<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2000.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to .
Commission File Number 333-62077
Jones International Networks, Ltd.
Exact name of registrant as specified in charter
Colorado #84-1470911
State of organization I.R.S. employer I.D.#
9697 East Mineral Avenue, Colorado 80112
Address of principal executive office
(303) 792-3111
Registrant's telephone number
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 during
the preceding l2 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.
Yes X No
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Jones International Networks, Ltd.:
Unaudited Consolidated Statements of Financial Position
as of December 31, 1999 and March 31, 2000........................................................ 2
Unaudited Consolidated Statements of Operations
for the Three Months Ended March 31, 1999 and 2000................................................ 3
Unaudited Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1999 and 2000................................................ 4
Notes to Unaudited Consolidated Financial Statements................................................ 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations ...................................................... 15
PART II. OTHER INFORMATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 22
Item 5. Other Materially Important Events................................................................ 22
Item 6. Exhibits and Reports on Form 8-K................................................................. 22
</TABLE>
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
--------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ....................................................................... $ 13,270,784 $ 10,632,213
Available for sale securities ................................................................... 6,888,741 5,301,022
Accounts receivable, net of allowance for doubtful accounts of
$1,192,818 and $1,520,315, respectively ...................................................... 14,049,008 13,775,298
Accounts receivable -- Jones International, Ltd. ................................................. 382,221 --
Receivables from affiliates ..................................................................... 473,759 256,200
Prepaid expenses ................................................................................ 284,863 420,128
Other current assets ............................................................................ 693,218 750,567
------------ ------------
Total current assets ....................................................................... 36,042,594 31,135,428
------------ ------------
Property and equipment, net ..................................................................... 22,959,104 22,090,843
Intangible assets, net .......................................................................... 63,642,270 64,757,293
Investment in affiliates ........................................................................ 309,117 342,439
Debt offering costs, net of accumulated amortization of $960,077 and $1,174,824, respectively.... 4,138,699 3,923,952
Deferred equity offering costs (Note 4) ......................................................... 240,859 775,877
Other non-current assets ........................................................................ 1,128,902 1,335,996
------------ ------------
Total assets ............................................................................... $ 128,461,545 $ 124,361,828
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable--trade ......................................................................... $ 4,738,526 $ 5,117,025
Producers' fees payable ......................................................................... 5,307,947 4,707,678
Cable programming distribution payments payable ................................................. 3,236,996 2,799,087
Accrued liabilities and other current liabilities ............................................... 2,328,858 2,340,546
Accounts payable--Jones International, Ltd. ..................................................... -- 312,882
Interest payable ................................................................................ 5,875,000 2,937,500
Deferred revenues ............................................................................... 1,309,155 1,851,146
------------ ------------
Total current liabilities .................................................................. 22,796,482 20,065,864
------------ ------------
LONG-TERM LIABILITIES:
Customer deposits and deferred revenues ......................................................... 581,700 614,520
Other long-term liabilities ..................................................................... 602,791 779,472
Senior secured notes ............................................................................ 100,000,000 100,000,000
------------ ------------
Total long-term liabilities ................................................................ 101,184,491 101,393,992
------------ ------------
MINORITY INTEREST IN
CONSOLIDATED SUBSIDIARIES .................................................................... 565,149 891,514
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
COMMON STOCK SUBJECT TO PUT, Class A Common Stock,
$.01 par value: 126,405 shares issued and outstanding, respectively .......................... 1,213,488 1,213,488
------------ ------------
SHAREHOLDERS' EQUITY:
Series A Preferred Stock, $.01 par value authorized, 1,918,000 shares
authorized, issued and outstanding ........................................................... 23,975,000 23,975,000
Class A Common Stock, $.01 par value: 100,000,000 shares authorized;
5,268,521 and 5,313,312 shares issued and outstanding, respectively .......................... 52,685 53,133
Class B Common Stock, $.01 par value: 2,231,400 shares
authorized, issued and outstanding ........................................................... 22,314 22,314
Additional paid-in capital ...................................................................... 27,588,370 28,259,787
Accumulated other comprehensive loss ............................................................ (25,652) (23,902)
Accumulated deficit ............................................................................. (48,910,782) (51,489,362)
------------ ------------
Total shareholders' equity ................................................................. 2,701,935 796,970
------------ ------------
Total liabilities and shareholders' equity ................................................. $ 128,461,545 $ 124,361,828
------------ ------------
</TABLE>
The accompany notes to these unaudited consolidated financial statements are
an integral part of these consolidated financial statements.
2
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
1999 2000
------------- --------------
<S> <C> <C>
Revenues, including revenues from affiliated entities of $1,561,572
and $1,130,795, respectively (Note 9) ................................. $ 12,505,337 $ 20,166,902
Operating expenses, including expenses from affiliated
entities of $2,274,235 and $1,780,357, respectively (Note 9):
Operations ............................................................ 9,527,323 13,227,798
Selling and marketing ................................................. 1,352,388 2,348,047
General and administrative ............................................ 349,878 544,305
Depreciation and amortization ......................................... 1,989,744 3,393,088
----------- -----------
Total operating expenses ............................................ 13,219,333 19,513,238
----------- -----------
OPERATING INCOME (LOSS) ................................................. (713,996) 653,664
----------- -----------
OTHER (INCOME) EXPENSE:
Interest expense (Note 2) ............................................. 3,156,650 3,143,339
Interest income ....................................................... (277,473) (226,375)
Equity in income of subsidiaries ...................................... (4,187) (33,322)
Other expense (income) ................................................ 4,179 (10,263)
----------- -----------
Total other expense, net ............................................ 2,879,169 2,873,379
----------- -----------
LOSS BEFORE INCOME TAXES
AND MINORITY INTEREST ................................................. (3,593,165) (2,219,715)
Income tax provision .................................................. 19,464 32,500
----------- -----------
LOSS BEFORE MINORITY INTEREST ........................................... (3,612,629) (2,252,215)
Minority interest in net income (loss)
of consolidated subsidiaries ........................................ 50,353 326,365
----------- -----------
NET LOSS ................................................................ $ (3,662,982) $ (2,578,580)
----------- -----------
ADJUSTMENTS TO ARRIVE AT COMPREHENSIVE LOSS ............................. (5,672) 1,750
----------- -----------
COMPREHENSIVE INCOME (LOSS) ............................................. $ (3,668,654) $ (2,576,830)
----------- -----------
NET LOSS PER COMMON SHARE:
Basic ................................................................. $ (0.48) $ (0.34)
----------- -----------
Fully diluted ......................................................... $ (0.48) $ (0.34)
----------- -----------
WEIGHTED AVERAGE COMMON SHARES:
Basic ................................................................. 7,610,313 7,641,256
----------- -----------
Fully diluted ......................................................... 7,569,726 7,600,670
----------- -----------
</TABLE>
The accompany notes to these unaudited consolidated financial statements are
an integral part of these consolidated financial statements.
