<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 June 30, 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
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JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
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<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 June 30, 2000.......................... 2
Unaudited Consolidated Statements of Operations
for the Three and Six Months Ended June 30, 1999 and 2000.......... 3
Unaudited Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 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........ 26
Item 5. Other Materially Important Events................................. 26
Item 6. Exhibits and Reports on Form 8-K.................................. 26
</TABLE>
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ...................................................................... $ 13,270,784 $ 11,395,580
Available for sale securities .................................................................. 6,888,741 5,213,405
Accounts receivable, net of allowance for doubtful accounts of
$1,192,818 and $1,773,529, respectively ..................................................... 14,049,008 14,457,877
Accounts receivable - Jones International, Ltd. ................................................ 382,221 --
Receivables from affiliates .................................................................... 473,759 --
Prepaid expenses ............................................................................... 284,863 551,656
Other current assets ........................................................................... 693,218 862,857
------------- -------------
Total current assets ...................................................................... 36,042,594 32,481,375
------------- -------------
Property and equipment, net .................................................................... 22,959,104 21,369,404
Intangible assets, net ......................................................................... 63,642,270 63,857,341
Investment in affiliates ....................................................................... 309,117 33,000
Debt offering costs, net of accumulated amortization of $960,077 and $1,361,669 respectively ... 4,138,699 3,737,107
Deferred equity offering costs (Note 4) ........................................................ 240,859 789,078
Other non-current assets ....................................................................... 1,128,902 1,484,340
------------- -------------
Total assets .............................................................................. $ 128,461,545 $ 123,751,645
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable--trade ........................................................................ $ 4,738,526 $ 4,798,269
Producers' fees payable ........................................................................ 5,307,947 5,068,295
Cable programming distribution payments payable ................................................ 3,236,996 1,352,632
Accrued liabilities and other current liabilities .............................................. 2,328,858 2,335,169
Accounts payable--Jones International, Ltd. .................................................... -- 367,137
Interest payable ............................................................................... 5,875,000 5,875,000
Deferred revenues .............................................................................. 1,309,155 1,898,964
------------- -------------
Total current liabilities ................................................................. 22,796,482 21,695,466
------------- -------------
LONG-TERM LIABILITIES:
Customer deposits and deferred revenues ........................................................ 581,700 631,799
Other long-term liabilities .................................................................... 602,791 896,610
Senior secured notes ........................................................................... 100,000,000 100,000,000
------------- -------------
Total long-term liabilities ............................................................... 101,184,491 101,528,409
------------- -------------
MINORITY INTEREST IN
CONSOLIDATED SUBSIDIARIES ................................................................... 565,149 1,153,567
------------- -------------
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) (13,078)
Accumulated deficit ............................................................................ (48,910,782) (54,136,441)
------------- -------------
Total shareholders' equity (deficit) ...................................................... 2,701,935 (1,839,285)
------------- -------------
Total liabilities and shareholders' equity (deficit) ...................................... $ 128,461,545 $ 123,751,645
============= =============
</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>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues, including revenues from affiliated entities of
$1,402,086, $813,246, $2,963,658 and
$1,944,041, respectively (Note 2) ............................. $ 15,236,612 $ 20,494,341 $ 27,741,949 $ 40,661,243
Operating expenses, including charges from affiliated entities
of $1,802,033, $1,532,783, $4,016,138 and $3,222,431,
respectively (Note 2):
Operations .................................................... 10,279,121 13,446,124 19,808,214 26,673,922
Selling and marketing ......................................... 1,274,816 2,673,148 2,627,204 5,021,195
General and administrative .................................... 382,695 352,319 730,942 896,624
Depreciation and amortization ................................. 1,980,963 3,587,083 3,970,707 6,980,171
------------ ------------ ------------ ------------
Total operating expenses .................................... 13,917,595 20,058,674 27,137,067 39,571,912
------------ ------------ ------------ ------------
OPERATING INCOME ................................................ 1,319,017 435,667 604,882 1,089,331
------------ ------------ ------------ ------------
OTHER (INCOME) EXPENSE:
Interest expense (Note 2) ..................................... 3,124,380 3,143,338 6,281,030 6,286,677
Interest income ............................................... (245,759) (247,801) (523,234) (474,176)
Equity in loss (income) of subsidiaries ....................... (51,816) 31,097 (56,002) (2,225)
Other expense (income) ........................................ 54,320 (118,188) 58,500 (128,451)
------------ ------------ ------------ ------------
Total other expense, net .................................... 2,881,125 2,808,446 5,760,294 5,681,825
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES
AND MINORITY INTEREST ......................................... (1,562,108) (2,372,779) (5,155,412) (4,592,494)
Income tax provision .......................................... 460 12,247 19,923 44,747
------------ ------------ ------------ ------------
LOSS BEFORE MINORITY INTEREST ................................... (1,562,568) (2,385,026) (5,175,335) (4,637,241)
Minority interest in net income (loss)
of consolidated subsidiaries ................................ 395,398 262,053 445,751 588,418
------------ ------------ ------------ ------------
NET LOSS ........................................................ $ (1,957,966) $ (2,647,079) $ (5,621,086) $ (5,225,659)
============ ============ ============ ============
ADJUSTMENTS TO ARRIVE AT COMPREHENSIVE
INCOME (LOSS) ................................................. (25,186) 10,824 (30,858) 12,574
------------ ------------ ------------ ------------
COMPREHENSIVE INCOME (LOSS) ..................................... $ (1,983,152) $ (2,636,255) $ (5,651,944) $ (5,213,085)
============ ============ ============ ============
NET LOSS PER COMMON SHARE:
Basic ......................................................... $ (0.26) $ (0.35) $ (0.74) $ (0.68)
============ ============ ============ ============
Fully diluted ................................................. $ (0.26) $ (0.35) $ (0.75) $ (0.69)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES:
Basic ......................................................... 7,620,204 7,671,117 7,615,258 7,656,187
============ ============ ============ ============
Fully diluted ................................................. 7,580,549 7,630,531 7,575,603 7,615,601
============ ============ ============ ============
</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 SIX MONTHS ENDED
JUNE 30,
1999 2000
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................................... $ (5,621,086) $ (5,225,659)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization .............................................. 3,970,707 6,980,171
Amortization of debt offering costs ........................................ 368,484 401,592
Distributions received ..................................................... -- 405,992
Equity in income of subsidiaries ........................................... (56,002) (2,225)
Gain on distributions from affiliates ...................................... -- (142,650)
Write-off of software ...................................................... -- 65,380
Minority interest in net income of consolidated subsidiaries ............... 445,751 588,418
Net change in assets and liabilities:
Decrease (increase) in receivables ........................................ 27,196 (408,869)
Decrease (increase) in receivables from affiliates ........................ (227,255) 473,759
Increase in prepaid expenses and other current assets ..................... (927) (548,026)
Decrease in tax benefit receivable from Jones International, Ltd. ......... 1,338,402 --
Increase in other assets .................................................. (320,195) (18,315)
Increase (decrease) in accounts payable ................................... (144,288) 59,743
Decrease in producers' fees payable ....................................... (395,985) (239,652)
Increase (decrease) in accounts payable to Jones International, Ltd. ...... (557,607) 749,358
Increase in interest payable .............................................. 293,750 --
Increase in deferred revenues ............................................. 458,929 589,809
Decrease in accrued and other liabilities ................................. (162,371) (226,289)
Increase in customer deposits ............................................. 13,722 50,099
------------ ------------
Net cash provided by (used in) operating activities ...................... (568,775) 3,552,636
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ........................................... (441,905) (1,221,080)
Purchase of available for sale securities .................................... (3,197,232) --
Proceeds from the sale of available for sale securities ...................... -- 1,687,910
Cable programming distribution agreements payments ........................... (2,143,281) (4,850,267)
Purchases of intangible assets and programming ............................... (352,432) (743,784)
Distributions of capital from affiliates ..................................... -- 15,000
------------ ------------
Net cash used in investing activities ..................................... (6,134,850) (5,112,221)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for equity offering costs ........................................... -- (315,619)
------------ ------------
Net cash used in financing activities ..................................... -- (315,619)
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS .......................................... (6,703,625) (1,875,204)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................. 20,654,013 13,270,784
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ....................................... $ 13,950,388 $ 11,395,580
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Class A Common Stock issued for radio programs ............................... $ -- $ 671,865
============ ============
Interest paid ................................................................ $ 5,590,986 $ 5,875,000
============ ============
Income tax paid .............................................................. $ 19,923 $ 44,747
============ ============
</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 - (CONTINUED)
(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 June 30, 2000, the consolidated
statements of operations for the three and six months ended June 30, 1999 and
2000, and the statements of cash flows for the six months ended June 30, 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 six months ended June 30, 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
the related party ceasing its distribution efforts in the last quarter of 1999,
this service was terminated in September 1999. For the three and six months
ended June 30, 1999, the Company received approximately $43,000 and $88,000,
respectively, for this service.
