L.P. AND SUBSIDIARY
Consolidated Statements of Partners' Deficit
<TABLE>
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Limited General
Partners Partner Total
--------------- ----------- --------------
<S> <C> <C> <C>
Balance, December 31, 1998 $ (62,650,960) $(6,371,350) $ (69,022,310)
Net income (loss) (unaudited) 12,482,596 (11,244) 12,471,352
--------------- ----------- --------------
Balance, September 30, 1999 (unaudited) $ (50,168,364) $(6,382,594) $ (56,550,958)
=============== =========== ==============
</TABLE>
See notes to consolidated financial statements.
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JAMES CABLE PARTNERS, L.P. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
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For the Nine For the Nine
Months Ended Months Ended
September 30, September 30,
1999 1998
-------------- ---------------
(Unaudited)
<S> <C> <C>
Cash Flows (used in) from Operating Activities:
Net income (loss) $ 12,471,352 $ (2,188,421)
Adjustments to reconcile net income (loss) to cash
flows (used in) from operating activities:
Depreciation 3,627,153 2,599,369
Amortization 1,938,295 2,867,877
Noncash interest expense 473,166 454,415
Non-recurring gains on sales of cable systems (15,887,169) 0
Decrease (Increase) in assets:
Accounts receivable 77,171 (101,307)
Prepaid expenses 43,854 (85,789)
Deposits (8,350) 2,550
(Decrease) Increase in liabilities:
Accounts payable (265,924) (239,843)
Accrued expenses 22,377 323,201
Accrued interest on 10-3/4% Senior Notes (2,687,500) (2,687,500)
Unearned revenue (155,868) 53,728
Subscriber deposits (1,598) (1,390)
------------- ---------------
Total adjustments (12,824,393) 3,185,311
------------- ---------------
Cash flows (used in) from operating activities (353,041) 996,890
Cash Flows from (used in) Investing Activities:
Additions to property and equipment (7,060,279) (5,967,350)
Increase in intangible assets (495,000) 0
Net proceeds from sales of systems 16,753,000 0
------------- ---------------
Cash flows from (used in) investing activities 9,197,721 (5,967,350)
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 5,344,680 (4,970,460)
Cash and Cash Equivalents, Beginning of Period 1,465,193 9,902,842
------------- ---------------
Cash and Cash Equivalents, End of Period $ 6,809,873 $ 4,932,382
============= ===============
Supplemental Disclosure of Cash Flow Information -
Cash paid for interest during the period $ 10,839,835 $ 10,750,000
============= ===============
</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, 2001. 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 1996 Telecommunications Act terminated rate regulation of the
CPST for all cable systems on March 31, 1999, however, rate regulation as
described below continues to apply to the basic service tier.
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.
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:
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<CAPTION>
Tennessee Forsyth Totals
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<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>
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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>
September 30, December 31,
1999 1998
---------------- -----------------
(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 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 September 30, 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 cable
service, late payment fees, franchise fees, advertising revenues and commissions
related to the sale of goods by home shopping services. At September 30, 1999,
the Company had 71,898 basic subscribers and 22,567 premium subscriptions,
representing basic penetration of 59.3% and premium penetration of 31.4% 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 primarily 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. in December 1998.
As of September 30, 1999 the Company was offering its high-speed Internet
service, either through the one-way dial return or two-way, to approximately 45%
of its basic subscribers. In addition, the Company also offers traditional
dial-up Internet services in many of its systems. At September 30, 1999 the
Company had approximately 800 high-speed Internet customers and approximately
2,000 dial-up Internet customers.
The Company began offering the HITS services in its Durant, OK System
during the second quarter of 1999. HITS allows existing cable subscribers to
receive digital programming on one or more tiers of specialized channels through
an addressable converter. It also allows those cable subscribers with a HITS
converter to receive up to 30 channels of pay-per-view service and digital audio
services. While the HITS services are still new, as of September 30, 1999 the
Company had approximately 200, or 4%, of its Durant System cable subscribers
taking some level of HITS service. The Company has begun the process of
launching HITS in certain of its other Systems and expects to begin offering the
HITS services in those Systems during the fourth quarter of 1999.
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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 and Internet
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 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.
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 / from Operating Activities. Net cash used in operating
activities was $350,000 for the nine months ended September 30, 1999 as compared
to cash from operating activities of $1.0 million for the nine months ended
September 30, 1998.
Cash Flows from / used in Investing Activities. Net cash from investing
activities was $9.2 million for the nine months ended September 30, 1999 as
compared to net cash used in investing activities of $6.0 million for the nine
months ended September 30, 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 nine months ended September 30, 1999 amounted to
$3.5 million of principal payments on debt. There were no cash flows from or
used in financing activities for the nine months ended September 30, 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
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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 two independent
banks 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 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 September 30, 1999, this covenant limited the
Company's maximum borrowings thereunder to approximately $4 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 September 30, 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 September 30, 1999, the Company's total indebtedness was $100.0 million,
its total assets were $50.3 million and its partners' deficit was $56.6 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.
