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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 February 28, 1994
( ) 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 0-8947
JONES INTERCABLE, INC.
Exact name of registrant as specified in charter
Colorado #84-0613514
State of incorporation I.R.S. employer I.D.#
9697 East Mineral Avenue, Englewood, 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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Shares outstanding of each of the registrant's classes of Common Stock, as of
April 5, 1994.
4,913,021 - Common Stock, $.01 par value
14,817,088 - Class A Common Stock, $.01 par value
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JONES INTERCABLE, INC. AND SUBSIDIARIES
I N D E X
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Page
Number
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PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets
February 28, 1994 and May 31, 1993 3 - 4
Unaudited Consolidated Statements of Operations
Three and Nine Months Ended February 28, 1994 and 1993 5
Unaudited Consolidated Statements of Cash Flows
Nine Months Ended February 28, 1994 and 1993 6
Notes to Unaudited Consolidated Financial Statements
February 28, 1994 7 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10 - 18
PART II. OTHER INFORMATION.
Item 6. Exhibits and Reports on Form 8-K 19
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UNAUDITED CONSOLIDATED Jones Intercable, Inc.
BALANCE SHEETS and Subsidiaries
As of February 28, 1994 and May 31, 1993
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February 28, May 31,
1994 1993
ASSETS (Stated in Thousands)
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CASH AND CASH EQUIVALENTS $ 3,905 $ 1,131
RECEIVABLES:
Trade receivables, net of allowance for
doubtful accounts of $430,100 in February
and $339,600 in May 5,428 4,936
Affiliated entities 19,374 15,347
Other 736 517
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 285,758 262,214
Less-accumulated depreciation (115,201) (97,501)
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170,557 164,713
Franchise costs, net of accumulated
amortization of $72,084,300 in February
and $62,265,900 in May 77,799 73,678
Cost in excess of interests in net assets
purchased, net of accumulated amortization
of $5,630,200 in February and $4,802,900 in May 39,595 37,621
Noncompete agreement, net of accumulated
amortization of $709,100 in February and
$622,900 in May 441 527
Subscriber lists, net of accumulated
amortization of $28,776,800 in February and
$24,146,500 in May 20,169 20,074
Investments in cable television partnerships
and affiliates 85,664 54,705
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TOTAL INVESTMENT IN CABLE TELEVISION PROPERTIES 394,225 351,318
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DEFERRED TAX ASSET, net of valuation
allowance of $33,535,300 in February and
$26,161,000 in May 3,862 3,862
DEPOSITS, PREPAID EXPENSES AND OTHER ASSETS 23,169 22,461
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TOTAL ASSETS $ 450,699 $ 399,572
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</TABLE>
The accompanying notes to unaudited consolidated financial
statements are an integral part of these balance sheets.
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UNAUDITED CONSOLIDATED Jones Intercable, Inc.
BALANCE SHEETS and Subsidiaries
As of February 28, 1994 and May 31, 1993
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February 28, May 31,
1994 1993
LIABILITIES AND SHAREHOLDERS' INVESTMENT (Stated in Thousands)
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LIABILITIES:
Accounts payable and accrued liabilities $ 35,894 $ 35,629
Subscriber prepayments and deposits 4,883 5,080
Subordinated debentures and other debt 281,052 281,214
Credit facility 115,000 46,000
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TOTAL LIABILITIES 436,829 367,923
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SHAREHOLDERS' INVESTMENT:
Class A Common Stock, $.01 par value, 30,000,000
shares authorized; 13,520,502 and 13,481,280 shares
issued at February 28 and May 31 135 135
Common Stock, $.01 par value, 5,550,000 shares
authorized; 5,498,539 shares issued
at February 28 and May 31 55 55
Additional paid-in capital 134,404 134,034
Accumulated deficit (106,342) (88,193)
Less: 1,830,932 shares of Common
Stock and Class A Common Stock held in
Treasury, at cost, at February 28 and May 31 (14,382) (14,382)
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TOTAL SHAREHOLDERS' INVESTMENT 13,870 31,649
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TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 450,699 $ 399,572
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</TABLE>
The accompanying notes to unaudited consolidated financial
statements are an integral part of these balance sheets.
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UNAUDITED CONSOLIDATED Jones Intercable, Inc.
STATEMENTS OF OPERATIONS and Subsidiaries
For the three and nine months ended February 28, 1994 and 1993
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<CAPTION>
For the Three Months Ended For the Nine Months Ended
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February 28, February 28, February 28, February 28,
1994 1993 1994 1993
(In Thousands Except Per Share Data)
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REVENUES FROM CABLE
TELEVISION OPERATIONS:
Subscriber service fees $ 28,939 $ 28,249 $ 85,155 $ 76,796
Management fees 4,334 4,138 12,970 12,735
------------ ------------ ------------ ------------
TOTAL REVENUES 33,273 32,387 98,125 89,531
COSTS AND EXPENSES:
Operating, general and
administrative expenses* 19,039 20,107 56,303 50,941
Depreciation and amortization 11,063 11,504 32,045 31,843
------------ ------------ ------------ ------------
OPERATING INCOME 3,171 776 9,777 6,747
OTHER INCOME (EXPENSE):
Interest expense (9,371) (10,899) (26,921) (30,672)
Loss on sale of assets - - - (1,753)
Equity in losses of affiliated entities (999) (691) (3,078) (2,055)
Interest income 955 791 2,731 2,847
Other, net (277) 230 (658) (432)
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES,
EXTRAORDINARY ITEM AND
ACCOUNTING CHANGE (6,521) (9,793) (18,149) (25,318)
Income tax benefit - - - -
------------ ------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM
AND ACCOUNTING CHANGE (6,521) (9,793) (18,149) (25,318)
EXTRAORDINARY ITEM:
Loss on early extinguishment
of debt - (52) - (7,657)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING METHOD:
Change in method of accounting
for income taxes - - - 3,862
------------ ------------ ------------ ------------
NET LOSS $ (6,521) $ (9,845) $ (18,149) $ (29,113)
============ ============ ============ ============
NET LOSS PER CLASS A
COMMON AND COMMON SHARE
Loss before extraordinary item $ (.38) $ (.70) $ (1.06) $ (1.90)
Extraordinary item - - - (.58)
Accounting change - - - .29
------------ ------------ ------------ ------------
NET LOSS PER CLASS A
COMMON AND COMMON SHARE $ (.38) $ (.70) $ (1.06) $ (2.19)
============ ============ ============ ============
AVERAGE NUMBER OF CLASS A
COMMON AND COMMON SHARES
OUTSTANDING 17,188 14,093 17,167 13,310
============ ============ ============ ============
</TABLE>
* Of the total operating, general and administrative expenses, approximately
$475,200 and $375,900 for the three months ended February 28, 1994 and 1993,
respectively, and approximately $1,397,400 and $1,129,200 for the nine months
ended February 28, 1994 and 1993, respectively, represent related party
expenses.
