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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended May 31, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________
Commission file number: 1-9953
JONES INTERCABLE, INC.
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(Exact name of registrant as specified in its charter)
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<S> <C>
Colorado 84-0613514
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State of Organization (IRS Employer
Identification No.)
P.O. Box 3309, Englewood, Colorado 80155-3309 (303) 792-3111
(Address of principal executive office and Zip Code) (Registrant's telephone no. including area code)
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Securities registered pursuant to Section 12(g) of the Act:
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Common Stock, $.01 par value
Class A Common Stock, $.01 par value
7.50% Convertible Subordinated Debentures due June 1, 2007
Indicate by check mark whether the registrant, (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 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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Aggregate market value as of August 15, 1994 of the voting stock held by
non-affiliates:
Common Stock $25,535,888 Class A Common Stock $87,705,533
Shares outstanding of each of the registrant's classes of common stock as of
August 15, 1994:
Common Stock: 4,913,021 Class A Common Stock: 14,817,088
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. x
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PART I
ITEM 1. BUSINESS
THE COMPANY
Jones Intercable, Inc. (the "Company") is a Colorado corporation
organized in 1970. The Company is in the cable television business. It
acquires, develops and operates cable television systems for itself, for
affiliated managed public limited partnerships and for other affiliated
entities.
Jones Spacelink, Ltd. ("Spacelink"), a Colorado corporation organized
in 1980 that also is engaged in the cable television business, owns
approximately 58% of the Company's outstanding Common Stock (or approximately
14% of all outstanding shares of the Company taking into account both classes
of the Company's common stock). Spacelink is a publicly held corporation
controlled by Glenn R. Jones, the Chairman of the Board of Directors and Chief
Executive Officer of both the Company and Spacelink.
Approximately 79% of Spacelink's Class A Common Stock and 100% of its
Class B Common Stock are owned by Jones International, Ltd. ("International"),
also a Colorado corporation. Mr. Jones is the sole owner of all of the
outstanding stock of International. Mr. Jones also directly owns approximately
6% of Spacelink's Class A Common Stock. Mr. Jones' direct and indirect stock
ownership enables him to control the election of a majority of the Board of
Directors of Spacelink and gives him voting power over approximately 86% of
votes to be cast by all of Spacelink's shareholders.
International also directly owns approximately 4% of the Common Stock
of the Company. Mr. Jones is deemed to be the beneficial owner of all shares
of both the Company and Spacelink owned by International, and his direct and
indirect stock ownership enables him to control the election of a majority of
the Company's Board of Directors and gives him voting power over approximately
48% of votes to be cast by all shareholders of the Company on matters not
requiring a class vote.
In March 1994, Bell Canada International acquired from the Company
2,500,000 shares of the Company's Class A Common Stock, representing
approximately 13% of the Company's equity.
At May 31, 1994, the Company had a total of approximately 2,850
employees. The executive offices of the Company are located at 9697 E. Mineral
Avenue, Englewood, Colorado 80112, and its telephone number is (303) 792-3111.
Unless the context otherwise requires, the term "Company" as used herein refers
to Jones Intercable, Inc. and its subsidiaries.
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THE CABLE TELEVISION INDUSTRY
The cable television industry developed in the late 1940s and early
1950s in response to the needs of residents in predominantly rural and
mountainous areas of the country where the quality of television reception was
inadequate because of geographic location, surrounding terrain, man-made
structures or the curvature of the earth. During recent decades, cable
television systems have also been constructed in suburban areas and larger
cities where signal interference problems or limited availability of channels
created a desire for better reception and expanded service. Television
reception is substantially improved by cable television because of its
insulation from outside interference.
The cable television industry, which started as a technical solution
to the problem of delivering television signals to remote areas of rural
America, has now become an entertainment staple in a majority of American
homes. It is a dynamic, evolving and ever more complex industry. Cable
penetration, or the percentage of U.S. television households that subscribe to
cable television, now stands at approximately 63%. It is anticipated that
national penetration of cable television will increase in the 1990s as the
value of cable television is enhanced by additional entertainment programming
choices, such as exclusive coverage of sporting events, and educational
programs.
A cable television system is a facility that receives satellite,
broadcast and FM radio signals by means of high antennas, a microwave relay
service or earth stations, amplifies the signals and distributes them by
coaxial and/or fiber-optic cable to the premises of its subscribers, who pay a
fee for the service. A cable television system may also originate its own
programming for distribution through the cable.
The physical plant of a cable television system consists of four
principal operating components. The first, known as the "headend" facility,
receives television and radio signals with microwave relay systems, special
antennae and satellite earth stations. The second component, the distribution
network, originating at the headend and extending throughout the system,
consists of coaxial and/or fiber-optic cables placed on poles or buried
underground, and associated electronic equipment. The third component of the
system is a "drop cable" that extends from the distribution network into the
subscriber's home and connects to the subscriber's television set. The fourth
component, a converter, is the home terminal device necessary to expand channel
capacity to permit reception of more than twelve channels.
The cable television industry is undergoing significant change. With
recent announcements of alliances between cable industry companies and
telephone, computer and software companies, the nature of the cable television
business seems to be changing from the traditional coaxial network delivering
video entertainment to a more sophisticated, digital platform environment where
cable systems could be capable of delivering the traditional programming as
well as other services, including data, telephone and expanded educational
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and entertainment services on an interactive basis. See Item 1, The Company's
Cable Television Business.
SYSTEM OPERATIONS. Cable television system operations are generally
conducted pursuant to the terms of a franchise or similar license granted by a
state agency or by the local governing body for the area to be served.
Franchises generally are granted on a non-exclusive basis for a period of 5 to
15 years. Joint use or pole rental agreements are normally entered into with
electric and/or telephone utilities serving a cable television system's area
and annual rentals generally range from $2 to $10 for each pole used. These
rates may increase in the future. See Item 1, Franchises, Competition, and
Regulation and Legislation.
PROGRAMMING. Cable television systems generally offer various types of
programming, which include basic service, tier service, premium services,
pay-per-view programs and packages including several of these services at
combined rates.
Basic cable television service usually consists of signals of all four
national television networks, various independent and educational television
stations (both VHF and UHF) and certain signals received from satellites and
also usually includes programs originated locally by the system, which may
consist of music, news, weather reports, stock market and financial information
and live or videotaped programs of a public service or entertainment nature.
FM radio signals are also frequently distributed to subscribers as part of the
basic service. The Cable Television Consumer Protection and Competition Act of
1992 (the "1992 Cable Act") contains new broadcast signal carriage
requirements, and the Federal Communications Commission ("FCC") has adopted
regulations implementing these statutory carriage requirements. These new
rules allow local commercial broadcast television stations to elect whether to
demand that a cable system carry its signal ("must carry") or to require the
cable system to negotiate with the station for "retransmission consent." If a
local commercial broadcast television station required the cable system to
negotiate with the station for retransmission consent, and the cable system was
unable to obtain retransmission consent, the cable system would not be
permitted to continue carriage of such station after October 6, 1993. No
broadcast stations carried on Company-owned cable television systems that
elected retransmission consent withheld consent to the retransmission of their
signals. However, certain of these broadcast stations were carried after the
deadline pursuant to temporary extensions of retransmission consent authority
provided by the stations. The Company has concluded retransmission
negotiations with all of these stations without having to terminate the
carriage of any signal. See Item 1, Regulation and Legislation, Cable
Television Consumer Protection and Competition Act of 1992.
In most systems, tier services are also offered on an optional basis
to subscribers. Those channels generally include most of the cable networks
such as Entertainment and Sports Programming Network (ESPN), Cable News Network
(CNN), Turner Network Television (TNT), Family Channel, Discovery and others.
Systems also offer a package that includes the basic service channels and the
tier services.
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Cable television systems also offer premium services to their
subscribers, which consist of feature films, sporting events and other special
features that are presented without commercial interruption. The cable
television operator buys premium programming from suppliers such as HBO,
Showtime, Cinemax or others at a cost based on the number of subscribers served
by the cable operator. Premium service programming usually is significantly
more expensive for the system operator than the basic service or tier service
programming, and consequently the system operator prices premium service
separately when sold to subscribers.
New cable television services have been developed and introduced over
time since the inception of the cable television industry. One relatively new
service currently being marketed by many cable television operators is
pay-per-view programming. Pay-per-view is a service that allows subscribers
to receive single programs, frequently consisting of motion pictures that have
recently completed their theatrical exhibitions and major sporting events, and
to pay for such service on a program-by-program basis. In order to offer
pay-per-view in an efficient manner, it is desirable to have addressable
converters in subscribers' homes. The availability of any of these services
and the ability to deliver these services is dependent upon many factors,
including the channel capacity of any cable television system, technical
feasibility and the like.
SYSTEM REVENUES. Monthly service fees for basic, tier and premium
services constitute the major source of revenue for cable television systems.
A subscriber to a cable television system generally pays an initial connection
charge and a fixed monthly fee for the cable programming services received.
The amount of the monthly service fee varies from one area to another, and
historically has been a function, in part, of the number of channels and
services included in the service package and the cost of such services to the
cable television system operator. In most instances, a separate monthly fee
for each premium service and certain other specific programming is charged to
subscribers, with discounts generally available to subscribers receiving
multiple premium services.
Cable television operators have been able to generate additional
revenue through the sale of commercial spots and channel space to advertisers.
As with other forms of advertising, the cable television operator receives a
fee from the advertisers that is based on the volume of advertising and the
time of the day at which it is broadcast. Advertising, as well as fees
generated by newer types of programming, such as home shopping and
pay-per-view, represent potential additional sources of revenue for cable
television systems. These services will not be regulated under the 1992 Cable
Act, and therefore may be of greater significance to cable operators in the
future.
The ability of a cable operator to price its services based on these
factors was a function of the fact that as of January 1, 1987, rates charged by
cable television operators for basic service had been deregulated for
approximately 90% of all cable television systems, as a result of the passage
of the Cable Act of 1984. In October of 1992, however, Congress enacted the
1992 Cable Act. The 1992 Cable Act allows for a greater degree of regulation
of
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the cable television industry, including rate regulation. 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 again
subject to rate regulation with respect to basic cable services. In addition,
the FCC is permitted to regulate rates for non-basic service tiers other than
premium services, in response to complaints filed by franchising authorities
and/or cable subscribers. The rate regulations adopted by the FCC, which
became effective September 1, 1993, provide for a benchmark and price cap
system that is used to regulate basic and non-basic service rates, and
cost-of-service showings are available to cable operators to allow them to
justify rates above benchmark levels. The Company reduced service rates for
basic and tier services in its owned and managed systems as required effective
September 1, 1993. The Company has been negatively impacted by this reduction.
The reduction 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. On February 22, 1994, the FCC adopted
several rate orders including an order which revised its benchmark regulatory
scheme. The FCC's new regulations will generally require rate reductions of
17% of September 30, 1992 rates, absent a successful cost-of-service showing.
The new regulations became effective on May 15, 1994. The Company has elected
to file cost-of-service showings for the following Company-owned systems:
Alexandria, Virginia; Charles County, Maryland; Pima, Arizona; Jefferson
County, Colorado and North Augusta, South Carolina. For these systems, the
Company anticipates no further reductions in revenues or operating income
before depreciation and amortization. The Company's Anne Arundel, Maryland
cable television system is subject to effective competition as defined by the
1992 Cable Act and, as a result, will not experience reductions in revenues or
operating income before depreciation and amortization due to the new
regulations. The Company complied with the new benchmark regulations and
reduced rates in its Oxnard and Walnut Valley, California cable television
systems. See Item 1, Regulation and Legislation and Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operation.
INDUSTRY GROWTH. Based upon information obtained by the Company from
industry sources, the Company believes that the following table demonstrates
the growth of the cable television industry in the United States for the
periods indicated:
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<CAPTION>
Approximate Percentage
Approximate Number of TV Households With
End of Year of Basic Subscribers(1) Basic Cable Service(2)
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<S> <C> <C>
1982 29,340,570 35%
1983 34,113,790 41%
1984 37,290,870 44%
1985 39,872,250 46%
1986 42,237,140 48%
1987 44,970,880 51%
1988 48,636,520 54%
1989 52,564,470 57%
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1990 54,871,330 59%
1991 55,786,390 61%
1992 57,211,600 62%
1993 58,834,440 63%
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(1) The number of basic subscribers is computed by dividing the sum of
total individual-dwelling subscribers and total revenues from
bulk-rate subscribers by the standard basic service rate.
(2) The percentage is computed by dividing the number of basic subscribers
by the number of TV households in the United States (94,135,104 TV
households in 1993).
THE COMPANY'S CABLE TELEVISION BUSINESS
The Company acquires, develops and operates cable television systems
for itself and for its managed public limited partnerships.
The Company has grown by acquiring and developing cable television
systems for both itself and its managed limited partnerships, primarily in
suburban areas with attractive demographic characteristics. One of the primary
factors utilized by the Company in deciding to acquire a particular cable
television system is the potential of the system for operating cash flow growth
and value appreciation. Key elements of the Company's operating strategy
include increasing basic penetration levels and revenue per subscriber through
targeted marketing, superior customer service and maintenance of high technical
standards. The Company has deployed fiber optic cable wherever practical in
its current rebuild and upgrade projects, which improves system reliability and
picture quality, increases channel capacity and provides the potential for new
business opportunities. Additionally, the Company has focused on pay-per-view
and advertising as revenue growth opportunities, and expects to continue to do
so in the future.
Within the past several years, and at an increasing pace recently, the
cable television industry has seen much change. With recent announcements of
alliances between cable industry companies and telephone, computer and software
companies, the Company believes that the nature of the cable television
business is changing from the traditional coaxial network delivering video
entertainment to a more sophisticated, digital platform environment where cable
systems could be capable of delivering the traditional programming as well as
other services, including data, telephone and expanded educational and
entertainment services on an interactive basis. As this convergence of various
technologies progresses, it likely will require cable television companies to
reevaluate their system architecture and to upgrade their cable plants if they
want to take advantage of the new opportunities for revenue and growth that are
expected to result. The Company is, on an ongoing basis, evaluating its
position in this changing marketplace and intends, where possible, to pursue
these opportunities as they evolve. The ability of the Company to do so,
however, will be dependent in large part on the availability of debt and equity
financing and/or its ability to structure strategic alliances with
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companies engaged and experienced in compatible businesses. The Company has
reached an agreement with Bell Canada International Inc. as part of this
strategy. See Item 1, Proposed Acquisition by Bell Canada International Inc.
of the Company's Class A Common Stock.
With respect to the systems owned by the Company and its subsidiaries,
the Company earns revenues through monthly service rates and related charges to
cable television subscribers. The Company's subscribers have the option to
choose a limited basic service consisting generally of broadcast stations and a
few cable networks ("basic" service) or a package of services consisting of
basic service and tier services ("basic plus" service). The tier service
generally consists of most of the cable networks, including ESPN, USA Network,
CNN, Discovery, Lifetime and others. See Item 1, The Cable Television
Industry, Programming.
The monthly service rates include fees for basic service, tier service
and premium services. As of September 1, 1993, as a result of the requirements
of the 1992 Cable Act, the Systems' rate structures for cable programming
services and equipment were revised. These rate structures were further
revised in February 1994, as a result of the FCC's adoption of an order
revising its benchmark regulatory scheme. See Item 1, Regulation and
Legislation. At May 31, 1994, monthly basic service rates ranged from $6.95 to
$17.50 for residential subscribers, monthly basic and tier ("basic plus")
service rates ranged from $14.40 to $24.80 for residential subscribers, and
monthly premium services ranged from $1.39 to $11.95 per premium service.
Charges for additional outlets were eliminated, and charges for remote controls
and converters were "unbundled" from the programming service rates. In
addition, the Company earns revenues from pay-per-view programs and advertising
fees. Pay-per-view programs, which usually are either unique sporting events
or recently released movies, are available on many of the Company's cable
television systems. Subscribers are permitted to choose individual movies for
a set fee ranging from $1.50 to $6.95 per movie and individual special events
for a set fee ranging from $5.95 to $39.95 per event. Related charges may
include a nonrecurring installation fee that ranges from $4.52 to $52.00;
however, from time to time the Company has followed the common industry
practice of reducing the installation fee during promotional periods.
Commercial subscribers such as hotels, motels and hospitals are charged a
nonrecurring connection fee that usually covers the cost of installation.
Except under the terms of certain contracts with commercial subscribers and
residential apartment and condominium complexes, subscribers are free to
discontinue the service at any time without penalty, and most terminations
occur because a subscriber moves to another home or to another city. For the
fiscal year ended May 31, 1994, of the total fees received by Company-owned
systems, basic and basic plus service fees accounted for approximately 65% of
total revenues, premium service fees accounted for approximately 20% of total
revenues, pay-per-view fees were approximately 3% of total revenues,
advertising fees were approximately 3% of total revenues and the remaining 9%
of total revenues came from equipment rentals, installation fees and program
guide charges. The Company is dependent upon continuous monthly service
charges to provide for maintenance and replacement of plant and equipment,
current operating expenses and other costs.
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As the general partner of the managed limited partnerships, the
Company earns management fees which are generally 5% of the gross revenues of
the partnership, not including revenues from the sale of cable television
systems or franchises. To the extent that partnership revenues decrease as a
result of the implementation of rate regulation under the 1992 Cable Act, the
Company's management fees will be reduced accordingly. See Item 7,
Management's Discussion and Analysis of Financial Conditions and Results of
Operations. The Company also receives reimbursement from the partnerships for
certain allocated overhead and administrative expenses incurred by the Company
in its management activities. From time to time, the Company has made
advances to certain of its managed limited partnerships and has deferred
collection of management fees and expense reimbursements owed by certain of its
managed limited partnerships to allow for expansion of a cable television
system or other cash needs of such a partnership. Upon dissolution of a
Company-managed partnership or the sale or refinancing of its cable television
systems, the Company is generally entitled to receive 25 percent of the net
remaining assets of such partnership, after payment of partnership debts and
after investors have received an amount equal to their capital contributions
plus, in most cases, a stated preferential return on their investment.
Pursuant to the terms of the various limited partnership agreements, the
Company has full operational control of the management and day-to-day business
of the partnerships.
The Company historically has found that the cash flow of a particular
cable television system and the long-term value of that system can be increased
as a result of (i) the addition of new subscribers through increased market
penetration, (ii) the building of extensions to reach new potential subscribers
in the franchise area, (iii) the addition of new programming services or
products, and (iv) periodic rate adjustments. Increases in subscribers usually
result from specific marketing efforts undertaken by a cable system operator
within the community, which may include telephone solicitation, particular
program promotions, direct mailings, increased advertising or other means. A
cable operator also can build extensions to systems, which increase the number
of homes passed by the cable system and the number of potential subscribers,
and thereby increase the potential revenue from additional subscriber fees.
