<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 June 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)
Delaware 38-2778219
Michigan 38-3182724
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization No. of each Registrant)
of each Registrant)
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
August 4, 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
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements of James Cable Partners,
L.P. and Subsidiary 3
Notes to Consolidated Financial Statements 7
Balance 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 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 21
</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>
June 30, December 31,
1999 1998
----------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash & Cash Equivalents $ 11,773,348 $ 1,465,193
Accounts Receivable - Subscribers (Net of allowance for
doubtful accounts of $14,487 in 1999 and $43,971 in 1998) 3,333,214 3,419,506
Prepaid Expenses & Other 310,980 140,426
Property & Equipment:
Cable television distribution systems and equipment 79,381,221 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 86,076,188 93,961,772
Less accumulated depreciation (67,475,018) (76,026,758)
------------ ------------
Total 18,601,170 17,935,014
Deferred Financing Costs (Net of accumulated amortization of
$1,158,952 in 1999 and $843,508 in 1998) 3,052,210 3,367,654
Intangible Assets, Net 17,044,697 18,026,202
Deposits 10,332 13,232
------------ ------------
Total Assets $ 54,125,951 $ 44,367,227
============ ============
LIABILITIES & PARTNERS' DEFICIT
Liabilities:
Debt $100,000,000 $103,500,000
Accounts payable 61,127 306,658
Accrued expenses 2,359,955 2,416,467
Accrued interest on 10-3/4% Senior Notes 4,031,249 4,031,249
Unearned revenue 2,962,786 3,111,739
Subscriber deposits 22,505 23,424
------------ ------------
Total 109,437,622 113,389,537
Commitments and Contingencies (Note 2)
Partners' Deficit:
Limited partners (48,989,244) (62,650,960)
General partner (6,322,427) (6,371,350)
------------ ------------
Total (55,311,671) (69,022,310)
------------ ------------
Total Liabilities & Partners' Deficit $ 54,125,951 $ 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
<TABLE>
<CAPTION>
For the Three For the Three For the Six For the Six
Months Ended Months Ended Months Ended Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
------------- ------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 9,125,854 $ 9,447,808 $ 18,936,542 $18,726,780
System Operating Expenses (Excluding
Depreciation and Amortization) 4,996,503 4,703,402 10,182,553 9,295,765
Non-System Operating Expenses:
Management fee 458,192 474,747 958,049 940,485
Other 187,203 226,152 477,320 536,719
Total non-system operating ----------- ----------- ------------ -----------
expenses 645,395 700,899 1,435,369 1,477,204
Depreciation and Amortization 1,811,044 1,809,928 3,712,117 3,570,265
----------- ----------- ------------ -----------
Operating Income 1,672,912 2,233,579 3,606,503 4,383,546
Interest and Other:
Interest expense (2,845,222) (2,838,972) (5,763,132) (5,677,944)
Interest income 31,172 103,949 40,917 206,321
Other (35,938) (28,438) (60,818) (56,563)
----------- ----------- ------------ -----------
Total interest and other (2,849,988) (2,763,461) (5,783,033) (5,528,186)
----------- ----------- ------------ -----------
Loss before non-recurring items (1,177,076) (529,882) (2,176,530) (1,144,640)
Non-recurring gains on sales of cable
systems (Note 3) 0 0 15,887,169 0
----------- ---------- ------------ -----------
Net (Loss) Income $(1,177,076) $ (529,882) $ 13,710,639 $(1,144,640)
=========== ========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
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JAMES CABLE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
------------------ ------------------ ------------------
<S> <C> <C> <C>
Balance, December 31, 1998 $(62,650,960) $(6,371,350) $(69,022,310)
Net income (unaudited) 13,661,716 48,923 13,710,639
------------ ----------- ------------
Balance, June 30, 1999 (unaudited) $(48,989,244) $(6,322,427) $(55,311,671)
============ =========== ============
</TABLE>
See notes to consolidated financial statements.
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JAMES CABLE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, June 30,
1999 1998
----------------- ------------------
(Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 13,710,639 $(1,144,640)
Adjustments to reconcile net income (loss) to cash
flows from operating activities:
Depreciation 2,305,612 1,613,554
Amortization 1,406,505 1,956,711
Noncash interest expense 315,444 302,944
Non-recurring gains on sales of cable systems (15,887,169) 0
Decrease (Increase) in assets:
Accounts receivable 86,292 (107,842)
Prepaid expenses (170,554) 140,440
Deposits 2,900 5,550
(Decrease) Increase in liabilities:
Accounts payable (245,531) (194,004)
Accrued expenses (56,513) 311,692
Unearned revenue (148,953) 65,873
Subscriber deposits (919) (995)
------------ -----------
Total adjustments (12,392,886) 4,093,923
------------ -----------
Cash flows from operating activities 1,317,753 2,949,283
Cash Flows from (used in) Investing Activities:
Additions to property and equipment (3,837,598) (3,145,652)
Increase in intangible assets (425,000) 0
Net proceeds from sales of systems 16,753,000 0
------------ -----------
Cash flows from (used in) investing activities 12,490,402 (3,145,652)
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 10,308,155 (196,369)
Cash and Cash Equivalents, Beginning of Period 1,465,193 9,902,842
------------ -----------
Cash and Cash Equivalents, End of Period $ 11,773,348 $ 9,706,473
============ ===========
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, 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:
<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>
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JAMES CABLE FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF JAMES CABLE PARTNERS, L.P., A DELAWARE LIMITED
PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
June 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 June 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 June 30, 1999, the Company had 72,896 basic subscribers
and 22,062 premium subscriptions, representing basic penetration of 58.9% and
premium penetration of 30.3% 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 June 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 June 30, 1999 the Company
had approximately 625 high-speed Internet customers and approximately 1,820
dial-up Internet customers.