The accompanying notes to unaudited consolidated financial
statements are an integral part of these statements.
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UNAUDITED CONSOLIDATED Jones Intercable, Inc.
STATEMENTS OF CASH FLOWS and Subsidiaries
For the nine months ended February 28, 1994 and 1993
<TABLE>
<CAPTION>
For the Nine Months Ended
-------------------------
February 28, February 28,
1994 1993
(Stated in Thousands)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (18,149) $ (29,113)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Extraordinary loss on early extinguishment
of debt - 7,657
Loss on sale of assets - 1,753
Cumulative effect of change in method of
accounting for income taxes - (3,862)
Class A Common Stock option expense 87 1,870
Depreciation and amortization 32,045 31,843
Deferred distribution revenue - 4,778
Increase in trade receivables (492) (478)
Equity in losses of affiliated entities 3,078 2,055
Amortization of discount on debentures - 332
Increase in other receivables,
deposits, prepaid expenses and other assets (1,344) (2,274)
Increase in accounts payable,
accrued liabilities and subscriber
prepayments and deposits (299) 7,734
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Net cash provided by operating activities 14,926 22,295
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CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Mind Extension University (11,618) (8,349)
Purchase of property and equipment (17,195) (13,831)
Purchase of cable television system (27,880) (74,317)
Sale of cable television system - 1,377
Investments in cable television partnerships
and affiliates (22,943) (3,885)
Other, net 2,390 4,512
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Net cash used in investing activities (77,246) (94,493)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt - (111,000)
Proceeds from borrowings 69,000 60,000
Proceeds from the issuance of Class A
Common Stock 283 58,234
Increase in accounts receivable from
affiliated entities (4,027) (4,443)
Redemption of debentures - (79,462)
Proceeds from debenture offering, net - 155,735
Other, net (162) (6,326)
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Net cash provided by financing activities 65,094 72,738
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Increase In Cash and Cash Equivalents 2,774 540
Cash and Cash Equivalents, beginning of period 1,131 2,414
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Cash and Cash Equivalents, end of period $ 3,905 $ 2,954
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</TABLE>
The accompanying notes to unaudited consolidated financial
statements are an integral part of these statements.
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NOTES TO UNAUDITED CONSOLIDATED Jones Intercable, Inc.
FINANCIAL STATEMENTS and Subsidiaries
(1) This Form 10-Q is being filed by Jones Intercable, Inc. (the "Company") in
conformity with the SEC requirements for unaudited financial statements and
does not contain all of the necessary footnote disclosures required for a fair
presentation of the Balance Sheets, Statements of Operations and Statements of
Cash Flows in conformity with generally accepted accounting principles.
However, in the opinion of management, this data includes all adjustments,
consisting only of normal recurring accruals, necessary to present fairly the
Company's financial position at February 28, 1994 and May 31, 1993 and its
results of operations and cash flows for the three and nine months ended
February 28, 1994 and 1993. Results of operations for these periods are not
necessarily indicative of results to be expected for the full year.
(2) On November 12, 1993, the Company announced that negotiations have
commenced regarding the possible acquisition by the Company of substantially
all of the assets of Jones Spacelink, Ltd., the Company's parent, in return for
the issuance of Class A Common Stock of the Company to Jones Spacelink, Ltd.
Negotiations between the Company and its parent are continuing and no agreement
on the terms and conditions of the proposed transaction has yet been reached.
(3) On December 2, 1993, the Company and Bell Canada International Inc.
("BCI") signed a letter of intent to enter into a strategic relationship
whereby BCI would acquire an approximate 30 percent equity interest in the
Company through the purchase of Class A Common Stock of the Company. Under the
terms of the letter of intent, BCI would invest approximately $275,000,000 at
closing at a purchase price of $27.50 per share of Class A Common Stock of the
Company to acquire its 30 percent interest. BCI also was committed to invest
up to an additional $125,000,000 to maintain its 30 percent interest in the
event the Company offered additional Class A Common Stock in the public
marketplace. BCI had the right to maintain or increase its ownership by
investing amounts beyond the initial $400,000,000 commitment.
In addition, Jones International, Ltd., which is wholly-owned by Glenn R.
Jones, Chairman and Chief Executive Officer of the Company, would grant BCI an
option to acquire certain shares of the Common Stock of the Company. Except in
limited circumstances, the option would only be exercisable during the eighth
year after closing. Its exercise would result in BCI holding a sufficient
number of shares of the Common Stock of the Company to enable it to elect 75
percent of the Company's Board of Directors. BCI would also invest in a number
of affiliates of Jones International, Ltd. which are engaged in the
telecommunications and distribution businesses.
On March 28, 1994, the Company and BCI modified certain of the financial
terms of their letter of intent as a result of the most recent pronouncements
by the FCC which will further regulate the U.S. cable television industry (see
Regulatory Matters). Under the modified terms of the transaction, the original
commitment by BCI to invest $400,000,000 over time remains as originally
planned, however, the original investment will be in two installments: the
purchase immediately by BCI of 2,500,000 million newly issued Class A shares of
Jones Intercable at $22 per share for $55,000,000, and the purchase at closing
at $27.50 per share of sufficient Class A shares to acquire the 30% interest,
for a total consideration of approximately $261,000,000. The Company received
the $55,000,000 initial investment, representing an approximate 13% interest in
the Company, in the fourth quarter of fiscal 1994. The $55,000,000 was used to
reduce amounts outstanding under the Company's revolving credit facility. In
addition, BCI committed to invest an additional $139,000,000 to maintain its
30% interest. This funding will allow the parties to begin to implement their
business and growth strategies for the Company in advance of the formal
completion of their strategic alliance.
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Closing on the transaction, which is subject to certain conditions,
including the execution of definitive agreements and the acquisition by the
Company of substantially all of the assets of Jones Spacelink, Ltd., is
expected to occur in the first quarter of fiscal 1995.
(4) On January 28, 1993, the Company entered into an agreement with American
Cable TV Investors 2 ("ACT 2") (the "Agreement") to acquire the cable
television systems serving North Augusta, South Carolina and surrounding areas
(the "North Augusta System") for $28,500,000 subject to normal closing
adjustments. The North Augusta System is contiguous to the Augusta, Georgia
cable system managed by the Company on behalf of one of its partnerships. As a
result of a renegotiation of the Agreement between the Company and ACT 2, the
purchase price was reduced to $27,200,000, subject to normal closing
adjustments. The Company paid The Jones Group, Ltd., an affiliate of the
Company, $680,000 for brokerage services related to this acquisition. The
transaction closed on December 15, 1993.