The Company distributes its Great American Country network programming to
certain cable television systems owned or managed by Jones Intercable, Inc.
("Jones Intercable"). Since April 7, 1999, Jones Intercable has not been an
affiliate of the Company due to the sale of Mr. Jones' interest in Jones
Intercable. Jones Intercable, through its new 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 June 30, 1999, Jones Intercable
and its affiliated partnerships paid total license fees to the Company of
approximately $85,000 for this programming service. For the six months ended in
June 30, 1999, Jones Intercable and it's affiliated partnerships paid total
license fees to the Company of approximately $322,000 for this programming
service.
Jones Earth Segment, Inc. ("Earth Segment"), a wholly owned subsidiary of
the Company, provides playback, editing, duplication, trafficking and uplinking
services to its cable programming network affiliates, to an affiliated entity
and to third parties. 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 June 30, 1999 and 2000, Jones International and its affiliates paid
satellite
5
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JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
delivery and production support fees to the Company of approximately $905,000
and $428,000, respectively, for these services. For the six months ended June
30, 1999 and 2000, Jones International and its affiliates paid satellite
delivery and production support fees to the Company of approximately $1,816,000,
and $1,174,000, respectively, for these services.
In addition, Jones Space Holdings, Inc. ("Space Holdings"), a subsidiary of
the Company, subleases a non-preemptible satellite transponder to an affiliate
of International. For the three months ended June 30, 1999 and 2000, the Company
received satellite transponder lease revenues of approximately $369,000 and
$385,000, respectively, for this service. For the six months ended June 30, 1999
and 2000, the Company received satellite transponder lease revenues of
approximately $738,000 and $770,000, respectively, for this service.
OPERATING EXPENSES--The Product Information Network Venture, ("PIN
Venture") pays out a significant portion of the revenues generated by its
infomercial programming in the form of system rebates to cable systems which
enter into agreements to air such programming. The PIN Venture has continued to
pay rebates to Jones Intercable (and its affiliated partnerships) subsequent to
the change in the ownership described above. For the three months ended June 30,
1999, the PIN Venture paid Jones Intercable (and its affiliated partnerships)
and Cox Communications rebates of approximately $778,000. For the six months
ended June 30, 1999, the PIN Venture paid rebates to Jones Intercable (and its
affiliated partnerships) and Cox Communications approximately $1,940,000. For
the three months ended June 30, 2000, the PIN Venture paid rebates to Cox
Communications of approximately $882,000. For the six months ended June 30,
2000, the PIN Venture paid rebates to Cox Communications of approximately
$1,840,000.
Jones Network Sales ("JNS"), a wholly owned subsidiary of Jones
International, provided certain affiliate sales and marketing services to the
Company. As a result of a related party no longer being in business, such
affiliate sales and marketing functions have been incorporated into the
operations of the Company starting in January 2000. For the three and six months
ended June 30, 1999, the Company paid JNS approximately $337,000 and $702,000,
respectively, 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 International, 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 June 30, 1999, the Company paid Satellite Holdings
approximately $174,000 for this service. For the six months ended June 30, 1999
and 2000, the company paid Satellite Holdings approximately $348,000 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 June 30, 1999 and
2000, the Company paid these affiliates approximately $36,000 and $131,000,
respectively, for rent and associated expenses. For the six months ended June
30, 1999 and 2000, the Company paid $70,000 and $239,000 respectively for rent
and associated expenses.
An affiliate of Jones International charged the Company approximately
$11,000 during the six months ended June 30, 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 June 30, 1999 and
2000, the Company paid the affiliate approximately $199,000 and $336,000,
respectively, for such services. For the six months ended June 30, 1999 and
2000, the Company paid approximately $410,000 and $690,000, 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
June 30, 1999 and 2000, the Company reimbursed Jones International and its
affiliates approximately $278,000 and $184,000, respectively. For the six months
ended June 30, 1999 and 2000, the Company reimbursed Jones International and
its affiliates approximately $546,000 and $384,000, respectively.
To assist funding its operating and investing activities in the past, the
Company had borrowed funds from Jones
6
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JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 six months ended June 30, 1999. For the six months ended June 30, 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 Jones International on a
monthly basis. Outstanding payable to Jones International and related parties at
June 30, 2000 was approximately $367,000.
(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>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------------- ---------------------------------
1999 2000 1999 2000
-------------- ------------ ------------- ----------------
<S> <C> <C> <C> <C>
Weighted average shares for basic EPS..... 7,620,204 7,671,117 7,615,258 7,656,187
Less: shares subject to put............... 39,655 40,586 39,655 40,586
-------------- ------------ ------------- ---------------
Weighted average shares for diluted EPS... 7,580,549 7,630,531 7,575,603 7,615,601
============== ============ ============= ===============
</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, the Company postponed its 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 the
Company does not proceed with an initial public offering within a reasonable
period of time or deems these costs as not transferable to other financing
activities, these costs will be expensed.
(5) COMMITMENTS AND CONTINGENCIES
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 stock issued, whereby, if as of
December 31, 2001, the Company 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
7
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, the estimated purchase price of the Class A Common Stock in the event
the put option is exercised would be approximately $1,030,000.