The building of extensions to cable television systems usually occurs due to
the development within the system's franchise area of a new housing area
adjacent to areas then served by the system or the availability of a franchise
for an area adjacent to the current franchise area. In addition, increased
revenues may be generated from the offering of additional services to
subscribers. New cable services have been developed and introduced since the
inception of the cable television industry, and new cable services are expected
to continue to develop. These services could include new premium services
offering particular kinds of movies, sporting events or the like. No assurance
can be given that the Company will be able to increase the cash flow of any
particular cable television system or the value of that system by any of the
methods described above, and the rate regulations under the 1992 Cable Act
limit the amount of any rate increases with respect to regulated services the
Company will be able to implement in the future.
Increases in cash flow, as well as increases in long-term value, of a
cable television system can also be realized through cost efficiencies.
Because the Company manages
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numerous cable television systems for itself and affiliated entities, its cable
television systems generally benefit from a reduction in certain costs
associated with operations. The Company is able to purchase programming
services and cable system equipment at lower prices than would otherwise be
available to a single cable system owner due to the volume of business that the
Company and its affiliates conduct with such suppliers and vendors. In
addition, the Company has developed over time certain centralized operating and
marketing systems that are made available to the cable television systems owned
by the Company, its managed partnerships and other affiliates. While the
Company will seek to implement additional cost efficiencies in its cable
television properties, no assurance can be given that it will be able to do so,
or that any increase in cash flow or value will result therefrom.
The Company's business consists of providing cable television services
to a large number of customers, the loss of any one or more of which would have
no material effect on the Company's business. Each of the cable television
systems owned or operated by the Company has had some subscribers who later
terminated the service. Terminations occur primarily because people move to
another home or to another city. In other cases, people terminate on a
seasonal basis or because they no longer can afford or are dissatisfied with
the service. The amount of past due accounts in systems owned or operated by
the Company is not significant. The Company's policy with regard to these
accounts is basically one of disconnecting service before a past due account
becomes material.
The Company does not depend to any material extent on the availability
of raw materials, it carries no significant amounts of inventory and it has no
material backlog of customer orders. The Company has engaged in research and
development activities relating to the provision of new services, but the
amount of funds expended for such research and development has never been
material. Compliance with Federal, state and local provisions that have been
enacted or adopted regulating the discharge of materials into the environment
or otherwise relating to the protection of the environment has had no material
effect upon the capital expenditures, earnings or competitive position of the
Company.
THE COMPANY'S CURRENT PLANS FOR GROWTH
The Company currently envisions growth principally through
acquisitions of certain of the cable television systems currently owned by its
managed partnerships, subject to the Company's determination that an available
system meets the Company's investment objectives and the availability of debt
and/or equity financing at the time the various partnerships achieve their
investment objectives. One of the advantages of buying cable television
systems from its managed limited partnerships is that the Company is familiar
with the system, its technical capacity, franchise terms and general
operations, having managed such systems generally for a significant period of
time prior to acquisition. The Company has the right under the terms of the
limited partnership agreements to acquire the cable television systems held by
such managed partnerships at fair market value based upon independent
appraisals. The approval of the holders of a majority of the limited
partnership interests in a selling partnership is generally required in the
event that the proposed sale of any system to the Company would constitute the
sale of all or substantially all of the assets of that partnership. The
process
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of soliciting proxies in favor of a sale to the Company can be time consuming
and there can be no assurance that such approval will be obtained. The Company
may also acquire cable television systems from unaffiliated parties if such
systems, because of their size, geographic location and income and/or growth
potential, meet the Company's investment objectives, and if the Company has
available to it sufficient debt and/or equity capital.
The recent affiliation of the Company and Bell Canada International
Inc. ("BCI") will also significantly affect the Company's current plans for
growth. In March 1994, BCI acquired from the Company 2,500,000 shares of the
Company's Class A Common Stock at $22.00 for an investment of $55,000,000. On
May 31, 1994, the Company entered into an Exchange Agreement and Plan of
Reorganization and Liquidation (the "Spacelink Agreement") pursuant to which
the Company will acquire substantially all of the assets of Spacelink and
assume all of the liabilities of Spacelink in exchange for 4,100,000 shares of
the Company's Class A Common Stock. See Item 1, Proposed Acquisition of
Spacelink. Also on May 31, 1994, the Company entered into a Stock Purchase
Agreement (the "BCI Agreement") with BCI pursuant to which (i) the Company will
issue up to 7,500,000 shares of its Class A Stock for $27.50; (ii) BCI will
agree to invest up to an additional $138,750,000 for shares of the Company's
Class A Stock to maintain its 30% equity interest in the event the Company
makes future offerings of Class A Common Stock, for an aggregate investment by
BCI in the Company of $400,000,000; (iii) BCI would be entitled to designate
for nomination up to three persons separately and up to three persons jointly
(with Glenn R. Jones) for election to the Board of Directors of the Company and
to designate certain personnel to be retained by the Company; and (iv) BCI
would obtain certain contractual rights to approve major corporate actions of
the Company. See Item 1, Proposed Acquisition by Bell Canada International
Inc. of the Company's Class A Common Stock. If consummated, these transactions
will result in the acquisition of Spacelink's business by the Company, a
significant additional investment by BCI in the Company, the dissolution of
Spacelink and the distribution of its assets to its shareholders.
Generally, the management and operations of the Company after closing
of the Spacelink Agreement and the BCI Agreement will remain as they are
currently. The cable television and other operations to be acquired from
Spacelink will likely be managed by those persons who presently have charge of
such operations, including the management of Spacelink's limited partnerships,
which are not otherwise affected by the Spacelink transaction. It is
anticipated that all employees of Spacelink will become employees of the
Company.
If the BCI Agreement closes, the Company will have the funds provided
by that transaction, as well as an enhanced ability to borrow funds that the
BCI relationship is expected to provide. Having additional funds should allow
the Company to expand its business over time by acquiring additional
properties, including certain properties now held by its managed limited
partnerships. No such properties have been selected as of the date hereof.
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In the view of the Company's Board of Directors, the alliance between
BCI and the Company will bring to the Company more than just needed equity
capital. BCI, through its parent company and its affiliates, is engaged in
many areas of the telecommunications business. BCE Inc., the parent of BCI, is
the largest telecommunications company in Canada. BCE Inc. is also the parent
company of Bell Canada, the largest provider of telecommunications services in
Canada. Bell Northern Research, an affiliate of BCI, is Canada's largest
research and development organization and is engaged in developing and
analyzing new technologies used in the telecommunications area. Northern
Telecom, a 52% subsidiary of BCE Inc., is a leading global manufacturer of
telecommunications equipment. As cable television systems in the United States
evolve and change into more sophisticated digital networks providing
traditional television entertainment, telephone and data services, and as
competition between cable television operators, telephone companies and others
develops, the relationship between BCI and the Company will be of critical
importance in providing the Company with access to expertise and experience
that it would not otherwise have available.
CABLE TELEVISION SYSTEMS OWNED BY THE COMPANY AND BY COMPANY-MANAGED LIMITED
PARTNERSHIPS
At May 31, 1994, the Company managed 40 cable television systems, 31
of which, operating in 17 states, were owned by Company-managed partnerships
and 9 of which, operating in 7 states, were owned by the Company. The
Company's existing managed partnerships own cable television systems located in
California, Colorado, Florida, Georgia, Illinois, Indiana, Maryland, Michigan,
Minnesota, Missouri, Nebraska, New Jersey, New Mexico, New York, Oregon, South
Carolina and Wisconsin. The Company-owned cable television systems are located
in Arizona, California, Colorado, Maryland, North Carolina, South Carolina and
Virginia.
The Company has raised approximately $1.3 billion from the sale of
interests in public limited partnerships. At May 31, 1994, Company-owned
systems served approximately 270,000 basic subscribers who subscribed to a
total of approximately 224,000 pay units. And, at such date, systems held by
Company-managed partnerships served approximately 864,000 basic subscribers who
subscribed to a total of approximately 652,000 pay units. (Each premium
service subscribed to equals one pay unit.) According to industry sources, the
Company ranks among the top 15 multiple system cable television operators in
the United States.
CABLE TELEVISION SYSTEMS HELD BY THE COMPANY FOR COMPANY-MANAGED LIMITED
PARTNERSHIPS
The Company from time to time has acquired cable television systems
for the account of its various managed limited partnerships and temporarily
held title thereto for the purposes of facilitating the acquisition of such
cable television systems or franchises or the borrowing of money or obtaining
of financing for the partnerships. It has transferred such cable television
systems or franchises to the partnerships for a purchase price no greater than
the cost of such
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cable television systems or franchises to the Company, plus carrying costs
incurred by the Company during the holding period. During the Company's fiscal
year ended May 31, 1994, the Company did not hold any cable television systems
for the account of its managed limited partnerships, and the Company has no
present plans to acquire any cable television system for the account of a
managed partnership.
ACQUISITION OF CABLE TELEVISION SYSTEM BY THE COMPANY
On January 28, 1993, the Company entered into an agreement with
American Cable TV Investors 2 ("ACT 2") (the "North Augusta 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 renegotiation of the North Augusta Agreement, the
purchase price was reduced to $27,200,000, subject to normal closing
adjustments. The transaction closed on December 15, 1993. The Company paid
Jones Group, an affiliate of the Company, $680,000 for brokerage services
related to this acquisition.
SALE OF CABLE TELEVISION SYSTEM BY THE COMPANY
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 certain cable television systems
owned by TWC. On July 25, 1994, the Company sold its Gaston System for the
purchase price less normal closing adjustments. The Company paid Jones
Group a commission of 2 1/2% of the purchase price, or $912,500, in connection
with brokering the sale of the Gaston System. Proceeds to the Company from
the sale of the Gaston System were used to pay amounts outstanding on the
Company's credit facility.
PROPOSED ACQUISITION OF SPACELINK
On May 31, 1994, the Company and Spacelink entered into an Exchange
Agreement and Plan of Reorganization and Liquidation (the "Spacelink
Agreement") providing that, subject to receiving the approval of the
shareholders of the Company and Spacelink, the Company will acquire from
Spacelink substantially all of the assets of Spacelink (other than the
2,859,240 shares of the Company's Common Stock presently held by Spacelink).
The Company has agreed to assume all the liabilities of Spacelink, as set forth
in the Spacelink Agreement, other than liabilities with respect to dissenting
shareholders. In exchange, the Company will issue 4,100,000 shares of the
Company's Class A Stock, which shares shall be registered under the Securities
Act of 1933. Pursuant to the Spacelink Agreement, Spacelink will liquidate and
distribute its assets, including all of the shares of the Company's Common
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Stock and Class A Common Stock held by Spacelink, to its shareholders.
International has agreed that a portion of the Company's Class A Common Stock
that would have been received by it upon the dissolution of Spacelink will
instead be reallocated to the other shareholders of Spacelink (the "Minority
Shareholders"), excluding International, Glenn R. Jones and their subsidiaries
(the "Reallocation"). After giving effect to the distribution made upon the
liquidation of Spacelink and the Reallocation, and assuming the exercise of all
outstanding Spacelink stock options, each non-dissenting Minority Shareholder
will receive .09629 shares of the Company's Class A Common Stock and .03567
shares of the Company's Common Stock for each share of Spacelink held. Mr.
Jones, International and the subsidiaries of International will receive, on a
per-share basis, fewer shares of the Company's Class A Common Stock than the
Minority Shareholders because of the Reallocation. The obligations of the
Company and Spacelink under the Spacelink Agreement are subject to the
satisfaction or waiver by each such party, at or prior to closing, of several
conditions. There can be no assurance that this transaction will be
consummated.
PROPOSED ACQUISITION BY BELL CANADA INTERNATIONAL INC.
OF SHARES OF THE COMPANY'S CLASS A COMMON STOCK
On December 2, 1993, the Company and Bell Canada International Inc.
("BCI") entered into a letter of intent providing for an investment by BCI in
the Company in exchange for an approximate 30% equity interest in the Company.
From January 1994 through May 1994, the Company and BCI negotiated definitive
terms of their agreement.
On March 25, 1994, BCI acquired from the Company, pursuant to an
effective registration statement filed pursuant to the Securities Act of 1933,
as amended, 2,500,000 shares of the Company's Class A Common Stock at $22.00 a
share. This investment resulted in BCI owning approximately 13% of the issued
and outstanding shares of the Company, and the Company received cash proceeds
of $55,000,000. The proceeds to the Company were used to repay outstanding
indebtedness under the Company's revolving credit facility.
On May 31, 1994, BCI and the Company entered into a Stock Purchase
Agreement (the "BCI Agreement") providing for the sale by the Company to BCI of
7,500,000 shares of the Company's Class A Common Stock at $27.50 a share,
which, when added to BCI's existing shareholdings in the Company, will result
in BCI owning 30% of the issued and outstanding shares of the Company. The
closing of the BCI Agreement will take place no later than ten business days
after satisfaction of the conditions described in the BCI Agreement or December
31, 1994 (the "Closing"). At the Closing, BCI will deliver to the Company the
purchase price for the shares of the Company's Class A Common Stock being
purchased and the Company will execute and deliver certain related agreements
as provided by the BCI Agreement.
BCI entered into the BCI Agreement with the Company as part of a
larger transaction whereby BCI would ultimately be able to gain control of the
Company through the acquisition of sufficient shares of the Company's Common
Stock to control the Company's Board of Directors. Spacelink currently owns
approximately 58% of the Company's Common Stock,
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and International owns all of Spacelink's Class B Common Stock and
approximately 79% of Spacelink's Class A Common Stock. Glenn R. Jones owns
all of the outstanding shares of International.
If the Spacelink Agreement is consummated, of which there is no
assurance, International and Mr. Jones will grant to BCI an option (the
"Control Option") to purchase all of the shares of the Company's Common Stock
held, directly or indirectly, by them, in consideration of the payment by BCI
to International and Mr. Jones of a non-refundable deposit of $19.00 for each
share. The deposit is not deducted from the exercise price to be paid by BCI
upon exercise of the Control Option. The Control Option may be exercised
during any of the following periods: (i) the period commencing on the day Mr.
Jones becomes incapacitated or dies; (ii) the period commencing on the day that
Mr. Jones resigns as Chairman and Chief Executive Officer of the Company; (iii)
the period commencing on the day that BCI receives a written notice from
International and Mr. Jones requesting that BCI exercise the Control Option;
(iv) the period commencing on the seventh anniversary and ending on the eighth
anniversary of the closing of the BCI Agreement; and (v) the period commencing
on the day of a Jones bankruptcy event and ending 30 days after written notice
thereof.
In the event that the Spacelink Agreement is not consummated, there
will be no liquidation of Spacelink and no distribution of any shares of the
Company's stock to the Spacelink shareholders. Instead, Spacelink will grant
to BCI an option on the 2,859,240 shares of the Company's Common Stock owned by
Spacelink pursuant to the terms of an option agreement (the "BCI-Spacelink
Option Agreement") in consideration of the payment by BCI to Spacelink of a
non-refundable deposit of $19.00 a share. The option deposit will not offset
amounts payable by BCI upon the exercise of the option. The option may be
exercised during the same periods provided in the foregoing paragraph. If the
BCI-Spacelink Option Agreement becomes effective, Spacelink and BCI will enter
into a shareholders agreement providing, among other things, that Spacelink
must refer to the Company certain of its investment opportunities, including
all opportunities to invest in cable television systems, wireline
communications services in certain markets and broadband multi-media services
in certain markets.
Upon the closing of the BCI Agreement, BCI, International, Glenn R.
Jones and the Company will enter into the following related agreements: (i) a
Shareholders Agreement providing for certain arrangements concerning the
operation and governance of the Company, certain rights of BCI to consent to
corporate and business transactions, purchases of the Company's capital stock
in the open market, transfer restrictions, tag along rights and third party
offers and provisions relating to the option granted by International and Mr.
Jones to BCI; (ii) a Supply and Services Agreement pursuant to which BCI will
provide the Company with access to the expert advice of personnel from BCI and
its affiliates for the equivalent of three man-years on an annual basis in
consideration of the payment by the Company of $2 million to BCI; (iii) a
Secondment Agreement pursuant to which BCI will provide up to ten people to the
Company for a period which is the same as that of the Supply and Services
Agreement. These persons, who must be approved by the Company, will all be
personnel of
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BCI or its affiliates who have experience in certain specific areas of
operations and other aspects of BCI's business.
INTERNATIONAL INVESTMENTS BY THE COMPANY AND ITS AFFILIATES
United Kingdom. On July 22, 1994, the Company and certain of its
subsidiaries transferred all of their interests in their cable/telephony
properties in the United Kingdom to Bell Cablemedia plc, a public limited
company incorporated under the laws of England and Wales ("Bell Cablemedia") in
exchange for 6,035,648 American Depositary Shares ("ADSs") representing
30,178,240 Ordinary Shares of Bell Cablemedia. At the closing, the Company
transferred its equity interests in the companies that owned the Leeds, South
Hertfordshire, Norwich, Peterborough, Broadland and Fenland franchises and the
Company's equity interest in and shareholder loans to ELT Acquisition Company
Limited to Bell Cablemedia. Also on July 22, 1994, Jones Global Group, Inc., a
corporation owed 38% by the Company and 62% by International and certain of
Jones Global Group Inc.'s subsidiaries (Jones Global Group, Inc. and its
subsidiaries are herein collectively referred to as "Global Group"), also
transferred all of their interests in their cable/telephony properties in the
United Kingdom to Bell Cablemedia in exchange for 3,663,584 ADSs representing
18,317,920 Ordinary Shares of Bell Cablemedia, of which 1,100,000 ADSs
representing 5,500,000 Ordinary Shares were sold on July 22, 1994 in connection
with Bell Cablemedia's initial public offering. At the closing, Global Group
transferred its equity interests in the companies that owned the Leeds and
Aylesbury-Chiltern franchises, its general partner interest in Jones United
Kingdom Fund, Ltd. and the assets of its United Kingdom management subsidiary
to Bell Cablemedia. As a result of these transactions, the Company and Global
Group no longer own any direct interest in cable/telephony properties in the
United Kingdom; the Company and Global Group do, however, own indirect
interests in cable/telephony properties in the United Kingdom through their
respective 9.7% and 4.2% ownership of Bell Cablemedia. Messrs. Glenn R. Jones,
a director and Chief Executive Officer of the Company and Global Group, and
Patrick J. Lombardi, a director of the Company and a director and officer of
Global Group, have become members of the board of directors of Bell Cablemedia.
Prior to the closing of these transactions, Bell Cablemedia was
indirectly owned 80% by BCI and 20% by Cable & Wireless plc ("C&W").
On June 10, 1994, Bell Cablemedia filed a registration statement with
the Securities and Exchange Commission (the "SEC") in connection with the
offerings in the United States and internationally of 12,000,000 ADSs by Bell
Cablemedia and 1,100,000 ADSs by Global Group (the "ADS Offerings"). Bell
Cablemedia also filed a registration statement with the SEC in connection with
the offering of 11.95% Senior Discount Notes due 2004 (the "Notes Offering").