(5) During fiscal 1992 and 1993, the Company invested $10,000,000 in Mind
Extension University, Inc., ("ME/U") an affiliated company that provides
educational programming through affiliated and unaffiliated cable television
systems, for 25% of the stock of ME/U, which also received certain advertising
avails and administrative and marketing considerations from the Company. The
number of shares of Class A Common Stock of ME/U issued to the Company was
based on the average of two separate independent appraisals of ME/U. In May
1993, the Board of Directors of the Company also approved a $10,000,000 advance
to ME/U on an as-needed basis. Of this advance, one-half will be converted
into shares of Class A Common Stock of ME/U at a price per share equal to the
value of such shares as established by the next equity investment in ME/U by an
unaffiliated party. Any amount not converted into equity will earn interest at
the Company's weighted average cost of borrowing plus two percent. As of
February 28, 1994, all of the $10,000,000 had been advanced. On December 2,
1993, the Board of Directors of the Company approved an additional $5,000,000
advance to ME/U on an as needed basis. Of this advance, one-half will be
converted into shares of Class A Common Stock of ME/U at a price per share
equal to the value of such shares as established by the next equity investment
in ME/U by an unaffiliated party. Any amount not converted into equity will
earn interest at the Company's weighted average cost of borrowing plus two
percent. As of February 28, 1994, $1,617,500 of the $5,000,000 had been
advanced. These advances have been reflected as investments in cable
television partnerships and affiliates on the Company's Consolidated Balance
Sheets due to their expected long-term nature.
(6) In fiscal 1993, the Company entered into a license agreement with Jones
Space Segment, Inc. ("Space Segment"), an affiliate of International, to use a
non-preemptible transponder on a domestic communications satellite that Space
Segment currently leases. The Company agreed to pay Space Segment $2,400,000
over a twelve-month period beginning on or about December 15, 1992, the
delivery date of the transponder. Space Segment has the right to terminate the
license at any time upon 30 days' written notice to the Company. On November
9, 1993, the Company extended the term of the license agreement through
December 31, 1994 on the same terms and conditions as the previous agreement.
The Company recognized $2,100,000 of rental expense related to this lease in
the first nine months of fiscal 1994.
(7) On June 18, 1993, the Company filed two shelf registration statements with
the Securities and Exchange Commission relating to the offering of $500,000,000
of Senior Debt Securities, Senior Subordinated Debt Securities and Subordinated
Debt Securities and the offering of 6,000,000 shares of Class A Common Stock of
the Company. These registration statements are effective, but no securities
have been sold except for 2,500,000 shares of Class A Common Stock sold to BCI
in the fourth quarter of fiscal 1995. The proceeds from these offerings would
be added to the general funds of the Company and may be used to make
acquisitions of domestic cable television systems or interests therein,
investments in cable television/telephony systems in the United Kingdom or for
general corporate purposes. The Company also has another effective
registration statement, which expires in June 1994, that allows the Company,
from time to time, to offer up to $400,000,000 of Senior Debt Securities,
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Senior Subordinated Debt Securities and Subordinated Debt Securities. Of the
total $400,000,000 registered, $260,000,000 of Senior Subordinated Debt
Securities have been sold.
(8) On March 30, 1994, the Company and Jones Global Group, Inc., (collectively
"Jones"), and BCI and Cable and Wireless plc signed a letter of intent to
consolidate their cable television and associated telephony operations in the
United Kingdom and Spain. The transaction will combine the cable interests of
these companies into BCETI Cable Limited, which is currently owned 80% by BCI
and 20% by Cable and Wireless plc. The consolidation will coincide with a
public offering of BCETI Cable. As part of the transaction, Jones will
contribute its United Kingdom and Spain interests, and Cable and Wireless plc
will contribute its equity interest in Jones Cable Group of Leeds Holdings plc,
in exchange for shares in BCETI Cable. Closing on this transaction, which is
expected in the first quarter of fiscal 1995, is subject to certain conditions,
including the execution of definitive agreements and completion of the public
share offering.
(9) On January 7, 1994, the Company entered into an agreement with Bresnan
Communications Company ("Bresnan") to sell its Gaston County, North Carolina
cable television system (the "Gaston System") to Bresnan for $36,500,000,
subject to normal closing adjustments. Bresnan and Time Warner Cable, a
division of Time Warner Entertainment, L.P. ("TWC"), have agreed to a like-kind
exchange of assets whereby TWC would acquire the Gaston System from Bresnan and
Bresnan would acquire from TWC the assets of cable television systems owned by
TWC. If for any reason Bresnan is unable to perform its obligations, TWC has
agreed to purchase the Gaston System directly from the Company. Closing on
this transaction is expected to occur in the first quarter of fiscal 1995.
(10) On February 2, 1994, the Company invested $15,500,000 in J.B. Acquisition
Company, a partnership with Paine Webber Cable Capital, Inc; and Sandler
Capital Management and several of its affiliates. J.B. Acquisition Company
purchased from PacTel Cable all of the shares of four United Kingdom companies
engaged in the cable television/telephony business. The combined properties
represent approximately 225,000 franchise licensed homes in the United Kingdom,
principally in Norwich and Peterborough.
(11) Net loss per share of Class A Common Stock and Common Stock is based on
the weighted average number of shares outstanding during the periods. Common
stock equivalents were not significant to the computation of primary earnings
per share. Conversion of the Convertible Subordinated Debentures to Class A
Common Stock was assumed for calculation of fully diluted earnings per share
with the resulting effect being anti-dilutive.
(12) For purposes of the Consolidated Statements of Cash Flows, the Company
considers all highly liquid investments purchased with a maturity of three
months or less to be cash equivalents. During the nine months ended February
28, 1994, approximately $89,700 of income taxes paid in prior periods was
refunded to the Company. No amounts were paid or received relating to income
taxes during the nine months ended February 28, 1993. Approximately
$30,592,700 and $28,860,600 of interest expense was paid during the nine months
ended February 28, 1994 and 1993, respectively. During the first nine months
of fiscal 1993 the Company recorded approximately $1,870,000 of Additional
Paid-in Capital related to the granting of Class A Common Stock options.
Approximately $65,000 of Additional Paid-in Capital was recorded related to the
granting of Class A Common Stock options during the first nine months of fiscal
1994.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company historically has grown by acquiring, constructing and managing
cable television systems for the account of public limited partnerships that it
has sponsored. In addition to acquisitions through Company-managed limited
partnerships, the Company has acquired systems and franchises for its own
account, which have been financed primarily through borrowed funds. The
Company currently plans to focus the majority of its acquisition efforts on
acquiring cable television systems owned by its managed partnerships, subject
to the availability of debt and/or equity financing at the time the various
partnerships achieve their investment objectives.
To enable the Company to accomplish the foregoing objectives, on December
2, 1993, the Company and Bell Canada International Inc. ("BCI") signed a letter
of intent to enter into a strategic relationship whereby BCI would acquire an
approximate 30 percent equity interest in the Company through the purchase of
Class A Common Stock of the Company. Under the terms of the letter of intent,
BCI would invest approximately $275,000,000 at closing at a purchase price of
$27.50 per share of Class A Common Stock of the Company to acquire its 30
percent interest. BCI also was committed to invest up to an additional
$125,000,000 to maintain its 30 percent interest in the event the Company
offered additional Class A Common Stock in the public marketplace. BCI had the
right to maintain or increase its ownership by investing amounts beyond the
initial $400,000,000 commitment.