3
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
1999 2000
--------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................................... $ (3,662,982) $ (2,578,580)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization .............................................. 1,989,744 3,393,088
Amortization of debt offering costs ........................................ 181,604 214,747
Equity in income of subsidiaries ........................................... (4,187) (33,322)
Write-off of equipment ..................................................... -- 65,380
Minority interest in net income of consolidated subsidiaries ............... 50,353 326,365
Net change in assets and liabilities:
Decrease in receivables ................................................... 3,785,246 273,710
Decrease (increase) in receivables from affiliates ........................ (148,487) 217,559
Decrease (increase) in prepaid expenses and other current assets .......... 264,669 (229,496)
Decrease (increase) in deferred commissions ............................... 17,236 (8,113)
Decrease in tax benefit receivable from Jones International, Ltd. ......... 1,338,402 --
Increase in other assets .................................................. (248,696) (22,300)
Increase (decrease) in accounts payable ................................... (274,831) 378,499
Decrease in producers' fees payable ....................................... (1,677,908) (600,269)
Decrease (increase) in accounts payable to Jones International, Ltd. ...... (1,122,454) 695,103
Decrease in accrued interest .............................................. (2,643,750) (2,937,500)
Increase (decrease) in deferred revenues .................................. (102,327) 541,991
Decrease in accrued and other liabilities ................................. (381,154) (188,312)
Increase in customer deposits ............................................. 160,799 32,820
----------- ----------
Net cash used in operating activities .................................... (2,478,723) (458,630)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ........................................... (274,321) (532,662)
Purchase of available for sale securities .................................... (480,694) --
Proceeds from the sale of available for sale securities ...................... -- 1,589,469
Cable programming distribution agreements payments ........................... (1,470,941) (2,190,258)
Purchases of intangible assets and programming ............................... (82,780) (711,472)
----------- ----------
Net cash used in investing activities ..................................... (2,308,736) (1,844,923)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for equity offering costs ........................................... -- (335,018)
----------- ----------
Net cash used in financing activities ..................................... -- (335,018)
----------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS .......................................... (4,787,459) (2,638,571)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................. 20,654,013 13,270,784
----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ....................................... $ 15,866,554 $ 10,632,213
----------- ----------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Class A Common Stock issued for radio programs ............................... $ -- $ 671,865
----------- ----------
Interest paid ................................................................ $ 5,581,250 $ 5,875,000
----------- ----------
Income tax paid .............................................................. $ 19,464 $ 32,500
----------- ----------
</TABLE>
The accompany notes to these unaudited consolidated financial statements are
an integral part of these consolidated financial statements.
4
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This Form 10-Q is being filed by Jones International Networks, Ltd. and
its subsidiaries (the "Company"). The accompanying consolidated statements of
financial position as of December 31, 1999 and March 31, 2000, the
consolidated statements of operations for the three months ended March 31,
1999 and 2000, and the statements of cash flows for the three months ended
March 31, 1999 and 2000, are unaudited. This Form 10-Q is being filed in
conformity with the SEC requirements for unaudited financial statements and
does not contain all of the necessary footnote disclosures required for a
complete presentation of the consolidated statements of financial position,
consolidated statements of operations and consolidated statements of cash
flows in conformity with generally accepted accounting principles. However,
in the opinion of management, these statements include all adjustments,
consisting of normal recurring adjustments, necessary for the fair
presentation of results for these interim periods. The results of operations
for the three months ended March 31, 2000 are not necessarily indicative of
results to be expected for the entire year, or for any other interim period.
COMPREHENSIVE INCOME--Adjustments to comprehensive income represent the
net change in unrealized gains on available for sale securities.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires the Company to make
estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RECLASSIFICATIONS--Certain prior period amounts have been reclassified
to conform to the current presentation.
(2) TRANSACTIONS WITH AFFILIATED ENTITIES
The Company is a subsidiary of Jones International, Ltd. ("Jones
International"), a holding company with ownership in several companies
involved in various industries. Jones International is wholly owned by the
Company's Chairman, Glenn R. Jones, who is Chairman and Chief Executive
Officer of Jones International and various of its subsidiaries. Certain
officers or directors of the Company are also officers or directors of these
affiliated entities and, from time to time, the Company may have transactions
with these entities. Certain expenses are paid by affiliated entities on
behalf of the Company and are allocated at cost based on specific
identification or other methods which management believes are reasonable.
Principal recurring transactions with affiliates, excluding Galactic/Tempo,
d/b/a Superaudio ("Superaudio") and Jones Capstar Programming, LLC
("Jones/Capstar"), are described below.
REVENUES--The Company earns up to a three percent commission on the sale
of airtime for informational programming on an affiliated network. As a
result of this related party ceasing its distribution efforts in the last
quarter of 1999, this service was terminated in September 1999. For the three
months ended March 31, 1999, the Company received approximately $45,000 for
this service.
The Company distributes Great American Country to certain cable
television systems owned or managed by Jones Intercable, Inc. ("Jones
Intercable"). Effective April 7, 1999, Jones Intercable is no longer an
affiliate of the Company due to the sale of Mr. Jones' interest in Jones
Intercable. Jones Intercable, through its new unaffiliated parent, has
continued to pay the Company programming license fees subsequent to the sale
of Mr. Jones' interest in Jones Intercable. For the three months ended March
31, 1999, Jones Intercable and its affiliated partnerships paid total license
fees to the Company of approximately $237,000 for this programming service.
Jones Earth Segment, Inc. ("Earth Segment"), a subsidiary of the
Company, provides playback, editing, duplication, trafficking and uplinking
services to its cable programming network affiliates, an affiliated entity as
well as to third parties. As a result of the affiliated entity no longer
being in business, this affiliated entity terminated its use of certain earth
station services provided by Earth Segment in March 2000. Earth Segment
charges affiliates for its services using rates which are calculated to
achieve a specified rate of return on its investment to Earth Segment. For
the three months ended March 31, 1999 and 2000, Jones International and its
affiliates paid satellite delivery and production support fees to the Company
of approximately $911,000 and $746,000, respectively, for these services.
5
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In addition, Jones Space Holdings, Inc. ("Space Holdings"), a subsidiary
of the Company, subleases a non-preemptible satellite transponder to an
affiliated entity. For the three months ended March 31, 1999 and 2000, the
Company received satellite transponder lease revenues of approximately
$369,000 and $385,000, respectively, for this service.
OPERATING EXPENSES--The Product Information Network Venture, Inc. ("PIN
Venture") pays a significant portion of the revenues generated by its
infomercial programming in the form of system rebates to all cable systems
which enter into agreements to air such programming. Effective April 7, 1999,
Jones Intercable is no longer an affiliate of the Company due to the sale of
Mr. Jones' interest in Jones Intercable. The PIN Venture has continued to pay
rebates to Jones Intercable (and its affiliated partnerships) subsequent to
the change in the ownership structure. For the three months ended March 31,
1999, the PIN Venture paid Jones Intercable (and its affiliated partnerships)
approximately $396,000 for system rebates. For the three months ended March
31, 1999, the PIN Venture paid Cox Communications approximately $766,000 for
system rebates. For the three months ended March 31, 2000, the PIN Venture
paid Cox Communications approximately $958,000 for system rebates.
Jones Network Sales ("JNS"), a wholly owned subsidiary of Jones
International, provided affiliate sales and certain marketing services to the
Company. As a result of a related party no longer being in business, all
affiliate sales and marketing functions have been incorporated into the
operations of the Company starting January 2000. For the three months ended
March 31, 1999, the Company paid JNS approximately $425,000 for these
services.
Galactic Radio, Inc. ("Galactic Radio"), a wholly owned subsidiary of
the Company, had a transponder lease agreement with Jones Satellite Holdings,
Inc. ("Satellite Holdings"), an affiliate of the Company, for the use of the
sub-carriers on a non-preemptible satellite transponder. This agreement
allowed Galactic Radio to use a portion of the transponder to distribute its
audio programming. Galactic Radio terminated this agreement on January 31,
2000. For the three months ended March 31, 1999 and 2000, the Company paid
Satellite Holdings approximately $174,000 and $57,000, respectively, for this
service.
