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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 November 30, 1993
{ } 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
_____ _____
Shares outstanding of each of the registrant's classes of Common Stock, as of
January 11, 1994.
4,913,021 - Common Stock, $.01 par value
12,275,018 - 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
November 30, 1993 and May 31, 1993 3 - 4
Unaudited Consolidated Statements of Operations
Three and Six Months Ended November 30, 1993 and 1992 5
Unaudited Consolidated Statements of Cash Flows
Six Months Ended November 30, 1993 and 1992 6
Notes to Unaudited Consolidated Financial Statements
November 30, 1993 7 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10 - 17
PART II. OTHER INFORMATION.
Item 6. Exhibits and Reports on Form 8-K 18
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UNAUDITED CONSOLIDATED Jones Intercable, Inc.
BALANCE SHEETS and Subsidiaries
As of November 30 and May 31, 1993
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ASSETS November 30 May 31
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(Stated in Thousands)
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CASH AND CASH EQUIVALENTS $ 2,014 $ 1,131
RECEIVABLES:
Trade receivables, net of allowance for
doubtful accounts of $431,500 in November
and $339,600 in May 5,848 4,936
Affiliated entities 17,304 15,347
Other 685 517
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 270,803 262,214
Less-accumulated depreciation (109,255) (97,501)
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161,548 164,713
Franchise costs, net of accumulated
amortization of $68,578,000 in November
and $62,265,900 in May 67,366 73,678
Cost in excess of interests in net assets
purchased, net of accumulated amortization
of $5,344,700 in November and $4,802,900 in May 37,080 37,621
Noncompete agreement, net of accumulated
amortization of $680,400 in November and
$622,900 in May 470 527
Subscriber lists, net of accumulated
amortization of $27,139,600 in November and
$24,146,500 in May 17,081 20,074
Investments in cable television partnerships
and affiliates 68,850 54,705
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TOTAL INVESTMENT IN CABLE TELEVISION PROPERTIES 352,395 351,318
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DEFERRED TAX ASSET, net of valuation
allowance of $32,858,100 in November and
$26,161,000 in May 3,862 3,862
DEPOSITS, PREPAID EXPENSES AND OTHER ASSETS 24,075 22,461
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TOTAL ASSETS $ 406,183 $ 399,572
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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 November 30 and May 31, 1993
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LIABILITIES AND SHAREHOLDERS' INVESTMENT November 30 May 31
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(Stated in Thousands)
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LIABILITIES:
Accounts payable and accrued liabilities $ 36,991 $ 35,629
Subscriber prepayments and deposits 4,915 5,080
Subordinated debentures and other debt 280,951 281,214
Credit facility 63,000 46,000
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TOTAL LIABILITIES 385,857 367,923
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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 November 30 and May 31, respectively 135 135
Common Stock, $.01 par value, 5,550,000 shares
authorized; 5,498,539 shares issued
at November 30 and May 31 55 55
Additional paid-in capital 134,339 134,034
Accumulated deficit (99,821) (88,193)
Less: 1,830,932 shares of Common
Stock and Class A Common Stock held in
Treasury, at cost, at November 30 and May 31 (14,382) (14,382)
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TOTAL SHAREHOLDERS' INVESTMENT 20,326 31,649
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TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 406,183 $ 399,572
================ ==============
</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 six months ended November 30, 1993 and 1992
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For the Three Months Ended For the Six Months Ended
-------------------------- ------------------------
November 30, November 30, November 30, November 30,
1993 1992 1993 1992
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(In Thousands Except Per Share Data)
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REVENUES FROM CABLE
TELEVISION OPERATIONS:
Subscriber service fees $ 28,203 $ 25,542 $ 56,216 $ 48,547
Management fees 4,276 4,338 8,636 8,597
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TOTAL REVENUES 32,479 29,880 64,852 57,144
COSTS AND EXPENSES:
Operating, general and
administrative expenses* 18,996 16,127 37,264 30,834
Depreciation and amortization 10,468 10,462 20,982 20,339
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OPERATING INCOME 3,015 3,291 6,606 5,971
OTHER INCOME (EXPENSE):
Interest expense (8,881) (10,257) (17,550) (19,773)
Loss on sale of assets - (1,753) - (1,753)
Equity in losses of affiliated entities (1,170) (868) (2,079) (1,364)
Interest income 987 1,038 1,776 2,056
Other, net 273 (1,075) (381) (662)
---------- ---------- ---------- ---------
LOSS BEFORE INCOME TAXES,
EXTRAORDINARY ITEM AND
ACCOUNTING CHANGE (5,776) (9,624) (11,628) (15,525)
Income tax benefit - - - -
---------- ---------- ---------- ---------
LOSS BEFORE EXTRAORDINARY ITEM
AND ACCOUNTING CHANGE (5,776) (9,624) (11,628) (15,525)
EXTRAORDINARY ITEM:
Loss on early extinguishment
of debt - (796) - (7,605)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING METHOD:
Change in method of accounting
for income taxes - - - 3,862
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NET LOSS $ (5,776) $ (10,420) $ (11,628) $ (19,268)
========== ========== ========== =========
NET LOSS PER CLASS A
COMMON AND COMMON SHARE
Loss before extraordinary item $ (.34) $ (.74) $ (.68) $ (1.20)
Extraordinary item - (.06) - (.59)
Accounting change - - - .30
---------- ---------- ---------- ---------
NET LOSS PER CLASS A
COMMON AND COMMON SHARE $ (.34) $ (.80) $ (.68) $ (1.49)
========== ========== ========== =========