In addition, Jones International, Ltd., which is wholly-owned by Glenn R.
Jones, Chairman and Chief Executive Officer of the Company, would grant BCI an
option to acquire certain shares of the Common Stock of the Company. Except in
limited circumstances, the option would only be exercisable during the eighth
year after closing. Its exercise would result in BCI holding a sufficient
number of shares of the Common Stock of the Company to enable it to elect 75
percent of the Company's Board of Directors. BCI would also invest in a number
of affiliates of Jones International, Ltd. which are engaged in the
telecommunications and distribution businesses.
On March 28, 1994, the Company and BCI modified certain of the financial
terms of their letter of intent as a result of the most recent pronouncements
by the FCC which will further regulate the U.S. cable television industry (see
Regulatory Matters). Under the modified terms of the transaction, the original
commitment by BCI to invest $400,000,000 over time remains as originally
planned, however, the original investment will be in two installments: the
purchase immediately by BCI of 2,500,000 million newly issued Class A shares of
Jones Intercable at $22 per share for $55,000,000, and the purchase at closing
at $27.50 per share of sufficient Class A shares to acquire the 30% interest,
for a total consideration of approximately $261,000,000. The Company received
the $55,000,000 initial investment, representing an approximate 13% interest in
the Company, in the fourth quarter of fiscal 1994. The $55,000,000 was used to
reduce amounts outstanding under the Company's revolving credit facility. In
addition, BCI committed to invest an additional $139,000,000 to maintain its
30% interest. This funding will allow the parties to begin to implement their
business and growth strategies for the Company in advance of the formal
completion of their strategic alliance.
Closing on the transaction, which is subject to certain conditions,
including the execution of definitive agreements and the acquisition by the
Company of substantially all of the assets of Jones Spacelink, Ltd., is
expected to occur in the first quarter of fiscal 1995.
The Company has been negatively impacted by the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"), and the rules
and regulations of the Federal Communications
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Commission (the "FCC") promulgated thereunder. The Company reduced service
rates for basic and tier services in its owned and managed systems as required
effective September 1, 1993. This resulted in a decrease in operating revenues
in those systems which was somewhat mitigated by increases in revenues from
premium service, pay-per-view and advertising sales. In February, the FCC
announced a further ratemaking which, when implemented, could reduce rates
further. Based on the foregoing, the Company believes that the new rate
regulations will have a negative effect on revenues and cash flow from the
Company's owned and managed cable television systems. The Company's ability to
borrow under its credit facility, as discussed below, is in part a function of
the Company's ratio of debt to cash flow. Based upon the effect of the 1992
Cable Act and the reduction in the Company's annualized cash flow, the
Company's borrowing base has correspondingly been decreased. However, after
consideration of such decreases in revenues and cash flow, the Company has
maintained compliance with the terms of its debt agreements, as amended, for
the quarter ended February 28, 1994 and expects to maintain compliance through
fiscal 1994.
The Company purchased property, plant and equipment totaling approximately
$17,195,000 during the first nine months of fiscal 1994. Such expenditures
were principally the result of the following: (a) new extension projects, drop
materials, converters and various maintenance projects in the Pima County,
Arizona system, (b) new extension projects, drop materials, converters and
rebuild projects in the Anne Arundel County and Charles County, Maryland
systems (c) drop materials, converters and plant rebuild projects in the
Alexandria, Virginia system and (d) a corporate office building in Denver,
Colorado. Estimated capital expenditures for the remainder of fiscal 1994 are
approximately $6,000,000. The level of expenditures will depend, in part, upon
the Company's determination as to the proper scope and timing of such
expenditures in light of the adoption of the 1992 Cable Act, the rules and
regulations adopted in connection with such legislation, and the Company's
liquidity position.
The Company owns a 38% interest in Jones Global Group, Inc. ("Jones Global
Group"), a Colorado corporation 62% of which is owned by International. Jones
Global Group's wholly-owned subsidiaries, Jones Global Funds, Inc. ("Jones
Global Funds") and Jones Cable Group, Ltd. ("Jones Cable Group"), acquire,
manage and operate cable television/telephony systems in the United Kingdom.
In February 1992, upon receipt of approval from United Kingdom regulatory
authorities, Jones United Kingdom Fund, Ltd. ("Jones UK Fund"), a Colorado
limited partnership of which Jones Global Funds serves as the general partner,
acquired, through its nominees, Jones Global Funds and Jones Cable Group,
beneficial ownership of all of the shares of Jones Cable Group of South
Hertfordshire Limited ("Jones South Hertfordshire"). Jones South Hertfordshire
was awarded the franchise to construct, develop and operate a cable
television/telephony system in the South Hertfordshire franchise area, which is
located in the northwestern suburbs of London, England (the "South Herts
System").
From August 15, 1990 through April 1, 1994, Jones UK Fund had raised
approximately $52,254,000 in gross offering proceeds, or $45,069,100 net of
sales commissions and other organization and offering costs. On November 5,
1993, Jones Intercable of South Hertfordshire, Inc., a subsidiary of the
Company, invested $5,000,000 in the South Herts System by purchasing 34,000
shares of capital stock of Jones South Hertfordshire. Also in November 1993,
affiliates of Sandler Capital Management, an investor group not otherwise
affiliated with Jones UK Fund or Jones Global Funds, committed to invest
L.6,800,000 in Jones South Hertfordshire, of which L.2,266,667 has been funded.
Assuming that such investor group fully funds its commitment, Jones South
Hertfordshire would be owned approximately 67% by Jones UK Fund, 22% by
affiliates of Sandler Capital Management and 11% by a subsidiary of the
Company. In addition, the Company has agreed to loan up to $10,000,000, on a
non-permanent basis, to Jones South Hertfordshire on an as- needed basis. The
Company has made advances to Jones South Hertfordshire to fund the development
and construction of the South Herts System. As of February 28, 1994,
approximately $1,327,000 of such advances to Jones South Hertfordshire were
outstanding. These advances have been reflected as investments in cable
television partnerships and affiliates on the
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Company's Consolidated Balance Sheets, with interest charged at the Company's
weighted average cost of borrowing.