The ADS Offerings registration statement and the Notes Offering registration
statement were both declared effective by the SEC on July 15, 1994. The ADS
Offerings, which closed on July 22, 1994, provided net cash proceeds of
approximately $184.4 million to Bell Cablemedia, and the Notes Offering, which
also closed on July 22, 1994, provided net cash proceeds of approximately
$263.1 million to Bell Cablemedia.
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The ADS offerings provided net cash proceeds of $17,547,888 to Global
Group. The proceeds from the sale of the ADSs by Global Group are intended to
allow it to satisfy expected U.S. and U.K. tax liabilities in connection with
the transactions.
The ADSs received by the Company are "restricted securities" within
the meaning of Rule 144 promulgated under the Securities Act of 1933 (the
"Securities Act"), and the Company will not be able to sell its ADSs unless an
exemption from registration under the Securities Act is available or unless its
ADSs are registered by a subsequent registration statement. Prior to Bell
Cablemedia's initial public offering, there was no public market for its
Ordinary Shares (in the form of ADSs or otherwise). The ADSs are now quoted on
the NASDAQ National Market System under the symbol "BCMPY." Bell Cablemedia,
BCI, C&W, the Company and Global Group have agreed that, for a period of 180
days after July 15, 1994 (the date of the definitive prospectuses used in Bell
Cablemedia's ADS Offerings), they will not sell or otherwise dispose of any
ADSs or Ordinary Shares of Bell Cablemedia (except for those ADSs received by
Global Group that were sold as part of the ADS Offerings) without the prior
written consent of the lead U.S. underwriters of the ADS Offerings. Pursuant
to the terms of a principal shareholders registration rights agreement, Bell
Cablemedia has granted certain demand and piggy-back registration rights to
BCI, C&W, the Company and Global Group. With the exception of demand
registration rights relating to the ADSs issued to C&W, the Company and Global
Group on July 22, 1994 in connection with the above-described transactions,
which become exercisable approximately three years from July 15, 1994, the
registration rights granted by the principal shareholders registration rights
agreement become exercisable 180 days following July 15, 1994. In all cases,
however, the registration rights are subject to certain limitations, including
the provision that demand registration rights may not be exercised within 90
days after the effective date of Bell Cablemedia's most recent registration
statement. In addition, pursuant to the terms of a separate registration
rights agreement, Bell Cablemedia has agreed to file promptly with the SEC a
registration statement covering all of the ADSs received by the Company and
Global Group in connection with Bell Cablemedia's acquisition of the United
Kingdom holdings of the Company and Global Group (except for those ADSs
received by Global Group that were sold as part of the ADS Offerings) and to
keep such registration statement effective for a period of approximately three
years from the closings of the ADS Offerings. Although they have no current
plans to sell any of their ADSs, the Company and Global Group anticipate that
they will be able to sell their ADSs pursuant to this registration statement
180 days following July 15, 1994.
After giving effect to Bell Cablemedia's acquisition of the United
Kingdom holdings of the Company and Global Group and the closings of the ADSs
Offerings on July 22, 1994, BCI indirectly owns approximately 42.2%, C&W
indirectly owns approximately 12.8%, the Company owns approximately 9.7% and
Global Group owns approximately 4.2% of the issued and outstanding shares of
Bell Cablemedia.
The Company and Global Group, respectively, paid advisory fees of
L.414,854 ($632,569) and L.251,812 ($383,963) to Jones Financial Group, Ltd., a
subsidiary of
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International, for its services to the Company and Global Group in connection
with the aforementioned transactions.
BCI, C&W, the Company and Global Group (the Company and Global Group
are herein collectively referred to as the "Jones Entities") have entered into
a shareholders agreement relating to their holdings in Bell Cablemedia. The
shareholders agreement provides in part that each of BCI, C&W and the Jones
Entities is entitled (a) to nominate directors for election to Bell
Cablemedia's board of directors according to its shareholdings in Bell
Cablemedia; (b) to have one observer present at meetings of Bell Cablemedia's
board of directors; (c) unless the board of directors determines otherwise, to
be represented on committees of the board of directors and on the boards of
directors of subsidiaries of Bell Cablemedia; and (d) to use its votes at
general meetings in support of the election of such nominees as directors of
Bell Cablemedia.
The shareholders agreement also requires each of BCI, C&W and the
Jones Entities, respectively, to offer any Ordinary Shares or ADSs of Bell
Cablemedia which it wishes to sell to the others before selling to any third
party. In addition, before purchasing Ordinary Shares or ADSs of Bell
Cablemedia from any third party, each of BCI, C&W and the Jones Entities,
respectively, are obliged to offer to purchase such Ordinary Shares or ADSs
from the others.
Except as otherwise provided by the shareholders agreement, BCI, C&W
and the Jones Entities have preemptive rights to purchase newly issued
Ordinary Shares or ADSs issued by Bell Cablemedia for cash.
The Company has entered into a technical assistance agreement with
Bell Cablemedia under which the Company (or one of its affiliates) has agreed
to provide to Bell Cablemedia consulting services, research and development
resources, management services and technical assistance in relation to
telecommunications services for the provider's direct costs plus an additional
amount of 15% of such costs. The technical assistance agreement is terminable
by either party at any time on three months' notice following the date upon
which the Company no longer has the right to nominate a director for election
to the board of directors of Bell Cablemedia pursuant to the shareholders
agreement.
Bell Cablemedia has agreed to indemnify the Company, Global Group and
their affiliates in respect of all costs, expenses, losses, liabilities and
damages suffered or incurred by them resulting from any untrue statement or
omission contained in any registration statement or prospectus relating to the
ADS Offerings or the Note Offerings other than costs, expenses, losses,
liabilities and damages resulting from any information in such documents
relating to the Company, Global Group or their affiliates provided to Bell
Cablemedia by the Company, Global Group or their affiliates. The Company,
Global Group and their affiliates have agreed to indemnify Bell Cablemedia in
respect of all costs, expenses, losses, liabilities and damages suffered or
incurred by Bell Cablemedia resulting from any untrue statement or omission
contained in any registration statement or prospectus relating to the ADS
Offerings or the Note Offerings relating to the Company, Global Group or their
affiliates provided to Bell Cablemedia by the Company, Global Group or their
affiliates.
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Pursuant to a cross-indemnity agreement, Bell Cablemedia has agreed to
indemnify the Company for any amounts that the Company may be called upon to
pay in connection with certain performance bonds guaranteed by the Company as a
shareholder of ELT Acquisition Company Limited.
Spain. Jones Spanish Holdings, Inc. ("Spanish Holdings"), a
corporation owned 38% by the Company and 62% by International, has explored
cable television system acquisition, development and operation opportunities in
Spain. During fiscal year 1994, the Company advanced approximately $769,300 in
these operations, and as of May 31, 1994, the Company's aggregate advances in
these activities in Spain was approximately $7,684,300. In June 1994, Spanish
Holdings agreed to transfer all of its interests in its cable/telephony
properties in Spain to Bell Cablemedia in exchange for 190,148 ADSs
representing 950,740 Ordinary Shares of Bell Cablemedia. The closing of this
transaction is expected to occur in September 1994. The ADSs to be received by
Spanish Holdings will be restricted securities within the meaning of Rule 144
under the Securities Act, and Spanish Holdings will agree not to sell or
otherwise dispose of any ADSs or Ordinary Shares of Bell Cablemedia for a
period of 180 days after July 15, 1994. Spanish Holdings will be entitled to
sell the ADSs received in connection with this transaction pursuant to the
terms of the registration rights agreements discussed above.
INVESTMENT IN MIND EXTENSION UNIVERSITY, INC.
During fiscal 1992 and 1993, the Company invested $10,000,000 in MEU
for 25% of stock of MEU, which also received certain advertising avails and
administrative and marketing considerations. The number of shares of Class A
Common Stock of MEU issued to the Company was based on the average of two
separate independent appraisals of MEU. In May 1993 and December 1993, the
Board of Directors of the Company approved a $10,000,000 advance and a
$5,000,000 advance to MEU on an as needed basis. Of these advances, one-half
will be converted into shares of Class A Common Stock of MEU at a price per
share equal to the value of such shares as established by the next equity
investment in MEU 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. On May 3, 1994, the Board of Directors of the Company
approved an additional $5,000,000 advance to MEU on an as needed basis. Any
amount outstanding will earn interest at the Company's weighted average cost of
borrowing plus two percent. As of May 31, 1994, $758,300 of the $5,000,000 had
been advanced, for an aggregate total indebtedness of MEU to the Company of
$15,758,300, in addition to the Company's $10,000,000 equity investment.
CABLE TELEVISION FRANCHISES
The cable television systems owned or managed by the Company are
constructed and operated under fixed-term franchises or other types of
operating authorities (referred to collectively herein as "franchises") that
are generally non-exclusive and are granted by state and/or local governmental
authorities. The Company's franchises require that franchise fees
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ranging from 3% to 5% of gross revenues of the cable system be paid to the
governmental authority that granted the franchise, that certain channels be
dedicated to municipal use, that municipal facilities, hospitals and schools be
provided cable service free of charge and that any new cable plant be
substantially constructed within specific periods. During the next three to
five years, the renewal process must commence for a significant number of the
franchises for cable television systems owned or managed by the Company and its
affiliates. To date, the Company has not experienced significant problems in
renewing its franchises, nor does it currently expect to encounter significant
problems in renewing its franchises in the future. As part of the renewal
process, the Company may in some instances be required to provide additional
services or incur capital expenditures for the system involved. See Item 2,
Properties, Cable Television Systems Owned by the Company.
Cable television franchises are not exclusive, so that more than one
cable television system may be built in the same area (known as an
"overbuild"), with potential loss of revenues to the operator of the original
cable television system. The Company has experienced overbuilds in connection
with certain systems that it has owned or managed for limited partnerships, and
currently there are several overbuilds in the Company's systems. It is the
Company's belief, however, that not all overbuilds are economically successful
and could result in the overbuilder abandoning the overbuild or selling its
system to the existing cable operator. Constructing and developing a cable
television system is a capital intensive process and, because most cable
television systems provide essentially the same programming, it is often
difficult for a new cable system operator to create a marketing edge over the
existing system. Generally, an overbuilder also would be required to obtain
franchises from the local governmental authorities, although in some instances,
the overbuilder could be the local government, such as a city or town, and in
some such cases, no franchise would be required. In any case, an overbuilder
would be required to obtain programming contracts from entertainment
programmers and, in most cases, would have to build a complete cable system,
including headends, trunk lines and drops to individual subscribers homes,
throughout the franchise areas. See Item 1, Competition for Subscribers in the
Company's Systems.
COMPETITION
COMPETITION IN THE INDUSTRY. Cable television systems currently
experience competition from several sources, but two technologies, Multichannel
Multipoint Distribution Service ("MMDS") systems, commonly called wireless
cable systems, and Direct Broadcast Satellite ("DBS") systems, which distribute
programming to home satellite dishes, pose the greatest potential threat to the
cable television industry. MMDS systems will likely focus on providing service
to residents of rural areas that are not served by cable television systems,
but providers of programming via MMDS systems will generally have the potential
to compete directly with cable television systems in urban areas as well, and
in some areas of the country, MMDS systems are now in direct competition with
cable television systems. To date, the Company has not lost a significant
number of subscribers, nor a significant amount of revenue, to MMDS operators
competing with the Company's cable television systems. However, given the fact
that these are emerging services, the effect of competition from these
technologies on
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the overall profitability of the cable television industry is difficult to
predict at this time. While the MMDS industry is less capital intensive than
the cable television industry, and it is therefore more practical to construct
MMDS systems in areas of lower subscriber penetration, the previous
unavailability of frequency spectrum, programming services and the regulatory
delays encountered by MMDS systems in obtaining licenses have delayed the
growth of the MMDS industry. Although the channel capacity of MMDS systems
will be limited, it is expected that developments in compression technology
will enable them to provide a sufficient number of channels that, while not
comparable to the number of channels that will be provided by cable television
systems using fiber-optic and compression technology, may nevertheless be
attractive to subscribers.
An emerging technology, Local Multipoint Distribution Service
("LMDS"), could also pose a significant threat to the cable television
industry, if and when it becomes established. LMDS, sometimes referred to as
cellular television, could have the capability of delivering approximately 50
channels, or if two systems were combined 100 channels, of video programming to
a subscriber's home, which capacity could be increased by using video
compression technology. The potential impact, however, of LMDS is difficult to
assess due to the newness of the technology and the absence of any current
fully operational LMDS systems.
In addition to competing with one another, cable television systems
compete with broadcast television, which consists of television signals that
the viewer is able to receive directly on his television using his antenna
("off-air"). The extent of such competition is dependent in part upon the
quality and quantity of signals available by such antenna reception as
compared to the services provided by the available cable systems. Accordingly,
it has generally been less difficult to obtain higher penetration rates in
areas where there is signal interference from surrounding mountains or where
signals available off-air are limited, than in metropolitan areas where higher
quality off-air signals are often available without the aid of cable television
systems.
Cable television systems also compete with translator and low power
television stations. Translators receive broadcast signals and rebroadcast
them on different frequencies at low power pursuant to an FCC license. Low
power television stations increase the number of television signals in many
areas of the country, and provide off-air television programs, either pay or
advertiser-supported, to limited local areas. Cable television systems are
also in competition, in various degrees, with other communications and
entertainment media including motion pictures and home video cassette
recorders, and are dependent upon the continued popularity of television
itself. The construction of more powerful transmission facilities near a cable
television system or an increase in the number of television signals in such an
area also could have an adverse effect on revenues.
Additional competition is present from private cable television
systems known as Master Antenna Television (MATV) and Satellite Master Antenna
Television (SMATV) serving multi-unit dwellings such as condominiums, apartment
complexes, and private residential communities. These private cable systems
may enter into exclusive agreements with apartment owners, condominium
associations, and homeowners associations, which may
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preclude operators of franchised systems from serving residents of such private
complexes. In 1991, the FCC made available a microwave service to SMATV
systems which will facilitate the ability of private cable television systems
to distribute video entertainment programming among several SMATV systems
within a local area. Private cable systems that do not cross public rights of
way or interconnect separately owned and managed buildings are free from the
federal regulatory requirements imposed on franchised cable television
operators. A number of states have enacted laws to afford operators of
franchised cable television systems access to multi-unit dwellings, although
some of these statutes have been successfully challenged in the courts.
Although programming is currently available to the owners of backyard
earth stations through conventional and medium-powered satellites, DBS
operators propose to deliver premium channel services and specialized
programming to subscribers by high-powered DBS satellites on a wide-scale
basis, and two companies have begun operations in 1994. Subscribers will be
able to receive DBS services virtually anywhere in the United States with a
rooftop or wall-mounted antenna.
In some instances, DBS systems may serve as a complement to cable
television operations by enabling cable television operators to offer
additional channels of programming without the construction of additional cable
plant. Cable television systems may also serve as marketing agents for DBS
operators. DBS companies intend to use video compression technology to
increase the channel capacity of their satellite systems to provide a package
of movies, broadcast stations and other program services which are competitive
with those of cable television systems. Current video compression technology
has the capability of providing more than 100 channels of service over a
single high-powered DBS satellite. Cable operators will also use video
compression technology to increase the channel capacity of their systems. DBS
companies may be able to offer new and highly specialized services using a
national base of subscribers, but they may not be able to provide services that
are of local interest to their subscribers nor maintain a local presence, which
are advantages in developing and maintaining the interest of subscribers.
Though DBS systems will sell national advertising, they will not be able to
offer the local advertising availabilities that cable television systems can
offer. The FCC has initiated a new interactive television service which will
permit non-video transmission of information between an individual's home and
entertainment and information service providers. This service will provide an
alternative means for DBS systems and other video programming distributors,
including television stations, to initiate new interactive television services.
This service may also be used as well by the cable television industry.
Although the cable industry does not currently provide two-way interactive
service from its subscribers' homes to cable television offices, such services
can be provided in the future. The ability to obtain access to programming and
the availability of reception equipment at reasonable prices, among other
factors, will determine whether DBS systems will be able to offer services that
are competitive with those offered by cable television.
Several manufacturers of television sets have developed a new
technology called high-definition television ("HDTV"). This new system will
permit television viewers to receive
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movie-quality pictures and sound. It is anticipated that VCRs and television
sets capable of displaying HDTV formats will be on the market in the United
States in the future. The proposed DBS systems will have the capacity to
transmit HDTV programming to a new generation of home satellite antennas. HDTV
programming will also be transmitted by fiber optic cables and coaxial cable
television systems, with some modifications. At the present state of
development, HDTV transmissions cannot be made by conventional television
stations, and therefore HDTV services will introduce a new delivery medium,
although some manufacturers may develop an interim HDTV system which can be
viewed over current television receivers. Certain multiple system cable
operators, including the Company, and telephone companies, have implemented
fiber optic transmission technology in some service areas and are studying the
implementation of HDTV technology. After the FCC chooses a standard HDTV
format, it can be expected the cable industry will develop the ability to
transmit HDTV signals as HDTV technology becomes commercially feasible and as
television broadcast stations and satellite services offer HDTV services. The
Company cannot otherwise predict when or to what extent HDTV services will
impact the Company's or its managed partnerships' systems or those of its
competitors.
Although the Company has not yet encountered competition from a
telephone company entering into the cable television business, the Company's
cable television systems could potentially face competition from telephone
companies doing so.
Federal law generally prohibits telephone companies from owning or
operating cable television systems within their own service areas, although the
FCC has recommended modification of these restrictions and legislation is
pending in Congress that would permit telephone companies in certain instances
to provide video programming through separate subsidiaries. See Item 1,
Regulation and Legislation, Ownership and Market Structure for a description of
the potential participation of the telephone industry in the delivery of cable
television services. The Company cannot predict at this time to what extent,
if any, current restrictions will be modified to permit telephone companies to
provide cable television services within their own service areas in competition
with cable television systems. Participation of telephone companies as direct
competitors or in competition for the acquisition of cable television systems
could affect the profitability and market value of the Company's systems. If a
telephone company were to become a direct competitor of the Company in an area
served by a Company system, the Company could be at a competitive disadvantage
because of the relative financial strength of a telephone company compared to
the Company. Such competition could also result in cable television systems
providing the same types of services now provided by the telephone industry.
The FCC has established a new wireless telecommunications service
known as Personal Communications Service ("PCS"). It is envisioned that PCS
would provide portable non-vehicular mobile communications services similar to
that available from cellular telephone companies, but at a lower cost. PCS
would be delivered by placing numerous microcells in a particular area to be
covered, accessible to both residential and business customers. Because of the
need to link the many microcells necessary to deliver this service
economically, many
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parties are investigating integration of PCS with cable television operations.
