ITEM 1. BUSINESS
GENERAL
TCA Cable TV, Inc. ("the Company") is engaged in the development, operation and management of cable television systems.(1) At October 31, 1995, the Company owned and operated 56 cable television systems which had approximately 545,000 subscribers and managed 2 systems which are owned by affiliated corporations and had approximately 3,500 subscribers.(2) The Company is listed in industry trade publications as one of the 20 largest operators of cable television systems in the United States (including subscribers in managed systems). The Company's systems are located primarily in smaller markets in Texas, Louisiana, Arkansas, Mississippi and New Mexico where over-the-air television reception is unsatisfactory, and the Company intends to continue to concentrate its activities in these and similar areas.
The Company was organized as a Texas corporation in December, 1981, to consolidate the ownership of four corporations which had been developing and operating cable television systems since 1965, 1973, 1975 and 1976, respectively. Unless the context otherwise requires, all references to "TCA Cable TV, Inc." and the "Company" in this report shall refer to TCA Cable TV, Inc. and its predecessors and subsidiaries.
THE CABLE TELEVISION INDUSTRY
Cable television is a service which delivers to the home varied entertainment and information programming, either as transmitted by licensed radio and television stations or programming designed specifically for cable distribution. Radio and television signals are received by "off-air" antennae, microwave relay systems and satellite earth stations and are modulated and amplified at an electronic control center, or "headend", for distribution through a network of aerial or underground coaxial cables or optical fiber to television sets owned by subscribers. Subscribers generally pay a monthly fee for the service. Cable systems generally operate under non-exclusive franchises granted by local or state governmental authorities. The growth of the cable television industry has been accompanied by a significant number of operator consolidations.
The cable television industry began in the early 1950's. The industry's birth and subsequent growth was the result of demand for more stations and improved reception in areas where over-the-air television reception was unsatisfactory because of topography or remoteness from broadcast towers. The use of cable as the means of providing additional television channels and improved over-the-air reception is now generally referred to as "basic service", and normally consists of programming available from nearby over-the-air television channels, public channels and a limited number of channels relayed from distant cities, and satellite programming. Additional satellite programming services are offered in a separate "expanded basic" service for an additional charge. For an additional monthly or individual event charge, cable operators also provide subscribers a choice of "premium services" (referred to as "Pay TV" or "Pay-Per-View"), generally consisting of feature films, sporting and other special entertainment events. The availability of cable specific channels and premium service has established cable television as an entertainment medium in addition to fulfilling its original purpose to provide better over-the-air television reception. This development has led to significant growth of cable television in larger metropolitan markets. Although the Company offers premium services and plans to increase its capacity to provide such services, it has no present plans to acquire or develop new systems in larger metropolitan markets.
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(1) A system includes all areas served from a single administrative office. A system may include one or more "headends" and the cable properties related thereto, and one or more communities or franchise areas.
(2) The Company reports its subscribers based on the number of separate accounts billed. The Company's practice differs from the "subscriber equivalent" method used by some other cable system operators. The Company estimates that the use of subscriber equivalents in its reporting would increase its number of subscribers by approximately 5%.
The Company believes the cable television industry may derive additional income in the foreseeable future from the sale of air time to advertisers who desire access to the television media to promote their products or services. This revenue source is commonly referred to as advertising income. Revenue from advertising was approximately 9%, 9% and 7% of total revenue during 1995, 1994 and 1993, respectively.
The Company is continually evaluating the technical and economic feasibility of providing enhanced or expanded subscriber services and may provide additional such services in the future. However, the Company cannot provide assurance that revenue from any of these sources will increase.
DEVELOPMENT OF CABLE SYSTEMS
The following table provides data relative to the last five fiscal years and indicates the growth of the cable systems owned by the Company. Information with respect to systems managed by the Company but owned by others is not included in the table.
Subscriber growth experienced by the Company in recent years has come from the acquisition of existing systems and the upgrading and development of systems already owned, rather than from the securing of new franchises or the construction of new systems. Prior to and upon its acquisition of a system, the Company conducts a review of the acquired system's cable plant and operating policies and procedures. On the basis of its review, the Company typically makes modifications, repairs, upgrades to the plant, and additionally institutes operating policies and procedures designed to expand the system and improve its profitability.
The Company intends to continue its emphasis on growth through acquisition of existing systems. There can be no assurances, however, that the Company will be able to acquire existing systems in the future on terms as favorable as it has been able to do in the past. The Company does not currently have any definitive agreements for the acquisition of any additional systems except for the partnership formed with Donrey Media Group on December 13, 1995 as discussed in Note 12 to the financial statements. However, the Company may in the future acquire additional systems on terms it deems favorable based on evaluations of a system's selling price relative to subscriber levels and projected cash flows, among other factors.
In addition to growth resulting from system acquisitions and improvements made to acquired systems, the Company expects to continue growth through increased subscriptions caused by population growth in its franchise areas, and by emphasizing the availability of increased services to its basic subscribers. See "Management's Discussion and Analysis of Financial Condition and Results of Operations". There can be no assurance, however, that the number of the Company's subscribers will continue to increase.
THE SYSTEMS
The following table sets forth information as of October 31, 1995, regarding the Company's cable systems, all of which are owned by the Company unless otherwise indicated:
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* Equivalent Billing Units, presented here to allow comparison with cable TV companies which report by this method, are calculated by dividing the basic service revenue by the base rate on commercial accounts and adding the number of residential accounts. Multiple-outlet subscribers at rates higher than the base rate making up the difference.
SYSTEM OPERATING OFFICES (AT OCTOBER 31, 1995)
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(1) This does not include information relating to the Alexandria, Louisiana system acquired December 15, 1995, as described in Note 12 to the financial statements.
SUBSCRIBER SERVICES
The Company offers services to its subscribers that are generally comparable to those offered by other cable television operators. The basic service offered by the Company typically includes signals of nearby over-the-air television stations carrying all four major commercial networks; independent, specialty and educational stations; sports and educational programming; and additional satellite programming such as signals of distant independent stations, news, sports and religious programming, and continuous time, news and weather information.
The Company offers an additional level of service known as "expanded basic" service. Under this level of service the Company makes available to subscribers a variety of packaged programming, including news,
sports, educational and entertainment channels and programs purchased from independent suppliers and combined in different formats to appeal to different tastes. Expanded basic service is provided at an additional monthly charge. A new product tier, known as the "premier package", is now being introduced in systems where fiber optic rebuilds are either finished or in some stage of completion. The new product tier offers five to twelve channels most requested by customers.
Most of the Company's systems normally offer at least four premium services while some systems offer additional premium service options. Premium services include channels such as: The Movie Channel, HBO, Showtime, Cinemax and The Disney Channel, which offer feature motion pictures, concerts and other special features without commercial interruption. The Company's services do not include X-rated motion pictures. The programming provided under premium service, and in some cases under basic service, is acquired by the Company from independent suppliers for a fee equal to a specified portion of the amount charged by the Company for the service. The fees paid by the Company to independent suppliers are believed by the Company to be comparable to those paid by similarly situated cable television companies.