(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 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 six months
ended June 30, 1999 and 2000.
8
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS -
FOR THE SIX MONTHS ENDED JUNE 30, 1999:
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues ............................................. $ -- $ 18,023 $ 10,485 $ (766) $ 27,742
Operating expenses:
Operations ...................................... -- 11,433 9,141 (766) 19,808
Selling and marketing ........................... -- 2,287 340 -- 2,627
General and administrative ...................... 731 -- -- -- 731
Depreciation and amortization ................... 3 3,916 52 -- 3,971
------------ ------------ ------------ ------------ ------------
Total operating expenses ................... 734 17,636 9,533 (766) 27,137
------------ ------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) ......................... (734) 387 952 -- 605
------------ ------------ ------------ ------------ ------------
OTHER EXPENSE (INCOME):
Interest expense ................................ 6,281 -- -- -- 6,281
Interest income ................................. (428) (41) (54) -- (523)
Equity share of loss (income) of subsidiaries ... (1,018) 1,630 (56) (612) (56)
Other expense (income), net ..................... 52 5 1 -- 58
------------ ------------ ------------ ------------ ------------
Total other expense (income) ............... 4,887 1,594 (109) (612) 5,760
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes and
minority interest ............................ (5,621) (1,207) 1,061 612 (5,155)
Income tax provision ............................ -- 19 1 -- 20
------------ ------------ ------------ ------------ ------------
Income (loss) before minority interest .......... (5,621) (1,226) 1,060 612 (5,175)
Minority interest in net loss of
consolidated subsidiaries ..................... -- -- -- 446 446
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) .................................... $ (5,621) $ (1,226) $ 1,060 $ 166 $ (5,621)
============ ============ ============ ============ ============
</TABLE>
UNAUDITED CONDENSED CONSOLIDATING CASH FLOWS -
FOR THE SIX MONTHS ENDED JUNE 30, 1999:
(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) ................................. $ (5,621) $ (1,226) $ 1,060 $ 166 $ (5,621)
Adjustment to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Non-cash expenses ............................... 369 4,530 (4) (166) 4,729
Net change in assets and liabilities ............ 356 (342) 309 -- 323
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) operating
activities ................................... (4,896) 2,962 1,365 -- (569)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ................ -- (374) (68) -- (442)
Purchase of investments ........................... (3,197) -- -- -- (3,197)
Purchase of intangible assets ..................... -- (2,496) -- -- (2,496)
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities .......... (3,197) (2,870) (68) -- (6,135)
------------ ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ............................ (8,093) 92 1,297 -- (6,704)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ............................. 17,881 956 1,817 -- 20,654
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............ $ 9,788 $ 1,048 $ 3,114 $ -- $ 13,950
============ ============ ============ ============ ============
</TABLE>
9
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF FINANCIAL POSITION -
AS OF JUNE 30, 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 ....................... $ 6,358 $ 984 $ 4,054 $ -- $ 11,396
Available for sale securities ................... 4,310 -- 903 -- 5,213
Accounts receivable, net ........................ -- 14,099 359 -- 14,458
Other current assets ............................ 56 1,252 107 -- 1,415
------------ ------------ ------------ ------------ ------------
Total current assets .................. 10,724 16,335 5,423 -- 32,482
------------ ------------ ------------ ------------ ------------
Property and equipment .......................... 11 20,992 366 -- 21,369
Intangible assets ............................... 3,747 60,109 1 -- 63,857
Other long-term assets .......................... 32,977 (25,488) -- (1,445) 6,044
------------ ------------ ------------ ------------ ------------
Total assets .......................... $ 47,459 $ 71,948 $ 5,790 $ (1,445) $ 123,752
============ ============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT):
Accounts payable ................................ $ 773 $ 2,559 $ 1,466 $ -- $ 4,798
Producers' fees payable ......................... -- 5,068 -- -- 5,068
Accrued liabilities ............................. 6,239 3,252 72 -- 9,563
Other current liabilities ....................... (59,824) 60,418 1,673 -- 2,267
------------ ------------ ------------ ------------ ------------
Total current liabilities ............. (52,812) 71,297 3,211 -- 21,696
------------ ------------ ------------ ------------ ------------
Senior secured notes ............................ 100,000 -- -- -- 100,000
Other long-term liabilities ..................... 897 631 -- -- 1,528
------------ ------------ ------------ ------------ ------------
Total long-term liabilities ........... 100,897 631 -- -- 101,528
------------ ------------ ------------ ------------ ------------
Minority interest ............................... -- -- -- 1,154 1,154
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 ..... (13) -- -- -- (13)
Retained earnings (deficit) ................ (54,136) 20 2,229 (2,249) (54,136)
------------ ------------ ------------ ------------ ------------
Total shareholders' investment (deficit) ........ (1,839) 20 2,579 (2,599) (1,839)
------------ ------------ ------------ ------------ ------------
Total liabilities and shareholders'
equity (deficit) ................... $ 47,459 $ 71,948 $ 5,790 $ (1,445) $ 123,752
============ ============ ============ ============ ============
</TABLE>
10
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS -
FOR THE SIX MONTHS ENDED JUNE 30, 2000:
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues ............................................. $ -- $ 28,463 $ 13,068 $ (870) $ 40,661
Operating expenses:
Operations ...................................... -- 16,274 11,270 (870) 26,674
Selling and marketing ........................... -- 4,569 452 -- 5,021
General and administrative ...................... 897 -- -- -- 897
Depreciation and amortization ................... 4 6,910 66 -- 6,980
------------ ------------ ------------ ------------ ------------
Total operating expenses ................... 901 27,753 11,788 (870) 39,572
------------ ------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) ......................... (901) 710 1,280 -- 1,089
------------ ------------ ------------ ------------ ------------
OTHER EXPENSE (INCOME):
Interest expense ................................ 6,286 -- -- -- 6,286
Interest income ................................. (300) (76) (98) -- (474)
Equity share of loss (income) of subsidiaries ... (1,672) 2,397 -- (727) (2)
Other expense (income), net ..................... 11 (201) 62 -- (128)
------------ ------------ ------------ ------------ ------------
Total other expense (income) ............... 4,325 2,120 (36) (727) 5,682
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes and
minority interest ............................. (5,226) (1,410) 1,316 727 (4,593)
Income tax provision ............................ -- 44 1 -- 45
------------ ------------ ------------ ------------ ------------
Income (loss) before minority interest .......... (5,226) (1,454) 1,315 727 (4,638)
Minority interest in net loss of
consolidated subsidiaries ..................... -- -- -- 588 588