Several cable television multiple systems operators including the Company,
among other parties, hold or have requested experimental licenses from the FCC
to test PCS technology.
COMPETITION WITH JONES SPACELINK, LTD. Spacelink currently is also
engaged in the ownership and operation of cable television systems for itself
and for affiliated managed entities. The Company has entered into the
Spacelink Agreement with Spacelink providing for the purchase by the Company of
substantially all of the assets of Spacelink. If the Spacelink Agreement is
closed, Spacelink will be liquidated and dissolved. If, however, the Spacelink
Agreement is not consummated, Spacelink will not be liquidated, but will enter
into an option agreement with BCI. The option agreement provides, among other
matters, that Spacelink will be required to refer to the Company certain of its
investment opportunities, including all opportunities to invest in cable
television systems, wireline communications services in certain markets and
broadband multi-media services in certain markets. See Item 1, Proposed
Acquisition of Spacelink and Proposed Acquisition by Bell Canada International
Inc. of Shares of the Company's Class A Common Stock. In either event, it is
not anticipated that Spacelink will provide any significant competition with
the Company.
COMPETITION FOR SUBSCRIBERS IN THE COMPANY'S SYSTEMS. The Company
owns the cable television systems serving Alexandria, Virginia (the "Alexandria
System"), Anne Arundel County, Maryland and Ft. George Meade, Maryland (the
"Anne Arundel County System"); Charles County, Maryland (the "Charles County
System"); Jefferson County, Colorado and Evergreen, Colorado (the
"Jeffco/Evergreen System"); North Augusta, South Carolina (the "North Augusta
System"); Oxnard, California (the "Oxnard System"); Pima County, Arizona (the
"Pima County System"); and Walnut Valley, California (the "Walnut Valley
System"). The Alexandria System, Anne Arundel County System, Charles County
System, Jeffco/Evergreen System, North Augusta System, Oxnard System, Pima
County System and Walnut Valley System may hereinafter collectively be referred
to as the "Systems."
Following is a summary of the MMDS and/or SMATV operators and TVRO
and/or DBS operations in the Company's Systems:
Alexandria System: There is one MMDS operator in the system's service
area; however, due to numerous technical difficulties this operator
provides little or no competition. There is one SMATV operator
serving a 1,500 unit apartment complex. There are TVRO operations in
the system's service area that are very competitive in providing
service to hotels located in the system's service areas. Chesapeake
and Potomac Telephone Company of Virginia and Bell Atlantic Video
Service Company, both subsidiaries of Bell Atlantic Corporation
(collectively "Bell Atlantic"), announced its intention, if permitted
by the courts, to build a cable television system in Alexandria,
Virginia, and has won a lawsuit to obtain such authority. The case is
on appeal. See Item 1, Regulation and Legislation, Ownership and
Market Structure. Bell
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Atlantic is preparing for the construction and operation of a cable
telecommunications business in northern Virginia, including the
Alexandria metropolitan area.
Anne Arundel System: There are no MMDS operators; the SMATV operators
and TVRO operations provide very limited competition. The Anne
Arundel System currently shares its service area with North Arundel
Cable Television. A significant portion of the Anne Arundel System
has been overbuilt, and there is significant competition for
subscribers in the overbuilt area. Currently the competition involves
the securing of subscribers in new construction areas where both
companies offer service and aggressive competition for subscribers in
the overbuilt area through promotional offers by both companies. The
Anne Arundel System meets the FCC's definition of effective
competition, and, thus, its rates are not regulated under the 1992
Cable Act. Primestar, a company offering DBS service, is beginning to
market in the system's service area. Bell Atlantic and Southwestern
Bell are designing major telecommunications infrastructures in the
Baltimore/Washington region. It is too early to determine the
potential effect of this competition.
Charles County System: There are no MMDS or SMATV operators in the
Charles County System service area. There are three TVRO operations
in the service area that provide minimal competition and generally
serve rural areas not served by the Charles County System.
Jefferson County/Evergreen System: There is one MMDS operator in
unincorporated Jefferson County whose signal reaches the area,
providing minimal competition. There are no SMATV operators or TVRO
operations in the area served by the system.
North Augusta System: There are no MMDS or SMATV operators in the
North Augusta System service area. There are several TVRO operators
in the service area, but they provide minimal competition.
Oxnard System: There are no MMDS operators in the Oxnard System
service area; there are SMATV operators and TVRO operations in the
System, but they provide minimal competition.
Pima County System: There is one competing MMDS operator in the Pima
County System service area that provides significant competition,
servicing approximately 22,000 customers, and they provide a
competitive basic service. There are two SMATV operators in the
System that provide some competition, servicing approximately 1,200
multiple dwelling units. There are TVRO operations in the System's
service area; however, the operations have little competitive impact.
There is one inactive cable operator in an overbuilt area passing
approximately 1,200 homes in Pima County. The Pima System anticipates
competition from Primestar, a DBS operator that has started an
aggressive campaign on broadcast television. However, it is too early
to gauge the impact of the availability of DBS on the Pima System.
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Walnut Valley System: There are no MMDS or SMATV operators in the
System's service area. There is a successful MMDS operator
approximately 40 miles from the Walnut Valley System headend. The
operator is not yet marketing in the System's service area, nor does
the operator have a current line of sight, but the possibility does
exist for the operator to relocate its antenna site and compete in the
System's service area. There are no TVRO operations in the Walnut
Valley System service area; however, approximately 2% of homes passed
have dishes. There is a small cable television operator in a single
trailer park with approximately 400 units located in the System's
service area. The Company has not wired the trailer park for cable
television service.
The Systems face competition from a variety of alternative
entertainment media, but, except for the overbuild in the Anne Arundel County
System and significant competition from an MMDS operator in the Pima County
System service area as described above, the Systems currently face no
significant direct competition from other cable television operators.
The Systems also face competition from numerous video cassette rental
outlets in the Systems' service areas and from the large number of first run
movie theaters in their service areas. The Company believes the preponderance
of VCR ownership in the Systems' service areas may be a positive rather than a
negative factor because households that have VCRs are attracted to non-
commercial programming delivered by the Systems, such as movies and sporting
events on cable television, that they can tape at their convenience.
The foregoing general discussion of the type of competition facing the
Company's systems also applies to the cable television systems owned by the
Company's managed limited partnerships. Competition from alternative
programming sources is also increasing for those systems and may be expected to
continue.
REGULATION AND LEGISLATION
The cable television industry is regulated in varying degrees by the
Federal Communications Commission ("FCC"), some state governments and most
local governments. In addition, the Copyright Act of 1976 imposed copyright
liability on all cable television systems. Present FCC regulations include
requirements with respect to registration of operation, record keeping,
technical standards, and periodic reporting. Several states have assumed
regulatory jurisdiction of the cable television industry, and it is anticipated
that other states will do so in the future. Cable television operations are
subject to local regulation insofar as systems operate under franchises granted
by local authorities. The following is a summary of Federal laws and
regulations materially affecting the growth of the cable television industry,
and a description of state and local laws with which the cable industry must
comply.
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CABLE COMMUNICATIONS POLICY ACT OF 1984. On December 29, 1984, the
Cable Communications Policy Act of 1984 (the "1984 Cable Act"), which amended
the Communications Act of 1934, took effect (as so amended, the "Communications
Act"). This legislation imposed uniform national regulations on cable
television systems and franchising authorities. Among other things, the
legislation regulated the provision of cable television service pursuant to a
franchise, specified those circumstances under which a cable television
operator may obtain modification of its franchise, established criteria under
which a franchise shall be renewed and established maximum fees payable by
cable television operators to franchising authorities.
The law prescribes a standard of privacy protection for cable
subscribers, and imposes equal employment opportunity requirements on the cable
television industry. It restricts the amount of fees paid by the cable
television operator to the franchising authority to a maximum of 5% of gross
revenues during the term of the franchise. Franchising authorities are granted
authority to establish requirements in new franchises and renewal of existing
franchises for the designation and use of public educational and governmental
access channels. Franchising authorities are empowered to establish
requirements for cable-related facilities and equipment, which may include
requirements that relate to channel capacity, system configuration and other
facility or equipment requirements related to the establishment and operation
of a cable television system.
CABLE TELEVISION CONSUMER PROTECTION AND COMPETITION ACT OF 1992. On
October 5, 1992, Congress enacted the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act"), which became effective on
December 4, 1992 and which amended the 1984 Cable Act. This legislation has
effected significant changes to the legislative and 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.
Pursuant to the FCC's definition of effective competition adopted following
enactment of the 1984 Cable Act, and under the FCC's rules and regulations,
substantially all of the Company's franchises were rate deregulated in the mid
1980s. 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 again 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.
The 1992 Cable Act also (i) eliminated the 5% annual basic rate
increase formerly allowed by the 1984 Cable Act without local approval; (ii)
requires the FCC to adopt regulations to establish, on the basis of actual
costs, the prices for installation of cable service, remote controls, converter
boxes and additional outlets; (iii) requires cable to permit subscribers to
purchase video programming offered by the operator on a per-channel or a
per-program basis without the necessity of subscribing to any tier of service,
other than the basic service, unless the system's lack of addressable converter
boxes or other technological limitations does not permit it to do so; (iv)
allows the FCC to impose restrictions on the
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retiering and rearrangement of cable services under certain circumstances; and
(v) permits the FCC and the franchising authorities more latitude in
controlling rates and rejecting rate increase requests.
On April 1, 1993, the FCC adopted regulations governing the regulation
of rates for basic and non-basic services. The regulations became effective on
September 1, 1993. The FCC adopted a benchmark regulatory scheme for the
regulation of basic and cable programming service rates. However, rather than
relying on the benchmark scheme, operators may submit cost-of-service showings
to justify rates above the applicable benchmarks. A cable operator that can
demonstrate through a cost-of-service showing that rates for basic and
non-basic services are justified will not be required to reduce rates or be
regulated under the benchmark and price cap system. Franchising authorities
may not elect cost-of-service as their primary form of rate regulation but must
apply the FCC benchmark system. Except for those operators that filed
cost-of-service showings, cable operators whose rates are subject to regulation
and that were above September 30, 1992 benchmark levels generally reduced those
rates to the benchmark level or by 10%, whichever is less, adjusted forward for
inflation. Operators who have not adjusted rates pursuant to the FCC's
regulations, or whose cost-of-service showings fail to justify current rates,
could be subject to refund liability and interest.
The Company reduced service rates for basic and tier services in its
owned and managed systems, as required, effective September 1, 1993. The
Company has been negatively impacted by this reduction. The reduction 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.
On February 22, 1994, the FCC adopted several rate orders, including
an order which revised its benchmark regulatory scheme. The FCC's new
regulations will generally require rate reductions (absent a successful
cost-of-service showing) of 17% of September 30, 1992 rates (the "Full
Reduction Rate"), adjusted for inflation, channel modifications, equipment
costs and increases in programming costs. However, rate reductions will be
held in abeyance for those systems whose rates are already below the revised
benchmark levels, or pending the completion of cost studies by the FCC of
various types of representative systems, of those systems that would be
required to be reduced below the revised benchmark levels in order to achieve
the Full Reduction Rate. Further rate reductions to the Full Reduction Rate
would be required if validated by the cost studies. The new regulations became
effective on May 15, 1994, but operators could elect to defer a rate reduction
prior to July 14, 1994, absent a change in their rates or restructuring of
service offerings between May 15 and July 14. The Company complied with the
FCC's revised regulations and reduced rates as required except for those
systems for which the Company has elected to file cost-of-service showings.
The Company was negatively impacted by this new round of rate reductions.
On February 22, 1994, the FCC also adopted interim cost-of-service
regulations. Rate reductions will not be required where it is demonstrated
that rates for basic and other regulated programming services are justified and
reasonable, using cost-of-service standards. The FCC
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established an interim industry-wide 11.25% rate of return, and requested
comments on whether this standard and other interim cost-of-service standards
should be made permanent. The FCC also established a presumption that
acquisition costs above a system's book value should be excluded from the rate
base, but the FCC will consider individual showings to rebut this presumption.
The need for special rate relief will also be considered by the FCC if an
operator demonstrates that the rates set by a cost-of-service proceeding would
constitute confiscation of investment, and that, absent a higher rate, the
return necessary to operate and to attract investment could not be maintained.
The FCC will establish a uniform system of accounts for operators that elect
cost-of-service rate regulation, and the FCC has adopted affiliate transaction
regulations. The FCC also proposed adopting a productivity factor to be offset
against future inflation increases to be applied regardless of which form of
regulation is used, cost of service or benchmark regulation. After a rate has
been set pursuant to a cost-of-service showing, rate increases for regulated
services will be indexed for inflation, and operators will also be permitted to
increase rates in response to increases in costs beyond their control, such as
taxes and increased programming costs.
Among other issues addressed by the FCC in its February rate orders
was the treatment of packages of a la carte channels. The FCC in its
regulations adopted April 1, 1993, exempted from rate regulation the price of
packages of a la carte channels upon the fulfillment of certain conditions. On
February 22, 1994, the FCC adopted rules which revised its treatment of a la
carte programming offerings by applying various criteria to determine whether a
cable operator's a la carte packages should be subject to rate regulation.
Local franchising authorities have the authority under the FCC rules, subject
to review by the FCC, to determine whether an a la carte offering should be
subject to rate regulation. If an operator is found to have bundled channels
in an a la carte package to evade rate regulation, the FCC may impose
forfeitures or other sanctions.
The 1992 Cable Act encourages competition with existing cable systems
by allowing municipalities, which are otherwise legally qualified, to own and
operate their own cable systems without having to obtain a franchise; prevents
franchising authorities from granting exclusive franchises or unreasonably
refusing to award additional franchises covering an existing cable system's
service area. The 1992 Cable Act also makes several procedural changes to the
process under which a cable operator seeks to enforce renewal rights, which
could make it easier in some cases for a franchising authority to deny renewal.
The 1992 Cable Act prohibits the common ownership of cable systems and
co-located MMDS or SMATV systems, and absent certain exceptions, the sale or
transfer of ownership of a cable system within 36 months after its acquisition
or initial construction. The 1992 Cable Act also precludes video programmers
affiliated with cable companies from favoring cable operators over competitors
and requires such programmers to sell their programs to other multichannel
video distributors. This provision may limit the ability of cable program
suppliers to offer exclusive programming arrangements with cable companies and
could affect the volume discounts that program suppliers currently offer to the
Company as a multiple system operator.
Under the 1984 Cable Act cable operators with thirty-six or more
activated channels are required to designate channel capacity for commercial
use by persons unaffiliated with the
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operator. The 1984 Cable Act provided operators with substantial latitude in
setting rates for commercially leased access channels, but, the 1992 Cable Act
requires leased access rates to be set according to a formula determined by the
FCC. It is possible that such leased access services will result in
competition to services offered over cable systems.
The 1992 Cable Act contains new broadcast signal carriage
requirements, and the FCC has adopted regulations implementing the statutory
requirements. These new rules require a local commercial station to elect
whether to require a cable system to carry its signal, or to require the cable
system to negotiate with the station for "retransmission consent" rights. A
cable system is generally required to devote up to one-third of its activated
channel capacity for the mandatory carriage of local commercial 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 are required to obtain retransmission consent for
all "distant" commercial television stations (except for commercial
satellite-delivered independent "superstations"), commercial radio stations and
certain low power television stations carried by such systems. In some cases,
the must-carry rules could require cable systems to carry local television
signals in lieu of more popular programming and could increase the costs of
carrying certain broadcast stations. The retransmission consent rules could
result in cable operators not being permitted to carry certain broadcast
stations after October 6, 1993.
On April 8, 1993 a special three-judge federal district court for the
District of Columbia issued a decision upholding the constitutional validity of
the must-carry signal carriage requirements. This decision was vacated by the
United States Supreme Court on June 27, 1994 and remanded to the district court
for further development of a factual record. The Court's majority determined
that the must-carry rules were content neutral, but that it was not yet proven
that the rules were needed to preserve the economic health of the broadcasting
industry. In the interim, the must-carry rules will remain in place during the
pendency of the proceedings in district court, absent a stay of the rules. In
1993, a federal district court for the District of Columbia upheld provisions
of the 1992 Cable Act concerning rate regulation, retransmission consent,
restrictions on vertically integrated cable television operators and
programmers, mandatory carriage of programming on commercial leased channels
and public, educational and governmental access channels and the exemption for
municipalities from civil damage liability arising out of local regulation of
cable services. The 1992 Cable Act's provisions providing for multiple
ownership limits for cable operators and advance notice of free previews for
certain programming services has been found unconstitutional, and these
decisions have been appealed. In November 1993, the United States Court of
Appeals for the District of Columbia held that the FCC's regulations
implemented pursuant to Section 10 of the 1992 Cable Act which permit cable
operators to ban indecent programming on public, educational or governmental
access channels or leased access channels, unconstitutional, but the court has
agreed to reconsider its decision. All of these decisions construing
provisions of the 1992 Cable Act and the FCC's implementing regulations have
been or are expected to be appealed.
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The 1992 Cable Act also allows for a greater degree of regulation of
the cable industry with respect to, among other things: (i) programming access
and exclusivity arrangements; (ii) access to cable channels by unaffiliated
programming services; (iii) leased access terms and conditions; (iv) horizontal
and vertical ownership of cable systems; (v) franchise renewals; (vi) technical
standards; (vii) subscriber privacy; (viii) consumer protection issues; (ix)
cable equipment compatibility; and (x) obscene and indecent programming. The
1992 Cable Act required the FCC to establish national customer service
standards and the FCC recently adopted regulations governing office hours,
telephone availability, installations, outages, service calls, and billing and
refund policies. Additionally, state or municipal authorities may enact laws
or regulations which impose stricter or different customer service standards
than those set by the FCC.
The responsibility for franchising or other authorization of cable
television systems is left to state and local authorities. There are, however,
several provisions in the Cable Act of 1984 that govern the terms and
conditions under which cable television systems provide service. These include
uniform standards and policies that are applicable to cable television
operators seeking renewal of a cable television franchise. The procedures
established provide for a formal renewal process should the franchising
authority and the cable television operator decline to use an informal
procedure. A franchising authority unable to make a preliminary determination
to renew a franchise is required to hold a hearing in which the operator has
the right to participate. In the event a determination is made not to renew
the franchise at the conclusion of the hearing, the franchising authority must
provide the operator with a written decision stating the specific reasons for
non-renewal. Generally, the franchising authority can finally decide not to
renew a franchise only if it finds that the cable operator has not
substantially complied with the material terms of the present franchise, has
not provided reasonable service in light of the community's needs, does not
have the financial, legal or technical ability to provide the services being
proposed for the future, or has not presented a reasonable proposal for future
service.