AVERAGE NUMBER OF CLASS A
COMMON AND COMMON SHARES
OUTSTANDING 17,163 12,928 17,157 12,905
========== ========== ========== =========
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* Of the total operating, general and administrative expenses, approximately
$473,200 and $388,200 for the three months ended November 30, 1993 and 1992,
respectively, and approximately $922,200 and $753,300 for the six months ended
November 30, 1993 and 1992, 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 six months ended November 30, 1993 and 1992
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For the Six Months Ended
------------------------
November 30, November 30,
1993 1992
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(Stated in Thousands)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (11,628) $ (19,268)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Extraordinary loss on early extinguishment
of debt - 7,605
Loss on sale of assets - 1,753
Cumulative effect of change in method of
accounting for income taxes - (3,862)
Depreciation and amortization 20,982 20,339
Deferred distribution revenue - 4,778
Increase in trade receivables (912) (345)
Equity in losses of affiliated entities 2,079 1,364
Amortization of discount on debentures - 274
Increase in other receivables,
deposits, prepaid expenses and other assets (2,057) (1,013)
Increase in accounts payable,
accrued liabilities and subscriber
prepayments and deposits 979 5,816
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Net cash provided by operating activities 9,443 17,441
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CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Mind Extension University (8,451) (8,349)
Purchase of property and equipment (8,589) (8,464)
Purchase of cable television system - (73,234)
Sale of cable television system - 1,377
Investments in cable television partnerships
and affiliates (8,204) (2,256)
Other, net 1,599 4,186
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Net cash used in investing activities (23,645) (86,740)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt - (66,000)
Proceeds from borrowings 17,000 60,000
Proceeds from the issuance of Class A
Common Stock 305 4,337
Increase in accounts receivable from
affiliated entities (1,957) (93)
Redemption of debentures - (78,910)
Proceeds from debenture offering, net - 155,735
Other, net (263) (1,950)
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Net cash provided by financing activities 15,085 73,119
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Increase In Cash and Cash Equivalents 883 3,820
Cash and Cash Equivalents, beginning of period 1,131 2,414
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Cash and Cash Equivalents, end of period $ 2,014 $ 6,234
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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 November 30, 1993 and May 31, 1993 and its
results of operations and cash flows for the three and six months ended
November 30, 1993 and 1992. 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 BCE Telecom International, Inc.
("BCETI") signed a letter of intent to enter into a strategic relationship
whereby BCETI 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, BCETI 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. BCETI is committed to invest up to
an additional $125,000,000 to maintain its 30 percent interest in the event the
Company offers additional Class A Common Stock in the public marketplace.
BCETI will have 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 BCETI
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 BCETI 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. BCETI would also invest
in a number of affiliates of Jones International, Ltd. which are engaged in the
telecommunications and distribution businesses, including an investment in Mind
Extension University, Inc..
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 transaction closed on December 15, 1993.
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(5) During fiscal 1992 and 1993, the Company invested $10,000,000 in Mind
Extension University, Inc., an affiliated company that provides educational
programming through affilaited and unafffiliated cable television systems
("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
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
November 30, 1993, approximately $8,451,000 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. 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 $1,450,000 of rental expense related to this lease in
the first six 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 to date. 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.
(8) 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.
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(9) 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 six months ended November
30, 1993, 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 six months ended November 30, 1992. Approximately $17,049,300
and $19,756,300 of interest expense was paid during the six months ended
November 30, 1993 and 1992, respectively. No material non-cash investing or
financing transactions were recorded during the first six months of fiscal 1993
and 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 BCE Telecom International, Inc. ("BCETI") signed a letter
of intent to enter into a strategic relationship whereby BCETI 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,
BCETI 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. BCETI is committed to invest up to an additional
$125,000,000 to maintain its 30 percent interest in the event the Company
offers additional Class A Common Stock in the public marketplace. BCETI will
have 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 BCETI
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 BCETI 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. BCETI would also invest
in a number of affiliates of Jones International, Ltd. which are engaged in the
telecommunications and distribution businesses, including an investment in Mind
Extension University, Inc.