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) .................................... $ (5,226) $ (1,454) $ 1,315 $ 139 $ (5,226)
============ ============ ============ ============ ============
</TABLE>
UNAUDITED CONDENSED CONSOLIDATING CASH FLOWS -
FOR THE SIX MONTHS ENDED JUNE 30, 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) ............................. $ (5,226) $ (1,454) $ 1,315 $ 139 $ (5,226)
Adjustment to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Non-cash expenses ........................... 2,242 6,065 129 (139) 8,297
Net change in assets and liabilities ........ (799) 310 971 -- 482
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) operating
activities ................................ (3,783) 4,921 2,415 -- 3,553
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ............ (2) (1,088) (131) -- (1,221)
Proceeds from/purchase of investments ......... 2,579 13 (904) -- 1,688
Purchase of intangible assets ................. (9) (5,585) -- -- (5,594)
Distributions of capital from affiliates ...... -- 15 -- -- 15
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities ...... 2,568 (6,645) (1,035) -- (5,112)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for equity offering costs ............ (316) -- -- -- (316)
------------ ------------ ------------ ------------ ------------
Net cash used in financing activities ...... (316) -- -- -- (316)
------------ ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ........................ (1,531) (1,724) 1,380 -- (1,875)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ......................... 7,889 2,708 2,674 -- 13,271
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ........ $ 6,358 $ 984 $ 4,054 $-- $ 11,396
============ ============ ============ ============ ============
</TABLE>
11
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(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. 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>
Three Months Ended Six Months Ended
June 30, June 30,
Revenues: 1999 2000 1999 2000
------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C>
Programming content:
Radio ................................... $ 3,906 $ 8,232 $ 6,865 $ 15,648
Cable television ........................ 6,846 7,902 12,642 16,141
Internet ................................ -- 18 -- 43
Programming support services:
Advertising sales services .............. 2,282 3,031 3,858 5,808
Satellite services ...................... 2,203 1,311 4,377 3,021
------------ ------------ ------------ ------------
Total revenues ......................... $ 15,237 $ 20,494 $ 27,742 $ 40,661
============ ============ ============ ============
EBITDA:
Programming content:
Radio ................................... $ 657 $ 2,456 $ 387 $ 4,437
Cable television ........................ 771 1,100 978 2,216
Internet ................................ -- (641) -- (1,104)
Programming support services:
Advertising sales services .............. 412 273 247 757
Satellite services ...................... 1,842 1,188 3,695 2,660
------------ ------------ ------------ ------------
Segment EBITDA ......................... 3,682 4,376 5,307 8,966
Reconciliation to operating income (loss):
General and administrative ................... 382 353 731 897
Depreciation and amortization ................ 1,981 3,587 3,971 6,980
------------ ------------ ------------ ------------
Total operating income (loss) .......... $ 1,319 $ 436 $ 605 $ 1,089
============ ============ ============ ============
</TABLE>
12
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30. June 30,
1999 2000 1999 2000
------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C>
Reconciliation of segment EBITDA to total EBITDA:
Segment total .................................... $ 3,682 $ 4,376 $ 5,307 $ 8,966
General and administrative ....................... (382) (353) (731) (897)
Less: EBITDA minority interest ................... 404 252 462 602
------------ ------------ ------------ ------------
Total EBITDA .................................. $ 2,896 $ 3,771 $ 4,114 $ 7,467
============ ============ ============ ============
Depreciation and amortization:
Programming content:
Radio .......................................... $ 344 $ 1,444 $ 680 $ 2,802
Cable television ............................... 399 910 795 1,707
Internet ....................................... -- 17 -- 22
Programming support services:
Advertising sales services ..................... 237 256 475 504
Satellite services ............................. 999 957 2,018 1,940
------------ ------------ ------------ ------------
Segment total ................................. 1,979 3,584 3,968 6,975
General and administrative ....................... 2 3 3 5
------------ ------------ ------------ ------------
Total depreciation and amortization ........... $ 1,981 $ 3,587 $ 3,971 $ 6,980
============ ============ ============ ============
Capital expenditures:
Programming content:
Radio .......................................... $ 94 $ 380 $ 153 $ 611
Cable television ............................... 13 68 132 172
Internet ....................................... -- 96 -- 215
Programming support services:
Advertising sales services ..................... 13 101 29 171
Satellite services ............................. 48 43 128 50
------------ ------------ ------------ ------------
Segment total ................................. 168 688 442 1,219
Corporate ........................................ -- -- -- 2
------------ ------------ ------------ ------------
Total capital expenditures .................... $ 168 $ 688 $ 442 $ 1,221
============ ============ ============ ============
</TABLE>
13
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
As of June 30,
1999 2000
------------ ------------
(in thousands)
<S> <C> <C>
Total assets:
Programming content:
Radio ............................... $ 6,942 $ 36,439
Cable television .................... 15,118 24,257
Internet ............................ -- 242
Programming support services:
Advertising sales services .......... 41,355 42,210
Satellite services .................. 21,344 17,543
------------ ------------
Segment total ...................... 84,759 120,691
Corporate ............................. 89,970 47,459
Elimination of inter-segment assets ... (69,608) (44,398)
------------ ------------
Total assets ....................... $ 105,121 $ 123,752
============ ============
</TABLE>
Segment EBITDA excludes intersegment transactions between the satellite
services and cable programming segments for the satellite services provided to
the PIN Venture and Great American Country for approximately $877,000, and
$940,000, for the three months ended June 30, 1999 and 2000, respectively.
Segment EBITDA excludes intersegment transactions between the satellite services
and cable programming segments for the satellite services provided to the PIN
Venture and Great American Country for approximately $1,737,000, and $1,897,000,
for the six months ended June 30, 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 $94,000 and $538,000 for the three
and six months ended June 30, 2000, respectively. Segment EBITDA differs from
operating income (loss) of each of the segments by the amount of depreciation
and amortization expenses of each segment.
(8) CREDIT FACILITY
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 credit
facility bore 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 June 30, 2000. This credit facility expired on
June 30, 2000.
(9) SUBSEQUENT EVENT
TERMINATION PAYMENT - The Company has negotiated an early termination to an
agreement with a third party to sell Internet advertising time and provide other
services. The termination of this agreement resulted in a one-time cash payment
of $1.5 million, which was received by the Company in July 2000. The termination
payment will be recorded as revenue during the Company's third quarter.