The Company has, for several years, been exploring various strategies to
enhance its value and has recently engaged an independent investment advisor to
assist it in evaluating the various strategies. The strategies under
consideration include a restructuring involving the sale of securities to a
third party, business affiliation opportunities and the possible sale of the
Company. No decision has been made to
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sell the Company and there can be no assurance that any transaction will result
from this process.
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 September 30,
1999 1998
---- ----
Amount % Amount %
------ - ------ -
(Dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $ 9,144 100.0 % $ 9,415 100.0 %
System operating expenses 5,042 55.1 4,990 53.0
Non-System operating expenses 656 7.2 802 8.5
Depreciation and amortization 1,853 20.3 1,897 20.2
------------- ---------- ------------- ----------
Operating income 1,593 17.4 1,726 18.3
Interest expense, net 2,803 30.7 2,741 29.1
Other expenses 29 0.3 29 0.3
------------- ---------- ------------- ----------
Loss before non-recurring items (1,239) (13.6) (1,044) (11.1)
Non-recurring gains on sales
of cable systems 0 0.0 0 0.0
============= ========== ============= ==========
Net loss $ (1,239) (13.6)% $ (1,044) (11.1)%
============= ========== ============= ==========
EBITDA (1) $ 3,446 37.7 % $ 3,623 38.5 %
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months ended September 30,
1999 1998
---- ----
Amount % Amount %
------ - ------ -
(Dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $ 28,081 100.0 % $ 28,142 100.0 %
System operating expenses 15,225 54.2 14,286 50.8
Non-System operating expenses 2,091 7.4 2,279 8.1
Depreciation and amortization 5,566 19.9 5,468 19.4
------------- ---------- ------------- ----------
Operating income 5,199 18.5 6,109 21.7
Interest expense, net 8,525 30.4 8,212 29.2
Other expenses 90 0.3 85 0.3
------------- ---------- ------------- ----------
Loss before non-recurring items (3,416) (12.2) (2,188) (7.8)
Non-recurring gains on sales
of cable systems 15,887 56.6 0 0.0
============= ========== ============= ==========
Net income (loss) $ 12,471 44.4 % $ (2,188) (7.8)%
============= ========== ============= ==========
EBITDA (1) $ 10,765 38.3 % $ 11,577 41.1 %
</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
15
<PAGE> 16
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 SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
Revenues. Revenues for the three months ended September 30, 1999 decreased
by $300,000, or 2.9%, to $9.1 million from $9.4 million for the three months
ended September 30, 1998. This decrease is primarily due to the sale of the
Company's Tennessee and Forsyth and Monroe County, Georgia cable systems, both
of which occurred during the first quarter of 1999 (See "Sales of Cable
Systems"). Average monthly total revenues per subscriber for the three months
ended September 30, 1999 were $42.24, as compared to $40.09 for the same period
last year. This increase is primarily the result of rate increases which the
Company implemented during the fourth quarter of 1998 and the second and third
quarters of 1999.
Subscribers. At September 30, 1999 the Company had 71,898 subscribers which
represents a decrease of 6,466 from the 78,364 subscribers at September 30,
1998. This decrease is primarily 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 11,218 of the September 30, 1998 subscribers, as partially
offset by the acquisition of Fannon Cable T.V., Inc. in December 1998, which
accounted for 6,175 of the September 30, 1999 subscribers. The Company believes
that the remaining decrease in subscribers of 1,423 from September 30, 1998 to
September 30, 1999 resulted from the increased availability and affordability of
competitive video services from satellite dishes and wireless cable services.
The Company continues to respond to this competition with the introduction of
advanced telecommunications services and aggressive marketing campaigns.
System Operating Expenses. System operating expenses remained constant at
$5.0 million for the three months ended September 30, 1998 and for the three
months ended September 30, 1999. As a percentage of revenues, system operating
expenses increased 2.1% from 53.0% in 1998 to 55.1% in 1999.
Non-System Operating Expenses. Non-system operating expenses decreased by
$150,000, or 18.2%, from $800,000 for the three months ended September 30, 1998
to $650,000 for the three months ended September 30, 1999. The primary reason
for this decrease was due to a reduction in legal and professional fees.
EBITDA. As a result of the foregoing, EBITDA decreased from $3.6 million
for the three months ended September 30, 1998 to $3.4 million for the three
months ended September 30, 1999.
Depreciation and Amortization. Depreciation and amortization remained
constant at $1.9 million for the three months ended September 30, 1998 and for
the three months ended September 30, 1999. The increase in depreciation
resulting from the capital expenditures made as a part of the Company's ongoing
selective upgrades was offset by the assets that became fully depreciated or
amortized during the third quarter of 1999.