Rates charged subscribers vary with the type of service selected. All of the Company's cable systems are subject to rate regulation. See "Business-Regulation". The monthly service fee for basic service generally ranges from $8 to $12. The monthly service fee for expanded basic service generally ranges from $6 to $13. The Company's average monthly revenue per subscriber during fiscal 1995 for basic and expanded basic services was $21.42. A one-time installation fee ranging from $24 to $42 is usually charged to new subscribers. Monthly charges for equipment furnished to the customer generally range from $1 to $3. Additionally, the Company generally charges $8.00 to $10.00 per month for each premium subscription service. Premium service charges are sometimes discounted for multiple services. Subscribers are free to terminate service at any time.
The Company also services commercial subscribers such as hotels, motels, hospitals, and apartments. These subscribers are charged a one-time connection fee, which is usually sufficient to cover the Company's cost of installation. Commercial subscribers are generally free to terminate service at any time.
MANAGEMENT SERVICES
In addition to operating its own cable television systems, the Company provides general management services for two systems owned by corporations affiliated with the Company ("the Affiliated Companies"). The Company's management services include: accounting, auditing, billing, marketing, computer operations, purchasing, engineering, and other technical and administrative support services which the Company performs pursuant to management contracts. These services are charged to the systems on a fee basis equal to specified amounts per subscriber for each particular service performed or a specified percentage of revenue. The intention is to recover the Company's actual costs of providing the services, plus a profit. Total revenues received by the Company for management services for fiscal 1995, 1994 and 1993 were $60,388, $53,323 and $51,220, respectively.
One of the Company's management contracts provides the Company a right of first refusal with respect to any proposed sales of any of the Affiliated Company's cable systems or with respect to any cable system acquisition opportunities which come to the attention of the Affiliated Company subject to the management contract. The Company does not intend to exercise its rights of first refusal with respect to relatively small cable systems which are contiguous to, or in the vicinity of, the systems owned by the Affiliated Companies.
The Company believes that the terms of its management contracts with Affiliated Companies are at least as favorable to the Company as could be obtained with unaffiliated third parties in arm's-length transactions.
FRANCHISES
Each local government authority typically issues a non-exclusive permit or enacts a non-exclusive franchise ordinance for the construction and operation of a cable television system within its borders after considering presentations by competing cable television companies. The Company's franchises normally require that 2% to 5% of the gross revenues of the cable system be paid to the franchising authority.
Effective January 1, 1987, rates charged to subscribers could no longer be regulated by local authorities in areas where the FCC determined that cable television systems were subject to "effective competition". Congress in the Cable Act of 1992 amended the effective competition standard in a manner that subjects virtually all of the Company's systems to rate regulation. See "Business-Regulation".
FCC Rules and some franchises generally require approval by the franchising authority for the sale of a system. See "Business-Regulation". Most of the Company's franchises can be terminated prior to their stated expiration for breach of material provisions. The Company holds approximately 210 franchises with unexpired terms ranging generally from one to 40 years. No one franchise accounts for more than 10% of the Company's total revenue.
Franchises have historically been renewed for companies that have provided adequate service and have complied generally with the franchise terms. Additionally, the Cable Communications Policy Act of 1984 established renewal procedures designed to protect incumbent franchisees against arbitrary denial of renewal. The Company believes that it has provided satisfactory levels of service and has maintained favorable relationships with local communities and anticipates that all or substantially all of its franchises will be renewed, although there can be no assurance of such renewals. In addition, other applicants have an opportunity to compete for the franchise upon its expiration. See "Competition" below. In connection with a renewal, the franchising authority may impose different and more stringent terms, the impact of which cannot be predicted. To date, however, all of the Company's franchises have been renewed or extended, generally at or prior to their stated expirations, and on modified, but not unduly burdensome, terms.
In City of Los Angeles v. Preferred Communications, Inc., the U.S. Supreme Court affirmed a decision that had allowed a challenge to the constitutionality of the cable television franchise process and which suggested that, where feasible, franchising authorities must grant access to others seeking to provide competitive cable television service in a community. If the rationale of the Preferred Communications case and other similar court decisions is applied generally to the cable television industry, many cable television operators, including the Company, may face increased competition from other cable television operators.
COMPETITION
The Company encounters competition for the acquisition of existing systems and may encounter similar competition at the time of franchise renewal. The cable television industry has undergone significant consolidation in recent years. At the same time, the number of United States communities that have not awarded cable television franchises has rapidly diminished and the competition for new franchises and for renewal of existing franchises has intensified. Furthermore, certain regulations restricting competition in the industry have recently been relaxed or rescinded, reflecting current and future policy objectives of the FCC and in Congress to increase competition to cable television. See "Regulation." As a result of the foregoing, it may be expected that the Company will encounter increased competition from other entities having substantially greater resources than the Company.
Competition for the Company's cable services arises from numerous alternative entertainment and information sources such as movie theaters, broadcast television stations, direct broadcast satellites and home satellite receivers, wireless cable systems, video cassette recorders, and other sources of home entertainment. Advances in communications technology and changes in the market place are constantly occurring. Due to changes in technology and regulatory policies encouraging competition, the Company anticipates significantly increased competition, particularly from recently launched direct broadcast satellite systems, as well as telephone companies, providing video programming to subscribers.
REGULATION
General. Cable television systems are regulated extensively by federal, local and sometimes state authorities. Local and state regulations generally relate to the awarding of franchises, rate regulation, customer service standards and other operational requirements.
FCC REGULATION
General. Federal regulation of cable television systems is effected primarily through the Federal Communications Commission (FCC). Regulations promulgated by the FCC contain detailed provisions relating to virtually all aspects of the cable industry including rate regulation, must carry and retransmission consent for carriage of broadcast signals, technical standards, customer service standards, competition, programming, franchise issues, commercial leased access channels, ownership of cable television systems, non-duplication of network programming, syndicated program exclusivity, sports program blackouts, equal employment opportunities, comprehensive reporting requirements, signal leakage standards and other matters. The FCC is authorized to impose monetary fines on cable system operators for violations of FCC rules and may also issue cease and desist orders.
Cable Communications Policy Act of 1984 and the Cable Television Consumer Protection and Competition Act of 1992
On October 11, 1984, Congress passed the Cable Communications Policy Act of 1984 ("Cable Act of 1984"). A major objective of Congress in passing that law was to clarify the regulatory relationship between franchisers and cable operators. On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 ("Cable Act of 1992"), which expands the scope of cable industry regulation beyond that imposed by the Cable Act of 1984. Provisions of these laws which the Company believes may have a significant impact on its operations are summarized below.