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 and six months
ended June 30, 1999 and 2000, respectively:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1999 2000 1999 2000
--------------------- ----------------------- --------------------- ----------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Programming content:
Radio........................ $ 3,906 26% $ 8,232 40 $ 6,865 25% $ 15,648 38%
Cable television............. 6,846 45 7,902 39 12,642 45 16,141 40
Internet..................... - - 18 - - - 43 -
Programming support services:
Advertising sales services... 2,282 15 3,031 15 3,858 14 5,808 14
Satellite services........... 2,203 14 1,311 6 4,377 16 3,021 8
-------- --- --------- --- --------- --- --------- ----
Total revenues.............. 15,237 100 20,494 100 27,742 100 40,661 100
-------- --- --------- --- --------- --- --------- ---
Operating expenses:
Programming content:
Radio........................ 3,593 24 7,220 35 7,158 26 14,013 34
Cable television............. 6,474 42 7,712 38 12,459 45 15,632 38
Internet..................... - - 676 3 - - 1,169 3
Programming support services:
Advertising sales services... 2,106 14 3,015 15 4,086 14 5,556 14
Satellite services........... 1,360 9 1,080 5 2,700 10 2,301 6
-------- --- --------- --- --------- --- --------- ----
Segment total............... 13,533 89 19,703 96 26,403 95 38,671 95
General and administrative..... 385 2 355 2 734 3 901 2
-------- --- --------- --- --------- --- --------- ----
Total operating expenses..... 13,918 91 20,058 98 27,137 98 39,572 97
-------- --- --------- --- --------- -- --------- ----
Operating income............ 1,319 9 436 2 605 2 1,089 3
-------- --- --------- --- --------- --- --------- ----
Interest expense, net............. 2,879 19 2,896 14 5,758 21 5,813 14
Other expense (income), net....... 2 - (87) - 2 - (131) -
Income tax provision (benefit).... 1 - 12 - 20 - 45 -
Minority interest................. 395 3 262 1 446 1 588 2
-------- --- --------- --- --------- --- --------- ----
Net loss $ (1,958) (13)% $ (2,647) (13)% $ (5,621) (20)% $ (5,226) (13)%
======== === ========= === ========= === ========= ====
</TABLE>
15
<PAGE>
The following table sets forth EBITDA for the three and six months ended
June 30, 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>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
1999 2000 1999 2000
------------ ------------ ------------ ------------
EBITDA: (in thousands)
<S> <C> <C> <C> <C>
Programming content:
Radio .......................... $ 657 $ 2,456 $ 387 $ 4,437
Cable television ............... 771 1,100 978 2,216
Internet ....................... -- (641) -- (1,104)
Programming support services:
Advertising sales services ..... 412 273 247 757
Satellite services ............. 1,842 1,188 3,695 2,660
------------ ------------ ------------ ------------
Segment total ................. 3,682 4,376 5,307 8,966
General and administrative ....... (382) (353) (731) (897)
Less: EBITDA minority interest ... 404 252 462 602
------------ ------------ ------------ ------------
Total EBITDA ................... $ 2,896 $ 3,771 $ 4,114 $ 7,467
============ ============ ============ ============
</TABLE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000
REVENUES
Total revenues increased $5.3 million, or 35%, from $15.2 million for the
three months ended June 30, 1999 to $20.5 million for the three months ended
June 30, 2000. Total revenues adjusted for the acquisition of Broadcast
Programming would have been $17.3 million for the three months ended June 30,
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 $3.1 million, or 31%, from $10.3
million for the three months ended June 30, 1999 to $13.4 million for the three
months ended June 30, 2000. Total operations expenses adjusted for the
acquisition of Broadcast Programming would have been $11.3 million for the three
months ended June 30, 1999. The increase is due primarily to an increase in
operating expenses resulting from the Broadcast Programming acquisition,
increased expenditures related to radio programming, increased expenditures
related to Internet programming and increased operating expenses to develop our
Internet and cable television advertising sales businesses. As a percentage of
total revenues, total operations expense decreased from 68% for the three months
ended June 30, 1999 to 66% for the three months ended June 30, 2000.
SELLING AND MARKETING. Selling and marketing expenses increased $1.4 million,
or 110%, from $1.3 million for the three months ended June 30, 1999 to $2.7
million for the three months ended June 30, 2000. Selling and marketing expenses
adjusted for the acquisition of Broadcast Programming would have been $1.5
million for the three months ended June 30, 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 remained
relatively flat at $0.4 million for the three months ended June 30, 1999 and
2000.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses increased
$1.6 million, or 81%, from $2.0 million for the
16
<PAGE>
three months ended June 30, 1999 to $3.6 million for the three months ended June
30, 2000. Depreciation and amortization expenses adjusted for the acquisition of
Broadcast Programming would have been $3.1 million for the three months ended
June 30, 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
Operating income decreased $0.9 million from an operating income of $1.3
million for the three months ended June 30, 1999 to operating income of $0.4
million for the three months ended June 30, 2000, as a result of the factors
discussed herein. Operating loss adjusted for the acquisition of Broadcast
Programming would have been approximately break-even for the three months ended
June 30, 1999.
EBITDA
EBITDA increased $0.9 million, or 30%, from $2.9 million for the three
months ended June 30, 1999, to $3.8 million for the three months ended June 30,
2000 as a result of the factors discussed herein. EBITDA adjusted for the
acquisition of Broadcast Programming would have been $3.7 million for the three
months ended June 30, 1999.
OTHER EXPENSE
Total other expense remained essentially flat at $2.9 million for the three
months ended June 30, 1999 and 2000.
NET LOSS
Net loss increased $0.6 million, or 35%, from $(2.0) million for the three
months ended June 30, 1999 to $(2.6) million for the three months ended June 30,
2000 as a result of the factors discussed herein.
RADIO PROGRAMMING
REVENUES. Radio programming revenues increased $4.3 million, or 111%, from $3.9
million for the three months ended June 30, 1999 to $8.2 million for the three
months ended June 30, 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
$6.1 million for the three months ended June 30, 1999. Following the
acquisition, Broadcast Programming generated advertising and programming license
fee revenues of $3.3 million during the three months ended June 30, 2000.
Advertising revenues increased $1.1 million due to an increase in the rates
charged for our advertising spots and an increase in the number of advertising
spots sold. There was a decrease of $0.1 million in radio license fees,
reflecting our decision to focus on programming targeted at larger market radio
stations that generally are not charged license fees.
EXPENSES. Radio programming expenses increased $3.6 million, or 101%, from $3.6
million for the three months ended June 30, 1999 to $7.2 million for the three
months ended June 30, 2000. Radio expenses adjusted for the acquisition of
Broadcast Programming would have been $6.0 million for the three months ended
June 30, 1999. This increase was primarily due to:
- a $2.9 million increase in operating expenses as a result of the
Broadcast Programming acquisition, including depreciation and
amortization expenses of $1.0 million;
- a $0.3 million increase in marketing expenses for trade shows and
related marketing expenditures to increase the number of radio
stations receiving our programming;
- a $0.2 million increase in radio programming and radio distribution
expenses due to an increase in the number of radio programs we offered
and an increase in the number of radio affiliates; and
- a $0.2 million increase in depreciation expenses related to new
equipment purchased for the upgrades of certain radio programming
studios, purchase of new satellite receivers and purchase of new
computer hardware and software.
As a percentage of radio programming revenues, radio programming expenses
decreased from 92% for the three months ended June 30, 1999 to 88% for the three
months ended June 30, 2000. Due to the fixed nature of most of our radio
programming expenses,
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our radio programming expenses as a percent of radio programming revenues will
generally decline as our radio programming revenues increase.
OPERATING INCOME. Operating income from radio programming increased $0.7
million from an operating income of $0.3 million for the three months ended June
30, 1999 to operating income of $1.0 million for the three months ended June 30,
2000 as a result of the factors stated herein. Operating income from radio
programming adjusted for the acquisition of Broadcast Programming would have
been approximately $0.1 million for the three months ended June 30, 1999.