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 Commission (the "FCC")
promulgated thereunder. Most of the Company's owned and managed systems
reduced their service rates for basic and tier services 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. Management fees earned by the Company,
which are a function of the operating revenues of a managed cable system, have
also decreased, as has actual cash flow from Company-owned 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 for the
quarter ended November 30, 1993 and expects to maintain compliance through
fiscal 1994.
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The Company purchased plant and equipment totalling approximately $8,589,000
during the first six 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 and (c) drop
materials, converters and plant rebuild projects in the Alexandria, Virginia
system. Estimated capital expenditures for the remainder of fiscal 1994 are
approximately $11,400,000. 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 January 7, 1994, Jones UK Fund had raised
approximately $42,596,000 in gross offering proceeds, or $36,739,000 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 representing a 15% equity
interest. 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, and subject to dilution of the investments of the Sandler Capital
Management group and the Company as Jones UK Fund raises and invests additional
capital pursuant to its on-going public offering, Jones South Hertfordshire
would be owned 67% by Jones UK Fund, 22% by affiliates of Sandler Capital
Management and 11% by 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
November 30, 1993, approximately $2,146,200 of such advances to Jones South
Hertfordshire were outstanding. These advances have been reflected as
investments in cable television partnerships and affiliates on the 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 six months of fiscal 1994, approximately
L.1,743,800 of this requirement was paid by the Company. Jones Cable Group
will manage the Leeds project pursuant to a
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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 November 30, 1993, the Company's advances
totalled approximately $2,535,100. The Company was reimbursed approximately
$1,619,000 for development costs relating to the Leeds franchise in December
1993. 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 totalling $424,000 during fiscal 1994, and has
advanced a total of $7,418,400 as of November 30, 1993 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.
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 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 November
30, 1993, approximately $8,451,000 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. 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 November 30, 1993, the
Company's effective interest rate on the credit facility was 5.3%. 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 November 30, 1993, the Company had
$63,000,000 outstanding under the credit facility leaving $237,000,000 of
potential availability on this credit facility; however, due to covenant
restrictions, the Company can access only approximately $56,000,000 of this
availability.
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
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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.
From time to time, the Company may make loans to its managed limited
partnerships. As of November 30, 1993, the Company had advanced funds to
various managed partnerships and other affiliates of the Company totalling
approximately $17,304,000, an increase of approximately $1,957,000 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 $1,450,000 related to this license agreement during the first six
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 has been reduced to $27,200,000, subject to normal closing adjustments.
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 to date. 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.
At November 30, 1993, 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.
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The strategic relationship the Company has agreed to enter into with BCETI, in
which BCETI would purchase a 30 percent interest in the Company, would provide
additional financing for the Company's expansion. BCETI's proposed
$400,000,000 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, which may include the acquistion of additional cable
television systems or operators, as well as the purchase of certain cable
television systems owned by limited partnerships which are managed by the
Company. Closing on the BCETI 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 effected 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. 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%. Based on the foregoing, the Company
believes that the new rate regulations will adversely affect 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.
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 were 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),
and a six-month extension for carriage of all FOX affiliates. Other
extensions for
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approximately 10 to 15 broadcast stations were obtained ranging in time from
two weeks to ninety days. The Company expects to finally conclude
retransmission consent negotiations with those 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 retranmission consent rules.
RESULTS OF OPERATIONS
Revenues. The Company derives its revenues from three primary sources:
subscriber service 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 November 30, 1993 increased
$2,599,000, or 9%, from $29,880,000 reported in fiscal 1993 to $32,479,000
reported in fiscal 1994. Total revenues for the six months ended November 30,
1993 increased $7,708,000, or 13%, from $57,144,000 reported in fiscal 1993 to
$64,852,000 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 Company's sale in May 1993 of the cable
television system serving a portion of San Diego and Riverside County,
California (the "San Diego System"). Disregarding the effect ot these
transactions, total revenues would have increased $1,033,000, or 4%, and
$3,008,000, or 5%, for the three and six months ended November 30, 1993,
respectively.