Rate Regulation
All of the Company's cable systems are or will be subject to rate regulation. Pursuant to the Cable Act of 1992 the FCC has established rate standards and procedures governing regulation of basic cable service rates. Franchising authorities may "certify" to the FCC that they will follow the FCC standards and procedures in regulating basic rates and, once such certification is made, the franchising authorities will assume rate regulation authority over basic rates. The Cable Act of 1992 also requires that the FCC, upon complaint from a franchising authority or a cable subscriber, review the "reasonableness" of rates for additional tiers of cable service. Only rates for premium pay channels and single event pay-per-view services are excluded entirely from rate regulation. Additionally, the Cable Act of 1992 imposes rate regulation pursuant to an FCC formula for the sale and lease of cable equipment such as converters, remote controls and additional outlets "on the basis of actual cost." It is impossible to predict the exact impact of rate regulation upon existing and future rates of the Company, but such rate regulation could result in denial of requested rate increases and in reduction of existing rate levels.
The Cable Act of 1992 prohibits cable systems which have addressable technology and addressable converters in place from requiring cable subscribers to purchase service tiers above the basic level of service as a condition to purchasing premium movie channels. If cable systems do not have such addressable technology or addressable converters in place, they are given until December 2002 to comply.
Retransmission Consent
The Cable Act of 1992 establishes a choice for broadcasters between "must carry" rights (as described below) or "retransmission consent" rights. As of October 1993, cable operators are required to secure permission from broadcasters that have selected retransmission consent before retransmitting the broadcaster's television signals. Local and distant broadcasters can require cable operators to make payments as a condition to granting such consent for carriage of the broadcast station on the cable system. This requirement has the potential of significantly increasing the cost of carriage of broadcast stations on the Company's cable systems.
Must Carry Requirements
The Cable Act of 1992 imposes obligations to carry "local" broadcast stations should such stations choose a "must carry" right as opposed to the "retransmission consent" right described above. Generally, the
cable operator must dedicate up to approximately one-third of its channel capacity for carriage of commercial television stations and additional channels for non-commercial television stations.
Programming Costs and Exclusivity
Pursuant to the Cable Act of 1992 the FCC has adopted regulations regarding the sale and acquisition of cable programming in which a cable operator has an attributable interest. The legislation and the subsequent FCC regulations preclude most exclusive programming contracts, limit to some degree "volume discounts" for programming that can be offered to affiliated cable operators, and require that such cable programmers make their programming services available to competing video technologies such as wireless cable systems and direct to the home broadcast satellite operators on terms and conditions that do not discriminate against such competing technologies.
Ownership Restrictions
The Cable Act of 1984 codifies the FCC's regulatory cable cross-ownership restrictions which restrict common ownership of television broadcasting stations and cable television systems within the television broadcast station's broadcast area. Additionally, local telephone companies are prohibited from providing cable television services within their telephone service areas unless the area is deemed "rural" or unless a waiver is obtained from the FCC. The FCC has indicated its intention to expand the rural exemption and to relax the waiver standards to make it easier for telephone companies to obtain such waivers and has recommended to Congress elimination of the telephone/cable cross-ownership restrictions in the Cable Act of 1984. In addition, a number of recent court decisions have held that the telephone/cable cross-ownership restrictions are unconstitutional and unenforceable.
The FCC has authorized so-called "video dialtone" services, by which independent programmers may provide video services to the home over telephone-provided circuits, thereby by-passing the local cable system. The FCC has declared that such services would require no local franchise or payment to the local government authority, and that ruling has been upheld by the courts. The FCC decision allows telephone companies to acquire a limited financial interest in programming services, but currently limits their delivery role to that of a traditional "common carrier." However, the FCC is considering proposals to reduce the limitations on telephone company involvement in programming. The FCC's actions, legislation which has passed both Houses of Congress, and recent court decisions are expected to result in greater involvement and competition from telephone companies in the cable industry.
Pursuant to the Cable Act of 1992 the FCC has adopted regulations establishing limits on the number of cable subscribers a person is authorized to reach through cable systems owned by such person, or in which such person has an attributable interest, and establishing limits on the number of channels on a cable system that can be occupied by a video programmer in which a cable operator has an attributable interest. Additionally, cable operators are prohibited from selling a cable system within three years of acquisition or construction of such cable system.
Customer Service/Technical Standards
Pursuant to the Cable Act of 1992 the FCC has adopted regulations establishing comprehensive standards for customer service and technical system performance. Franchising authorities are allowed to enforce stricter customer service requirements than the FCC standards.
Other Provisions
The Cable Act of 1992 contains a host of other regulatory provisions. Together with the Cable Act of 1984, a comprehensive regulatory framework for cable television systems has been created. Violation by a cable operator of the statutory provisions or the rules and regulations of the FCC can subject the operator to substantial monetary penalties and other significant sanctions.
The majority of the Cable Act of 1984 remains in place. The Cable Act of 1984 continues to: (a) affirm the right of franchising authorities to award one or more franchises for cable; (b) require cable television systems with 36 or more "activated" channels to reserve a percentage of such channels for commercial use by unaffiliated third parties; (c) permit franchise authorities to require the cable operator to provide channel capacity, equipment and facilities for public, educational and government access; (d) provide subscribers an opportunity to lock out offensive channels from personal reception; (e) establish a federal policy for use of subscriber lists and subscriber information; (f) establish civil and criminal liability for unauthorized reception or interception of programming offered over a cable television system or satellite delivered services; and (g) contain provisions governing cable operator's compliance with equal employment opportunity programs.
Many of the specific obligations imposed on cable television systems under these laws and regulations are complex, burdensome and will continue to increase the Company's cost of doing business. Various provisions of the Cable Acts of 1984 and 1992 have been appealed in the courts. The outcome of some of those appeals and the potential impact on the legislation and the Company is uncertain. In addition, the constitutionality of various aspects of the cable television franchising process has been called into question by recent court decisions. See "Business -- Franchises".
PENDING TELECOMMUNICATIONS LEGISLATION
Both the U.S. Senate and House of Representatives have recently passed the telecommunications bills and such legislation is likely to be enacted into law within the next several months. Although the final form of this legislation has has not yet been determined, it would, if adopted as anticipated, result in very significant changes in laws and regulations applicable to cable television companies, telephone companies and many other providers of communications services. Generally the legislation would eliminate the cross-ownership restrictions between telephone companies and cable operators subject to certain conditions. This would permit telephone companies to provide cable television services to subscribers within their telephone service area over telephone or other facilities, and cable operators would be permitted to provide telephone services under certain circumstances. In addition, the legislation would provide some eventual deregulation of cable television, but would also impose some additional obligations and expense on cable operators, including higher pole attachment fees. While the full impact of this legislation cannot be predicted at this time, the Company anticipates that it will face increased competition from telephone companies which generally have significantly greater financial resources than the Company.