Interest Expense, Net. Interest expense, net increased $100,000, or 2.3%,
from $2.7 million for the three months ended September 30, 1998 to $2.8 million
for the three months ended September 30, 1999. This increase is primarily the
result of a decrease in the Company's interest revenue from 1998
16
<PAGE> 17
to 1999.
Net Loss. As a result of the foregoing factors, the Company's net loss
increased by $200,000 from $1.0 million for the three months ended September 30,
1998 to $1.2 million for the three months ended September 30, 1999.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1998
Revenues. Revenues remained constant at $28.1 million for the nine months
ended September 30, 1998 and for the nine months ended September 30, 1999.
Average monthly total revenues per subscriber for the nine months ended
September 30, 1999 were $41.24, as compared to $39.81 for the same period last
year. This increase is primarily the result of rate increases which the Company
implemented during the fourth quarter of 1998 and the second and third quarters
of 1999.
System Operating Expenses. System operating expenses for the nine months
ended September 30, 1999 were $15.2 million, an increase of $900,000, or 6.6%,
over the nine months ended September 30, 1998. As a percentage of revenues,
system operating expenses increased 3.4% from 50.8% in 1998 to 54.2% 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 decreased by
$200,000, or 8.3%, from $2.3 million for the nine months ended September 30,
1998 to $2.1 million for the nine months ended September 30, 1999. The primary
reason for this decrease was a reduction in legal and professional fees.
EBITDA. As a result of the foregoing, EBITDA decreased from $11.6 million
for the nine months ended September 30, 1998 to $10.8 million for the nine
months ended September 30, 1999.
Depreciation and Amortization. Depreciation and amortization increased
$100,000, or 1.8%, from $5.5 million for the nine months ended September 30,
1998 to $5.6 million for the nine months ended September 30, 1999. This increase
is primarily the result of the capital expenditures made as a part of the
Company's ongoing selective upgrades.
Interest Expense, Net. Interest expense, net increased $300,000, or 3.8%,
from $8.2 million for the nine months ended September 30, 1998 to $8.5 million
for the nine months ended September 30, 1999. Of this increase, $100,000 is
interest the Company paid on borrowings against its credit facility during the
nine months ended September 30, 1999. The Company did not have any borrowings
against its credit facility during the nine months ended September 30, 1998. The
remaining $200,000 increase is the result of a decrease in the Company's
interest revenue 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 from $2.2 million for the
nine months ended September 30, 1998 to $3.4 million for the nine months ended
September 30, 1999.
Net income / (loss). During the nine months ended September 30, 1999, the
Company realized $15.9 million in non-recurring gains on the sales of its
Tennessee and Forsyth and Monroe County,
17
<PAGE> 18
Georgia cable systems (See "Sales of Cable Systems"), which resulted in net
income of $12.5 million as compared to a net loss of $2.2 million for the nine
months ended September 30, 1998.
EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS
In September 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, 2001. 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.
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. The
Company has received written assurance from the third party vendor that the
current version of the software used by the Company is Year 2000 compliant. The
Company believes that even if the current software proves to be non-compliant,
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, via the vendor's web page, written documentation
that the vendor's major internal Year 2000 issues have been resolved and that
all remaining issues will be resolved in 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
18
<PAGE> 19
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 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 4.1"),
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 nine months ended September 30, 1999 and 1998,
or at September 30, 1999 and December 31, 1998, any market risk sensitive
instruments.
19
<PAGE> 20
Item 6.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C> <C>
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****
</TABLE>
- ---------------------------
* 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
None.
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: November 9, 1999 By: /s/ William R. James
------------------------------
William R. James
President
By: James Communications Partners
General Partner
By: DKS Holdings, Inc.
Partner
Date: November 9, 1999 By: /s/ Daniel K. Shoemaker
-------------------------------
Daniel K. Shoemaker
President (Principal financial
officer and chief accounting
officer)
JAMES CABLE FINANCE CORP.
Date: November 9, 1999 By: /s/ William R. James
------------------------------
William R. James
President
Date: November 9, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 6,809,873
<SECURITIES> 0
<RECEIVABLES> 3,355,222
<ALLOWANCES> 12,887
<INVENTORY> 0
<CURRENT-ASSETS> 10,248,780
<PP&E> 89,298,869
<DEPRECIATION> 68,796,559
<TOTAL-ASSETS> 50,250,067
<CURRENT-LIABILITIES> 6,801,025
<BONDS> 100,000,000
0
0
<COMMON> 0
<OTHER-SE> (56,550,958)
<TOTAL-LIABILITY-AND-EQUITY> 50,250,067
<SALES> 0
<TOTAL-REVENUES> 28,080,610
<CGS> 0
<TOTAL-COSTS> 22,881,338
<OTHER-EXPENSES> 6,735
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,608,354
<INCOME-PRETAX> (3,415,817)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,415,817)
<DISCONTINUED> 0
<EXTRAORDINARY> 15,887,169
<CHANGES> 0
<NET-INCOME> 12,471,352
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