The Company leases and subleases office space in Englewood, Colorado
from affiliates of Jones International. For the three months ended March 31,
1999 and 2000, the Company paid these affiliates approximately $34,000 and
$108,000, respectively, for rent and associated expenses.
An affiliate of Jones International charged the Company approximately
$11,000 during the three months ended March 31, 2000 for the allocated costs
of its airplane which was used by the Company in connection with a proposed
equity offering.
An affiliate of Jones International provides computer hardware and
software support services to the Company. For the three months ended March
31, 1999 and 2000, the Company paid the affiliate approximately $211,000 and
$354,000, respectively, for such services.
The Company and its consolidated subsidiaries reimburse Jones
International and its affiliates for certain allocated administrative
expenses. These expenses generally consist of salaries, related benefits and
other related costs. Allocations of personnel costs are generally based on
actual time spent by affiliated associates with respect to the Company. For
the three months ended March 31, 1999 and 2000, the Company paid Jones
International and its affiliates approximately $268,000 and $200,000,
respectively, for these administrative expenses.
To assist funding its operating and investing activities, the Company
had borrowed funds from Jones International. Jones International's interest
rate was calculated using the published prime rate plus two percent. Jones
International charged interest on its advances to the Company at rates of
approximately 10 percent per annum for the three months ended March 31, 1999.
For the three months ended March 31, 1999, the Company paid Jones
International interest of approximately $38,000. In the first quarter of
1999, Jones International elected to repay the income tax benefit receivable
of approximately $1,335,000 through a reduction of the intercompany balance
between the Company and Jones International. The remaining intercompany
balance of approximately $255,000 was repaid in April 1999. The Company no
longer receives long-term advances from Jones International.
In the normal course of business, Jones International (1) remits funds
on behalf of the Company to third parties and affiliates in payment of
products and services purchased by the Company, and (2) receives funds on
behalf of the Company in payment for products and services provided by the
Company. Starting in April 1999, these amounts are reimbursed from or to
6
<PAGE>
Jones International on a monthly basis. Outstanding payable to Jones
International and related parties at March 31, 2000 was approximately
$313,000.
(3) NET LOSS PER COMMON SHARE
Basic earnings per share ("EPS") is computed by dividing the net
earnings applicable to common shares by the weighted average of common shares
outstanding during the period. Diluted EPS adjusts the basic weighted average
of common shares outstanding by the assumed conversion of shares subject to
put in the periods in which such effect would have been dilutive. Prior
period amounts have been adjusted to reflect the effect of the 5-for-4 stock
split which was effective on January 28, 2000. The table below presents a
reconciliation of weighted average shares used in the calculation of basic
and diluted EPS:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------
1999 2000
---------------- -----------------
<S> <C> <C>
Weighted average shares for basic EPS..... 7,610,313 7,641,256
Less: shares subject to put............... 40,587 40,586
------------ ---------------
Weighted average shares for diluted EPS... 7,569,726 7,600,670
------------ ---------------
</TABLE>
(4) DEFERRED EQUITY OFFERING COSTS
The Company incurred approximately $0.8 million in deferred equity
offering costs relating to a proposed initial public offering undertaken by
the Company in 2000. Deferred equity offering costs consist primarily of
financial printing, legal counsel, independent public accountants, regulatory
and stock exchange registration fees, and other various costs associated with
the offering. On March 9, 2000, we postponed our initial public offering due
to market conditions. The Company is exploring a number of financing
alternatives, including an initial public offering, and will evaluate these
costs periodically to determine if they are transferable to other financing
activities. If management does not proceed with an initial public offering or
deems these costs as not transferable to other financing activities, these
costs will be expensed.
(5) COMMITMENTS AND CONTINGENCIES
GAC EQUITY AGREEMENT--In the first quarter of 1998, Great American
Country and the Company entered into an equity affiliate agreement with a
multiple cable system operator ("MSO"). Pursuant to the terms of such
agreement, the Company agreed to issue shares of Class A Common Stock to the
MSO in return for the MSO providing Great American Country's programming to
no less than 500,000 of its subscribers by December 31, 1998. Because of a
put option granted to the MSO, the shares issued to that MSO are presented
above the Shareholders' Deficit section of the Statements of Financial
Position. The amount of accretion from the value of the shares issued to the
put option at the exercise date is not significant.
The MSO was granted a put option on the Common Stock issued, whereby, if
as of December 31, 2001, the Company or its successor has not completed a
public offering of its securities, the MSO would have the option within 60
days of such date to require the Company to buy back its Class A Common Stock
at a price equal to all or a portion of the license fees that would have been
paid during the period between the date of the agreement and the exercise
date of the put option. The purchase price would be based on the total number
of MSO subscribers receiving the Great American Country service as of
December 31, 1998. Based on the cumulative amount of license fees received
for the Great American Country service from the inception of the agreement
through March 31, 2000, the estimated purchase price of the Class A Common
Stock in the event the put option is exercised would be approximately
$1,032,000.
(6) UNAUDITED CONDENSED CONSOLIDATING FINANCIAL INFORMATION FOR SUBSIDIARY
GUARANTORS
In 1998, the Company issued $100 million of Senior Secured Notes (the
"Notes"). The Notes are fully and unconditionally
7
<PAGE>
guaranteed, jointly and severally, on a senior unsecured basis by the
following wholly-owned subsidiaries of the Company: JPN, Inc., Jones Direct,
Ltd., Jones Space Holdings, Inc., Jones Earth Segment, Inc., Jones
Infomercial Networks, Inc., Jones Radio Holdings, Inc., Great American
Country, Inc., Jones Galactic Radio, Inc., Jones Infomercial Network
Ventures, Inc., Jones Galactic Radio Partners, Inc., Jones Radio Network,
Inc., Jones Audio Services, Inc., Jones Radio Network Ventures, Inc.,
MediaAmerica, Inc., Broadcast Programming, Inc., MAI Radio, Inc. and
Jones/Owens Radio Programming LLC (collectively, the "Subsidiary
Guarantors"). The only existing subsidiaries of the Company that did not
guarantee the Notes are the following three entities: the PIN Venture,
Superaudio and Jones/Capstar (collectively, the "Non-Guarantor Subsidiaries").
The Company has not provided separate complete financial statements and
other disclosures of the respective Subsidiary Guarantors because management
has determined that such information is not material to investors. There are
no significant contractual restrictions on distributions from each of the
Subsidiary Guarantors to the Company.
Investments in subsidiaries are required to be accounted for by
investors on the equity method for purposes of the supplemental condensed
consolidating financial statement presentation. Under this method,
investments are recorded at cost and adjusted for the investor company's
ownership share of the subsidiaries' cumulative results of operations. In
addition, investments increase by the amount of contributions to subsidiaries
and decrease by the amount of distributions from subsidiaries. The
elimination entries eliminate the equity method accounting for the investment
in subsidiaries and the equity in earnings of subsidiaries, intercompany
payables and receivables and other transactions between subsidiaries
including contributions and distributions.
Sections 13 and 15(d) of the Securities Exchange Act of 1934 require
presentation of the following supplemental condensed consolidating financial
statements. Presented below is unaudited condensed consolidating financial
information for the Company and its subsidiaries as of and for the three
months ended March 31, 1999 and 2000.