The Company's subscriber service revenue increased $2,661,000, or 10%, and
$7,669,000, or 16%, for the three and six months ended November 30, 1993 as
compared to the same periods ended November 30, 1992, totalling approximately
$28,203,000 and $56,216,000 for the current fiscal year versus approximately
$25,542,000 and $48,547,000 for the prior fiscal year, respectively. The net
effect of the purchase of the Alexandria System and the sale of the San Diego
System accounted for approximately $1,698,000, or 64%, and $5,016,000, or 65%,
of the increase in subscriber service revenues for the three and six months
ended November 30, 1993, respectively. In addition, increases in the number of
basic subscribers, as well as increases in revenues from premium service,
pay-per-view and advertising sales 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 1993 with which the Company complied effective
September 1, 1993.
The Company receives management fees generally equal to 5% of the gross
operating revenues from its managed partnerships. Management fees decreased
$62,000, totalling $4,276,000 for the three months ended November 30, 1993
compared to $4,338,000 for the same period one year ago, a decrease of
approximately one percent. For the six months ended November 30, 1993,
management fees totalled $8,636,000 compared to $8,597,000, an increase of
$39,000. The reduction in the growth in management fee revenue is the result
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
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with which the Company complied effective September 1, 1993. In addition, the
purchase of the Alexandria System in November 1992 from one of the Company's
managed partnerships affected the decrease in managment fees for the three and
six months ended November 30, 1993.
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 six 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 and six months ended November 30, 1993, these costs increased
approximately 18% and 21% from $16,127,000 and $30,834,000 reported in fiscal
1993 to $18,996,000 and $37,264,000 reported for the same period in fiscal
1994. For the three months ended November 30, 1993, increases in personnel
costs, satellite fees and premium service fees, and advertising costs accounted
for approximately $518,000, $564,000 and $115,000, or 18%, 20% and 4%, of the
increase in operating, general and administrative expenses. Increases in
personnel costs, satellite fees and premium service fees, and advertising costs
accounted for approximately $1,353,000, $1,269,000 and $233,000, or 21%, 20%
and 4%, respectively, of the increase in operating, general and administrative
expenses for the six months ended November 30, 1993. The net effect of the
purchase of the Alexandria System and the sale of the San Diego System was an
increase in these expenses of approximately $608,000 and $2,040,000 for the
three and six months ended November 30, 1993, respectively.
Depreciation and amortization expense did not change significantly totalling
$10,468,000 for the three months ended November 30, 1993 as compared to
$10,462,000 for the same period in the prior year. For the six months ended
November 30, 1993, depreciation and amortization expense increased $643,000, or
3%, from $20,339,000 reported in fiscal 1993 to $20,982,000 reported in fiscal
1994. This increase is due to the acquisition in November 1992 of the
Alexandria System and the resulting increase in the Company's asset base.
Interest expense decreased $1,376,000, or 13%, for the three months ended
November 30, 1993 from $10,257,000 reported in the second quarter of fiscal
1993 to $8,881,000 for the second quarter of fiscal 1994. Interest expense
decreased $2,223,000, or 11%, for the six months ended November 30, 1993 from
$19,773,000 reported in fiscal 1993 to $17,550,000 reported during fiscal 1994.
These decreases were primarily due to the redemption of the remaining
$66,575,000 principal amount of the Company's 9.75% Subordinated Debentures due
1998 in August 1992 and the redemption of the remaining $138,000,000 principal
amount of the Company's 13% Subordinated Debentures due 2000 in May 1993.
Equity in losses of affiliated entities, which result primarily from
depreciation and amortization expenses, increased $302,000, or 35%, and
$715,000, or 52%, for the three and six months ended November 30, 1993 from
$868,000 and $1,364,000 in fiscal 1993 to $1,170,000 and $2,079,000 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.
Interest income decreased $51,000, or 5%, and $280,000, or 14%, for the three
and six months ended November 30, 1993 from $1,038,000 and $2,056,000 in fiscal
1993 to $987,000 and $1,776,000 in fiscal 1994, respectively. These decreases
are reflective of the fact that interest income was earned in the first six
months of fiscal 1993 on
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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.
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 January 12, 1994.
15) Letter Regarding Unaudited Interim Financial Statements.
b) Reports on Form 8-K
None.
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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: January 12, 1994
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<PAGE> 1
Exhibit 1
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
November 30, 1993, the related condensed consolidated statements of operations
for the three-month and six-month periods ended November 30, 1993 and 1992, and
the related condensed consolidated statements of cash flows for the six-month
periods ended November 30, 1993 and 1992. 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.
Denver, Colorado,
January 12, 1994.
<PAGE> 1
Exhibit 15
January 14, 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 and 33-64604 in its Form
10-Q for the quarter ended November 30, 1993, which includes our report dated
January 12, 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.