Jones Global Group, on behalf of other affiliated United Kingdom
corporations, also applied for cable television franchises in various other
unbuilt areas in the United Kingdom, and franchises in two other areas
- -Aylesbury-Chiltern and Leeds - were awarded to such affiliates. Jones Cable
Group of Leeds Holdings plc ("Jones of Leeds") has obtained commitments from
equity investors and banks to provide L.152,500,000 for the construction and
operation of the cable television and telecommunications system for Leeds. A
group of investors subscribed for L.77,500,000 of equity and the banks have
agreed to lend L.75,000,000 on a non-recourse basis. As one of the equity
investors, the Company has committed to invest L.11,625,000 over the next 2 1/2
years. As the Company funds this investment, it will retain a 15% investment
in Jones of Leeds. Approximately L.3,000,000 is required to be paid by the
Company during fiscal 1994. During the first nine months of fiscal 1994,
approximately L.1,743,800 of this requirement was paid by the Company. On
March 7, 1994, the Company invested an additional L.1,162,500 in Jones of Leeds
to maintain its 15% interest. Jones Cable Group will manage the Leeds project
pursuant to a management agreement. Jones Global Group incurred certain costs
in connection with obtaining and maintaining the franchises and licenses in
both Aylesbury-Chiltern and Leeds. The Company has advanced funds to Jones
Global Group for these purposes. As of February 28, 1994, the Company's
advances totaled approximately $399,400. These advances have been reflected as
investments in cable television partnerships and affiliates on the Company's
Consolidated Balance Sheets due to their long-term nature, with interest
charged at the Company's weighted average cost of borrowing.
Jones Spanish Holdings, Inc. ("Spanish Holdings") is an affiliate
indirectly owned 38% by the Company and 62% by International. Spanish Holdings
currently is seeking opportunities to develop cable television operations in
Spain. The Company has made advances totaling $623,300 during fiscal 1994, and
has advanced a total of $7,617,900 as of February 28, 1994 to fund Spanish
Holdings' activities to date. Additional advances may be made in the future.
These advances have been reflected as investments in cable television
partnerships and affiliates on the Company's Consolidated Balance Sheets due to
their expected long-term nature, with interest charged at the Company's
weighted average cost of borrowing.
On February 2, 1994, the Company invested $15,500,000 in J.B. Acquisition
Company, a partnership with Paine Webber Cable Capital, Inc; and Sandler
Capital Management and several of its affiliates. J.B. Acquisition Company
purchased from PacTel Cable all of the shares of four United Kingdom companies
engaged in the cable television/telephony business. The combined properties
represent approximately 225,000 franchise licensed homes in the United Kingdom,
principally in Norwich and Peterborough.
On March 30, 1994, the Company and Jones Global Group, Inc. (collectively
"Jones"), and BCI and Cable and Wireless plc signed a letter of intent to
consolidate their cable television and associated telephony operations in the
United Kingdom and Spain. The transaction will combine the cable interests of
these companies into BCETI Cable Limited, which is currently owned 80% by BCI
and 20% by Cable and Wireless plc. The consolidation will coincide with a
public offering of BCETI Cable. As part of the transaction, Jones will
contribute its United Kingdom and Spain interests, and Cable and Wireless plc
will contribute its equity interest in Jones Cable Group of Leeds Holdings plc,
in exchange for shares in BCETI Cable. Closing on this transaction, which is
expected in the first quarter of fiscal 1995, is subject to certain conditions,
including the execution of definitive agreements and completion of the public
share offering.
During fiscal 1992 and 1993, the Company invested $10,000,000 in ME/U for
25% of the stock of ME/U, which also received certain advertising avails and
administrative and marketing considerations from the Company. The number of
shares of Class A Common Stock of ME/U issued to the Company was based on the
average of two separate independent appraisals of ME/U. In May 1993, the Board
of Directors of the Company also approved a $10,000,000 advance to ME/U on an
as-needed basis. Of this advance, one-half will be converted
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into shares of Class A Common Stock of ME/U at a price per share equal to the
value of such shares as established by the next equity investment in ME/U by an
unaffiliated party. Any amount not converted into equity will earn interest at
the Company's weighted average cost of borrowing plus two percent. As of
February 28, 1994, all of the $10,000,000 had been advanced. On December 2,
1993, the Board of Directors of the Company approved an additional $5,000,000
advance to ME/U on an as needed basis. Of this advance one-half will be
converted into shares of Class A Common Stock of ME/U at a price per share
equal to the value of such shares as established by the next equity investment
in ME/U by an unaffiliated party. Any amount not converted into equity will
earn interest at the Company's weighted average cost of borrowing plus two
percent. As of February 28, 1994, $1,617,500 of the $5,000,000 had been
advanced. These advances have been reflected as investments in cable
television partnerships and affiliates on the Company's Consolidated Balance
Sheets due to their expected long-term nature.
On December 8, 1992, the Company entered into a $300,000,000 reducing
revolving credit agreement with a number of commercial banks. The amount of
borrowings available under this agreement remains at $300,000,000 through May
31, 1995, after which availability is reduced quarterly until expiration on
November 30, 2000. Interest on amounts outstanding under the credit facility
range from LIBOR plus 1 3/8% to LIBOR plus 2 1/2% depending upon whether
certain financial ratios have been achieved. For the three months ended
February 28, 1994, the Company's effective interest rate on the credit facility
was 5.5%. A fee of 1/2% per annum on the unused portion of the new commitment
is also required. Substantially all of the Company's cable television related
assets are pledged as security under the agreement. At February 28, 1994, the
Company had $115,000,000 outstanding under the credit facility, leaving
$185,000,000 of potential availability on this credit facility; however, due to
covenant restrictions, the Company can access only approximately $20,000,000 of
this availability. In March 1994, the Company used the $55,000,000 of proceeds
received from the sale of 2,500,000 shares of Class A Common Stock to BCI to
repay amounts outstanding under the credit facility. As of March 31, 1994,
$67,500,000 was outstanding on the credit facility, leaving approximately
$50,000,000 of availability accessible to the Company.
The Company owns the cable television system serving certain areas in and
around Alexandria, Virginia. On December 17, 1992, the Chesapeake and Potomac
Telephone Company of Virginia and Bell Atlantic Video Service Company ("Bell
Atlantic") filed suit in U. S. District Court in Alexandria, Virginia seeking
to declare unconstitutional the provisions in the 1984 Cable Act that prohibit
telephone companies from owning a cable television system in their telephone
service areas. On August 24, 1993, the court held that the 1984 Cable Act's
cross-ownership provision is unconstitutional, and it issued an order enjoining
the United States Justice Department from enforcing the cross-ownership ban.
This decision has been appealed to the United States Court of Appeals for the
Fourth Circuit, and the case could ultimately be reviewed by the United States
Supreme Court. Unless the decision is stayed or overturned on appeal, Bell
Atlantic will be permitted to provide cable television services to subscribers
in competition with the Company's system as soon as it obtains all required
local and federal authorization from the City of Alexandria and the FCC.
Congress could, in response to this decision, enact legislation to prevent
telephone companies from cross-subsidizing telephone and cable television
services. Competition from an overbuilder with Bell Atlantic's financial
resources would likely have an adverse effect on the Company's financial
condition and results of operations. At this time, the magnitude of such
effect is not known or estimable.