8
<PAGE>
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS - FOR THE THREE
MONTHS ENDED MARCH 31, 1999:
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
----------- ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues ........................................................... $-- $ 8,118 $ 4,769 $ (382) $ 12,505
Operating expenses:
Operations .................................................... -- 5,419 4,490 (382) 9,527
Selling and marketing ......................................... -- 1,200 152 -- 1,352
General and administrative .................................... 350 -- -- -- 350
Depreciation and amortization ................................. 1 1,964 25 -- 1,990
-------- ------- ------ ------ ------
Total operating expenses ................................. 351 8,583 4,667 (382) 13,219
-------- ------- ------ ------ ------
OPERATING INCOME (LOSS) ....................................... (351) (465) 102 -- (714)
-------- ------- ------ ------ ------
OTHER EXPENSE (INCOME):
Interest expense .............................................. 3,157 -- -- -- 3,157
Interest income ............................................... (236) (21) (21) -- (278)
Equity share of loss (income) of subsidiaries ................. 391 (462) -- 67 (4)
Other expense (income), net ................................... -- 2 2 -- 4
-------- ------- ------ ------ ------
Total other expense (income) ............................. 3,312 (481) (19) 67 2,879
-------- ------- ------ ------ ------
Income (loss) before income taxes and minority interest ....... (3,663) 16 121 (67) (3,593)
Income tax provision .......................................... -- -- 20 -- 20
-------- ------- ------ ------ ------
Income (loss) before minority interest ........................ (3,663) 16 101 (67) (3,613)
Minority interest in net loss of consolidated subsidiaries .... -- -- -- 50 50
-------- ------- ------ ------ ------
NET INCOME (LOSS) .................................................. $ (3,663) $ 16 $ 101 $ (117) $ (3,663)
-------- ------- ------ ------ ------
UNAUDITED CONDENSED CONSOLIDATING CASH FLOWS - FOR THE THREE MONTHS ENDED
MARCH 31, 1999:
(IN THOUSANDS)
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
----------- ---------- ------------- --------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................... $ (3,663) $ 16 $ 101 $ (117) $ (3,663)
Adjustment to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Non-cash expenses ......................................... 335 1,720 45 117 2,217
Net change in assets and liabilities ...................... (2,832) 909 890 -- (1,033)
-------- ------- ------- ------- --------
Net cash provided by (used in) operating activities ...... (6,160) 2,645 1,036 -- (2,479)
-------- ------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment .......................... -- (181) (93) -- (274)
Purchase of investments ..................................... (481) -- -- -- (481)
Purchase of intangible assets ............................... -- (1,554) -- -- (1,554)
-------- ------- ------- ------- --------
Net cash used in investing activities .................... (481) (1,735) (93) -- (2,309)
-------- ------- ------- ------- --------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ...................................... (6,641) 910 943 -- (4,788)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ....................................... 17,881 956 1,817 -- 20,654
-------- ------- ------- ------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ...................... $ 11,240 $ 1,866 $ 2,760 $-- $ 15,866
-------- ------- ------- ------- --------
</TABLE>
9
<PAGE>
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF FINANCIAL POSITION - AS OF
MARCH 31, 2000:
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
------------ -------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents ....................... $ 3,673 $ 3,104 $ 3,855 $-- $ 10,632
Available for sale securities ................... 5,301 -- -- -- 5,301
Accounts receivable, net ........................ -- 13,262 514 -- 13,776
Other current assets ............................ 57 1,290 80 -- 1,427
---------- ---------- ---------- --------- ---------
Total current assets .................. 9,031 17,656 4,449 -- 31,136
---------- ---------- ---------- --------- ---------
Property and equipment .......................... 13 21,734 344 -- 22,091
Intangible assets ............................... 3,926 60,829 2 -- 64,757
Other long-term assets .......................... 29,242 (21,743) -- (1,121) 6,378
---------- ---------- ---------- --------- ---------
Total assets .......................... $ 42,212 $ 78,476 $ 4,795 $ (1,121) $ 124,362
---------- ---------- ---------- --------- ---------
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT):
Accounts payable ................................ $ 1,364 $ 2,039 $ 1,714 $-- $ 5,117
Producers' fees payable ......................... -- 4,708 -- -- 4,708
Accrued liabilities ............................. 3,463 4,544 70 -- 8,077
Other current liabilities ....................... (65,403) 66,549 1,018 -- 2,164
---------- ---------- ---------- --------- ---------
Total current liabilities ............. (60,576) 77,840 2,802 -- 20,066
---------- ---------- ---------- --------- ---------
Senior secured notes ............................ 100,000 -- -- -- 100,000
Other long-term liabilities ..................... 778 616 -- -- 1,394
---------- ---------- ---------- --------- ---------
Total long-term liabilities ........... 100,778 616 -- -- 101,394
---------- ---------- ---------- --------- ---------
Minority interest ............................... -- -- -- 892 892
Class A Common Stock subject to put ............. 1,213 -- -- -- 1,213
Shareholders' equity (deficit):
Series A Preferred Stock ................... 23,975 -- -- -- 23,975
Class A Common Stock ....................... 53 -- -- -- 53
Class B Common Stock ....................... 22 -- -- -- 22
General Partners' Contributions ............ -- -- 350 (350) --
Additional paid-in capital ................. 28,260 -- -- -- 28,260
Accumulated other comprehensive income ..... (24) -- -- -- (24)
Retained earnings (deficit) ................ (51,489) 20 1,643 (1,663) (51,489)
---------- ---------- ---------- --------- ---------
Total shareholders' investment (deficit) ........ 797 20 1,993 (2,013) 797
---------- ---------- ---------- --------- ---------
Total liabilities and shareholders'
equity (deficit) ................... $ 42,212 $ 78,476 $ 4,795 $ (1,121) $ 124,362
---------- ---------- ---------- --------- ---------
</TABLE>
10
<PAGE>
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS - FOR THE THREE
MONTHS ENDED MARCH 31, 2000:
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
---------- ---------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues .......................................................... $ -- $ 13,749 $ 6,854 $ (436) $ 20,167
Operating expenses:
Operations ................................................... -- 7,799 5,865 (436) 13,228
Selling and marketing ........................................ -- 2,142 206 -- 2,348
General and administrative ................................... 544 -- -- -- 544
Depreciation and amortization ................................ 2 3,360 31 -- 3,393
------- ------- ------ ------ -------
Total operating expenses ................................ 546 13,301 6,102 (436) 19,513
------- ------- ------ ------ -------
OPERATING INCOME (LOSS) ...................................... (546) 448 752 -- 654
------- ------- ------ ------ -------
OTHER EXPENSE (INCOME):
Interest expense ............................................. 3,143 -- -- -- 3,143
Interest income .............................................. (147) (40) (39) -- (226)
Equity share of loss (income) of subsidiaries ................ (974) 1,344 -- (403) (33)
Other expense (income), net .................................. 11 (83) 62 -- (10)
------- ------- ------ ------ -------
Total other expense (income) ............................ 2,033 1,221 23 (403) 2,874
------- ------- ------ ------ -------
Income (loss) before income taxes and minority interest ...... (2,579) (773) 729 403 (2,220)
Income tax provision ......................................... -- 33 -- -- 33
------- ------- ------ ------ -------
Income (loss) before minority interest ....................... (2,579) (806) 729 403 (2,253)
Minority interest in net loss of consolidated subsidiaries ... -- -- -- 326 326
------- ------- ------ ------ -------
NET INCOME (LOSS) ................................................. $ (2,579) $ (806) $ 729 $ 77 $ (2,579)
------- ------- ------ ------ -------
</TABLE>
UNAUDITED CONDENSED CONSOLIDATING CASH FLOWS - FOR THE THREE MONTHS ENDED
MARCH 31, 2000:
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
----------- ------------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ...................................... $ (2,579) $ (806) $ 729 $ 77 $ (2,579)
Adjustment to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Non-cash expenses .................................... (85) 4,034 94 (77) 3,966
Net change in assets and liabilities ................. (2,803) 525 432 -- (1,846)
------- ------ ------ ------ -------
Net cash provided by (used in) operating activities . (5,467) 3,753 1,255 -- (459)
------- ------ ------ ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ..................... -- (459) (74) -- (533)
Proceeds from the sale of investments .................. 1,589 -- -- -- 1,589
Purchase of intangible assets .......................... (3) (2,898) -- -- (2,901)
------- ------ ------ ------ -------
Net cash used in investing activities ............... 1,586 (3,357) (74) -- (1,845)
------- ------ ------ ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for equity offering costs ..................... (335) -- -- -- (335)
------- ------ ------ ------ -------
Net cash used in financing activities ............... (335) -- -- -- (335)
------- ------ ------ ------ -------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ................................. (4,216) 396 1,181 -- (2,639)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD .................................. 7,889 2,708 2,674 -- 13,271
------- ------ ------ ------ -------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................. $ 3,673 $ 3,104 $ 3,855 $-- $ 10,632
------- ------ ------ ------ -------
</TABLE>
11
<PAGE>
(7) REPORTABLE SEGMENTS
The Company has six reportable segments: radio programming, cable
television programming, Internet programming, advertising sales services,
satellite services and general and administrative-corporate. The Company's
reportable segments have been determined in accordance with the Company's
internal management structure. The Company evaluates performance based on
many factors; one of the primary measures is EBITDA. EBITDA represents
operating income (loss) plus depreciation and amortization minus the EBITDA
attributable to the minority interest in the PIN Venture, a consolidated
55.3%-owned subsidiary.