COPYRIGHT ACT
Cable television systems are subject to the Copyright Act of 1976 (the "Copyright Act"). The Copyright Act requires the carrier of television signals to have a copyright license. The license for television broadcast signals is compulsory under the provisions of the Copyright Act and subjects the licensee to compliance with certain copyright and FCC regulations. Additionally, a semiannual royalty payment must be made to the U.S. Copyright Office and is generally calculated as a percentage of each system's gross receipts. The U.S. Copyright Office is empowered to review and increase copyright rates.
Carriage of any television broadcast station by a cable system in a manner inconsistent with applicable FCC regulations, the Copyright Act, or copyright regulations can subject the cable system operator to full copyright liability, including a potential copyright infringement action for material damages and suspension of the operator's compulsory license. Cable systems do not receive a compulsory license and are subject to the general copyright laws, with respect to the transmission of nonbroadcast programming.
Various legislative proposals have been introduced and considered from time to time in Congress that, if adopted, would materially revise the Copyright Act. The proposals include, among other things, a significant increase in the rate structure for royalty fees, imposition of restrictions on carriage of television broadcast programming and elimination of the compulsory license for cable system carriage of television broadcast signals. The FCC has recommended to Congress the elimination of the cable compulsory license and similar recommendations have been made by other government agencies and interested parties. Although none of these bills have been enacted, it can be expected that similar proposals to change the Copyright Act and
royalty fee structure will be made in the future, and if enacted, could have an unfavorable impact on the Company.
AVAILABILITY OF SUPPLIES
The Company experiences no difficulty in obtaining equipment or supplies.
EMPLOYEES
On October 31, 1995, the Company had 1,141 full-time employees, none of whom was represented by a union. The Company has not experienced any work stoppages and considers its employee relations to be good.
ITEM 2.
ITEM 2. PROPERTIES
The Company's principal physical assets consist of operating plant and equipment, including signal receiving apparatus, headends and distribution plant and equipment for each of its cable television systems. The signal receiving apparatus typically includes a tower, antennae and ancillary electronic equipment for reception of over-the-air broadcast television signals, and earth stations and ancillary electronic equipment for reception of satellite signals. Headends, consisting of associated electronic equipment necessary for the reception, amplification and modulation of signals, are located near the receiving devices. The Company's distribution systems consist of coaxial cables, optical fibers and related electronic equipment and customer connection devices (principally converters). The Company owns the receiving equipment, headends and distribution equipment and property, and owns or leases small parcels of property for the receiving sites and for business offices.
The Company's cables are generally attached to utility poles covered by rental agreements with local utility companies, although approximately 15% of the Company's cables are buried in trenches.
After the expiration of an initial term of one to three years, pole rental agreements generally are terminable by the utility companies upon six months notice or less. The Company's activities are dependent upon its pole agreements, and substantially increased pole attachment fees or the termination of pole agreements would have a material adverse effect on the Company. Although the Company believes that any such termination is unlikely and knows of no situation in which such a termination of rights has been exercised, no assurance can be given that the utility companies will not attempt to exercise their termination rights.
The Company believes that its properties are in good condition and are suitable to and adequate for its business. The physical components of cable television systems require maintenance and also require upgrading to keep pace with technological advances.
The Company leases a building in Tyler, Texas, which houses its headquarters. The building is owned by a corporation controlled by the Chairman of the Board of Directors of the Company and the Company may cancel the lease at any time. The Company believes the terms of such lease are at least as favorable as would be obtainable from a third party lessor. The Company also owns and leases various offices, tower sites, microwave locations, test equipment and service vehicles, no one of which is considered material to the Company or its business.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to certain legal proceedings arising in the ordinary course of business, none of which are believed to be material to the Company's business or operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Price Range of Common Stock
The Company's common stock is traded in the over-the-counter market and is quoted on the NASDAQ National Market System under the symbol "TCAT". The following table shows the range of closing bids for the common stock of the Company in the over-the-counter market for each fiscal quarter beginning with the quarter ended January 31, 1994 as reported by NASDAQ. The quotations represent prices in the over-the-counter market between dealers in securities, do not include retail markup, markdown or commission and do not necessarily represent actual transactions.
(b) Approximate Number of Equity Security Holders
(c) Dividends
During the fiscal year ended October 31, 1995, cash dividends were paid to shareholders in the amount of $11,787,622 ($.12 per share paid in January, April, July and October, 1995). During the prior fiscal year, $10,831,640 in cash dividends were paid to shareholders ($.11 per share paid in January, April, July and October, 1994). At the December 13, 1995 regularly scheduled Board of Directors meeting, a cash dividend of $.14 per share for the quarter ending January 31, 1996 was declared. This dividend was payable January 10, 1996 to shareholders of record as of December 27, 1995.
The Board of Directors of the Company intends to continue to declare comparable dividends and will determine dividend policy, including amounts and frequency thereof, taking into account, among other things, the amount of funds legally available, and the Company's earnings, financial condition and other cash requirements.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data should be read in conjunction with, and is qualified in its entirety by reference to, the consolidated financial statements and the notes thereto set forth elsewhere in this Annual Report on Form 10-K.
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(1) The Company adopted Statement on Financial Accounting Standards No. 109 "Accounting for Income Taxes" during the first quarter of 1994 by recognizing a one-time cumulative effect adjustment which reduced net income by $1.9 million.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following historical table sets forth for the periods indicated certain items in the Selected Financial Data as a percentage of total revenues.
RESULTS OF OPERATIONS
General. During the past three years, the Company has experienced increases in revenues, operating income and net income reflecting increased subscriptions due to internal growth, the acquisition and construction of additional systems and subscription rate increases. During the period from November 1, 1992 through October 31, 1995, revenues, operating income and net income increased at average annual growth rates of approximately 11%, 22% and 29%, respectively.
1995 COMPARED TO 1994
Fiscal year 1995 revenue increased by 17% over 1994 revenue. Approximately 33% of the revenue increase was the result of increased revenue from existing customers, 10% from internal growth in the number of subscribers, 20% from additional advertising revenue and 37% from acquisitions. The Company's revenue from advertising increased 38%, revenue from basic and expanded basic services increased 14% and revenue from premium services increased 10%.
Operating expenses increased 6% in 1995 compared to 1994. Programming costs increased 20%, salaries, wages and benefits 12%, other operating expenses 14%, selling, general and administrative 7% and depreciation and amortization decreased 16%.
The Company's other income decreased $1,309,000. Other income for 1994 includes a pre-tax gain of $1,459,000 from the sale of two cable television properties. Other income also includes losses of $543,000 for 1995 from the Company's investment in affiliates reported under the equity method.
Interest expense increased 42% as a result of borrowings under the Company's bank lines of credit and a $100 million private placement, as described in Note 4 to the financial statements, made to finance the Company's acquisition of cable television properties.