On February 22, 1994, the Company and The Jones Group, Ltd., were named as
defendants in a lawsuit brought by three individuals who are Class A
Unitholders in Jones Intercable Investors, L.P. (the "Partnership"), a master
limited partnership in which the Company is general partner. The litigation,
entitled Luva Vaughan et al v. Jones Intercable, Inc. et al, Case No. CV
94-3652 was filed in the Circuit Court for Jackson County, Missouri, and
purports to be "for the use and benefit of" the Partnership. The suit seeks
rescission of the sale of the Alexandria, Virginia cable television system (the
"Alexandria System") by the Partnership to the Company, which sale was
completed on November 2, 1992. It also seeks a constructive trust on the
profits derived from the operation of the Alexandria System since the date of
the sale, and seeks an accounting and other equitable relief. The plaintiffs
also
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<PAGE> 14
allege that the $1,830,850 commission paid to The Jones Group, Ltd. by the
Partnership in connection with such sale was improper, and ask the Court to
order that such commission be repaid to the Partnership. To date, the Company
has been served, but The Jones Group, Ltd. has not been served. Under the
terms of the partnership agreement of the Partnership, the Company has the
right to acquire cable television systems from the Partnership at a purchase
price equal to the average of three independent appraisals of the cable
television system to be acquired. The plaintiffs claim that the appraisals
obtained in connection with the sale of the Alexandria System were improperly
obtained, were not made by qualified appraisers and were otherwise improper.
The purchase price paid by the Company upon such sale was approximately
$73,200,000. The Company believes both that the appraisals were properly
obtained and that the brokerage commission was properly paid to The Jones
Group, Ltd. in accordance with the express terms of the partnership agreement.
The Company further believes that its defenses are meritorious and it intends
to vigorously defend the litigation.
From time to time, the Company may make loans to its managed limited
partnerships. As of February 28, 1994, the Company had advanced funds to
various managed partnerships and other affiliates of the Company totaling
approximately $19,374,000, an increase of approximately $4,027,000 over the
amount advanced at May 31, 1993. A significant portion of these advances
represents funds for capital expansion and improvements of properties owned by
partnerships where additional credit sources were not then available to the
partnerships. These advances reduce the Company's available cash and its
liquidity. The Company anticipates the repayment of these advances over time.
On December 21, 1992, the Company entered into a license agreement with
Jones Space Segment, Inc. ("Space Segment"), an affiliate of International, to
use a non-preemptible transponder on a domestic communications satellite that
Space Segment currently leases. The Company agreed to pay Space Segment
$2,400,000 over a twelve-month period beginning on or about December 15, 1992,
the delivery date of the transponder. Space Segment has the right to terminate
the lease at any time upon 30 days' written notice to the Company. On November
9, 1993, the Company extended the term of the license agreement through
December 31, 1994 on the same terms and conditions as the previous agreement.
The Company paid $2,100,000 related to this license agreement during the first
nine months of fiscal 1994.
On January 28, 1993, the Company entered into an agreement with American
Cable TV Investors 2 ("ACT 2") (the "Agreement") to acquire the cable
television systems serving North Augusta, South Carolina and surrounding areas
(the "North Augusta System") for $28,500,000 subject to normal closing
adjustments. The North Augusta System is contiguous to the Augusta, Georgia
cable system managed by the Company on behalf of one of its partnerships. As a
result of a renegotiation of the Agreement between the Company and ACT 2, the
purchase price was reduced to $27,200,000, subject to normal closing
adjustments. The Company paid the Jones Group, Ltd., an affiliate of the
Company, $680,000 for brokerage services related to this acquisition. The
transaction closed on December 15, 1993.
On June 18, 1993, the Company filed two shelf registration statements with
the Securities and Exchange Commission relating to the offering of $500,000,000
of Senior Debt Securities, Senior Subordinated Debt Securities and Subordinated
Debt Securities and the offering of 6,000,000 shares of Class A Common Stock of
the Company. These registration statements are effective, but no securities
have been sold except for 2,500,000 shares of Class A Common Stock sold to BCI
in the fourth quarter of fiscal 1995. The proceeds from these offerings would
be added to the general funds of the Company and may be used to make
acquisitions of domestic cable television systems or interests therein,
investments in cable television/telephony systems in the United Kingdom or for
general corporate purposes. The Company also has another effective
registration statement, which expires in June 1994, that allows the Company,
from time to time, to offer up to $400,000,000 of Senior Debt Securities,
Senior Subordinated Debt Securities and Subordinated Debt Securities. Of the
total $400,000,000 registered, $260,000,000 of Senior Subordinated Debt
Securities have been sold.
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At February 28, 1994, the Company has $279,368,000 of Subordinated
Debentures outstanding. These debentures do not require any cash payments for
sinking fund requirements until fiscal 2003. The Company is in full compliance
with covenant restrictions regarding these debentures.
The Company intends to expand its business in the future; however, the
Company's ability to expand will be limited by the availability of capital and
the availability of cable television investments suitable for the Company. The
strategic relationship the Company has agreed to enter into with BCI, in which
BCI would purchase a 30 percent interest in the Company, would provide
additional financing for the Company's expansion. BCI's proposed investment
together with the Company's sale of its own equity or debt securities, subject
to market conditions, and borrowings under the Company's credit facility would
provide the funding to further the Company's strategic plans. Closing on the
BCI transaction, which is subject to certain conditions, is expected to occur
during the first quarter of fiscal 1995. Until that time or in the event the
transaction is not consummated, the Company believes it will meet its capital
needs, service its obligations, and maintain its liquidity using cash flow from
operations, the sale of its own equity or debt securities, subject to market
conditions, and borrowings under the Company's credit facility.
Regulatory Matters. Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"), which became
effective on December 4, 1992. This legislation has caused significant changes
to the regulatory environment in which the cable television industry operates.
The 1992 Cable Act generally allows for a greater degree of regulation of the
cable television industry. Under the 1992 Cable Act's definition of effective
competition, nearly all cable systems in the United States, including those
owned and managed by the Company, are subject to rate regulation of basic cable
services. In addition, the 1992 Cable Act allows the FCC to regulate rates for
non-basic service tiers other than premium services in response to complaints
filed by franchising authorities and/or cable subscribers. In April 1993, the
FCC adopted regulations governing rates for basic and non- basic services. The
FCC's rules became effective on September 1, 1993.
Based on the Company's assessment of the FCC's rulemakings concerning rate
regulation under the 1992 Cable Act, the Company reduced rates charged for
certain regulated services effective September 1, 1993. On an annualized
basis, such rate reductions will result in an estimated reduction in revenue of
approximately $5,500,000, or 4.5%, and a decrease in operating income before
depreciation and amortization of approximately $5,200,000, or 9%. In addition,
on February 22, 1994, the FCC announced a further rulemaking which, when
implemented, could reduce rates further. The new rate regulations, which were
released in March 1994, will be effective on May 15, 1994, and will likely
require further reductions in rates in most of the Company's owned and managed
systems. The Company has not yet been able to quantify the impact of the new
rate regulations, but it believes that the new rate regulations will have a
negative effect on its revenues and operating income before depreciation and
amortization. The Company has undertaken actions to mitigate a portion of
these reductions primarily through (a) new service offerings, (b) product
re-marketing and re-packaging and (c) marketing efforts directed at
non-subscribers.