SEGMENT EBITDA. Segment EBITDA from radio programming increased $1.8 million,
or 274%, from $0.7 million for the three months ended June 30, 1999 to $2.5
million for the three months ended June 30, 2000 as a result of the factors
stated herein. Segment EBITDA from radio programming adjusted for the Broadcast
Programming acquisition would have been $1.5 million for the three months ended
June 30, 1999.
CABLE TELEVISION PROGRAMMING
We have two cable television networks, Great American Country ("GAC") and
Product Information Network ("PIN"). PIN is owned by a venture, which is 55.3%
owned by us.
REVENUES. Cable television programming revenues increased $1.1 million, or 15%,
from $6.8 million for the three months ended June 30, 1999 to $7.9 million for
the three months ended June 30, 2000. This increase was due to the following:
- GAC's revenues increased $0.6 million, or 49%, as a result of a $0.4
million, or 51%, increase in advertising revenues and $0.2 million, or
45%, increase in license fees. To continue our efforts to increase our
traditional national spot advertising in 2000, GAC incurred $0.4
million in advertising sales fees in 2000. Excluding the advertising
sales fees incurred in 2000, GAC advertising revenues increased 103%.
Advertising revenues increased due to higher advertising rates charged
for airtime based on a 56% increase in the number of subscribers
receiving GAC; and
- PIN's revenues increased $0.5 million, or 9%, primarily as a result of
an 18% increase in FTRE's receiving PIN. FTREs represent the number of
full-time revenue equivalent subscribers receiving PIN.
EXPENSES. Cable television programming expenses rose $1.2 million, or 19%, from
$6.5 million for the three months ended June 30, 1999 to $7.7 million for the
three months ended June 30, 2000. This was primarily due to:
- an increase of $0.8 million in rebates to cable systems receiving PIN,
driven by an increase in PIN revenues from June 30, 1999 to June 30,
2000;
- an increase of $0.5 million in amortization expenses for GAC
distribution agreement payments driven by GAC's growth in subscribers;
- an increase of $0.2 million in marketing expenditures resulting from
an increase in GAC affiliate sales and other promotional expenses; and
- a decrease of $0.2 million in GAC's management and support expenses.
For the three months ended June 30, 1999 and 2000, PIN made rebates of
approximately 68% and 75%, respectively, of its advertising revenues to systems
receiving its programming. As PIN's FTRE's continue to grow, total cable
television programming expenses will continue to increase as PIN will have to
pay out additional rebates to cable systems as PIN advertising revenues
increase. As a percentage of cable television programming revenues, cable
television programming expenses increased from 95% for the three months ended
June 30, 1999 to 98% for the three months ended June 30, 2000.
OPERATING INCOME. Operating income from cable television programming decreased
$0.2 million from an operating income of $0.4 million for the three months ended
June 30, 1999 to an operating income of $0.2 million for the three months ended
June 30, 2000 as a result of the factors stated above.
SEGMENT EBITDA. Segment EBITDA from cable television programming increased $0.3
million, or 43%, from $0.8 million for the three months ended June 30, 1999 to
$1.1 million for the three months ended June 30, 2000 as a result of the factors
stated above.
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INTERNET
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 June 30, 2000.
EXPENSES. We incurred Internet expenses of $0.7 million for the three months
ended June 30, 2000.
OPERATING LOSS. We generated an operating loss from our Internet activities of
$(0.7) million for the three months ended June 30, 2000.
SEGMENT EBITDA. We generated a deficit in segment EBITDA from our Internet
activities of $(0.6) million for the three months ended June 30, 2000.
ADVERTISING SALES SERVICES
REVENUES. Advertising sales services revenues increased $0.7 million, or 33%,
from $2.3 million for the three months ended June 30, 1999 to $3.0 million for
the three months ended June 30, 2000. The increase in advertising sales services
revenues is due primarily to an increase in the rates charged for advertising
spots and an increase in the number of spots aired on radio stations which
received third parties and owned programming.
EXPENSES. Advertising sales services expenses increased $0.9 million, or 43%,
from $2.1 million for the three months ended June 30, 1999 to $3.0 million for
the three months ended June 30, 2000. The increase is due primarily to:
- an increase of $0.4 million related to the development of our
traditional spot cable television advertising sales business. In the
second quarter of 2000, our operating expenses increased as a result
of new associates hired to sell GAC traditional spot advertising and
certain audience ratings information subscribed to on behalf of GAC;
- an increase of $0.3 million related to the development of our Internet
advertising sales business as a result of new associates hired to sell
and market Internet advertising primarily for third parties;
- an increase of $0.2 million in management and support expenses.
OPERATING INCOME. Operating income from advertising sales services decreased
$0.2 million from an operating income of $0.2 million for the three months ended
June 30, 1999 to a break-even point the three months ended June 30, 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 $(0.3) million from
internet advertising sales services.
SEGMENT EBITDA. Segment EBITDA from advertising sales services decreased $0.1
million, or 34%, from $0.4 million for the three months ended June 30, 1999, to
$0.3 million for the three months ended June 30, 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 $(0.3) million
from Internet advertising sales services.
SATELLITE SERVICES
REVENUES. Satellite services revenues decreased $0.9 million, or 40%, from $2.2
million for the three months ended June 30, 1999 to $1.3 million for the three
months ended June 30, 2000. This decrease was primarily due to:
- the expiration in August 1999 of a third party satellite services
agreement, which generated $0.5 million in satellite services revenues
in the second quarter of 1999; and
- $0.4 million decrease in satellite services fees charged to an
affiliated party because of reduced service levels driven by an
affiliate ceasing its network operations in March 2000.
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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 charged to affiliated parties decreased in the first
half of 2000. For the balance of the year, these satellite service fees should
remain at the levels recognized in the second quarter of 2000.
In April 2000, we entered into an agreement to lease two satellite
transponder 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 $0.3 million, or 21%, from $1.4
million for the three months ended June 30, 1999 to $1.1 million for three
months ended June 30, 2000. This decrease is primarily due to variable cost
savings realized as a result of the related party ceasing all programming
operations as of March 31, 2000 as discuss herein. As a percentage of satellite
services revenues, satellite services expenses increased from 62% for the three
months ended June 30, 1999 to 82% for the three months ended June 30, 2000. Due
to the fixed nature of most of our satellite services expenses, the percentage
of satellite services expenses in relation to the satellite services revenues
will generally increase as our revenues decrease.
OPERATING INCOME. Operating income from satellite services decreased $0.6
million from $0.8 million for the three months ended June 30, 1999 to $.0.2
million for the three months ended June 30, 2000 as a result of the factors
stated above.
SEGMENT EBITDA. Segment EBITDA from satellite services decreased $0.6 million,
or 36%, from $1.8 million for the three months ended June 30, 1999 to $1.2
million for the three months ended June 30, 2000 as a result of the factors
stated above.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000
REVENUES
Total revenues increased $13.0 million, or 47%, from $27.7 million for the
six months ended June 30, 1999 to $40.7 million for the six months ended June
30, 2000. Total revenues adjusted for the acquisition of Broadcast Programming
would have been $31.7 million for the six months ended June 30, 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 increased advertising sales
services.