The following tables set forth the Company's financial results by
business segments. The presentation of reportable segments has been changed
from that presented in prior periods to (1) reflect the Internet programming
segment, a new segment, and (2) the separate presentation of radio
programming and advertising sales services segments. The Company has also
added the presentation of segment EBITDA. Management believes that this
presentation provides a more meaningful analysis of the Company's business
segments. EBITDA of the cable television programming segment excludes EBITDA
attributable to the minority interest in the PIN Venture. The prior year's
results have been reclassified to conform to the new presentation.
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------------
Revenues: 1999 2000
-------------- ---------------
(in thousands)
<S> <C> <C>
Programming content:
Radio .............................................................................. $ 2,959 $ 7,416
Cable television ................................................................... 5,797 8,239
Internet ........................................................................... - 25
Programming support services:
Advertising sales services ......................................................... 1,575 2,777
Satellite services ................................................................. 2,174 1,710
--------- ---------
Total revenues .................................................................... $ 12,505 $ 20,167
--------- ---------
EBITDA:
Programming content:
Radio .............................................................................. $ (270) $ 1,981
Cable television ................................................................... 207 1,117
Internet ........................................................................... - (463)
Programming support services:
Advertising sales services ......................................................... (166) 484
Satellite services ................................................................. 1,853 1,472
--------- ---------
Segment EBITDA .................................................................... 1,624 4,591
Reconciliation to operating income (loss):
General and administrative .............................................................. 348 544
Depreciation and amortization ........................................................... 1,990 3,393
--------- ---------
Total operating income (loss) ..................................................... $ (714) $ 654
--------- ---------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
1999 2000
------------- --------------
(in thousands)
<S> <C> <C>
Reconciliation of segment EBITDA to total EBITDA:
Segment total .................................................... $ 1,624 $ 4,591
General and administrative ....................................... (348) (544)
Less: EBITDA minority interest ................................... 58 350
---------- ----------
Total EBITDA .................................................. $ 1,218 $ 3,697
---------- ----------
Depreciation and amortization:
Programming content:
Radio .......................................................... $ 335 $ 1,358
Cable television ............................................... 396 797
Internet ....................................................... - 5
Programming support services:
Advertising sales services ..................................... 238 248
Satellite services ............................................. 1,019 983
---------- ----------
Segment total ................................................. 1,988 3,391
General and administrative ....................................... 2 2
---------- ----------
Total depreciation and amortization ........................... $ 1,990 $ 3,393
---------- ----------
Total assets:
Programming content:
Radio .......................................................... $ 6,315 $ 40,638
Cable television ............................................... 13,899 20,104
Internet ....................................................... - 122
Programming support services:
Advertising sales services ..................................... 38,871 42,835
Satellite services ............................................. 22,253 18,867
---------- ----------
Segment total ................................................. 81,338 122,566
Corporate ........................................................ 47,621 42,212
Elimination of inter-segment assets .............................. (28,042) (40,416)
---------- ----------
Total assets .................................................. $ 100,917 $ 124,362
---------- ----------
Capital expenditures:
Programming content:
Radio .......................................................... $ 59 $ 231
Cable television ............................................... 119 104
Internet ....................................................... - 119
Programming support services:
Advertising sales services ..................................... 16 70
Satellite services ............................................. 80 7
---------- ----------
Segment total ................................................. 274 531
Corporate ........................................................ - 2
---------- ----------
Total capital expenditures .................................... $ 274 $ 533
---------- ----------
</TABLE>
13
<PAGE>
Segment EBITDA excludes intersegment transactions between the satellite
services and cable programming segments for the satellite services provided
to PIN and GAC for approximately $860,000, and $1,023,000, for the three
months ended March 31, 1999 and 2000, respectively. In addition, segment
EBITDA excludes intersegment transactions among advertising sales services,
radio programming and Internet programming segments for the sale of radio
airtime to Internet for approximately $377,000 for the three months ended
March 31, 2000. Segment EBITDA differs from operating income (loss) of each
of the segments by the amount of depreciation and amortization expenses of
each segment.
(7) SUBSEQUENT EVENT
In the second quarter of 1999, the Company entered into an agreement to
lease a satellite transponder channel to a third party for the remaining life
of the satellite, as well as to provide other uplinking and earth station
services. Because the third party and the guarantor of this lease were in
default, the Company exercised its rights to terminate these satellite
transponder and earth station agreements on April 13, 2000.
In April 2000, the Company entered into agreements to lease up to two
channels as well as other uplinking and earth station services to a third
party. The terms of these agreements will commence on July 15, 2000 and will
terminate on October 15, 2000.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of results of the Company's financial condition
and results of operations contains, in addition to historical information,
forward-looking statements that are based upon certain assumptions and are
subject to a number of risks and uncertainties. The Company's actual results
may differ significantly from the results described in such forward-looking
statements.