OWNERSHIP AND MARKET STRUCTURE. The FCC rules and federal law
generally prohibit the direct or indirect common ownership, operation, control
or interest in a cable television system, on the one hand, and a local
television broadcast station whose television signal (predicted grade B contour
as defined under FCC regulations) reaches any portion of the community served
by the cable television system, on the other hand. For purposes of the
cross-ownership rules, "control" of licensee companies is attributed to all 5%
or greater stockholders, except for mutual funds, banks and insurance companies
which may own less than 10% without attribution of control. The FCC has
requested comment as to whether to raise the attribution criteria from 5% to
10% and for passive investors from 10% to 20%, and whether it should exempt
from attribution certain widely held limited partnership interests where each
individual interest represents an insignificant percentage of total partnership
equity. The FCC recently lifted its ban on the cross-ownership of cable
television systems by broadcast networks. The FCC revised its regulations to
permit broadcast networks to acquire cable television systems serving up to 10%
of the homes passed in the nation, and up to 50% of the homes passed in a local
market. The local limit would not apply in cases where the
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network-owned cable system competes with another cable operator. The Company
has no direct or indirect ownership, operation, control or interest in a
television broadcast station, or a telephone company, and it is thus presently
unaffected by the cross-ownership rules.
The Communications Act and FCC regulations generally prohibit the
common operation of a cable television system and a telephone company within
the same service area. Until recently, control was attributed to stockholders
who directly or indirectly own 1% or more of outstanding voting stock and for
mutual funds, 3% of the outstanding voting stock. The FCC's recently revised
regulations will now permit telephone companies to own up to a 5% interest in
cable television systems in their own service areas.
The cross-ownership prohibitions would preclude investors from holding
shares in the Company if they simultaneously served as officers or directors
of, or held an attributable ownership interest in, these other businesses, and
would also preclude the Company from acquiring a cable television system where
the Company's officers or directors served as officers or directors of, or held
an attributable ownership in, these other businesses which were located within
the same area as the cable system which was to be acquired.
In order to encourage and develop a competitive video services
marketplace, the FCC recently conducted a wide-ranging inquiry into the
participation of the telephone industry in the delivery of cable television
services. The FCC concluded that telephone companies should be permitted to
provide a video dialtone service that would be similar to the ordinary
telephone dialtone and would be able to provide access for consumers to a wide
variety of services now provided by cable television systems, as well as new
services (including videophone and advanced telecommunications services) which
may develop. Under the FCC's video dialtone regulations, telephone companies
will be permitted to provide access to video dialtone services of others on a
common carrier basis, as well as provide directly to their telephone customers
their own non-video dialtone and non-video services, subject to certain
structural cross-subsidization safeguards. Telephone companies will also be
permitted to own up to a 5% interest in a program service provided that the
telephone company has some other affiliation with the programmer, such as an
agreement to provide equipment or support services. The Commission also has
been petitioned to adopt specific accounting rules for telephone companies that
provide video dialtone.
All of the Bell Operating Companies and most of the major independent
telephone companies have requested authority to provide video dialtone in
portions of their service areas. The Commission has approved a number of video
dialtone trials and recently authorized Bell Atlantic Corporation to provide a
commercial video dialtone service in Dover, New Jersey. The Commission is not
expected to grant additional applications until after it issues its order on
reconsideration. Several of the proposed video dialtone systems could compete
or will compete directly with the Company and its partnerships' systems. If
video dialtone services become widespread in the future, cable television
systems could be placed at a competitive disadvantage because cable television
systems are required to obtain local franchises to provide cable television
service and must comply with a variety of obligations under such franchises.
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The FCC has concluded that under the Cable Act interexchange carriers
(such as AT&T, which provide long distance services), are not subject to the
restrictions which bar the provision of cable television service by local
exchange carriers. In addition, the FCC concluded that neither a local
exchange carrier providing a video dialtone service nor its programming
suppliers leasing the dialtone service are required to obtain a cable
television franchise. This determination has been appealed.
The modification of the current cross-ownership restrictions, which
prohibit common ownership or operation of cable television systems and
telephone companies within the same service area, would create competition by
permitting telephone companies to provide the same types of services as cable
television systems and could also facilitate the use of telephone transmission
facilities by others seeking to compete with franchised operators. It could
also lead to the enactment of legislation to enable cable television systems to
compete with telephone companies in providing telecommunication services.
Federal cross-ownership restrictions have previously limited entry
into the cable television business by potentially strong competitors such as
telephone companies. Proposals now under consideration in Congress and recent
litigation could lead to the elimination of these restrictions, making it
possible for companies with considerable resources, and consequently a
potentially greater willingness or ability to overbuild, to enter the business.
Even in the absence of changes in the cross-ownership restrictions, the
expansion of telephone companies' fiber optic systems may facilitate entry by
other video service providers in competition with cable systems. The 1984
Cable Act codified existing FCC cross-ownership regulations, which, in part,
prohibit local exchange telephone companies ("LECs"), including the Regional
Bell Operating Companies ("RBOCs") from providing video programming directly to
subscribers within their local exchange telephone service areas, except in
rural areas or by specific waiver of FCC rules. This federal cross-ownership
rule is particularly important to the cable industry because these telephone
companies already own certain facilities needed for cable television operation,
such as poles, ducts and associated rights-of-way. In 1992, the Chesapeake and
Potomac Telephone Company of Virginia and Bell Atlantic Video Service Company
(collectively, "Bell Atlantic"), both wholly-owned subsidiaries of Bell
Atlantic Corporation, filed suit in the United States District Court for the
Eastern District of Virginia (Alexandria Division) seeking to have declared
unconstitutional the provision of the 1984 Cable Act which prohibits a
telephone company from owning a cable television system in its own service
area. The Company was not a party to this litigation, although the National
Cable Television Association ("NCTA"), an industry group of which the Company
is a member, intervened in the case. In its complaint, Bell Atlantic stated
that, if permitted, it will build and operate a cable television system in the
City of Alexandria, Virginia. On August 24, 1993, the court held that the
1984 Cable Act cross-ownership provision is unconstitutional, and it issued an
order enjoining the United States Justice Department from enforcing the
cross-ownership ban. The decision was appealed to the Federal Court of Appeals
for the Fourth Circuit, but the court recently indicated that it was holding
the appeal in abeyance pending possible action by the Congress on pending
legislation to modify the cable television/telephone cross-ownership ban, and
recently in a suit brought by US West in a federal district court in Seattle,
the cross-ownership ban was held
33
<PAGE> 34
unconstitutional. The decisions, which apply only to these two RBOCs, will
enable them to provide cable television services within their own operating
areas if they are not reversed on appeal. Several other RBOCs have brought
similar suits challenging the cross-ownership statute in federal district court
in Illinois, Michigan, California and Maine. The Company is unable to predict
the ultimate outcome of this litigation on the Company's cable television
business.
Another court decision, which modifies The Modified Final Judgment in
United States v. American Telephone & Telegraph Co., will permit the RBOCs to
provide information services over their facilities. This decision effectively
permits RBOCs to acquire or construct cable television systems outside of their
own service areas, and several RBOCs have recently invested or acquired cable
television companies.
There are currently bills pending in Congress that would permit the
LECs to provide cable television service over their own facilities conditioned
on establishing a video programming affiliate that will maintain separate
records to prevent cross- subsidization. These bills would, among other
things, also prohibit telephone companies from purchasing existing cable
systems within their telephone service areas.
Recently, Southwestern Bell Telephone Company and US West, both RBOCs,
have separately evidenced an interest in the cable television industry.
Southwestern Bell acquired certain cable television systems from Hauser
Communications. US West made a significant investment in a subsidiary of Time
Warner, one of the largest cable television operators in the country and has
announced plans to acquire a larger cable television system in the Atlanta,
Georgia area. These announced transactions indicate to the Company a strong
intention on the part of telephone companies to enter the cable television
business.
PROGRAM ORIGINATION AND EXCLUSIVITY OBLIGATION. Cable television
systems may originate programs and may present advertising subject to
compliance with the FCC's regulations governing political broadcasts, political
advertisements and sponsorship identification, and prohibitions on lotteries
and obscene programming.
FCC regulations currently require cable television systems located
within 35 miles of a television market to delete syndicated programs on distant
broadcast signals upon request of the copyright owner or the local station
holding the exclusive rights to broadcast the same program within its
television market. Similar blackout regulations also are applicable to network
programming in which local network affiliates hold exclusive rights.
COPYRIGHT MATTERS. The Copyright Act of 1976 grants cable television
systems a "compulsory license" to carry distant television signals authorized
by the FCC. In consideration for the compulsory license, cable television
systems are required to pay royalties to the owners of the copyrighted material
which is carried. These copyright royalty payments are based upon a percentage
of a cable television system's gross revenues from basic subscriber service.
Every cable television system must submit statements of account and
34
<PAGE> 35
royalty payments to the Copyright Office. The Copyright Act contains specific
formulas for calculating the amount of the royalty fee. In general, under
these formulas, the larger the system and the greater the number of distant
signals carried, the greater will be the royalty fees. Failure to comply
constitutes copyright infringement and may result in the imposition of fines
and other penalties.
The Copyright Act established the Copyright Royalty Tribunal (the
"CRT"), which was empowered to distribute royalty payments and to review and
adjust royalty rates in limited situations. Legislation recently enacted by
Congress abolished the CRT, and the distribution of royalties will now be
administered by the Library of Congress, which will use arbitration panels to
resolve royalty distribution disputes. The possible simplification,
modification or elimination of the compulsory license is the subject of
continuing legislative review. Consequently, the nature or amount of future
royalty payments for broadcast signal carriage cannot presently be predicted.
The elimination or substantial modification of the cable compulsory license
could adversely affect the Company's ability to obtain suitable programming and
could substantially increase the cost of programming that would remain
available for distribution to the Company's cable subscribers.
STATE REGULATION. Several states have subjected cable television
systems to the jurisdiction of state governmental agencies, some of which have
exercised jurisdiction over transfers of control of cable systems, customer
service standards and franchising requirements. Attempts in other states to so
regulate cable television systems are continuing and can be expected to
increase. It cannot be predicted whether state regulation will have an adverse
effect on the growth of the cable television industry and the business of the
Company.
LOCAL REGULATION. A cable television system is generally operated
pursuant to a non-exclusive franchise or permit granted by the local governing
body of the area to be served. Franchises are granted for a stated term,
generally 10 to 15 years, and in many cases are cancelable for failure to
comply with various conditions and limitations, including compliance with
national, state and local safety and electrical codes, required rates of
construction and conditions of service. Franchises usually call for the
payment of fees to the granting authority. Some state and local regulations
governing cable television systems may be subject to requirements imposed by
the FCC and are also subject to the requirements imposed by Federal law. The
FCC has generally preempted local regulation of the technical standards with
which cable television systems must comply, and has recently implemented
uniform standards for the industry.
TECHNICAL AND REPORTING REQUIREMENT. The FCC licenses radio,
microwave and satellite facilities used by cable television systems. The FCC
rules include technical standards for cable television systems with which all
systems must comply. The FCC requires cable television systems to file annual
reports pertaining to frequency usage, subscriber information and equal
employment opportunity practices. The FCC has recently adopted new technical
standards, and franchising authorities may not require cable television systems
to adhere to standards that are stricter than those of the FCC.
35
<PAGE> 36
MISCELLANEOUS. The Communications Act specifically empowers the FCC
to impose fines upon cable television system operators for willful or repeated
violation of the FCC's rules and regulations. The FCC has adjudicatory
authority over pole attachment disputes where a state has not asserted
jurisdiction.
Implementing provisions of the 1993 Budget Act, the FCC has adopted
requirements for payment of 1994 "regulatory fees." Cable television systems
are to pay regulatory fees of $0.37 per subscriber. Fees are also assessed for
other licenses, including licenses for business radio cable television relay
(CARS) and earth stations.
ITEM 2. PROPERTIES
The Company leases its executive offices from Jones Properties,
Inc., a subsidiary of International. The offices consist of a 101,500 square
foot office building located in Englewood, Colorado. This building which is
designed to fit the specific needs of the Company, was completed in July 1985.
The lease has a 15-year term with three 5-year renewal options at market rates
existing at the beginning of the option period. The annual rent is currently
$24.00 per square foot, plus operating expenses and will not, by the terms of
the lease, exceed such amount during the remainder of the term. The Company
subleases approximately 26% of the building to Spacelink, International and
certain other affiliates on the same terms and conditions as the primary lease.
In fiscal 1994, the Company purchased an approximate 60,000 square
foot office building located at 9085 E. Mineral Avenue, Englewood, Colorado for
a purchase price of $3,050,000. The building is principally occupied by home
office personnel of the Company and certain of its affiliates.
The Company owns an immaterial amount of additional real estate.
The Company leases most of its local offices and antenna sites. Its principal
physical assets consist of cable television system components, including
coaxial cable, electronic amplification and distribution equipment, motor
vehicles, miscellaneous hardware, spare parts and other components and
equipment relative to its cable television systems. As of May 31, 1994, these
assets on a consolidated basis had a net book value of approximately
$171,146,000, after deducting accumulated depreciation of approximately
$121,235,000. Substantially all of the Company's properties are pledged as
collateral to secure indebtedness under the Company's credit facility. Except
for ordinary wear and tear, the Company believes such equipment and property
are in good condition.
CABLE TELEVISION SYSTEMS OWNED BY THE COMPANY
The following sets forth (i) the monthly basic plus service rates
charged to subscribers, (ii) the number of basic subscribers and pay units, and
(iii) the franchise
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<PAGE> 37
expiration dates for the cable television systems owned and operated by the
Company. The monthly basic plus service rates set forth herein represent, with
respect to systems with multiple headends, the basic plus service rate charged
to the majority of the subscribers within the system. While the charge for
basic plus service may have increased in some cases as a result of the FCC's
rate regulations, overall revenues to the Company may have decreased due to the
elimination of charges for additional outlets and certain equipment. In cable
television systems, basic subscribers can subscribe to more than one pay TV
service. Thus, the total number of pay services subscribed to by basic
subscribers are called pay units. As of May 31, 1994, the Company-owned cable
television systems operated approximately 5,000 miles of cable plant, passing
approximately 400,000 homes, representing an approximate 65% penetration rate.
Figures for numbers of subscribers, homes passed and miles of cable plant are
compiled from the Company's records and may be subject to adjustments.
<TABLE>
<CAPTION>
At Acquisition
---------------
At May 31, November 2,
------------------------- ---------------
ALEXANDRIA, VIRGINIA 1994 1993 1992
- - -------------------- ---- ---- ----
<S> <C> <C> <C> <C>
Monthly basic plus service rate $ 21.53 $ 24.65 $ 23.45
Basic subscribers 38,863 35,366 34,317
Pay units 32,524 29,797 27,938
Franchise expiration dates:
City of Alexandria 6/17/2009
Fort Myer 12/26/94*
</TABLE>
* Franchise renewal is in process.
<TABLE>
<CAPTION>
At May 31,
----------------------------------------------
ANNE ARUNDEL COUNTY, MARYLAND 1994 1993 1992
- - ----------------------------- ---- ---- ----
<S> <C> <C> <C> <C>
Monthly basic plus service rate $ 21.95 $ 21.20 $ 19.45
Basic subscribers 46,285 43,555 40,539
Pay units 41,682 38,004 35,350
Franchise expiration dates:
Anne Arundel County 5/31/99
Anne Arundel County
(Heritage Harbor) 12/12/99
North Anne Arundel 5/31/2000
Ft. George Meade 9/27/2008
</TABLE>
37
<PAGE> 38
<TABLE>
<CAPTION>
At May 31,
----------------------------------------------
CHARLES COUNTY, MARYLAND 1994 1993 1992
- - ------------------------ ---- ---- ----
<S> <C> <C> <C> <C>
Monthly basic plus service rate $ 24.80 $ 23.59 $ 21.95
Basic subscribers 21,690 20,784 19,895
Pay units 32,578 31,460 26,673
Franchise expiration dates:
Indian Head Naval Center 12/31/2003
Town of Indian Head 2/1/97
Town of LaPlata 5/24/97
</TABLE>
<TABLE>
<CAPTION>
At May 31,
JEFFERSON COUNTY/ ----------------------------------------------
EVERGREEN, COLORADO 1994 1993 1992
- - ------------------- ---- ---- ----
<S> <C> <C> <C> <C>
Monthly basic plus service rate $ 22.06 $ 21.25 $ 19.75
Basic subscribers 23,027 21,613 20,064
Pay units 24,880 22,687 16,476
Franchise expiration dates:
Arapahoe County 2/21/99
Jeffco/Televents 8/13/95*
Jefferson County 8/3/95*
Ken Caryl Ranch/The Valley Indefinite
Town of Morrison 6/4/2012
</TABLE>
* Franchise renewal is in process.
<TABLE>
<CAPTION>
At Acquisition
---------------
At May 31, (December 15,
----------- ---------------
NORTH AUGUSTA, SOUTH CAROLINA 1994 1993)
- - ----------------------------- ----------- ---------------
<S> <C> <C> <C>
Monthly basic plus service rate $ 21.45 $ 21.45
Basic subscribers 15,065 15,080
Pay units 9,680 7,221
Franchise expiration dates:
City of Thomson 3/31/2000
Town of Dearing 12/5/2003
County of McDuffie 11/4/2000
City of North Augusta 3/31/2000
County of Aiken, SC 6/6/2007
Town of Trenton, SC 11/9/2003
County of Edgefield, SC 6/2/2000
</TABLE>
38
<PAGE> 39
<TABLE>
<CAPTION>
At May 31,
----------------------------------------------
OXNARD, CALIFORNIA 1994 1993 1992
- - ------------------ ---- ---- ----
<S> <C> <C> <C> <C>
Monthly basic plus service rate $ 20.00 $ 23.95 $ 22.45
Basic subscribers 37,338 35,953 35,448
Pay units 23,851 22,237 23,851
Franchise expiration dates:
City of Oxnard 11/12/97
City of Port Hueneme 2/27/2007
Port Hueneme Naval Base 2/16/2004
Ventura County 11/29/2003
</TABLE>
<TABLE>
<CAPTION>
At May 31,
PIMA COUNTY, ARIZONA ----------------------------------------------
(Including Tucson SMATV System) 1994 1993 1992
- - ------------------------------- ---- ---- ----
<S> <C> <C> <C> <C>
Monthly basic plus service rate $ 22.50 $ 23.20 $ 23.20
Basic subscribers 49,311 46,739 42,947
Pay units 32,442 30,529 26,280
Franchise expiration dates:
Town of Marana 9/19/2003
Town of Oro Valley 7/10/97
Pima County
Area A 7/27/97
Area B 7/27/97
Area C 7/6/96
Tucson Nat'l Golf Club 12/31/96
</TABLE>
<TABLE>
<CAPTION>
At May 31,
----------------------------------------------
WALNUT VALLEY, CALIFORNIA 1994 1993 1992
- - ------------------------- ---- ---- ----
<S> <C> <C> <C> <C>
Monthly basic plus service rate $ 22.74 $ 23.75 $ 21.75
Basic subscribers 17,790 17,193 17,098
Pay units 13,097 13,375 14,474
Franchise expiration dates:
City of Diamond Bar 5/22/95*
Los Angeles County 5/22/95*
</TABLE>
* Franchise renewal is in process.