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,
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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.
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 from Operating Activities. Net cash from operating activities
was $1.3 million for the six months ended June 30, 1999 as compared to $2.9
million for the six months ended June 30, 1998.
Cash Flows from / used in Investing Activities. Net cash from investing
activities was $12.5 million for the six months ended June 30, 1999 as compared
to net cash used in investing activities of $3.1 million for the six months
ended June 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 six months ended June 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 six months ended June 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 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.
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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 June 30, 1999, this covenant
limited the Company's maximum borrowings thereunder to approximately $1 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 June 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 June 30, 1999, the Company's total indebtedness was $100.0 million,
its total assets were $54.1 million and its partners' deficit was $55.3 million.
Due to the Company's high degree of leverage: (a) a substantial portion of its
cash flow from operations will be committed to the payment of its interest
expense and will not be available for other purposes; (b) the Company's ability
to obtain additional financing in the future for working capital, capital
expenditures, acquisitions or other purposes may be limited; and (c) the Company
is more highly leveraged than many cable television companies and certain direct
broadcast satellite ("DBS") and telephone companies, which may limit the
Company's flexibility in reacting to changes in its business. However, the
Company believes that it will continue to generate cash or obtain financing
sufficient to meet its requirements for debt service, working capital and
capital expenditures contemplated in the near term and through the maturity of
the 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 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:
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<TABLE>
<CAPTION>
For the Three Months ended June 30,
1999 1998
---- ----
Amount % Amount %
------ - ------ -
(Dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $ 9,126 100.0 % $9,448 100.0%
System operating expenses 4,997 54.8 4,703 49.8
Non-System operating expenses 645 7.1 701 7.4
Depreciation and amortization 1,811 19.8 1,810 19.2
------- ----- ------- -----
Operating income 1,673 18.3 2,234 23.6
Interest expense, net 2,814 30.8 2,735 28.9
Other expenses 36 0.4 29 0.3
------- ----- ------- -----
Loss before non-recurring items (1,177) (12.9) (530) (5.6)
Non-recurring gains on sales
of cable systems 0 0.0 0 0.0
------- ----- ------- -----
Net loss $(1,177) (12.9)% $ (530) (5.6)%
======= ===== ====== =====
EBITDA (1) $ 3,484 38.2 % $4,044 42.8%
</TABLE>
<TABLE>
<CAPTION>
For the Six Months ended June 30,
1999 1998
---- ----
Amount % Amount %
------ - ------ -
(Dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $ 18,937 100.0% $18,727 100.0%
System operating expenses 10,183 53.8 9,296 49.6
Non-System operating expenses 1,435 7.6 1,477 7.9
Depreciation and amortization 3,712 19.6 3,570 19.1
------- ----- ------- -----
Operating income 3,607 19.0 4,384 23.4
Interest expense, net 5,722 30.2 5,472 29.2
Other expenses 61 0.3 57 0.3
------- ----- ------- -----
Loss before non-recurring items (2,176) (11.5) (1,145) (6.1)
Non-recurring gains on sales
of cable systems 15,887 83.9 0 0.0
------- ----- ------- -----
Net income (loss) $13,711 72.4% $(1,145) (6.1)%
======= ===== ======= =====
EBITDA (1) $ 7,319 38.6% $ 7,954 42.5%
</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.
15
<PAGE> 16
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Revenues. Revenues for the three months ended June 30, 1999 decreased by
$300,000, or 3.4%, to $9.1 million from $9.4 million for the three months ended
June 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 June
30, 1999 were $41.41, as compared to $39.91 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 quarter of 1999.
Subscribers. At June 30, 1999 the Company had 72,896 subscribers which
represents a decrease of 5,983 from the 78,879 subscribers at June 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 11,167 of the June 30, 1998 subscribers, as partially offset
by the acquisition of Fannon Cable T.V., Inc. in December 1998, which accounted
for 6,376 of the June 30, 1999 subscribers. The Company believes that the
remaining decrease in subscribers from June 30, 1998 to June 30, 1999 resulted
from the increased availability and affordability of competitive video services
and generally reflects the cable industry's experience as a whole with respect
to increased competition 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 for the three months
ended June 30, 1999 were $5.0 million, an increase of $300,000, or 6.2%, over
the three months ended June 30, 1998. As a percentage of revenues, system
operating expenses increased 5.0% from 49.8% in 1998 to 54.8% 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.