RESULTS OF OPERATIONS
The following table sets forth the amount of, and percentage
relationship to total net revenues of, certain items included in the
Company's historical unaudited consolidated statements of operations for the
three months ended March 31, 1999 and 2000, respectively:
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
---------------------------------------------------------------
1999 2000
---------------------------------------------------------------
(in thousands and unaudited)
<S> <C> <C> <C> <C>
Revenues:
Programming content:
Radio ............................ $ 2,959 24% $ 7,416 37%
Cable television ................. 5,797 46 8,239 41
Internet ......................... - - 25 -
Programming support services:
Advertising sales services ....... 1,575 13 2,777 14
Satellite services ............... 2,174 17 1,710 8
--------- ---- --------- ---
Total revenues .................. 12,505 100 20,167 100
--------- ---- --------- ---
Operating expenses:
Programming content:
Radio ............................ 3,564 28 6,793 34
Cable television ................. 5,986 48 7,919 39
Internet ......................... - - 493 2
Programming support services:
Advertising sales services ....... 1,979 16 2,541 13
Satellite services ............... 1,340 11 1,221 6
--------- ---- -------- ---
Segment total ................... 12,869 103 18,967 94
General and administrative ......... 350 3 546 3
--------- ---- -------- ---
Total operating expenses ......... 13,219 106 19,513 97
--------- ---- -------- ---
Operating income (loss) ......... (714) (6) 654 3
--------- ---- -------- ---
Interest expense, net ................. 2,879 23 2,917 14
Other expense (income), net ........... - - (43) -
Income tax provision (benefit) ........ 20 - 33 -
Minority interest ..................... 50 - 326 2
--------- ---- ------- ---
Net loss .............................. $ (3,663) (29)% $ (2,579) (13)%
--------- ---- ------- ---
</TABLE>
15
<PAGE>
The following table sets forth EBITDA for the three months ended March 31,
1999 and 2000. EBITDA is unaudited and represents operating income (loss) plus
depreciation and amortization minus EBITDA attributable to the minority interest
in the PIN Venture, a consolidated 55.3%-owned subsidiary. Management
acknowledges that EBITDA is not a measure of performance or liquidity calculated
in accordance with generally accepted accounting principles. However, EBITDA is
a measure widely used by analysts and investors in the media industry to
determine a company's operating performance and ability to service and incur
debt. EBITDA should not be considered in isolation or as a substitute for net
income (loss), cash flows from operating activities or other consolidated income
or cash flow statement data prepared in accordance with generally accepted
accounting principles or as a measure of profitability or liquidity.
<TABLE>
<CAPTION>
1999 2000
--------------- -------------
<S> <C> <C>
EBITDA:
Programming content:
Radio .................................. $ (270) $ 1,981
Cable television ....................... 207 1,117
Internet ............................... - (463)
Programming support services:
Advertising sales services ............. (166) 484
Satellite services ..................... 1,853 1,472
--------- -------
Segment total ......................... 1,624 4,591
General and administrative ............... (348) (544)
Less: EBITDA minority interest ........... 58 350
--------- -------
Total EBITDA ........................... $ 1,218 $ 3,697
--------- -------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
REVENUES
Total revenues increased $7.7 million, or 61%, from $12.5 million for
the three months ended March 31, 1999 to $20.2 million for the three months
ended March 31, 2000. Total revenues adjusted for the acquisition of
Broadcast programming would have been $14.3 million for the three months
ended March 31, 1999. This increase was due to strong growth in our radio and
cable programming content operations, an increase in radio revenues resulting
from the Broadcast Programming acquisition on August 2, 1999 as well as
advertising sales services.
OPERATING EXPENSES
OPERATIONS. Operations expense increased $3.7 million, or 39%, from $9.5
million for the three months ended March 31, 1999 to $13.2 million for the
three months ended March 31, 2000. Total operations expenses adjusted for the
acquisition of Broadcast Programming would have been $10.6 million for the
three months ended March 31, 1999. The increase is due primarily to an
increase in operating expenses resulting from the Broadcast Programming
acquisition, increased expenditures related to Internet programming and
increased operating expenses to develop our Internet business and the cable
television side of our advertising sales business. As a percentage of total
revenues, total operations expense decreased from 76% for the three months
ended March 31, 1999 to 66% for the three months ended March 31, 2000.
SELLING AND MARKETING. Selling and marketing expenses increased $1.0
million, or 74%, from $1.4 million for the three months ended March 31, 1999
to $2.4 million for the three months ended March 31, 2000. Selling and
Marketing expenses adjusted for the acquisition of Broadcast Programming
would have been $1.6 million for the three months ended March 31, 1999. This
increase is due primarily to increased expenditures to attract additional
radio and cable television affiliates and an increase in selling and
marketing expenditures resulting from the Broadcast Programming acquisition.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$0.2 million, or 56%, from $0.3 million for the three months ended March 31,
1999 to $0.5 million for the three months ended March 31, 2000. This increase
is due primarily to an increase in computer software and hardware support
services charged by an affiliate of Jones International and an increase in
salary and related expenses as a result of new associates hired to perform
the accounting functions.
16
<PAGE>
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased $1.4 million, or 71%, from $2.0 million for the three months ended
March 31, 1999 to $3.4 million for the three months ended March 31, 2000.
Depreciation and amortization expenses adjusted for the acquisition of
Broadcast programming would have been $3.1 million for the three months ended
March 31, 1999. This increase is due primarily to an increase in amortization
expenses related to the Broadcast Programming acquisition and the
amortization of cable programming distribution agreement payments.
OPERATING INCOME (LOSS)
Operating income (loss) increased $1.4 million from an operating loss of
$(0.7) million for the three months ended March 31, 1999 to operating income
of $0.7 million for the three months ended March 31, 2000, as a result of the
factors discussed herein. Operating loss adjusted for the acquisition of
Broadcast Programming would have been $(1.4) million for the three months
ended March 31, 1999.
EBITDA
EBITDA increased $2.5 million, or 204%, from $1.2 million for the three
months ended March 31, 1999, to $3.7 million for the three months ended March
31, 2000 as a result of the factors discussed herein. EBITDA adjusted for the
acquisition of Broadcast Programming would have been $1.6 million for the
three months ended March 31, 1999.
OTHER EXPENSE
Total other expense remained essentially flat at $2.9 million for the
three months ended March 31, 1999 and 2000.
NET LOSS
Net loss decreased $1.1 million, or 30%, from $(3.7) million for the
three months ended March 31, 1999 to $(2.6) million for the three months
ended March 31, 2000 as a result of the factors discussed herein.
RADIO PROGRAMMING
REVENUES. Radio programming revenues increased $4.4 million, or 151%, from
$3.0 million for the three months ended March 31, 1999 to $7.4 million for
the three months ended March 31, 2000, due primarily to an increase in radio
advertising revenue and the acquisition of the assets of Broadcast
Programming. Radio revenues adjusted for the acquisition of Broadcast
Programming would have been $4.8 million for the three months ended March 31,
1999. Following the acquisition, Broadcast Programming generated advertising
and programming license fee revenues of $3.0 million during the three months
ended March 31, 2000. Advertising revenues increased $1.4 million due to an
increase in the number of spots sold and an increase in the rates charged for
our advertising spots.
EXPENSES. Radio programming expenses increased $3.2 million, or 91%, from
$3.6 million for the three months ended March 31, 1999 to $6.8 million for
the three months ended March 31, 2000. Radio expenses adjusted for the
acquisition of Broadcast Programming would have been $6.1 million for the
three months ended March 31, 1999. This increase was primarily due to:
- a $2.6 million increase in operating expenses as a result of the
Broadcast Programming acquisition, including amortization expenses of
$1.0 million;
- a $0.3 million increase in radio programming distribution expenses due
to an increase in the number of radio affiliates;
- a $0.2 million increase in marketing expenses to increase the number
of radio stations receiving our programming; and
- a $0.1 million increase in fees paid to license certain radio
programming.