1994 COMPARED TO 1993
Fiscal year 1994 revenue increased by 7% over 1993 revenue. Approximately 14% of the revenue increase was the result of increased revenue from existing customers, 36% from internal growth in the number of subscribers, 40% from additional advertising revenue and 10% from acquisitions. The Company's revenue from advertising increased 40%, revenue from basic and expanded basic services increased 2% and revenue from premium services increased 6%.
Operating expenses increased 8% in 1994 compared to 1993. Of the operating expense increase, 41% was from increases in programming costs, 39% from salaries, wages and benefits, 9% from other operating expenses, 7% from selling, general and administrative and 4% from depreciation and amortization. Programming costs increased 10%, salaries, wages and benefits 12%, other operating expenses 16%, selling, general and administrative 6% and depreciation and amortization 1%.
The Company's other income increased $1,342,000. Other income includes a pre-tax gain of $1,459,000 from the sale of two cable television properties. Other income also includes losses of $193,000 from the Company's investments in affiliates reported under the equity method.
Interest expense decreased 11% as a result of the Company's repayment of term debt.
The Company has adopted Statement on Financial Accounting Standards No. 109 "Accounting for Income Taxes" which has changed the Company's method of accounting for income taxes to an asset and liability method. The Company adopted FAS 109 during the first quarter of 1994 by recognizing a one-time cumulative effect adjustment which reduced net income by $1.9 million. Net income before the cumulative effect of FAS 109 was $23.0 million, a 12% increase over 1993. Net income after recognition of FAS 109 was $21.1 million, a 3% increase over 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital expenditures, other than for acquisitions, during fiscal 1995 were primarily directed at cable system construction, upgrading and rebuilding and purchases of converters to be furnished to subscribers. Approximately $39.8 million of internally generated funds was spent for system upgrading and expansion during fiscal 1995. The Company anticipates no increase in the amount of capital expenditures needed for system upgrading and expansion during 1996 compared to 1995. Approximately $150.7 million, $3.1 million and $6.9 million was spent on acquisitions in fiscal years 1995, 1994 and 1993, respectively. All of the funds were obtained from bank lines of credit and a $100 million private placement.
The Company anticipates paying approximately $21 million and $13.8 million in interest expense and dividends, respectively, during fiscal 1996. The Company does not anticipate a material negative affect on liquidity on account of the payment of such items.
The Company's net cash provided by operating activities during the most recent fiscal year increased to $68.2 million, up from $60.5 million in fiscal 1994 and $58.9 million in fiscal 1993. The increase is a result of additional subscribers in existing systems, increased revenue per subscriber and acquisitions, as more fully explained above with respect to the Company's results of operations.
At October 31, 1995, the Company had $109.7 million borrowed under its revolving credit agreements with eleven banks which provide for total credit of up to $228 million. The revolving credit agreements provide for interest at prime or LIBOR.
During fiscal 1995, 1994 and 1993, the Company borrowed approximately $315.8 million, $73.7 million and $104.4 million, respectively, and repaid approximately $180.0 million, $90.5 million and $124.5 million, respectively. At October 31, 1995, the Company had total outstanding term debt of approximately $262.2 million, bearing interest at a weighted average rate of approximately 7.3%.
Under terms of the Company's current term debt, the Company will have scheduled debt maturities of approximately $42.0 million, $12.2 million, $12.0 million, $26.2 million and $18.2 million in fiscal 1996, 1997, 1998, 1999 and 2000, respectively. The Company believes that cash flow from operations and its ability to obtain financing will be adequate to fund these debt maturities.
Two measures of liquidity are debt to cash flow and interest coverage ratios. Debt to cash flow is the ratio of debt to operating income before depreciation and amortization. The Company's debt to cash flow ratio was 2.5 to 1, 1.6 to 1 and 1.8 to 1 at October 31, 1995, 1994 and 1993, respectively. Interest coverage is the ratio of operating income before depreciation and amortization to interest expense. The Company's interest coverage ratio was 773%, 816% and 708% for 1995, 1994 and 1993, respectively.
Expenditures for rebuilding, upgrading and maintaining the Company's cable systems and for converter purchases have been financed principally with cash flow from operations and through bank borrowings and seller financing.
The Company believes that net cash provided by operating activities and the Company's ability to obtain additional financing will provide adequate sources of short-term and long-term liquidity in the future.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are included under Item 14 of this report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are:
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(1) Member of the Audit Committee
(2) Member of the Stock Option and Compensation Committee
Each of the foregoing persons has served in the above capacities since the inception of the Company in 1981 unless otherwise indicated. Each director serves until the next annual meeting of the Company's shareholders or until his successor is duly elected and qualified. The Company's executive officers serve at the discretion of the Board of Directors.
Robert M. Rogers founded the Company and each of its subsidiaries and has served as Chairman of the Board of Directors and CEO of the Company and each of the Company's subsidiaries since their inception. Mr. Rogers was President of the Company from its inception in 1981 until September, 1990. Mr. Rogers has been actively involved in the ownership and operation of cable television systems since 1954. Mr. Rogers is an officer, director and shareholder of the Affiliated Companies. He is a member of the cable television Pioneers' Club.
Fred R. Nichols is President, Chief Operating Officer and a director of the Company. Prior to being named President in September, 1990, Mr. Nichols served as Executive Vice President and a director of the Company since its inception, Chief Operating Officer of the Company since December, 1983 and Secretary of the Company from September, 1984 until December, 1990. He had been Treasurer of the Company's subsidiaries from 1980 until 1985 when he was named President of TCA Management Company and all other wholly-owned subsidiaries of the Company, excluding VPI Communications, Inc. Mr. Nichols is currently Chairman of the Cable Telecommunications Association (CATA), a trade association of the cable industry. He is also on the Board of Directors of C-SPAN, a CATV network.
Jimmie F. Taylor is Vice President, Chief Financial Officer and Treasurer. Prior to being named Vice President in December, 1990, Mr. Taylor served as Chief Financial Officer and Treasurer of the Company since November 1, 1986. He had been Controller of the Company's wholly-owned subsidiary, TCA Management Company, since joining the Company in May, 1984. Immediately prior to joining the Company, he was employed for nine years in public accounting. Mr. Taylor is a Certified Public Accountant.
Jerry P. Yandell has served as a Vice President of the Company since March 25, 1987. He is Senior Vice President -- Operations of TCA Management Company, and has been Personnel Director since March, 1979. Immediately prior to joining the Company, he was employed as Personnel Director for General Electric in Tyler, Texas, where he had been for eighteen years.
Melvin R. Jenschke has served as a Vice President of the Company since March 25, 1987. He has been with the Company since 1969 serving in several capacities prior to becoming Senior Vice President -- Engineering for TCA Management Company in 1983.