The 1992 Cable Act contains new broadcast signal carriage requirements,
and the FCC has adopted regulations implementing the statutory requirements.
These new rules allow a local commercial broadcast television station to elect
whether to demand that a cable system carry its signal or to require the cable
system to negotiate with the station for "retransmission consent." A cable
system is generally required to devote up to one-third of its activated channel
capacity for the mandatory carriage of local commercial broadcast television
stations, and non-commercial television stations are also given mandatory
carriage rights, although such stations are not given the option to negotiate
retransmission consent for the carriage of their signals by cable systems.
Additionally, cable systems also are required to obtain retransmission consent
from all commercial television stations (except for commercial
satellite-delivered independent "superstations"), commercial radio stations
and, in some instances, low-power television stations carried by cable systems.
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The retransmission consent rules went into effect on October 6, 1993.
Throughout all cable television systems owned or managed by the Company, only
one broadcast station withheld its consent to retransmission of its signal, and
was no longer carried on October 6, 1993. As of October 11, 1993, however, the
broadcast station had given its consent, and its signal was restored to that
cable system. Certain other broadcast signals are being carried on October 6,
1993 pursuant to extensions offered to the Company by broadcasters, including a
one-year extension for carriage of all CBS stations owned and operated by the
CBS network (Los Angeles, Chicago, Philadelphia, Green Bay and Minneapolis).
Other extensions for approximately 10 to 15 broadcast stations were obtained
and approximately five such extensions are still in place. The Company expects
to finally conclude retransmission consent negotiations with those remaining
stations whose signals are being carried pursuant to extensions without having
to terminate the distribution of any of those signals. However, there can be
no assurance that such will occur. If any broadcast station currently being
carried pursuant to an extension is dropped, there could be a material adverse
effect on the system in which it is dropped if a significant number of
subscribers in such system were to disconnect their service. However, in most
cases, only one broadcaster in any market is being carried pursuant to an
extension arrangement, and the dropping of such broadcaster, were that to
occur, is not expected to have a material adverse effect on the system.
There have been several lawsuits filed by cable operators and programmers
in Federal court challenging various aspects of the 1992 Cable Act, including
provisions relating to mandatory broadcast signal carriage, retransmission
consent, access to cable programming, rate regulations, commercial leased
channels and public access channels. On April 8, 1993, a three-judge Federal
district court panel issued a decision upholding the constitutional validity of
the mandatory signal carriage requirements of the 1992 Cable Act. That
decision has been appealed directly to the United States Supreme Court.
Appeals have been filed in the Federal appellate court challenging the validity
of the FCC's retransmission consent rules.
RESULTS OF OPERATIONS
Revenues. The Company derives its revenues from three primary
sources: subscriber fees from Company-owned cable television systems,
management fees from managed limited partnerships, and fees and distributions
payable upon the sale of cable television properties owned by managed limited
partnerships. Total revenues for the three months ended February 28, 1994
increased $886,000, or 3%, from $32,387,000 reported in fiscal 1993 to
$33,273,000 reported in fiscal 1994. Total revenues for the nine months ended
February 28, 1994 increased $8,594,000, or 10%, from $89,531,000 reported in
fiscal 1993 to $98,125,000 reported in fiscal 1994. These increases are
reflective of the Company's purchase in November 1992 of the cable television
system serving the areas in and around Alexandria, Virginia (the "Alexandria
System") from one of its managed partnerships and the purchase in December 1993
of the cable television system serving North Augusta, South Carolina (the
"North Augusta System"). The effect of these acquisitions was somewhat
mitigated by the effect of the Company's sale in May 1993 of the cable
television systems serving a portion of San Diego and Riverside County,
California (the "San Diego System"). Disregarding the effect of these
transactions, total revenues would have increased $436,000, or 1%, and
$3,694,000, or 4%, for the three and nine months ended February 28, 1994,
respectively.
The Company's subscriber service revenue increased $690,000, or 2%,
and $8,359,000, or 11%, for the three and nine months ended February 28, 1994
as compared to the same periods ended February 28, 1993, totaling approximately
$28,939,000 and $85,155,000 for the current fiscal year versus approximately
$28,249,000 and $76,796,000 for the prior fiscal year, respectively. The net
effect of the purchases of the Alexandria System and the North Augusta System,
and the sale of the San Diego System accounted for approximately $450,000, or
65%, and $5,215,000, or 62%, of the increase in subscriber service revenues for
the three and nine months ended February 28, 1994, respectively. In addition,
increases in the number of basic subscribers, as well as increases in revenues
from premium service, pay-per-view, advertising sales and installation of
service somewhat mitigated the effect of the reduction in the Company's basic
rates due to the new basic rate regulations issued by the FCC in May
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1993 with which the Company complied effective September 1, 1993. As discussed
above, on February 22, 1994, the FCC announced a further rulemaking which, when
implemented, could reduce rates further.
The Company receives management fees generally equal to 5% of the
gross operating revenues from its managed partnerships. Management fees
increased $196,000, or 5%, totaling $4,334,000 for the three months ended
February 28, 1994 compared to $4,138,000 for the same period one year ago. For
the nine months ended February 28, 1994, management fees totaled $12,970,000
compared to $12,735,000, an increase of $235,000, or 2%. The increase in
growth of management fee revenue is the result of increases in operating
revenues of the Company's managed partnerships. Partnership revenues increased
as a result of increases in basic subscribers as well as increases in revenues
from pay-per-view, advertising sales and the installation of service. These
increases somewhat mitigated the effect of the reduction in basic rates in the
Company's managed partnerships due to the new basic rate regulations issued by
the FCC in May 1993 with which the Company complied effective September 1,
1993. On February 22, 1994, the FCC announced a further ratemaking which, when
implemented, could reduce rates further and negatively effect management fee
revenues.
In its capacity as the general partner of its managed partnerships,
the Company also receives revenues in the form of distributions upon the sale
of cable television properties owned by such partnerships. No such revenues
were received during the first nine months of fiscal 1994 or 1993.
Expenses. Operating, general and administrative expenses consist
primarily of costs associated with the administration of Company-owned cable
television systems and the administration of managed partnerships. The Company
is reimbursed by its managed partnerships for costs associated with the
administration of the partnerships. The principal administrative cost
components are salaries paid to corporate and system personnel, programming
expenses, professional fees, subscriber billing costs, data processing costs,
rent for leased facilities, cable system maintenance expenses and consumer
marketing expenses.