Non-System Operating Expenses. Non-system operating expenses decreased by
$100,000, or 7.9%, from $700,000 for the three months ended June 30, 1998 to
$600,000 for the three months ended June 30, 1999. The primary reason for this
decrease was due to a reduction in legal fees.
EBITDA. As a result of the foregoing, EBITDA decreased from $4.0 million
for the three months ended June 30, 1998 to $3.5 million for the three months
ended June 30, 1999.
Depreciation and Amortization. Depreciation and amortization remained
constant at $1.8 million for the three months ended June 30, 1998 and for the
three months ended June 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 first quarter of 1999.
Interest Expense, Net. Interest expense, net increased $100,000, or 2.9%,
from $2.7 million for the three months ended June 30, 1998 to $2.8 million for
the three months ended June 30, 1999. This increase is primarily the result of a
decrease in the Company's interest revenue from 1998 to 1999.
Net Loss. As a result of the foregoing factors, the Company's net loss
increased by $700,000 from $500,000 for the three months ended June 30, 1998 to
$1.2 million for the three months ended June 30, 1999.
16
<PAGE> 17
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Revenues. Revenues for the six months ended June 30, 1999 increased by
$200,000, or 1.1%, to $18.9 million from $18.7 million for the six months ended
June 30, 1998. Average monthly total revenues per subscriber for the six months
ended June 30, 1999 were $40.78, as compared to $39.67 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 and the second quarter of
1999 as partially offset by the sale of the Company's Tennessee and Forsyth and
Monroe County, Georgia cable systems (See "Sales of Cable Systems").
System Operating Expenses. System operating expenses for the six months
ended June 30, 1999 were $10.2 million, an increase of $900,000, or 9.5%, over
the six months ended June 30, 1998. As a percentage of revenues, system
operating expenses increased 4.2% from 49.6% in 1998 to 53.8% 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
$100,000, or 2.8%, from $1.5 million for the six months ended June 30, 1998 to
$1.4 million for the six months ended June 30, 1999. The primary reason for this
decrease was due to a reduction in legal fees.
EBITDA. As a result of the foregoing, EBITDA decreased from $8.0 million
for the six months ended June 30, 1998 to $7.3 million for the six months ended
June 30, 1999.
Depreciation and Amortization. Depreciation and amortization increased
$100,000, or 4.0%, from $3.6 million for the six months ended June 30, 1998 to
$3.7 million for the six months ended June 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 $250,000, or 4.6%,
from $5.5 million for the six months ended June 30, 1998 to $5.7 million for the
six months ended June 30, 1999. Of this increase, $100,000 is due to interest
the Company paid on borrowings against its credit facility during the six months
ended June 30, 1999. The Company did not have any borrowings against its credit
facility during the six months ended June 30, 1998. The remaining $150,000
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 $1.1 million for the
six months ended June 30, 1998 to $2.2 million for the six months ended June 30,
1999.
Net income / (loss). During the six months ended June 30, 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 resulted in net income of $13.7 million as compared to a
net loss of $1.1 million for the six months ended June 30, 1998.
17
<PAGE> 18
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, 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.
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
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 six months ended June 30, 1999 and 1998, or at
June 30, 1999 and December 31, 1998, any market risk sensitive instruments.
19
<PAGE> 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to ordinary and routine litigation proceedings that
are incidental to the Company's business. Management believes that the outcome
of all pending legal proceedings will not, in the aggregate, have a material
adverse effect on the financial condition or results of operations of the
Company.
20
<PAGE> 21
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).
21
<PAGE> 22
** 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.
22
<PAGE> 23
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: August 4, 1999 By: /s/ William R. James
------------------------------
William R. James
President
By: James Communications Partners
General Partner
By: DKS Holdings, Inc.
Partner
Date: August 4, 1999 By: /s/ Daniel K. Shoemaker
------------------------------
Daniel K. Shoemaker
President (Principal financial
officer and chief accounting
officer)
JAMES CABLE FINANCE CORP.
Date: August 4, 1999 By: /s/ William R. James
------------------------------
William R. James
President
Date: August 4, 1999 By: /s/ Daniel K. Shoemaker
------------------------------
Daniel K. Shoemaker
Treasurer (Principal financial
officer and chief accounting
officer)
23
<PAGE> 24
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 11,773,348
<SECURITIES> 0
<RECEIVABLES> 3,347,701
<ALLOWANCES> 14,487
<INVENTORY> 0
<CURRENT-ASSETS> 15,417,542
<PP&E> 86,076,188
<DEPRECIATION> 67,475,018
<TOTAL-ASSETS> 54,125,951
<CURRENT-LIABILITIES> 9,437,622
<BONDS> 100,000,000
0
0
<COMMON> 0
<OTHER-SE> (55,311,671)
<TOTAL-LIABILITY-AND-EQUITY> 54,125,951
<SALES> 0
<TOTAL-REVENUES> 18,936,542
<CGS> 0
<TOTAL-COSTS> 15,330,039
<OTHER-EXPENSES> 19,901
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,763,132
<INCOME-PRETAX> (2,176,530)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,176,530)
<DISCONTINUED> 0
<EXTRAORDINARY> 15,887,169
<CHANGES> 0
<NET-INCOME> 13,710,639
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