Wayne J. McKinney has been actively engaged in the cable television business since 1958 and was employed by the Company or its subsidiaries from 1958 until his retirement in January, 1986, serving as a Director and Senior Vice President -- Engineering of the Company from its inception and as Senior Vice President or Vice President, Chief Engineer and/or Director of Engineering of the Company's subsidiaries. Mr. McKinney has been a member of the cable television Pioneers' Club since 1979, and is a Charter and Senior Member of the Society of Cable Telecommunications Engineers.
Ben R. Fisch, M.D., has been a director of the Company or its subsidiaries since 1967. Dr. Fisch has been retired from medical practice in Tyler, Texas since July, 1986.
A. W. Riter, Jr. retired as Senior Chairman of the Board of Directors of NCNB Texas -- Tyler, Texas (successor to First RepublicBank Tyler), on September 30, 1988. He had served as Chairman and Chief Executive Officer until June 30, 1988 and held the same positions with First RepublicBank Tyler and its predecessor, InterFirst Bank Tyler, from August, 1979 to June, 1988 and served as President of Peoples National Bank (predecessor of InterFirst Bank Tyler) from 1964 until 1979. Mr. Riter served as a director and Vice President of most of the Company's subsidiaries from time to time from 1965 to 1974.
James F. Ackerman is President of Cardinal Ventures, LLC in Indianapolis, Indiana. Cardinal Ventures, LLC is an equity investor in small businesses. Mr. Ackerman had been President of Jim Ackerman and Associates, Inc., a financial consulting firm to the cable television industry from October, 1984 to December 31, 1994. From 1973 to December 1, 1984, he was Senior Vice President of A.G. Becker Paribas, Inc. Mr. Ackerman has been engaged in investment banking activities with respect to the cable television industry since 1959 and had served as a partner of Becker Communications Associates, a cable television investment partnership, from 1973 to 1989. He was also Chairman and Chief Executive Officer of Cardinal Communications, Inc., an Indiana cable television operator, a position he had held from 1971 until the company was sold in 1993. Mr. Ackerman is a former President and Director of the Indiana Cable Television Association, a past Director of the National Cable Television Association and a member of the cable television Pioneers' Club.
Kenneth S. Gunter is Chairman and CEO of MT Associates, Inc., San Angelo, Texas, a broadband communications design and construction contractor. Since 1958, he has served as a senior officer and director of several publicly-held cable television multiple system operators, including International Cablevision Corporation, Columbia Cable Systems, Inc., UA-Columbia Cablevision, Inc., Rogers-UA Cablesystems, Inc., and United Artists Communications, Inc. He is a past director of the National Cable Television Association, a Senior Member and past officer and director of the Society of Cable Telecommunications Engineers, and a member of the cable television Pioneers' Club.
Randall K. Rogers has been with TCA since 1983, previously serving as general manager in Big Spring and Huntsville, Texas. Since 1989, Mr. Rogers has served as general manager of the Company's operations in Bryan/College Station, Texas. Mr. Rogers is the son of Robert M. Rogers.
Fred W. Smith is Chairman of the Donald W. Reynolds Foundation, one of the thirty largest private charitable foundations in the United States. Mr. Smith's entire business career has been with the Donrey Media Group, which he joined in 1951. He served in various capacities until 1993 when he retired as the company's President and Chief Executive Officer.
The Board of Directors held four meetings during fiscal 1995. The Board of Directors has two standing committees -- the Audit Committee and the Compensation and Stock Option Committee.
The functions performed by the Audit Committee include: recommending to the Board of Directors selection of the Company's independent accountants for the ensuing year; reviewing with the independent accountants and management the scope and result of the audit; reviewing the independence of the independent accountants; reviewing actions by management and independent accountants' recommendations; and meeting with management and the independent auditors to review the effectiveness of the Company's system of internal control. The Audit Committee met two times during fiscal 1995.
The Compensation and Stock Option Committee met twice during 1995. The functions performed by this committee include: reviewing and recommending the Company's executive salary structure; reviewing the Company's Incentive Stock Option Plan (and granting options thereunder); recommending directors' fees; and approving salary and bonus awards to certain key employees.
The information called for by Item 11, Executive Compensation, Item 12, Security Ownership of Certain Beneficial Owners and Management, and Item 13, Certain Relationships and Related Transactions, is hereby incorporated herein by reference to the Registrant's definitive Proxy Statement for its Annual Meeting of Shareholders presently scheduled to be held March 28, 1996, which shall be filed with the Securities and Exchange Commission within 120 days of the end of the Registrant's last fiscal year.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following consolidated financial statements of TCA Cable TV, Inc. and Subsidiaries, otherwise includable under Item 8, are included in this Item 14.
14(A)(3) EXHIBITS
EXHIBIT
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*1 Previously filed as an Exhibit to the Registrant's Registration Statement on Form S-1, File No. 2-75516, and incorporated by reference herein.
*2 Previously filed as an Exhibit to the Registrant's Registration Statement on Form S-8, File No. 33-21901, and incorporated by reference herein.
*3 Filed herewith.
*4 Previously filed as an Exhibit to the Registrant's Registration Statement on Form S-8, File No. 2-88892, and incorporated by reference herein.
*5 Previously filed as an exhibit to Registrant's Form 10-K for the fiscal year ended October 31, 1993, filed January 27, 1994 and incorporated by reference herein.
*6 Previously filed as an exhibit to Registrant's Form 10-K for the fiscal year ended October 31, 1994, filed January 30, 1995 and incorporated by reference herein.
*7 Previously filed as an exhibit to Registrant's Form 10-Q for the quarter ended April 30, 1995, filed June 14, 1995 and incorporated by reference herein.
*8 Previously filed as an exhibit to Registrant's Form 10-Q for the quarter ended July 31, 1995, filed September 14, 1995 and incorporated by reference herein.
*9 Previously filed as an exhibit to Registrant's Form 8-K , filed May 15, 1995 and incorporated by reference herein.
*10 Previously filed as an exhibit to Registrant's Form 8-K , filed May 24, 1995 and incorporated by reference herein.
*11 Previously filed as an Exhibit to the Registrant's Registration Statement on Form S-8, File No. 33-61041, and incorporated by reference herein.
14(B) REPORTS ON FORM 8-K:
1. Form 8-K/A filed September 11, 1995, subsequent to the Fayetteville acquisition (Item 2).
2. Form 8-K/A filed September 13, 1995, subsequent to the San Angelo acquisition (Item 2).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
TCA CABLE TV, INC. (REGISTRANT)
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the date indicated.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders TCA Cable TV, Inc.:
We have audited the consolidated financial statements of TCA Cable TV, Inc. and Subsidiaries as listed in item 14(a) of this Form 10-K. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of TCA Cable TV, Inc. and Subsidiaries as of October 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended October 31, 1995 in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, in 1994 the Company changed its method of accounting for income taxes.
COOPERS & LYBRAND L. L. P.