PROGRAMMING SERVICES
Programming services provided by the Company's cable television
systems include local affiliates of the national broadcast networks, local
independent broadcast channels, the traditional satellite services (e.g.,
American Movie Classics, Arts & Entertainment, Black Entertainment Network,
C-SPAN, The Discovery Channel, Lifetime, Entertainment Sports Network, Home
39
<PAGE> 40
Shopping Network, Mind Extension University, Music Television, Nickelodeon,
Turner Network Television, The Nashville Network, Video Hits One, and
superstations WOR, WGN and TBS. Spacelink's systems also provide a selection,
which varies by system, of premium channel programming (e.g., Bravo, Cinemax,
The Disney Channel, Encore, Home Box Office, Showtime and The Movie Channel).
ITEM 3. LEGAL PROCEEDINGS
In April 1989, a few months after Cable TV Fund 14-B, Ltd. ("Fund
14-B"), a limited partnership in which the Company serves as the sole general
partner, acquired the Surfside System, Fund 14-B acquired a small cable
television system in the Surfside Beach area from Tritek/Southern
Communications, Ltd. In May 1990, the Federal Trade Commission ("FTC")
commenced an investigation into the effect of this acquisition on competition
in the Surfside Beach area. Fund 14-B submitted its response to the FTC's
request for information concerning the acquisition in July 1990. The FTC
conducted recorded interviews with certain employees of the Company in
September 1991. No further action was taken by the FTC, and the investigation
has been closed.
In July and August, 1993, the Company, along with virtually all other
cable operators, was sued in most jurisdictions where its systems are operated
by a group of television studios who own the copyrights to programming shown on
broadcast stations which the Company's cable systems carry. The suits sought
interest on certain copyright payments made by the Company for the year 1986
and the first half of 1987. The suit was settled in September 1993 for an
immaterial amount.
On February 22, 1994, the Company and Jones Group 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 allege that the $1,830,850 commission paid to Jones Group by the
Partnership in connection with such sale was improper, and ask the Court to
order that such commission be repaid to the Partnership. 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
40
<PAGE> 41
the brokerage commission was properly paid to Jones Group 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. Both the Company and Jones Group have filed a motion to dismiss
this action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock and Class A Common Stock are traded in the
over-the-counter market and authorized for quotations on the National Market
System operated by the National Association of Securities Dealers, inc.
(NASDAQ), under the following symbols:
Common Stock - JOIN
Class A Common Stock - JOINA
The following table shows the high and low prices as quoted on the
NASDAQ/National Market System for each quarterly period of fiscal 1994 and 1993
for each class of the Company's stock:
<TABLE>
<CAPTION>
Common Stock Class A Common Stock
-------------------- ---------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C> <C>
1994 First Quarter 14 3/4 11 15 1/4 11 1/4
Second Quarter 20 13 1/4 19 12 1/2
Third Quarter 20 1/4 14 7/8 20 1/4 15
Fourth Quarter 15 3/4 10 3/8 15 5/8 11
1993 First Quarter 14 9 3/4 13 1/2 10
Second Quarter 12 1/4 10 3/4 13 9 1/2
Third Quarter 16 3/4 12 16 12 1/4
Fourth Quarter 16 1/4 10 1/2 16 1/4 10
</TABLE>
At May 31, 1994, the Common Stock and Class A Common Stock of the
Company were held of record by 628 and 1,430 shareholders, respectively.
The Company has never paid a cash dividend with respect to its shares
of Common Stock or Class A Common Stock, and it has no present intention to pay
cash dividends in the
41
<PAGE> 42
foreseeable future. The current policy of the Company's Board of Directors is
to retain earnings to provide funds for the operation and expansion of its
business. Future dividends, if any, will be determined by the Board of
Directors in light of the circumstances then existing, including the Company's
earnings and financial requirements and general business conditions. The
Company's credit agreements restrict the right of the Company to declare and
pay cash dividends without the consent of the lenders. If cash dividends are
paid in the future, the holders of the Class A Common Stock will be paid $.005
per share per quarter in addition to the amount payable per share of
Common Stock. Such additional dividends on the Class A Common Stock are not
cumulative but would be adjusted appropriately if cash dividends are declared
with respect to a period other than a quarterly period. The Company's credit
agreements restrict the right of the Company to declare and pay cash dividends
without the consent of the lenders.
The Company has paid stock dividends in Class A Common Stock to
holders of Common Stock and Class A Common Stock in prior years. The Company
paid a 7% stock dividend in Class A Common Stock to holders of Common Stock and
Class A Common Stock in fiscal year 1982, and the Company paid a 5% stock
dividend in Class A Common Stock to such shareholders in each of the fiscal
years 1983, 1984 and 1985. The Company has not paid any dividends in Class A
Common Stock since that time.
42
<PAGE> 43
Item 6. Selected Financial Data
The following table sets forth selected financial data regarding Jones
Intercable, Inc.'s financial position and operating results. This data should
be read in conjunction with the Company's consolidated financial statements and
the notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing in Item 7.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---------- --------- --------- ---------- ----------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
REVENUES:
Subscriber service $ 115,076 $ 105,488 $ 87,979 $ 79,879 $ 68,434
Management fees 17,360 17,104 16,220 14,772 13,924
Fund fees and distributions - - 26,790 4,283 8,736
--------- --------- --------- --------- ---------
TOTAL REVENUES 132,436 122,592 130,989 98,934 91,094
--------- --------- --------- --------- ---------
COSTS AND EXPENSES:
Operating, general and
administrative expenses 76,345 71,360 55,759 51,817 43,881
Depreciation and amortization 43,831 42,720 39,586 39,670 36,280
--------- --------- --------- --------- ---------
OPERATING INCOME $ 12,260 $ 8,512 $ 35,644 $ 7,447 $ 10,933
========= ========= ========= ========= =========
INCOME (LOSS) BEFORE INCOME
TAXES AND EXTRAORDINARY
ITEMS $ (25,277) $ (40,266) $ 23,383 $ (45,030) $ (30,599)
INCOME TAX BENEFIT
(PROVISION) - - (7,389) - 9,727
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS (25,277) (40,266) 15,994 (45,030) (20,872)
Extraordinary items-
Gain (loss) on early
extinguishment of debt - (20,386) (2,504) 11,419 (1,996)
Tax benefit from loss carry-
forward utilization - - 6,089 - -
Cumulative effect of change
in accounting method-
Change in method of
accounting for income taxes - 3,862 - - -
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (25,277) $ (56,790) $ 19,579 $ (33,611) $ (22,868)
========= ========= ========= ========= =========
PRIMARY EARNINGS (LOSS)
PER SHARE:
Income (loss) before
extraordinary items $ (1.43) $ (2.82) $ 1.30 $ (3.71) $ (1.67)
Extraordinary items - (1.43) .29 .94 (.16)
Accounting change - .27 - - -
--------- --------- --------- --------- ---------
$ (1.43) $ (3.98) $ 1.59 $ (2.77) $ (1.83)
========= ========= ========= ========= =========
FULLY DILUTED EARNINGS
PER SHARE:*
Income before extra-
ordinary items $ 1.27
Extraordinary items .26
---------
$ 1.53
=========
WEIGHTED AVERAGE
SHARES OUTSTANDING:*
Primary 17,662 14,277 12,294 12,153 12,463
========= ========= ========= ========= =========
Fully diluted 13,828
=========
TOTAL ASSETS $ 448,485 $ 399,572 $ 357,252 $ 400,338 $ 487,752
========= ========= ========= ========= =========
TOTAL DEBT $ 343,907 $ 327,214 $ 299,300 $ 345,678 $ 412,695
========= ========= ========= ========= =========
SHAREHOLDERS'
INVESTMENT (DEFICIT) $ 62,043 $ 31,649 $ 26,875 $ (2,653) $ 40,358
========= ========= ========= ========= =========
</TABLE>
*Fully diluted earnings per share effect is not presented for years in which
the calculation was either insignificant or anti-dilutive.
43
<PAGE> 44
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Total Revenues
The Company derives its revenues from three primary sources:
subscriber service fees from Company-owned cable television systems, management
fees from revenues earned by managed partnerships, and fees and distributions
payable upon the sale of cable television properties owned by managed
partnerships. Total revenues for the fiscal year ended May 31, 1994 increased
$9,844,000, or 8%, from $122,592,000 reported in fiscal 1993 to $132,436,000,
reported in fiscal 1994. This increase is 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 $4,303,000,
or 4%, for the year ended May 31, 1994.
Subscriber Service Fees
The Company's subscriber service fees increased $9,588,000, or 9%,
from $105,488,000 in fiscal 1993 to $115,076,000 in fiscal 1994. The net
effect of the purchases of the Alexandria System and the North August System,
and the sale of the San Diego System accounted for approximately $5,856,000, or
61%, of the increase. 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 basic rate
regulations issued by the FCC in May 1993 with which the Company complied
effective September 1, 1993.
In fiscal 1993, the Company's subscriber service fees increased
$17,509,000, or 20%, from $87,979,000 in fiscal 1992 to $105,488,000. This
increase was the result of increases in the number of basic subscribers and
basic service rate adjustments in Company-owned systems, which accounted for
approximately $7,875,700, or 45%, of the increase. Increases in premium
service revenue accounted for approximately $1,132,800, or 6%, of the increase
in subscriber service revenues. In addition, the Company sold the Onalaska,
Wisconsin cable television system (the "Onalaska System") in December 1991 and
purchased the Alexandria System in November 1992. The net effect of these
transactions in fiscal 1993 was an increase in subscriber service revenues of
approximately $7,246,000.
Management Fees
The Company receives management fees generally equal to 5% of the
gross operating revenues from its managed partnerships. Management fees
totaled $17,360,000 for fiscal 1994 as compared to $17,104,000 in fiscal 1993,
an increase of approximately 2%. Management fees in fiscal 1993 increased
approximately 5% over the $16,220,000 reported in fiscal 1992. The 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 FCC's basic rate regulations.
44
<PAGE> 45
Fund Fees and Distributions
In its capacity as the general partner of its managed partnerships,
the Company also receives revenues in the form of fund fees and distributions
upon the sale of cable television properties owned by such partnerships. No
such revenues were received during the fiscal years ended May 31, 1994 or 1993.
During the year ended May 31, 1992, the Company recognized approximately
$26,790,000 in distributions as a result of the Company's liquidation of its
interest in Jones Crown Partners and upon the liquidation of Cable TV Fund
11-E/F.
Costs and 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 fiscal year ended May 31, 1994, operating, general and
administrative expenses increased approximately $4,985,000, or 7%, from
$71,360,000 in fiscal 1993 to $76,345,000 in fiscal 1994. During the year
ended May 31, 1993, the Company recognized approximately $4,080,000 of non-cash
compensation expense related to the granting of Class A Common Stock options.
Approximately $152,000 of such expense was recognized during fiscal 1994.
Somewhat mitigating the effect of the stock option expense were increases in
personnel costs, satellite fees and premium service fees and advertising costs
(excluding the effect of system acquisitions and dispositions) which accounted
for approximately $1,061,000, $2,906,000 and $305,000 of the increase in
operating, general and administrative expenses. 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
$2,350,000 for the year ended May 31, 1994.
For the fiscal year ended May 31, 1993, these expenses increased
approximately $15,601,000, or 28%, from $55,759,000 in fiscal 1992 to
$71,360,000 in fiscal 1993. Increases in personnel costs, satellite fees and
premium service fees, and marketing related costs accounted for approximately
$1,422,000, $3,113,000 and $1,213,000, or 9%, 20% and 8%, respectively of the
increase in operating, general and administrative expenses. The net effect of
the sale of the Onalaska System and the purchase of the Alexandria System was
an increase in these expenses of approximately $3,789,000 for the fiscal year
ended May 31, 1993. In addition, during fiscal 1993, the Company recognized
approximately $4,080,000 of non-cash compensation expense related to the
granting of Class A Common Stock options. No such expense was recognized
during fiscal 1992.
Depreciation and amortization expense increased $1,111,000, or 3%, for
the fiscal year ended May 31, 1994 totaling $42,720,000 in fiscal 1993 and
$43,831,000 in the current year. This increase is due to the purchase of the
Alexandria System in November 1992 and the purchase of the North Augusta System
in December 1993.
Depreciation and amortization expense increased $3,134,000, or 8%, for
the fiscal year ended May 31, 1993 totaling $39,586,000 in fiscal 1992 and
$42,720,000 in the current year. This increase was due to the acquisition in
November 1992 of the Alexandria System and the resulting increase in the
Company's asset base. This increase was partially offset by the sale of the
Onalaska System in December 1991 and the maturation of the intangible asset
base in two of the Company's cable television systems.
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Interest expense decreased $7,384,000, or 17%, from $43,573,000 in
fiscal 1993 to $36,189,000 in fiscal 1994. This decrease is primarily due to
the redemption 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.
In fiscal 1993, interest expense increased $5,444,000, or 14%, from
approximately $38,129,000 in fiscal 1992 to approximately $43,573,000. This
increase was due primarily to interest expense related to the July 1992 sale of
$160,000,000 of 11.5% Senior Subordinated Debentures due 2004 and the March
1993 sale of $100,000,000 of 10.5% Senior Subordinated Debentures due 2008.
The effect of paying interest on these debentures was partially offset by lower
amounts outstanding on the Company's credit facility as well as 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 $1,724,000, or 59%, from
$2,900,000 reported for the year ended May 31, 1993 to $4,624,000 reported in
fiscal 1994. This increase was primarily the result of losses recognized by
the Company related to its 25% investment in Mind Extension University, Inc. as
well as increased losses recognized from the Company's United Kingdom
investments.
A year ago, equity in losses of affiliated entities decreased
$5,258,000, or 64%, from $8,158,000 reported for the year ended May 31, 1992 to
$2,900,000 reported in fiscal 1993. This decrease was primarily due to the
Company's liquidation of its 20% interest in Jones Crown Partners in December
1991, the sale of an approximate 35% interest in East London Telecommunications
in May 1992 as well as the reduction in losses of Jones Intercable Investors,
L.P. as a result of the sale to the Company of the Alexandria System. This
decrease was partially offset by increased losses recognized as a result of the
Company's 25% investment in Mind Extension University, Inc.
Interest income increased $635,000, or 16%, for the year ended May
31, 1994 from $4,060,000 reported in fiscal 1993 to $4,695,000 reported in
fiscal 1994. 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 $268,000, or 6%,
for the year ended May 31, 1993 from $4,328,000 reported in fiscal 1992 to
$4,060,000 reported in fiscal 1993. This decrease was due to $762,200 of
interest income received in the first quarter of fiscal 1992 on a refund of
income taxes paid in prior periods. No such amounts were received during
fiscal 1993.
Net Income (Loss)
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 as it did during fiscal 1992, losses may be
eliminated; however, there is no assurance as to the timing or recognition of
these distributions.
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
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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.
In compliance with these rules, the Company reduced rates charged
from certain regulated services effective September 1, 1993. These reductions
resulted in some decrease in revenues and operating income before depreciation
and amortization; however the decrease was not as severe as originally
anticipated. The General Partner has undertaken actions to mitigate a portion
of these reductions primarily through (a) new service offerings in some
systems, (b) product re-marketing and re-packaging and (c) marketing efforts
directed at non-subscribers.
On February 22, 1994, the FCC adopted several additional rate orders
including an order which revised its earlier-announced regulatory scheme with
respect to rates. The FCC's new regulations will generally require rate
reductions, absent a successful cost-of-service showing, of 17% of September
30, 1992 rates, adjusted for inflation, channel modifications, equipment costs,
and increases in programming costs. However, the FCC held rate reductions in
abeyance in certain systems. The new regulations became effective on May 15,
1994, but operators could elect to defer rate reductions to July 14, 1994, so
long as they made no changes in their rates and did not restructure service
offerings between May 15 and July 14.
On February 22, 1994, the FCC also adopted interim cost-of-service
regulations. Rate reductions will not be required where it is successfully
demonstrated that rates for basic and other regulated programming services are
justified and reasonable using cost-of-service standards. The FCC established
an interim industry-wide 11.25% permitted rate of return, and requested
comments on whether this standard and other interim cost-of-service standards
should be made permanent. The FCC also established a presumption that
acquisition costs above a system's book value should be excluded from the rate
base, but the FCC will consider individual showings to rebut this presumption.
The need for special rate relief will also be considered by the FCC if an
operator demonstrates that the rates set by a cost-of-service proceeding would
constitute confiscation of investment, and that, absent a higher rate, the
return necessary to operate and to attract investment could not be maintained.
The FCC will establish a uniform system of accounts for operators that elect
cost-of-service rate regulation, and the FCC has adopted affiliate transaction
regulations. The FCC also proposed adopting a productivity factor to be offset
against future inflation increases to be applied regardless of which form of
regulation is used, cost-of-service or benchmark regulation. After a rate has
been set pursuant to a cost-of-service showing, rate increases for regulated
services will be indexed for inflation, and operators will also be permitted to
increase rates in response to increases in costs beyond their control, such as
taxes and increased programming costs.
The Company has elected to file cost-of-service showings for the
following Company-owned cable television systems: Jefferson County, Colorado;
Charles County, Maryland; Pima County, Arizona; Alexandria, Virginia; and North
Augusta, South Carolina. For these systems, the Company anticipates no further
reductions in revenues or operating income before depreciation and
amortization. The Company's Anne Arundel, Maryland cable television system is
subject to effective competition as defined by the 1992 Cable Act and as a
result, will not experience reductions in revenues or operating income before
depreciation and amortization due to the rate regulations. The Company
complied with the new benchmark regulations and reduced rates in its Oxnard and
Walnut Valley, California cable television systems. The annualized reduction
of revenues and operating income before depreciation and amortization in these
systems is approximately $800,000, or 1%, and approximately $800,000, or 2%,
respectively. The Company will continue its efforts to mitigate the effect of
such rate reductions. In addition, as a
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result of the Company's managed partnerships' compliance with the 1992 Cable
Act and the corresponding reduction in Partnership revenues, the Company
anticipates an annualized reduction in management fee revenue of approximately
$100,000, or 1%.
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 year ended May 31, 1994 and expects
to maintain compliance through fiscal 1995.