For the three months ended February 28, 1994, these costs decreased
approximately 5% from $20,107,000 reported in fiscal 1993 to $19,039,000
reported for the same period in fiscal 1994. For the nine months ended
February 28, 1994, these costs increased approximately 11%, from $50,941,000
reported in fiscal 1993 to $56,303,000 reported in fiscal 1994. During the
third quarter of fiscal 1993, the Company recognized approximately $1,870,000
of non-cash compensation expense related to the granting of Class A Common
Stock options. Approximately $65,100 of such expense was recognized during the
third quarter of fiscal 1994. Somewhat mitigating the effect of the stock
option expense were increases in satellite fees and premium service fees as
well as plant related costs which totaled approximately $544,000 for the three
months ended February 28, 1994. Increases in personnel costs, satellite fees
and premium service fees, and advertising costs accounted for approximately
$928,000, $1,596,000 and $259,000 of the increase in operating, general and
administrative expenses for the nine months ended February 28, 1994. The net
effect of the purchases of the Alexandria System and the North Augusta System
and the sale of the San Diego System was an increase in these expenses of
approximately $25,000 and $2,251,000 for the three and nine months ended
February 28, 1994, respectively.
Depreciation and amortization expense decreased $441,000, or 4%, from
$11,504,000 reported for the three months ended February 28, 1993 to
$11,063,000 reported in the current fiscal year. This decrease was due to the
sale of the San Diego System in May 1993. Depreciation and amortization
increased $202,000, or 1%, for the nine months ended February 28, 1994,
totaling $32,045,000 in fiscal 1994 compared to $31,843,000 in fiscal 1993.
This increase is due to the purchase of the Alexandria System in November 1992.
Interest expense decreased $1,528,000, or 14%, for the three months ended
February 28, 1994 from $10,899,000 reported in the third quarter of fiscal 1993
to $9,371,000 for the third quarter of fiscal 1994. Interest expense decreased
$3,751,000, or 12%, for the nine months ended February 28, 1994 from
$30,672,000 reported in fiscal 1993 to $26,921,000 reported during fiscal 1994.
These decreases were primarily due to the redemption
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of the remaining $138,000,000 principal amount of the Company's 13%
Subordinated Debentures due 2000 in May 1993. The effect of this redemption
was somewhat mitigated by an increase in interest expense as a result of higher
balances outstanding on the Company's revolving credit facility.
Equity in losses of affiliated entities, which result primarily from
depreciation and amortization expenses, increased $308,000, or 45%, and
$1,023,000, or 50%, for the three and nine months ended February 28, 1994 from
$691,000 and $2,055,000 in fiscal 1993 to $999,000 and $3,078,000 in fiscal
1994, respectively. These increases were primarily the result of losses
recognized by the Company related to its 25% investment in Mind Extension
University, Inc.
Interest income increased $164,000, or 21%, from $791,000 reported for the
three months ended February 28, 1993 to $955,000 reported in the current fiscal
year. This increase is due to higher average balances outstanding from certain
managed partnerships as well as interest income earned on advances made to Mind
Extension University, Inc. Interest income decreased $116,000, or 4%, for the
nine months ended February 28, 1994 totaling $2,847,000 in fiscal 1993 compared
to $2,731,000 in fiscal 1994. This decrease is reflective of the fact that
interest income was earned on excess cash on hand as a result of the Company's
sale in July 1992 of $160,000,000 of 11.5% Senior Subordinated Debentures due
2008. This was somewhat mitigated by the increase in interest income in the
third quarter of fiscal 1994 caused by the factors described above.
Net Losses. The Company anticipates the continued recognition of
operating income prior to depreciation and amortization charges, but net losses
resulting from depreciation, amortization and interest expenses may continue in
the future. To the extent the Company recognizes liquidation distributions
from its managed partnerships in the future, losses may be eliminated; however,
there is no assurance as to the timing or recognition of these distributions.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
1) Accountants' Review Letter, dated April 5,
1994.
15) Letter Regarding Unaudited Interim Financial
Statements.
b) Reports on Form 8-K
1) The letter of intent signed by the Company
with BCE Telecom International, Inc.
("BCETI") whereby, among other things, BCETI
would acquire a thirty percent (30%) equity
interest in the Company for a total of
approximately $400,000,000 was reported
on Form 8-K filed with the Securities and
Exchange Commission on December 2, 1993.
2) The letter of intent with attached term
sheets dated December 2, 1993 between, among
others, BCE Telecom International and the
Company was reported on Form 8-K filed with
the Securities and Exchange Commission on
January 10, 1994.
3) The purchase from PacTel Cable of all of the
shares of four United Kingdom companies
engaged in the television/telephony business
on January 27, 1994 by J.B. Acquisition
Company, a Colorado general partnership
consisting of the Company, Paine Webber
Capital, Inc. and Sandler Capital Management
and several of its affiliates was reported on
Form 8-K filed with the Securities and
Exchange Commission on February 18, 1994.
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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 INTERCABLE, INC.
/s/ KEVIN P. COYLE
Kevin P. Coyle
(Group Vice President/Finance)
Dated: April 13, 1994
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REVIEW REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Jones Intercable, Inc.:
We have made a review of the accompanying condensed consolidated balance sheet
of JONES INTERCABLE, INC. (a Colorado corporation) and subsidiaries as of
February 28, 1994, the related condensed consolidated statements of operations
for the three-month and nine- month periods ended February 28, 1994 and 1993,
and the related condensed consolidated statements of cash flows for the
nine-month periods ended February 28, 1994 and 1993. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists primarily of applying analytical review
procedures to the financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope than
an audit in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Jones Intercable, Inc., and
subsidiaries as of May 31, 1993 (not presented herein), and, in our report
dated August 16, 1993, we expressed an unqualified opinion on that statement.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of May 31, 1993, is fairly stated in all material
respects in relation to the consolidated balance sheet from which it has been
derived.
ARTHUR ANDERSEN & CO.
/s/ ARTHUR ANDERSEN & CO.
Denver, Colorado,
April 5, 1994.
<PAGE> 1
Exhibit 15
April 13, 1994
Jones Intercable, Inc. and Subsidiaries:
We are aware that Jones Intercable, Inc., and subsidiaries has
incorporated by reference in its Registration Statement Nos. 33- 25577,
33-3087, 33-41392, 33-45161, 33-47030, 33-54596, 33-64602, 33-64604 and
33-52813 in its Form 10-Q for the quarter ended February 28, 1994, which
includes our report dated April 5, 1994 covering the unaudited interim
financial information contained therein. Pursuant to Regulation C of the
Securities Act of 1933, that report is not considered a part of the
registration statements prepared or certified by our firm or a report prepared
or certified by our firm within the meaning of Sections 7 and 11 of the
Securities Act of 1933.
Very truly yours,
ARTHUR ANDERSEN & CO.
/s/ ARTHUR ANDERSEN & CO.