Dallas, Texas January 23, 1996
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS OCTOBER 31, 1995 AND 1994
The accompanying notes are an integral part of the consolidated financial statements.
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
The accompanying notes are an integral part of the consolidated financial statements.
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
The accompanying notes are an integral part of the consolidated financial statements.
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
The accompanying notes are an integral part of the consolidated financial statements.
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
The accompanying notes are an integral part of the consolidated financial statements.
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF FINANCIAL STATEMENT PRESENTATION:
TCA Cable TV, Inc. (the "Company" or "TCA") owns and operates cable television ("CATV") systems in nonurban areas. The consolidated financial statements include the accounts of TAL Financial Corporation ("TAL"), a wholly-owned subsidiary of the company, and TAL's wholly-owned subsidiaries: TCA Management Company; Teleservice Corporation of America; Texas Community Antennas, Inc.; Texas Telecable, Inc.; TCA Cable of Amarillo, Inc.; Telecable Associates, Inc.; Delta Cablevision, Inc., Sun Valley Cablevision, Inc., VPI Communications, Inc., AvComm Corporation, Tele-Communications of Arkansas L.P. and Tele-Communications of Northwest Arkansas L.P.
All significant intercompany transactions have been eliminated in consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Property, Plant and Equipment
Depreciation of property, plant and equipment is computed using the straight-line method over the estimated useful lives of the related assets as follows:
Maintenance and repair costs are charged to expense as incurred. Major replacements and betterments are capitalized. Upon sale or retirement, the cost and accumulated depreciation applicable to the asset is removed from the accounts and the resulting profit or loss is reflected in income.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax return. During 1994, the Company adopted Statement on Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("FAS 109"). This statement requires the use of an asset and liability approach for financial accounting and reporting for income taxes. Net income for 1994 was reduced $1,900,000 or $.07 per share by the recognition of a one-time cumulative effect adjustment from the adoption of FAS 109.
Intangibles
Intangible assets including franchises, noncompete agreements and goodwill are recorded at cost. Intangible assets are amortized on a straight-line basis over the expected useful lives of the assets which range from 5 to 40 years.
Goodwill represents the excess of the cost of the acquisition over the fair value of the net assets acquired and is being amortized on a straight-line basis over 40 years. At each balance sheet date, management assesses whether there has been a permanent impairment in the value of goodwill by considering current operating results, trends and prospects.
Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Investments
Investments in affiliates in which the Company's voting interest is 20% to 50% are accounted for under the equity method. Under this method, the investment, originally recorded at cost, is adjusted to recognize the Company's share of the net earnings or losses of the affiliates as they occur rather than as dividends or other distributions are received. The Company's share of the results of operations of investees is not material.
3. INTANGIBLE ASSETS:
Intangible assets consists of the following at October 31:
4. TERM DEBT:
Term debt consists of the following:
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(a) The weighted average interest rate on the Company's revolving bank credit at October 31, 1995 was 6.64%.
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. TERM DEBT -- (CONTINUED) The Company's revolving bank credit agreements and the term loan agreements contain restrictive covenants including minimum cash flow ratios. Under these covenants, the Company's dividends, capital expenditures and fixed principal payments could also be limited.
Scheduled maturities of term debt at October 31, 1995, are as follows:
5. TRANSACTIONS WITH AFFILIATES:
TCA Management Company performs all accounting and management services for two CATV systems owned by affiliated companies (the "affiliated companies"). Revenues received by TCA Management Company from the affiliated companies (which equal an expense reimbursement plus a profit) are included in CATV revenues and related expenses are included in operating expenses. These amounts are not material.
The Company leases its headquarters building from a company partially owned by an officer and director of TCA. The annual lease expense was $318,515, $324,784 and $393,744 for 1995, 1994 and 1993, respectively.
The Company purchased distribution system construction services from a partnership partially owned by a director of the Company. During 1995 and 1994, transactions with the partnership totaled $4,603,694 and $816,705, all of which were capitalized. The Company has also guaranteed a $198,000 loan from a bank for the same partnership.
The Company has a note receivable from TCA Communications, Inc., a 50% owned affiliate. The note is due in May 1996 with interest at 10%.
6. CONTINGENCIES AND COMMITMENTS:
Annual rental expense for utility poles and tower sites for the years ended October 31, 1995, 1994 and 1993 was approximately $1,434,000, $1,482,000 and $1,490,000, respectively.
Rental expense for all rental agreements for the years ended October 31, 1995, 1994 and 1993 was approximately $2,316,000, $2,288,000 and $2,156,000, respectively.
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES:
The following is a reconciliation of taxes computed at the statutory federal income tax rate with the provision for income taxes in the consolidated financial statements for the three years ended October 31:
The deferred income taxes liability balance of $48,180,000 and $40,000,000 at October 31, 1995 and 1994, respectively, is the tax effect of a temporary difference between allowable depreciation and amortization for tax purposes and depreciation and amortization provisions under generally accepted accounting principles. The Company does not have any other material temporary differences necessitating a provision for deferred income taxes.
8. EARNINGS PER COMMON SHARE:
Earnings per common share are computed using the weighted average number of shares outstanding during the period, including common stock equivalents: 24,582,447 shares for 1995, 24,638,135 shares for 1994, and 24,638,061 shares for 1993.
9. SALES AND ACQUISITIONS:
On August 1, 1995, the Company, through a subsidiary, purchased the assets related to the operation of the cable television system serving approximately 10,000 subscribers in the city of El Dorado, Arkansas from Time Warner Cable Ventures, a division of Time Warner Entertainment, L.P. The purchase price was approximately $19 million, $15.4 million of which relates to acquired intangibles.
On July 1, 1995, the Company, through a subsidiary, acquired substantially all of the assets used by Marcus Cable of San Angelo, L.P. in the operation of the cable television systems serving approximately 28,000 subscribers in and around the following cities, counties, and areas in Texas: San Angelo, Andrews, Ballinger, Miles, Winters, Goodfellow Air Force Training Center, Andrews County, and Tom Green County. The cost of the acquisition was approximately $66 million, $57.8 million of which relates to acquired intangibles.
In May 1995, the Company, through its subsidiaries, acquired substantially all of the assets used by Time Warner Entertainment Company, L.P. in the operation of the cable television systems serving approximately 34,000 subscribers in and around the following cities in Arkansas: Fayetteville, Elkins, Farmington, Greenland, Russellvile, Clarksville, Booneville, Pottsville, Paris, and the unincorporated areas within the counties in which the foregoing cities are located. The cost of the acquisition was approximately $66 million, $56.4 million of which relates to acquired intangibles.
The 1995 acquisitions were paid in cash obtained from the Company's bank lines of credit and a $100 million private placement.