OPERATING EXPENSES
OPERATIONS. Operations expense increased $6.9 million, or 35%, from $19.8
million for the six months ended June 30, 1999 to $26.7 million for the six
months ended June 30, 2000. Total operations expenses adjusted for the
acquisition of Broadcast Programming would have been $22.1 million for the six
months ended June 30, 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 and cable television advertising sales
businesses. As a percentage of total revenues, total operations expense
decreased from 71% for the six months ended June 30, 1999 to 66% for the six
months ended June 30, 2000.
SELLING AND MARKETING. Selling and marketing expenses increased $2.4 million,
or 91%, from $2.6 million for the six months ended June 30, 1999 to $5.0 million
for the six months ended June 30, 2000. Selling and marketing expenses adjusted
for the acquisition of Broadcast Programming would have been $3.1 million for
the six months ended June 30, 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 23%, from $0.7 million for the six months ended June 30, 1999 to
$0.9 million for the six months ended June 30, 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 accounting
related functions.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses increased
$3.0 million, or 76%, from $4.0 million for the six months ended June 30, 1999
to $7.0 million for the six months ended June 30, 2000. Depreciation and
amortization expenses adjusted for the acquisition of Broadcast Programming
would have been $6.2 million for the six months ended June 30, 1999. This
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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
Operating income increased $0.5 million, or 80%, from an operating income
of $0.6 million for the six months ended June 30, 1999 to operating income of
$1.1 million for the six months ended June 30, 2000, as a result of the factors
discussed herein. Operating loss adjusted for the acquisition of Broadcast
Programming would have been $(0.5) million for the six months ended June 30,
1999.
EBITDA
EBITDA increased $3.4 million, or 82%, from $4.1 million for the six months
ended June 30, 1999, to $7.5 million for the six months ended June 30, 2000 as a
result of the factors discussed herein. EBITDA adjusted for the acquisition of
Broadcast Programming would have been $5.3 million for the six months ended June
30, 1999.
OTHER EXPENSE
Total other expense remained essentially flat at $5.7 million for the six
months ended June 30, 1999 and 2000.
NET LOSS
Net loss decreased $0.4 million, or 7%, from $(5.6) million for the six
months ended June 30, 1999 to $(5.2) million for the six months ended June 30,
2000 as a result of the factors discussed herein.
RADIO PROGRAMMING
REVENUES. Radio programming revenues increased $8.8 million, or 128%, from $6.9
million for the six months ended June 30, 1999 to $15.7 million for the six
months ended June 30, 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
$11.0 million for the six months ended June 30, 1999. Following the acquisition,
Broadcast Programming generated advertising and programming license fee revenues
of $6.4 million during the six months ended June 30, 2000. Advertising revenues
increased $2.7 million due to an increase in the number of spots sold, an
increase in the rates charged for our advertising spots and the number of radio
programs we offered. This increase was offset by a decrease of $0.3 million in
radio license fees, reflecting our decision to focus on programming targeted at
larger market radio stations that generally are not charged license fees.
EXPENSES. Radio programming expenses increased $6.8 million, or 96%, from $7.2
million for the six months ended June 30, 1999 to $14.0 million for the six
months ended June 30, 2000. Radio expenses adjusted for the acquisition of
Broadcast Programming would have been $12.2 million for the six months ended
June 30, 1999. This increase was primarily due to:
- a $5.5 million increase in operating expenses as a result of the
Broadcast Programming acquisition, including depreciation and
amortization expenses of $2.0 million;
- a $0.5 million increase in radio programming and distribution expenses
due to an increase in the number of radio programs we offered as well
as an increase in the number of radio affiliates;
- a $0.5 million increase in marketing expenses to increase the number
of radio stations receiving our programming;
- a $0.2 million increase in depreciation expenses related to new
equipment purchased for the upgrades of certain radio programming
studios, purchase of new satellite receivers and purchase of new
computer hardware and software; 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 104% for the six months ended June 30, 1999 to 90% for the six
months ended June 30, 2000. Due to the fixed nature of most of our radio
programming expenses, our radio programming expenses as a percent of radio
programming revenues will generally decline as our radio programming
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revenues increase.
OPERATING INCOME (LOSS). Operating income (loss) from radio programming
increased $1.9 million from an operating loss of $(0.3) million for the six
months ended June 30, 1999 to operating income of $1.6 million for the six
months ended June 30, 2000 as a result of the factors stated herein. Operating
loss from radio programming adjusted for the acquisition of Broadcast
Programming would have been $(1.2) million for the six months ended June 30,
1999.
SEGMENT EBITDA. Segment EBITDA from radio programming increased $4.0 million,
or 1,047%, from $0.4 million for the six months ended June 30, 1999 to $4.4
million for the six months ended June 30, 2000 as a result of the factors stated
herein. Segment EBITDA from radio programming adjusted for the Broadcast
Programming acquisition would have been $1.6 million for the six months ended
June 30, 1999.
CABLE TELEVISION PROGRAMMING
REVENUES. Cable television programming revenues increased $3.5 million, or 28%,
from $12.6 million for the six months ended June 30, 1999 to $16.1 million for
the six months ended June 30, 2000. This increase was due to the following:
- GAC's revenues increased $0.9 million, or 42%, as a result of a $0.7
million, or 48%, increase in advertising revenues and $0.2 million, or
31%, increase in license fees. To continue our efforts to increase our
traditional national spot advertising, GAC incurred $0.8 million in
advertising sales fees in 2000. Excluding the advertising sales fees
incurred in 2000, GAC advertising revenues increased 109%. Advertising
revenues increased due to higher advertising rates charged for airtime
driven by a 56% increase in the number of subscribers receiving GAC;
and
- PIN's revenues increased $2.6 million, or 25%, primarily as a result
of a 18% increase in FTRE's receiving PIN. FTREs represent the number
of full-time revenue equivalent subscribers receiving PIN.
EXPENSES. Cable television programming expenses rose $3.2 million, or 25%, from
$12.4 million for the six months ended June 30, 1999 to $15.6 million for the
six months ended June 30, 2000. This was primarily due to:
- increases of $2.0 million in rebates to cable systems receiving PIN,
which was driven by an increase in PIN revenues of $2.6 million from
June 30, 1999 to June 30, 2000;
- an increase of $0.9 million in amortization expenses for GAC cable
programming distribution agreement payments;
- an increase of $0.5 million in cable television programming expenses
resulting from an increase in GAC affiliate sales and other
promotional expenses; and
- a decrease of $0.2 million in GAC's management and support expenses.
For the six months ended June 30, 1999 and 2000, PIN made rebates of
approximately 74% and 75%, respectively, of its advertising revenues to systems
receiving its programming. Rebates paid to cable systems receiving PIN
programming, as a percent of revenue, 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 as PIN will have to
pay out additional rebates to cable systems as PIN advertising revenues
increase. As a percentage of cable television programming revenues, cable
television programming expenses decreased from 99% for the six months ended June
30, 1999 to 97% for the six months ended June 30, 2000.