As a percentage of radio programming revenues, radio programming
expenses decreased from 120% for the three months ended March 31, 1999 to 92%
for the three months ended March 31, 2000. Because a significant portion of
our radio programming expenses is fixed in nature, as our radio programming
revenues increase, our radio programming expenses as a percent of radio
programming revenues will generally decline.
17
<PAGE>
OPERATING INCOME (LOSS). Operating income (loss) from radio programming
increased $1.2 million from an operating loss of $(0.6) million for the three
months ended March 31, 1999 to operating income of $0.6 million for the three
months ended March 31, 2000 as a result of the factors stated herein.
Operating loss from radio programming adjusted for the acquisition of
Broadcast Programming would have been $(1.3) million for the three months
ended March 31, 1999.
SEGMENT EBITDA. Segment EBITDA from radio programming increased $2.3
million, or 834%, from $(0.3) million for the three months ended March 31,
1999 to $2.0 million for the three months ended March 31, 2000 as a result of
the factors stated herein. Segment EBITDA from radio programming adjusted for
the Broadcast Programming acquisition would have been $0.2 million for the
three months ended March 31, 1999.
CABLE TELEVISION PROGRAMMING
We own and operate two cable television networks, Great American Country
("GAC") and Product Information Network ("PIN"). PIN is owned through a
venture, which is 55.3% owned by us.
REVENUES. Cable television programming revenues increased $2.4 million, or
42%, from $5.8 million for the three months ended March 31, 1999 to $8.2
million for the three months ended March 31, 2000. This increase was due to
the following:
- GAC's revenues increased $0.4 million, or 35%, as a result of a $0.3
million, or 45%, increase in advertising revenues and $0.1 million, or
19%, increase in license fees. To continue our efforts to increase our
traditional national spot advertising, GAC incurred $0.5 million in
advertising representation fees in 2000. Excluding the advertising
representation fees incurred in 2000, GAC advertising revenues increased
121%. Advertising revenues increased due to higher advertising rates
charged for airtime based on a 62% increase in the number of subscribers
receiving GAC; and
- FTREs represent the number of full-time revenue equivalent subscribers
receiving PIN. PIN's revenues increased $2.0 million, or 44%, primarily
as a result of a 29% increase in FTRE's receiving PIN.
EXPENSES. Cable television programming expenses rose $1.9 million, or 32%,
from $6.0 million for the three months ended March 31, 1999 to $7.9 million
for the three months ended March 31, 2000. This was primarily due to:
- increases of $1.2 million in rebates to cable systems receiving PIN,
driven by an increase in PIN revenues of $2.0 million from March 31,
1999 to March 31, 2000;
- an increase of $0.4 million in amortization expenses for GAC cable
programming distribution agreement payments; and
- an increase of $0.3 million in cable television programming expenses
resulted from an increase in GAC affiliate sales and other costs.
For the three months ended March 31, 1999 and 2000, PIN made rebates of
approximately 77% and 74%, respectively, of its advertising revenues to
systems receiving its programming. Rebates paid to cable systems receiving
PIN programming have remained relatively constant over the comparable periods
on a per FTRE basis. However, as FTRE's continue to grow, total cable
television programming expenses will increase because PIN will pay out
additional rebates to cable systems. As a percentage of cable television
programming revenues, cable television programming expenses decreased from
103% for the three months ended March 31, 1999 to 96% for the three months
ended March 31, 2000.
OPERATING INCOME (LOSS). Operating income (loss) from cable television
programming increased $0.5 million from an operating loss of $(0.2) million
for the three months ended March 31, 1999 to an operating income of $0.3
million for the three months ended March 31, 2000 as a result of the factors
stated above.
SEGMENT EBITDA. Segment EBITDA from cable television programming increased
$0.9 million, or 440%, from $0.2 million for the three months ended March 31,
1999 to $1.1 million for the three months ended March 31, 2000 as a result of
the factors stated above.
18
<PAGE>
INTERNET
We are implementing an Internet strategy in which we will develop web
sites for many of our radio formats and certain of our syndicated
programming. As a result, Internet expenses increased beginning in the fourth
quarter of 1999 and will continue to increase throughout 2000. We have not
generated significant revenues from our Internet business. We anticipate
salary, content development and associated expenses and marketing expenses to
increase as we develop new web sites and expand existing web sites.
REVENUES. We did not generate significant Internet revenues for the three
months ended March 31, 2000.
EXPENSES. We incurred Internet expenses of $0.5 million for the three months
ended March 31, 2000.
OPERATING LOSS. We generated an operating loss from our Internet activities
of $(0.5) million for the three months ended March 31, 2000.
SEGMENT EBITDA. We generated a deficit in segment EBITDA from our Internet
activities of $(0.5) million for the three months ended March 31, 2000.
ADVERTISING SALES SERVICES
REVENUES. Advertising sales services revenues increased $1.2 million, or 76%,
from $1.6 million for the three months ended March 31, 1999 to $2.8 million for
the three months ended March 31, 2000. The increase in advertising sales
services revenues is due primarily to the increase in the number of spots sold
and an increase in the rates charged for advertising spots aired on radio
stations which received third parties and owned programming.
EXPENSES. Advertising sales services expenses increased $0.6 million, or 28%,
from $2.0 million for the three months ended March 31, 1999 to $2.6 million for
the three months ended March 31, 2000. The increase is due primarily to:
- an increase of $0.3 million related to the development of our cable
television advertising sales business. In the first quarter of 2000, our
operating expenses increased as a result of new associates hired to sell
GAC spot advertising and certain audience ratings information for GAC;
- an increase of $0.1 million related to the development of our Internet
advertising sales business as a result of new associates hired to sell
and market Internet advertising for third party and owned web sites.
OPERATING INCOME (LOSS). Operating income from advertising sales services
increased from an operating loss of $(0.4) million for the three months ended
March 31, 1999 to operating income of $0.2 million for the three months ended
March 31, 2000 as a result of factors discussed herein. Operating income from
advertising sales services in 2000 consisted of operating income of $0.3
million from radio and cable advertising sales services and operating loss of
$(0.1) million from internet advertising sales services.
SEGMENT EBITDA. Segment EBITDA from advertising sales services increased $0.7
million, or 392%, from $(0.2) million for the three months ended March 31, 1999,
to $0.5 million for the three months ended March 31, 2000. Segment EBITDA from
advertising sales services consisted of Segment EBITDA of $0.6 million from
radio and cable advertising sales services and Segment EBITDA of $(0.1) million
from Internet advertising sales services.
SATELLITE SERVICES
REVENUES. Satellite services revenues decreased $0.5 million, or 21%, from
$2.2 million for the three months ended March 31, 1999 to $1.7 million for the
three months ended March 31, 2000. This decrease was primarily due to:
- the expiration in August 1999 of a third party satellite services
agreement, which generated $0.4 million in satellite services revenues
in the first quarter of 1999; and
- $0.1 million decrease in satellite services fees charged to affiliated
parties because of reduced service levels.
Historically we have provided satellite services to a related company.
Because the related party began to decrease its programming expenditures in the
second half of 1999 and ceased all programming efforts as of March 31, 2000,
satellite services fees
19
<PAGE>
charged to affiliated parties decreased in the first quarter of 2000 and will
continue to decrease throughout 2000 as compared to the similar periods in
the prior year.
In April 2000, we entered into an agreement to lease two channels as well
as other uplinking and earth station services to a third party. The terms of
this agreement will commence on July 15, 2000 and will terminate October 15,
2000.