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. SALES AND ACQUISITIONS -- (CONTINUED) On July 1, 1994, the Company acquired the assets of the cable television system serving 411 subscribers in Elm Springs, Arkansas and parts of Springdale, Arkansas. The cable television system is located adjacent to, and will be operated by, a currently owned system of the Company. The acquisition was funded by the payment of $540,465 in cash obtained from operations.
On June 1, 1994, the Company acquired 50% of the common stock of TCA Communications, Inc. ("TCAC"). TCAC is a new corporation whose initial purpose is to sell long distance telephone services in the cable television communities presently served by the Company and in other adjacent markets. The acquisition was funded by the payment of $2 million in cash obtained from operations. The remaining 50% of TCAC is owned by a privately held independent telephone company.
In April, 1994, the Company acquired 80% of the common stock of AvComm Corporation ("AvComm"), a new company formed to sell telecommunications services. The purchase price of $160,000 was obtained from operations. In September, 1994 the Company acquired the remaining 20% of the common stock of AvComm for $172,800 in cash from operations. The consolidated financial statements include the accounts of AvComm. All material intercompany transactions and balances have been eliminated.
In March, 1994, the Company acquired 40% of the stock of Intermedia Technologies, Inc. The Company also acquired a 40% interest in Intermedia Technologies, Ltd., a limited partnership engaged in telecommunications engineering and construction. The remaining 60% of both entities is owned by a director of the Company and his son. Intermedia Technologies, Inc. is the general partner of Intermedia Technologies, Ltd. The Company's initial investment in both entities was $122,333 paid in cash from operations. During 1994, the Company invested an additional $293,308 in Intermedia Technologies, Ltd.
On March 1, 1994, the Company sold the assets of the cable television systems serving 807 subscribers in two cities. The sales price was $1,008,750 resulting in a pre-tax gain of approximately $900,000 and an increase in net income of approximately $549,000 or $0.02 per share.
On December 1, 1993, the Company sold the assets of a cable television system serving 641 subscribers in one city. The sales price was $769,200 resulting in a pre-tax gain of approximately $559,000 and an increase in net income of approximately $341,000 or $0.01 per share.
These acquisitions were accounted for as purchases, and accordingly, results of operations of the acquired assets have been included in the consolidated financial statements from the dates of acquisition.
The pro forma operating results for the fiscal 1995 and 1994 acquisitions as though the acquisitions had been made at the beginning of the respective years are as follows:
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCENTIVE STOCK OPTION PLAN:
In January 1982, the company adopted an incentive stock option plan for the benefit of key employees. Under the terms of the plan, options to acquire up to 410,000 shares of common stock may be granted at no less than 100% of the fair market value on the date of grant.
Transactions during 1995, 1994 and 1993 under this plan are summarized below:
11. DEFERRED SAVINGS AND RETIREMENT PLAN:
Effective September 1, 1983, the company and several of its affiliates adopted a deferred savings and retirement plan covering all employees with at least one year of service.
Employees may elect to contribute a portion of their compensation to the plan with the first one percent of their earnings being mandatory. The company may contribute up to an amount equal to the employee's contributions but not in excess of three percent of the employee's earnings. The company anticipates that all or substantially all of their discretionary and matching contributions will consist of registered shares of common stock of the company. The company's contributions for the years ended October 31, 1995, 1994 and 1993 were $553,401, $527,362 and $462,612, respectively.
12. SUBSEQUENT EVENTS:
At the December 13, 1995 directors' meeting, a cash dividend of $0.14 was declared. This dividend is to holders of record on December 27, 1995 and payable on January 10, 1996.
On December 13, 1995, the Company and Donrey Media Group ("Donrey"), a division of Stephens Group, Inc. of Little Rock, AR, formed a partnership to combine certain cable television holdings owned by the Company with the systems owned by Donrey. The new partnership, TCA Cable Partners, will be comprised of all 22 of the Company's systems in Arkansas and Mississippi and Donrey's five systems in Arkansas, Oklahoma and California and will serve approximately 224,000 subscribers. The partnership is owned 75% by the Company and 25% by Donrey and is managed by the Company.
On December 15, 1995, the Company acquired the assets of a cable television system serving approximately 29,000 subscribers in Alexandria and Pineville, Louisiana ("Alexandria") through an exchange with Time Warner Entertainment -- Advance/Newhouse Partnership ("Time Warner"). The transaction involved the acquisition by the Company of the assets of cable systems located in North and South Carolina from Star Cable Associates and the simultaneous exchange of these to Time Warner for Alexandria. The cost of the acquisition was approximately $63 million, all of which was paid from the Company's bank lines of credit.
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
Net income for the first quarter of 1994 was reduced $1,900,000 or $.07 per share by the recognition of a one-time cumulative effect adjustment from the adoption of FAS 109. See note 2.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount of cash, accounts receivable subscribers, accounts payable and term debt approximates fair value.
15. IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of (FAS 121)
In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121") effective for fiscal years beginning after December 15, 1995. This Statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. The Company plans to adopt FAS 121 during the first quarter of the fiscal year ending October 31, 1997. Management does not expect the Statement to have a material impact on the financial statements of the Company.
Accounting for Stock-Based Compensation (FAS 123)
In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123") effective for fiscal years beginning after December 15, 1995. This Statement establishes a fair value based method of accounting for stock-based compensation plans. The Company plans to adopt the disclosure only requirements of FAS 123 during the first quarter of the fiscal year ending October 31, 1997.
INDEX TO EXHIBITS
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*1 Previously filed as an Exhibit to the Registrant's Registration Statement on Form S-1, File No. 2-75516, and incorporated by reference herein.
*2 Previously filed as an Exhibit to the Registrant's Registration Statement on Form S-8, File No. 33-21901, and incorporated by reference herein.
*3 Filed herewith.
*4 Previously filed as an Exhibit to the Registrant's Registration Statement on Form S-8, File No. 2-88892, and incorporated by reference herein.
*5 Previously filed as an exhibit to Registrant's Form 10-K for the fiscal year ended October 31, 1993, filed January 27, 1994 and incorporated by reference herein.
*6 Previously filed as an exhibit to Registrant's Form 10-K for the fiscal year ended October 31, 1994, filed January 30, 1995 and incorporated by reference herein.
*7 Previously filed as an exhibit to Registrant's Form 10-Q for the quarter ended April 30, 1995, filed June 14, 1995 and incorporated by reference herein.
*8 Previously filed as an exhibit to Registrant's Form 10-Q for the quarter ended July 31, 1995, filed September 14, 1995 and incorporated by reference herein.
*9 Previously filed as an exhibit to Registrant's Form 8-K , filed May 15, 1995 and incorporated by reference herein.
*10 Previously filed as an exhibit to Registrant's Form 8-K , filed May 24, 1995 and incorporated by reference herein.
*11 Previously filed as an Exhibit to the Registrant's Registration Statement on Form S-8, File No. 33-61041, and incorporated by reference herein.