OPERATING INCOME. Operating income from cable television programming increased
$0.3 million from operating income of $0.2 million for the six months ended June
30, 1999 to operating income of $0.5 million for the six months ended June 30,
2000 as a result of the factors stated above.
SEGMENT EBITDA. Segment EBITDA from cable television programming increased $1.2
million, or 127%, from $1.0 million for the six months ended June 30, 1999 to
$2.2 million for the six months ended June 30, 2000 as a result of the factors
stated above.
INTERNET
Internet expenses increased beginning in the fourth quarter of 1999 and
will continue to increase throughout 2000. We
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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 six months
ended June 30, 2000.
EXPENSES. We incurred Internet expenses of $1.2 million for the six months
ended June 30, 2000.
OPERATING LOSS. We generated an operating loss from our Internet activities of
$(1.2) million for the six months ended June 30, 2000.
SEGMENT EBITDA. We generated a deficit in segment EBITDA from our Internet
activities of $(1.1) million for the six months ended June 30, 2000.
ADVERTISING SALES SERVICES
REVENUES. Advertising sales services revenues increased $1.9 million, or 51%,
from $3.9 million for the six months ended June 30, 1999 to $5.8 million for the
six months ended June 30, 2000. The increase in advertising sales services
revenues is due primarily to the increase in the rates charged for advertising
spots and an increase in the number of spots aired on radio stations which
received third parties and owned programming.
EXPENSES. Advertising sales services expenses increased $1.5 million, or 36%,
from $4.1 million for the six months ended June 30, 1999 to $5.6 million for the
six months ended June 30, 2000. The increase is due primarily to:
- an increase of $0.7 million related to the development of our
traditional spot cable television advertising sales business. In the
first half of 2000, our operating expenses increased as a result of
new associates hired to sell GAC traditional paid spot advertising and
certain audience ratings information subscribed to on behalf of GAC;
- an increase of $0.4 million related to the development of our Internet
advertising sales business as a result of new associates hired to sell
and market Internet advertising primarily for third parties; and
- an increase of $0.4 million in management and support costs.
OPERATING INCOME (LOSS). Operating income from advertising sales services
increased $0.5 million from an operating loss of $(0.2) million for the six
months ended June 30, 1999 to operating income of $0.3 million for the six
months ended June 30, 2000 as a result of factors discussed herein. Operating
income from advertising sales services in 2000 consisted of operating income of
$0.7 million from radio and cable advertising sales services and operating loss
of $(0.4) million from Internet advertising sales services.
SEGMENT EBITDA. Segment EBITDA from advertising sales services increased $0.5
million, or 206%, from $0.3 million for the six months ended June 30, 1999, to
$0.8 million for the six months ended June 30, 2000. Segment EBITDA from
advertising sales services consisted of Segment EBITDA of $1.2 million from
radio and cable advertising sales services and Segment EBITDA of $(0.4) million
from Internet advertising sales services.
SATELLITE SERVICES
REVENUES. Satellite services revenues decreased $1.4 million, or 31%, from $4.4
million for the six months ended June 30, 1999 to $3.0 million for the six
months ended June 30, 2000. This decrease was primarily due to:
- the expiration in August 1999 of a third party satellite services
agreement, which generated $0.9 million in satellite services revenues
in the first half of 1999; and
- $0.5 million decrease in satellite services fees charged to an
affiliated party because of reduced service levels required by an
affiliate which ceased network operations at the end of the first
quarter of 2000.
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
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charged to affiliated parties decreased in the first half of 2000. For the
balance of the year, these satellite service fees should remain at the levels
recognized in the second quarter of 2000.
In April 2000, we entered into an agreement to lease two satellite
transponder 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 $0.4 million, or 15%, from $2.7
million for the six months ended June 30, 1999 to $2.3 million for three months
ended June 30, 2000. This decrease is primarily due to variable cost savings
realized as a result of the related party ceasing all programming operations as
of March 31, 2000 as discussed herein. As a percentage of satellite services
revenues, satellite services expenses increased from 62% for the six months
ended June 30, 1999 to 76% for the six months ended June 30, 2000. Due to fixed
nature of most of our satellite services expenses, our satellite services
expenses as a percentage of satellite services revenues will generally increase
as our satellite services revenues decrease.
OPERATING INCOME. Operating income from satellite services decreased $1.0
million from $1.7 million for the six months ended June 30, 1999 to $0.7 million
for the six months ended June 30, 2000 as a result of the factors stated above.
SEGMENT EBITDA. Segment EBITDA from satellite services decreased $1.0 million,
or 28%, from $3.7 million for the six months ended June 30, 1999 to $2.7 million
for the six months ended June 30, 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 six months ended June 30, 1999 and 2000, we incurred
net losses of $(5.6) million and $(5.2) million, respectively. Net cash provided
by (used in) operating activities for the six months ended June 30, 1999 and
2000 was $(0.6) million and $3.6 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 $16.6 million as of June 30, 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 six months ended June 30, 1999 and 2000, net cash used in investing
activities was $(6.1) million and $(5.1) million, respectively. Our investing
activities for the six months ended June 30, 2000 consisted primarily of the
following:
- $1.7 million proceeds from the sale of available for sale securities;
- $(4.9) million in cable programming distribution agreement payments
for GAC;
- $(0.7) million to purchase certain radio programs; and
- $(1.2) million for the purchase of property and equipment.
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Total capital expenditures for the balance of 2000 are estimated to be
approximately $1.8 million, which will be used primarily to upgrade certain
cable television and radio related earth station equipment 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 $2.0 million to $2.5 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 credit
facility bore 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 June 30, 2000. This credit facility expired on
June 30, 2000. We are in the process of seeking 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 six months ended June 30,
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 included 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 six months ended June 30, 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 net proceeds of such offering to us would be.
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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 June 30, 2000, none of our current liabilities was subject to changes
in interest rates.
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 April 13, 2000 reporting that on
March 14, 2000, Mr. James J. Krejci was appointed as a member of the Board of
Directors of the Company. He shall serve in such capacity until the next annual
meeting of the shareholders of the Company or until his successor is duly
elected, qualified and acting. Mr. Krejci is President and CEO of Comtec
International, Inc., a company in the specialized mobile radio services
business, headquartered in Englewood, Colorado. Prior to joining Comtec
International, Inc. in February 1998, Mr. Krejci was President and CEO of
Imagelink Technologies, Inc., headquartered in Boulder, Colorado, from June 1996
to February 1998. Prior to that, he was President of the International Division
of International Gaming Technology, the world's largest gaming equipment
manufacturer, with headquarters in Reno, Nevada from May 1994 to February 1995.
He was formerly a director of Jones Intercable, Inc. and an officer and director
of certain affiliates of Jones International.
26
<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: August 4, 2000
By:
---------------------------------------
Jay B. Lewis
Group Vice President/Finance
(Principal Financial Officer)
Dated: August 4, 2000