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 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"), which do not elect
mandatory carriage, 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 are being carried 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
constitutionality of the mandatory signal carriage requirements of the 1992
Cable Act. That decision was appealed directly to the United States Supreme
Court. The United States Supreme Court vacated the lower court decision on
June 27, 1994 and remanded the case to the district court for further
development of a factual record. The Court's majority determined that the
must-carry rules were content neutral, but that it was not yet proven that the
rules were needed to preserve the economic health of the broadcasting industry.
In the interim, the must-carry rules will remain in place during the pendency
of the proceedings in district court. In 1993, a Federal district court for
the District
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of Columbia upheld provisions of the 1992 Cable Act concerning rate regulation,
retransmission consent, restrictions on vertically integrated cable television
operators and programmers, mandatory carriage of programming on commercial
leased channels and public, educational and governmental access channels and
the exemption for municipalities from civil damage liability arising out of
local regulation of cable services. The 1992 Cable Act's provisions providing
for multiple ownership limits for cable operators and advance notice of free
previews for certain programming services have been found unconstitutional, and
these decisions have been appealed. In November 1993, the United states Court
of Appeals for the District of Columbia held that the FCC's regulations
implemented pursuant to Section 10 of the 1992 Cable Act, which permit cable
operators to ban indecent programming on public, educational or governmental
access channels or leased access channels, were unconstitutional, but the court
has agreed to reconsider its decision. All of these decisions construing
provisions of the 1992 Cable Act and the FCC's implementing regulations have
been or are expected to be appealed.
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 for its own account,
subject to the availability of debt and/or equity financing. No more systems
will be acquired for the managed partnerships.
On November 12, 1993, the Company announced that negotiations had
commenced regarding the possible acquisition by the Company of substantially
all of the assets of Spacelink in return for the issuance of Class A Common
Stock of the Company to Spacelink (the "Spacelink Transaction"). On June 2,
1994, the Company announced that a definitive agreement had been reached with
Spacelink. Pursuant to that agreement, the Company would issue 4,100,000
shares of Class A Common Stock to Spacelink in exchange for substantially all
of the assets of Spacelink. The closing of this transaction is expected to
occur simultaneously with the closing of the Bell Canada International, Inc.
transaction discussed below. The closing is subject to a number of conditions,
including the approval of the shareholders of the Company and the approval of
the shareholders of Spacelink.
The Company and Bell Canada International Inc. ("BCI") have entered
into an agreement 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 agreement, BCI would invest $400,000,000 over
time. The original investment would be in two installments: the purchase by
BCI of 2,500,000 newly issued Class A shares of the Company at $22 per share
for $55,000,000, and the purchase at closing at $27.50 per share of Class A
Common Stock of the Company to acquire a 30 percent 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. BCI
also was committed to invest up to an additional $139,000,000 to maintain its
30 percent interest in the event the Company offered additional Class A Common
Stock. BCI has 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
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Directors. BCI would also invest in a number of affiliates of Jones
International, Ltd. which are engaged in the telecommunications and
distribution businesses.
Closing of the BCI transaction, which is subject to certain
conditions, is expected to occur in fiscal 1995.
The Company purchased property, plant and equipment totaling
approximately $23,818,000 during 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 fiscal 1995 are approximately
$35,000,000. 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.
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 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. $680,000 for brokerage
services related to this acquisition. The Jones Group, Ltd. is owned 80% by
Jones Spacelink, Ltd. and 20% by the Company. The transaction closed on
December 15, 1993.
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. Closing on this
transaction occurred in the first quarter of fiscal 1995. The Company paid The
Jones Group, Ltd. $912,500 for brokerage services related to this acquisition.
Proceeds from the sale of the Gaston System were used to repay amounts
outstanding on the Company's credit facility. The Company recognized a gain
before income taxes of $15,496,400, or $.88 per share, related to this
transaction.
The Company owns a 38% interest in Jones Global Group, Ltd. ("Jones
Global Group"), a Colorado corporation of which 62% is owned by International.
On July 22, 1994, Jones Global Group and certain of Jones Global Group's
wholly-owned subsidiaries transferred all of their interests in their
cable/telephony properties in the United Kingdom to Bell Cablemedia plc, a
public limited company incorporated under the laws of England and Wales, in
exchange for 3,663,584 American Depository Shares ("ADSs") representing
18,317,920 Ordinary Shares of Bell Cablemedia. At the closing, Jones Global
Group transferred its equity interests in the companies that own the Leeds and
Aylesbury-Chiltern franchises, its general partner interest in Jones United
Kingdom Fund, Ltd. and the assets of its United Kingdom management subsidiary
to Bell Cablemedia. Also on July 22, 1994, the Company and certain of its
wholly-owned subsidiaries transferred all of their interests in their
cable/telephony properties in the United Kingdom to Bell Cablemedia in exchange
for 6,035,648 ADSs representing 30,178,240 Ordinary Shares of Bell Cablemedia.
At the closing, the Company transferred its equity interests in the companies
that own the Leeds and South Hertfordshire franchises and the Company's equity
interest in and shareholder loans to ELT Acquisition Company Limited to Bell
Cablemedia. In addition, the Norwich, Peterborough, Broadland and Fenland
franchises, which were acquired by the Company for $15,500,000
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in fiscal 1994, were also transferred. As a result of these transactions, the
Company and Jones Global Group no longer own any direct interest in
cable/telephony properties in the United Kingdom.
Prior to the closing of these transactions, Bell Cablemedia was
indirectly owned 80% by Bell Canada International Inc. ("BCI") and 20% by
Cable and Wireless plc ("C&W"). The Company's and Jones Global Group's
agreement to contribute their United Kingdom holdings to Bell Cablemedia was
contingent upon the successful completion of Bell Cablemedia's initial public
offering, which also closed on July 22, 1994. The initial offering price for
the ADSs was $17.00 per ADS. As part of the initial offering Jones Global
Group sold 1,100,000 ADSs providing net cash proceeds of $17,547,888. The
proceeds from the sale of the ADSs by Jones Global Group are intended to allow
it to satisfy estimated U.S. and U.K. tax liabilities in connection with the
transactions.
The ADSs received by the Company are "restricted securities" within
the meaning of Rule 144 promulgated under the Securities Act of 1933 (the
"Securities Act"), and the Company will not be able to sell its ADSs unless an
exemption from registration under the Securities Act is available or unless its
ADSs are registered by a subsequent registration statement. Bell Cablemedia,
BCI, C&W, the Company and Jones Global Group have agreed that, for a period of
180 days after July 15, 1994 (the date of the definitive prospectuses used in
Bell Cablemedia's ADS Offerings), they will not sell or otherwise dispose of
any ADSs or Ordinary Shares of Bell Cablemedia (except for those ADSs received
by Jones Global Group that were sold as part of the ADS Offerings) without
prior written consent of the lead U.S. underwriters of the ADS Offerings.
After giving effect to Bell Cablemedia's acquisition of the United
Kingdom holdings of the Company and Jones Global Group and the closings of the
ADS Offerings on July 22, 1994, BCI indirectly owns approximately 42.2%, C&W
indirectly owns approximately 12.8%, the Company owns approximately 9.7% and
Jones Global Group owns approximately 4.2% of the issued and outstanding shares
of Bell Cablemedia. Based upon the quoted market price of $21.50 per ADS at
August 25, 1994, the quoted market value of the Company's direct investment
totaled approximately $129,766,400. The Company's indirect investment, through
its 38% ownership of Jones Global Group, totaled $20,944,500. Due to the
affiliated nature of the transaction and the Company's indirect continuing
interest in the UK properties, the investment in Bell Cablemedia is reflected
at the Company's cost. At May 31, 1994 the Company's net investment in these
UK properties totaled approximately $50,067,800.
The Company paid an advisory fee of L.414,854 (approximately
$632,600) to Jones Financial Group, Ltd. ("Jones Financial Group"), an
affiliate of International, in fiscal 1995 for its services to the Company in
connection with the aforementioned transactions. Jones Global Group paid an
advisory fee of L.251,812 (approximately $384,000) to Jones Financial Group for
its services to Jones Global Group in connection with the aforementioned
transactions.
Jones Spanish Holdings, Inc. ("Spanish Holdings") is an affiliate
indirectly owned 38% by the Company and 62% by International. Spanish Holdings
has continued cable television system acquisition, development and operations
in Zaragoza, Spain but has discontinued its operations in Jerez de la
Frontera/Puerto Santa Maria, Spain. This affiliate currently is seeking to
acquire the rights to develop cable television operations in Spain. The
Company has made advances totaling $769,300 during fiscal 1994, and has
advanced a total of $7,764,000 as of May 31, 1994 to fund Spanish Holdings'
activities to date. Additional advances may be made in the future. These
advances have been reflected as investments in foreign cable television
properties 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. The Company is seeking to sell its Spanish operations to Bell
Cablemedia in fiscal 1995.
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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 and December 1993, the Board of Directors of the Company also approved a
$10,000,000 advance and a $5,000,000 advance, respectively to ME/U on an
as-needed basis. Of these advances, 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 May 31,
1994, all of the total $15,000,000 had been advanced. On May 3, 1994, the
Board of Directors of the Company approved an additional $5,000,000 advance to
ME/U on an as needed basis, interest accrued at the Company's weighted average
cost of borrowing plus two percent. As of May 31, 1994, $758,300 of the
$5,000,000 had been advanced. These advances, which total $15,758,300, 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 year ended May 31, 1994,
the Company's effective interest rate on the credit facility was 5.6%. 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. 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. At
May 31, 1994, 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 $42,000,000 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 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 a negative 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 May 31, 1994, the Company had advanced funds to various
managed partnerships and other affiliates of
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the Company totaling approximately $15,611,000, an increase of approximately
$264,000 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. These advances bear interest at rates equal to the
Company's weighted average cost of borrowing.
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 subsequently terminated the 1993 license agreement and
entered into a new license agreement with Space Segment. Under the new license
agreement, the Company, Jones Infomercial Networks, Inc. ("PIN") and Jones
Computer Network, Ltd. ("JCN"), affiliates of International, have a license to
use the transponder for their respective purposes. Under the terms of the new
agreement, the Company agreed to pay Space Segment $200,000 per month from
January 1994 through March 1994 and the Company and PIN each agreed to pay
$100,000 per month beginning April 1994 and until the launch of JCN.
Thereafter the Company, PIN and JCN will each pay $66,667 per month. The
Company recognized $2,300,000 and $700,000 of rental expense related to these
lease agreements during the fiscal years ended May 31, 1994 and 1993,
respectively.
On June 18, 1993, the Company filed two 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 1994. The proceeds from these offerings would
be added to the general funds of the Company and may be used to make
acquisitions of cable television systems or interests therein and for general
corporate purposes. At May 31, 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
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
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 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.
53
<PAGE> 54
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants 55
Consolidated Balance Sheets 56
Consolidated Statements of Operations 58
Consolidated Statements of Shareholders' Investment 59
Consolidated Statements of Cash Flows 62
Notes to Consolidated Financial Statements 63
Schedules
Report of Independent Public Accountants on Schedules 88
Schedule V - Property, Plant and Equipment 89
Schedule VI - Accumulated Depreciation of Property, Plant
and Equipment 90
Schedule VIII - Valuation and Qualifying Accounts 91
Schedule IX - Short-term Borrowings 92
Computation of Fully Diluted Earnings Per Share (Unaudited) Ex. 11
54
<PAGE> 55
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO JONES INTERCABLE, INC.:
We have audited the accompanying consolidated balance sheets of JONES
INTERCABLE, INC. (a Colorado corporation) and subsidiaries as of May 31, 1994
and 1993, and the related consolidated statements of operations, shareholders'
investment and cash flows for each of the three years in the period ended May
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Jones Intercable,
Inc. and subsidiaries as of May 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
May 31, 1994, in conformity with generally accepted accounting principles.
As explained in Note 1 of Notes to Consolidated Financial Statements,
effective June 1, 1992, the Company changed its method of accounting for income
taxes.
Denver, Colorado,
August 22, 1994 ARTHUR ANDERSEN & CO.
55
<PAGE> 56
CONSOLIDATED
BALANCE SHEETS Jones Intercable,Inc.
As of May 31, 1994 and 1993 and Subsidiaries
<TABLE>
<CAPTION>
ASSETS 1994 1993
--------- ---------
(Stated in Thousands)
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 4,239 $ 1,131
RECEIVABLES:
Trade receivables, net of allowance for
doubtful accounts of $393,900 in 1994
and $339,600 in 1993 5,563 4,936
Affiliated entities 15,611 15,347
Other 715 517
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 292,381 262,214
Less - Accumulated depreciation (121,235) (97,501)
--------- --------
171,146 164,713
Franchise costs, net of accumulated
amortization of $76,113,800 in 1994
and $62,265,900 in 1993 73,769 73,678
Cost in excess of interests in net assets
purchased, net of accumulated
amortization of $5,918,600 in 1994
and $4,802,900 in 1993 39,306 37,621
Noncompete agreement, net of accumulated
amortization of $737,900 in 1994
and $622,900 in 1993 412 527
Subscriber lists, net of accumulated
amortization of $30,421,500 in 1994
and $24,146,500 in 1993 18,524 20,074
Investments in domestic cable television
partnerships and affiliates 34,346 21,145
Investment in foreign cable television properties 57,752 33,560
--------- ---------
TOTAL INVESTMENT IN CABLE TELEVISION PROPERTIES 395,255 351,318
--------- ---------
DEFERRED TAX ASSET, net of valuation
allowance of $37,785,000 in 1994 and
$26,161,000 in 1993 3,862 3,862
DEPOSITS, PREPAID EXPENSES AND OTHER ASSETS 23,240 22,461
--------- ---------
TOTAL ASSETS $ 448,485 $ 399,572
========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
56
<PAGE> 57
CONSOLIDATED
BALANCE SHEETS Jones Intercable, Inc.
As of May 31, 1994 and 1993 and Subsidiaries
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' INVESTMENT 1994 1993
--------- ---------
(Stated in Thousands)
<S> <C> <C>
LIABILITIES:
Accounts payable and accrued liabilities $ 37,260 $ 35,629
Subscriber prepayments and deposits 5,275 5,080
Subordinated debentures and other debt 280,907 281,214
Credit facility 63,000 46,000
--------- ---------
TOTAL LIABILITIES 386,442 367,923
--------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 9)
SHAREHOLDERS' INVESTMENT:
Class A Common Stock, $.01 par value, 30,000,000
shares authorized; 16,062,502 and 13,481,280
shares issued at May 31, 1994
and 1993, respectively 161 135
Common Stock, $.01 par value, 5,550,000 shares
authorized; 5,498,539 shares issued
at May 31, 1994 and 1993 55 55
Additional paid-in capital 189,679 134,034
Accumulated deficit (113,470) (88,193)
Less: 1,830,932 shares of Common
Stock and Class A Common Stock held in
Treasury, at cost, at May 31, 1994 and 1993 (14,382) (14,382)
--------- --------
TOTAL SHAREHOLDERS' INVESTMENT 62,043 31,649
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 448,485 $ 399,572
========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
57
<PAGE> 58
CONSOLIDATED STATEMENTS OF OPERATIONS Jones Intercable, Inc.
For the years ended May 31, 1994, 1993 and 1992 and Subsidiaries
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(In Thousands Except Per Share Data)
<S> <C> <C> <C>
REVENUES FROM CABLE TELEVISION OPERATIONS:
Subscriber service fees $115,076 $105,488 $ 87,979
Management fees 17,360 17,104 16,220
Fund fees and distributions - - 26,790
-------- -------- --------
TOTAL REVENUES 132,436 122,592 130,989
COSTS AND EXPENSES:
Operating expenses 67,098 63,320 51,914
Selling, general and administrative expenses (including
approximately $4,246,000, $2,222,600 and $1,633,300
of related party expenses during the fiscal years ended
May 31, 1994, 1993 and 1992, respectively) 9,247 8,040 3,845
Depreciation and amortization 43,831 42,720 39,586
-------- -------- --------
OPERATING INCOME 12,260 8,512 35,644
OTHER INCOME (EXPENSE):
Interest expense (36,189) (43,573) (38,129)
Equity in losses of affiliated entities (4,624) (2,900) (8,158)
Interest income 4,695 4,060 4,328
Gain (loss) on sale of assets - (5,466) 29,933
Other, net (1,419) (899) (235)
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS (25,277) (40,266) 23,383
Income tax provision - - (7,389)
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS (25,277) (40,266) 15,994
EXTRAORDINARY ITEMS:
Loss on early extinguishment of debt,
net of related income taxes - (20,386) (2,504)
Tax benefit from loss carryforward utilization - - 6,089
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING METHOD:
Change in method of accounting for income taxes - 3,862 -
-------- -------- --------
NET INCOME (LOSS) $(25,277) $(56,790) $ 19,579
======== ======== ========
PRIMARY EARNINGS (LOSS) PER SHARE:
Income (loss) before extraordinary items $ (1.43) $ (2.82) $ 1.30
Extraordinary items - (1.43) .29
Accounting change - .27 -
-------- -------- --------
$ (1.43) $ (3.98) $ 1.59
======== ======== ========
FULLY DILUTED EARNINGS PER SHARE:*
Income before extraordinary items $ 1.27
Extraordinary items .26
--------
$ 1.53
========
WEIGHTED AVERAGE NUMBER OF CLASS A COMMON
AND COMMON SHARES OUTSTANDING:*
Primary 17,662 14,277 12,294
======== ======== ========
Fully diluted 13,828
========
</TABLE>
* Fully diluted earnings per share effect is not presented for years in which
the calculation was either insignificant or anti- dilutive.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
58
<PAGE> 59
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' INVESTMENT Jones Intercable, Inc.
For the years ended May 31, 1992, 1993 AND 1994 and Subsidiaries
<TABLE>
<CAPTION>
Class A Common Stock Common Stock Additional
-------------------- ------------------ Paid-In Accumulated Treasury
Shares Amount Shares Amount Capital Deficit Stock
-------- -------- ------- ------ ---------- ----------- --------
(Stated in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, May 31, 1991 8,239 $ 82 5,499 $ 55 $ 61,824 $ (50,521) $ (14,093)
Proceeds from stock options
exercised 188 2 - - 1,055 - -
Purchase of interest in the
Jones Group, Ltd. - - - - - (88) 88
Sale of Class A Common
Stock 730 7 - - 8,885 - -
Net income - - - - - 19,579 -
----- ----- ----- ----- -------- -------- ---------
BALANCES, May 31, 1992 9,157 $ 91 5,499 $ 55 $ 71,764 $(31,030) $ (14,005)
----- ----- ----- ----- -------- -------- ---------
</TABLE>
59
<PAGE> 60
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' INVESTMENT Jones Intercable, Inc.