EXPENSES. Satellite services expenses decreased $0.1 million, 9%, from $1.3
million for the three months ended March 31, 1999 to $1.2 million for three
months ended March 31, 2000. As a percentage of satellite services revenues,
satellite services expenses increased from 62% for the three months ended March
31, 1999 to 71% for the three months ended March 31, 2000. Because a significant
portion of the costs of our satellite services is fixed, as our revenues
decrease the percentage of satellite services expenses in relation to the
satellite services revenues will generally increase.
OPERATING INCOME (LOSS). Operating income from satellite services decreased
$0.3 million from $0.8 million for the three months ended March 31, 1999 to
$.0.5 million for the three months ended March 31, 2000 as a result of the
factors stated above.
SEGMENT EBITDA. Segment EBITDA from satellite services decreased $0.4 million,
or 21%, from $1.9 million for the three months ended March 31, 1999 to $1.5
million for the three months ended March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have incurred net losses, primarily as a result of
expenses associated with developing and launching our programming networks and
financing costs. For the three months ended March 31, 1999 and 2000, we incurred
net losses of $(3.7) million and $(2.6) million, respectively. Net cash used in
operating activities for the three months ended March 31, 1999 and 2000 was
$(2.5) million and $(0.5) million, respectively.
The implementation of our growth strategies depends on a number of factors
including the availability of cash generated from operations and available cash
balances, and may require additional equity and/or debt financings, particularly
to make significant acquisitions. Our indenture currently permits secured
borrowings of up to $20.0 million. We had cash and cash equivalents and
available for sale securities of $15.9 million as of March 31, 2000. We believe
that our cash balances, available for sale securities and operating cash flow,
including the cash flows of, and dividends and distributions from, our
subsidiaries, will fund our cash flow requirements through 2000.
On March 9, 2000, we postponed our initial public offering due to
unfavorable market conditions. At such time market conditions improve, we
will reconsider an initial public offering of our Class A Common Stock. We
are exploring a number of financing alternatives to provide us with
additional liquidity to implement our growth strategies. There can be no
assurance we will be successful in these efforts or that such financings will
be available on terms we view as acceptable.
We will continue to depend significantly upon the earnings and cash flows
of, and dividends and distributions from, our subsidiaries to pay our expenses,
meet our obligations and pay interest and principal on our Senior Notes and our
other indebtedness. While the terms of our joint ventures (including the PIN
Venture) generally require the mutual consent of ourselves and our joint venture
partners to distribute or advance funds to ourselves, there are no significant
contractual restrictions on distributions from our subsidiaries.
INVESTING ACTIVITIES
For the three months ended March 31, 1999 and 2000, net cash used in
investing activities was $(2.3) million and $(1.8) million, respectively. Our
investing activities in 1999 related primarily to programming distribution
payments made for GAC of $1.5 million. Our investing activities for the three
months ended March 31, 2000 consisted primarily of the following:
- $1.6 million proceeds from the sale of available for sale securities;
- $(2.2) million in cable programming distribution agreement payments for
GAC;
- $(0.7) million to purchase certain radio programs; and
- $(0.5) million for the purchase of property and equipment.
20
<PAGE>
Total capital expenditures for the balance of 2000 are estimated to be
approximately $1.1 million, which will be used primarily to purchase
equipment for the upgrades of certain radio programming studios, to purchase
satellite receivers and to purchase computer hardware and software for the
Internet segment. Total cable programming distribution agreement payments for
Great American Country for the balance of 2000 are estimated to be
approximately $4.5 million to $5.0 million.
FINANCING ACTIVITIES
In July 1999, we entered into a $20.0 million credit facility with a
commercial bank to finance the purchase of Broadcast Programming. In order to
allow us to obtain more favorable terms, Jones International guaranteed the
loan and provided certain collateral as security for the guaranty. The full
amount of the credit facility was available to the Company as of March 31,
2000. The credit facility bears interest either at the commercial bank's
prime rate minus 2% or a fixed rate (which is approximately equal to LIBOR)
plus 0.5%. The interest rate was 6.65 percent per annum at March 31, 2000.
The credit facility will expire on June 30, 2000. We are in the process of
obtaining a new credit facility without Jones International guaranteeing the
loan and providing collateral as security for the guaranty. We can give no
assurance that we will be able to obtain a new credit facility on terms we
believe are acceptable.
Net cash used in financing activities for the three months ended March
31, 2000 was $(0.3) million. Net cash used in financing activities consisted
of costs related to our initial public offering of our Class A Common Stock.
Such costs include financial printing, legal counsel, independent public
accountants, regulatory and stock exchange registration fees, and other
various costs associated with the offering. Costs for said offering were
approximately $0.5 million for the three months ended March 31, 2000 and $0.8
million since the offering process began. We can give no assurance as to if
or when such offering will be completed or what the proceeds to us would be.
21
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our financial
position, results of operations, or cash flows due to adverse changes in
financial market prices. We are exposed to market risk through interest rates.
This exposure is directly related to our normal funding and investing
activities.
As of March 31, 2000, approximately $0.3 million of our current liabilities
were subject to changes in interest rates. We do not use derivatives to manage
this risk. This exposure is linked primarily to the prime rate. We believe that
even a significant change in the prime rate would not materially affect our
operating results or financial condition.
ITEM 5: OTHER MATERIALLY IMPORTANT EVENTS
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
None
b) Reports on Form 8-K
Current Report on Form 8-K dated January 28, 2000 reporting that the
Company held a Special Meeting of Shareholders on January 26, 2000, whereby
three separate proposals were presented and passed by the shareholders. The
three proposals were to: (1) increase the number of authorized shares of Class A
Common Stock from 50,000,000 shares to 100,000,000 shares and to increase the
number of authorized shares of Class B Common Stock from 1,785,120 shares to
2,231,400 shares; (2) delete the second sentence in Paragraph 7.2(a) of the
Company's Articles of Incorporation in its entirety and substitute the following
in its place: "The Board of Directors of the Corporation may declare a dividend
payable solely in Class A Shares to holders of both Class A Shares and Class B
Shares." and (3) increase the aggregate number of shares of Class A Common Stock
that may be made subject to stock options under the Company's 1998 Stock Option
Plan from 400,000 shares to 1,750,000 shares.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JONES INTERNATIONAL NETWORKS, LTD.
By:
-------------------------------------------
Jeffery C. Wayne
President
Dated: May 4, 2000
By:
-------------------------------------------
Jay B. Lewis
Group Vice President/Finance
(Principal Financial Officer)
Dated: May 4, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 10,632,213
<SECURITIES> 5,301,022
<RECEIVABLES> 15,295,613
<ALLOWANCES> 1,520,315
<INVENTORY> 0
<CURRENT-ASSETS> 31,135,428
<PP&E> 54,194,087
<DEPRECIATION> 32,103,244
<TOTAL-ASSETS> 124,361,828
<CURRENT-LIABILITIES> 20,065,864
<BONDS> 100,000,000
0
23,975,000
<COMMON> 75,447
<OTHER-SE> (23,253,477)
<TOTAL-LIABILITY-AND-EQUITY> 124,361,828
<SALES> 0
<TOTAL-REVENUES> 20,166,902
<CGS> 0
<TOTAL-COSTS> 19,513,238
<OTHER-EXPENSES> (10,263)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,143,339
<INCOME-PRETAX> (2,219,715)
<INCOME-TAX> (2,252,215)
<INCOME-CONTINUING> (2,578,580)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,578,580)
<EPS-BASIC> (.034)
<EPS-DILUTED> (.034)
</TABLE>