For the years ended May 31, 1992, 1993 and 1994 and Subsidiaries
<TABLE>
<CAPTION>
Class A Common Stock Common Stock Additional
-------------------- ---------------- Paid-In Accumulated Treasury
Shares Amount Shares Amount Capital Deficit Stock
------ ------- ------ ------ ---------- ----------- --------
(Stated in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, May 31, 1992 9,157 $ 91 5,499 $ 55 $ 71,764 $(31,030) $(14,005)
Proceeds from stock options
exercised 54 1 - - 306 - -
Purchase of interest in the
Jones Group, Ltd. - - - - - (37) 37
Sale of Class A Common
Stock 4,270 43 - - 57,884 - -
Class A Stock Option Grants - - - - 4,080 - -
Purchase of Treasury Stock
from Jones Spacelink, Ltd. - - - - - (336) (414)
Net loss - - - - - (56,790) -
------ ---- ----- ---- -------- ------- --------
BALANCES, May 31, 1993 13,481 $135 5,499 $ 55 $134,034 $(88,193) $(14,382)
------ ---- ----- ---- -------- -------- --------
</TABLE>
60
<PAGE> 61
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' INVESTMENT Jones Intercable, Inc.
For the years ended May 31, 1992, 1993 and 1994 and Subsidiaries
<TABLE>
<CAPTION>
Class A Common Stock Common Stock Additional
-------------------- --------------- Paid-In Accumulated Treasury
Shares Amount Shares Amount Capital Deficit Stock
-------- --------- ------ ------ ------- ----------- --------
(Stated in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, May 31, 1993 13,481 $135 5,499 $55 $134,034 $ (88,193) $(14,382)
Proceeds from stock options
exercised 75 1 - - 418 - -
Class A Common Stock issued upon
conversion of Subordinated Debentures 6 - - - 100 - -
Class A Stock Option Grants - - - - 152 - -
Sale of Class A Common Stock to
Bell Canada International Inc. 2,500 25 - - 54,975 - -
Net loss - - - - - (25,277) -
------ ---- ----- --- -------- --------- --------
BALANCES, May 31, 1994 16,062 $161 5,499 $55 $189,679 $(113,470) $(14,382)
====== ==== ===== === ======== ========= ========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
61
<PAGE> 62
CONSOLIDATED STATEMENTS OF
CASH FLOWS Jones Intercable, Inc.
For the years ended May 31, 1994, 1993 and 1992 and Subsidiaries
<TABLE>
<CAPTION>
1994 1993 1992
-------- --------- ----------
(Stated in Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(25,277) $ (56,790) $ 19,579
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Extraordinary loss on early extinguishment
of debentures, net of related income taxes - 20,386 2,504
Extraordinary tax benefit from loss carryforward utilization - - (6,089)
Cumulative effect of change in method of accounting for
income taxes - (3,862) -
Class A Common Stock option expense 152 4,080 -
Loss (gain) on sale of assets - 5,466 (29,933)
Depreciation and amortization 43,831 42,720 39,586
Deferred income tax provision - - 7,389
Equity in losses of affiliated entities 4,624 2,900 8,158
Amortization of discount on debentures - 348 808
Increase (decrease) in deferred distribution revenue - 4,778 (20,373)
Increase in trade receivables (627) (805) (951)
Decrease (increase) in other receivables, deposits,
prepaid expenses and other assets (362) (1,548) 297
Increase (decrease) in accounts payable, accrued
liabilities and subscriber prepayments and deposits 1,321 9,059 (6,589)
-------- --------- --------
Net cash provided by operating activities 23,662 26,732 14,386
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of cable television systems (27,880) (74,165) -
Sale of cable television systems - 18,170 15,000
Liquidation of partnership interest - - 40,000
Purchase of property and equipment (23,818) (18,238) (17,068)
Investment in cable television partnerships and affiliates (28,570) (5,798) (12,278)
Investment in The Mind Extension University (15,758) (8,349) (1,651)
Other, net 3,524 3,385 3,411
-------- --------- ---------
Net cash provided by (used in) investing activities (92,502) (84,995) 27,414
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 84,500 207,000 110,000
Repayment of debt (67,500) (227,000) (126,300)
Proceeds from issuance of Class A Common
Stock and Class A Common Stock options 55,519 58,234 9,949
Increase in accounts receivable from affiliated entities (264) (4,302) (1,637)
Purchase of Treasury stock - (750) -
Redemption of debentures - (225,557) (33,180)
Proceeds from debenture offerings, net - 253,839 -
Other, net (307) (4,484) (1,802)
-------- --------- ---------
Net cash provided by (used in) financing activities 71,948 56,980 (42,970)
-------- --------- ---------
Increase (decrease) In Cash and Cash Equivalents 3,108 (1,283) (1,170)
Cash and Cash Equivalents, beginning of year 1,131 2,414 3,584
-------- --------- ---------
Cash and Cash Equivalents, end of year $ 4,239 $ 1,131 $ 2,414
======== ========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
62
<PAGE> 63
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended May 31, 1994, 1993 and 1992
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Jones Intercable, Inc. (the "Company") was formed in 1970, as a
wholly-owned subsidiary of Jones International, Ltd. ("International").
Subsequent sales of shares of the Company's Common Stock by International and
issuances of shares of such stock and Class A Common Stock by the Company
reduced International's ownership of the Common Stock and Class A Common Stock
of the Company. In 1987, International agreed to exchange approximately 97% of
its Common Stock holdings of the Company for Class A Common Stock of Jones
Spacelink, Ltd. ("Spacelink"), a subsidiary of International with a publicly
held minority interest. Spacelink now owns approximately 58% of the Company's
outstanding Common Stock (14% of both classes of outstanding shares) and
International's direct ownership of Common Stock is approximately 4%.
International, whose sole shareholder is Glenn R. Jones, Chairman of the Board
and Chief Executive Officer of the Company, beneficially owns all the issued
and outstanding shares of Spacelink's Class B Common Stock and approximately
79% of Spacelink's Class A Common Stock. Glenn R. Jones, through his direct
and indirect ownership of Common Stock, has voting power over approximately 48%
of the votes to be cast by all of Intercable's shareholders on matters not
requiring a class vote because of certain preferences of the Company's Common
Stock.
The Company and its subsidiaries own and operate cable television
systems. The Company also manages cable television systems owned by
partnerships and owns investments in foreign cable television/telephony
properties.
On November 12, 1993, the Company announced that negotiations had
commenced regarding the possible acquisition by the Company of substantially
all of the assets of Spacelink in return for the issuance of Class A Common
Stock of the Company to Spacelink (the "Spacelink Transaction"). On June 2,
1994, the Company announced that a definitive agreement had been reached with
Spacelink. Pursuant to that agreement, the Company would issue 4,100,000
shares of Class A Common Stock to Spacelink in exchange for substantially all
of the assets of Spacelink. The closing of this transaction is expected to
occur simultaneously with the closing of the Bell Canada International, Inc.
transaction discussed below. The closing is subject to a number of conditions,
including the approval of the shareholders of the Company and the approval of
the shareholders of Spacelink.
The Company and Bell Canada International Inc. ("BCI") have entered
into an agreement 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 agreement, BCI would invest $400,000,000 over
time. The original investment would be in two installments: the purchase by
BCI of 2,500,000 newly issued Class A shares of the Company at $22 per share
for $55,000,000, and the purchase at closing at $27.50 per share of Class A
Common Stock of the Company to acquire a 30 percent 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. BCI
also was committed to invest up to an additional $139,000,000 to maintain its
30 percent interest in the event the Company offered additional Class A Common
Stock. BCI had the
63
<PAGE> 64
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1994, 1993 and 1992
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.
Closing of the BCI transaction, which is subject to certain
conditions, is expected to occur in fiscal 1995.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. The Company's investments in
domestic cable television partnerships and other affiliates (Note 3) are
carried at cost plus equity in profits and losses. All significant
intercompany transactions have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, the
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Income taxes and
interest paid during the periods presented are as follows:
<TABLE>
<CAPTION>
May 31,
----------------------------------------------
1994 1993 1992
-------- -------- --------
(Stated in Thousands)
<S> <C> <C> <C>
Income taxes $ - $ - $ 1,185
Interest 35,689 38,871 39,030
-------- -------- --------
$ 35,689 $ 38,871 $ 40,215
======== ======== ========
</TABLE>
Non-cash transactions: During fiscal 1994 and 1993, the Company
recorded $152,000 and $4,080,200, respectively of Additional Paid-in Capital
related to Class A Common Stock option grants as discussed in Note 7. No
material non-cash investing or financing transactions occurred during fiscal
1992.
Property, Plant and Equipment
Prior to receiving the first revenues from subscribers of a cable
television system constructed by the Company, all construction costs, operating
expenses and interest related to the system are capitalized. From the time of
such receipt until completion of construction, but no longer than two
64
<PAGE> 65
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1994, 1993 and 1992
years (defined as the "prematurity period"), portions of certain fixed
operating expenses and interest are capitalized in addition to direct
construction costs. The portions capitalized are decreased as progress is made
toward obtaining the subscriber level expected at the end of the prematurity
period, after which no further expenses are capitalized. No such amounts were
capitalized during the years ended May 31, 1994, 1993 and 1992. In addition,
costs (including labor, overhead and other costs of completion) associated with
installation in homes not previously served by cable television are capitalized
and included as "distribution systems".
Depreciation of property, plant and equipment is provided using the
straight-line method over the following estimated service lives:
<TABLE>
<S> <C>
Distribution systems including capitalized
interest and operating expenses Primarily 15 years
Buildings 10-20 years
Equipment and tools 3- 5 years
Premium service equipment 5 years
Earth receive stations 5-15 years
Vehicles 3- 4 years
Other property, plant and equipment 3- 5 years
</TABLE>
Franchise Costs
Costs incurred in obtaining cable television franchises and other
operating authorities are initially deferred and amortized over the lives of
the franchises. Franchise rights acquired through purchase of cable television
systems are stated at estimated fair value at the date of acquisition and
amortized over the remaining terms of the franchises. Amortization is
determined using the straight-line method over lives of one to ten years.
Cost in Excess of Interests in Net Assets Purchased
The cost of acquisitions in excess of the fair values of net assets
acquired is being amortized using the straight-line method over a 40-year life.
The Company assesses the realizability of these assets through periodic
independent appraisals. Any impairments are recognized as expense on the
Company's Consolidated Statements of Operations.
Deferred Financing Costs
Costs incurred in connection with the issuance of subordinated
debentures and the execution of revolving credit agreements are deferred and
amortized using the effective interest method over the life of such issues and
agreements.
Investment in Cable Television Systems Held for Resale to Managed
Limited Partnerships
Revenues and expenses attributable to cable television systems held
by the Company on behalf of its managed limited partnerships are not reflected
in the Consolidated Statements of Operations. Only
65
<PAGE> 66
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1994, 1993 and 1992
the net cash deficiency generated during the first year of the holding period
by systems held for resale is capitalized as carrying costs and included in
investment in cable television systems held for resale to managed limited
partnerships.
Fund Fees and Distributions
Fees and distributions earned by the Company related to cable
television properties sold to unaffiliated parties are recorded as revenues
when received. Fees and distributions earned by the Company as general partner
of managed limited partnerships related to cable television properties sold to
the Company are treated as a reduction of the purchase prices of the cable
television systems purchased. Fees and distributions earned by the Company as
General Partner of managed limited partnerships related to cable television
properties sold to entities in which the Company has a continuing equity
interest are deferred and recognized as revenue in future periods.
Income Taxes
Effective June 1, 1992, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". Under the
liability method specified by SFAS No. 109, a deferred tax liability or asset
is determined based on the temporary differences between the financial
reporting and tax bases of assets and liabilities as measured by the enacted
tax rates which are expected to be in effect when these differences reverse.
Earnings Per Share of Class A Common Stock and Common Stock
Net income (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.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
1994 presentation.
2. TRANSACTIONS WITH RELATED PARTIES
The Company and the limited partnerships for which the Company is
general partner (Note 4) have had, and will continue to have, certain
transactions with International and its other subsidiaries. Principal
recurring transactions are as follows:
On May 31, 1991, the Company purchased from International a 19%
interest in Galactic Radio, Inc. for $4,305,000 in cash. The purchase price
was based on an independent third party appraisal. The Company has accounted
for this acquisition as a transfer between entities under common control, with
the excess consideration paid over the historical cost of the assets acquired
being charged to retained earnings. Spacelink owns the remaining 81% interest
in Galactic Radio, Inc. Galactic
66
<PAGE> 67
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1994, 1993 and 1992
Radio, Inc. owns 50% of Superaudio which provides audio programming to the
Company, its partnerships and unaffiliated entities. Payments made to
Superaudio relating to the Company's owned cable television systems totaled
approximately $151,800, $144,200 and $127,000, respectively for the years ended
May 31, 1994, 1993 and 1992.
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 subsequently terminated the 1993 license agreement and
entered into a new license agreement with Space Segment. Under the new license
agreement, the Company, Jones Infomercial Networks, Inc. ("PIN") and Jones
Computer Network, Ltd. ("JCN"), affiliates of International, have a license to
use the transponder for their respective purposes. Under the terms of the new
agreement, the Company agreed to pay Space Segment $200,000 per month from
January 1994 through March 1994 and the Company and PIN each agreed to pay
$100,000 per month beginning April 1994 and until the launch of JCN.
Thereafter the Company, PIN and JCN will each pay $66,667 per month. The
Company recognized $2,300,000 and $700,000 of rental expense related to these
lease agreements during the fiscal years ended May 31, 1994 and 1993,
respectively.
Jones Interactive, Inc., a wholly-owned subsidiary of International,
provides information management and data processing services for all companies
affiliated with International. Charges to the various operating companies are
based on usage of computer time by each entity. Fees charged to the Company
and its affiliated partnerships for the years ended May 31, 1994, 1993 and 1992
totaled $4,687,000, $4,082,400 and $3,607,900, respectively. The Company paid
approximately 26%, 22% and 22% of these fees during fiscal 1994, 1993 and 1992,
respectively.
Jones Informercial Networks, Inc., ("Jones Infomercial") provides
advertising time for third parties on certain Company, Spacelink and their
managed partnership cable television systems, using those systems' ad sales
slots. In consideration, the revenues generated from the third parties are
shared two-thirds and one-third between Jones Infomercial and the entities
owning the cable television systems. Payments made to the Company by Jones
Infomercial relating to the Company's owned cable television systems totaled
approximately $17,700 for the year ended May 31, 1994. No such payments were
made during the years ended May 31, 1993 and 1992.
The Company is party to a lease with Jones Properties, Inc., a
wholly-owned subsidiary of International, under which the Company has leased a
101,500 square foot office building in Englewood, Colorado. The lease
agreement, as amended, has a 15-year term with three 5-year renewal options.
The annual rent is not to exceed $24.00 per square foot, plus operating
expenses. The Company has subleased approximately 26% of the building to
International and certain affiliates of International on the same terms and
conditions as the above-mentioned lease. Rent payments to Jones Properties,
Inc., net of subleasing reimbursements for the three years ended May 31, 1994,
1993 and 1992 were $1,753,000 for each respective period. The Company paid
approximately 26%, 22% and 22% of these fees during fiscal 1994, 1993 and 1992,
respectively.
67
<PAGE> 68
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1994, 1993 and 1992
The Jones Group, Ltd. ("Jones Group"), an affiliated corporation,
performs brokerage services for the Company and the limited partnerships. In
June 1987, the Company acquired 1,990 shares (19.9%) of Common Stock of Jones
Group for $4,245,000 in cash and 164,867 shares of the Company's Common Stock.
The Company accounted for this acquisition as a transfer between entities under
common control, with the excess consideration paid over the historical cost of
the assets acquired being charged to retained earnings in the amount of
$5,162,000. Dividends received during the years ended May 31, 1994, 1993 and
1992 totaled $66,100, $191,400 and $272,800, respectively.
Jones Group will generally receive a fee equal to 2-1/2% of the sales
price for brokering partnership properties to unaffiliated parties.
Brokerage fees earned by Jones Group from the Company and its managed
partnerships are summarized as follows:
<TABLE>
<CAPTION>
The Company Partnerships
----------- ------------
(Stated in Thousands)
Year ended May 31,
<S> <C> <C>
1994 $680 $ -
1993 523 2,214
1992 12 731
</TABLE>
Jones Financial Group, Ltd. ("Jones Financial Group") performs
services for the Company as its agent in connection with joint venture and
other financial arrangements. The Company paid an advisory fee of L.414,854
(approximately $632,600) to Jones Financial Group in fiscal 1995 for its
services to the Company in connection with the Company's transfer of all of its
interests in its cable/telephony properties in the United Kingdom to Bell
Cablemedia plc (See Note 3).
Historically, Jones International Securities, Ltd., ("JIS") a
wholly-owned subsidiary of International, acted as dealer-manager of offerings
by the Company's managed limited partnerships. The dealer-manager received
fees generally equal to 10% of the capital contributed by the limited partners
from which all sales commissions of participating broker-dealers are paid. A
substantial portion of this fee was paid to unaffiliated broker-dealers. JIS
provides investor support services to the Company and its partnerships. The
Company paid approximately 26%, 22% and 22% of these expenses during fiscal
1994, 1993 and 1992, respectively.
On July 3, 1990, the Company purchased an aircraft owned by
International Aviation, Ltd. ("Aviation"), a subsidiary of International, by
acquiring all of the common stock (1,000 shares) of Aviation for $935,600 and
repaying the remaining $564,400 of debt outstanding on the aircraft. The
purchase price was based on an independent third party appraisal. The
acquisition of Aviation by the Company was accounted for as a transfer between
entities under common control and, accordingly, the assets transferred were
recorded by the Company at historical cost with a corresponding charge against
retained earnings. To the extent the aircraft is used by affiliates of the
Company, the Company will be reimbursed by such affiliates.
68
<PAGE> 69
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1994, 1993 and 1992
The Company has incurred approximately $4,246,000, $2,222,600 and
$1,633,300 of related party expenses in connection with the above-mentioned
related party transactions which had been charged to operating, general and
administrative expenses during the fiscal years ended May 31, 1994, 1993 and
1992, respectively. The remaining related party expenses have been allocated
to the Company's managed partnerships and affiliates. The Company believes
that the methodology used in allocating related party expenses is reasonable.
During fiscal 1994 and 1993, the Company carried accounts receivable
from International and its affiliates totaling $2,000,000. Interest on such
receivables is charged at the Company's average cost of borrowing plus 2% and
is being paid currently.
3. INVESTMENTS IN CABLE TELEVISION PARTNERSHIPS AND JOINT VENTURES
United Kingdom Holdings
The Company owns a 38% interest in Jones Global Group, Ltd. ("Jones
Global Group"), a Colorado corporation of which 62% is owned by International.
On July 22, 1994, Jones Global Group and certain of Jones Global Group's
wholly-owned subsidiaries transferred all of their interests in their
cable/telephony properties in the United Kingdom to Bell Cablemedia plc, a
public limited company incorporated under the laws of England and Wales, in
exchange for 3,663,584 American Depository Shares ("ADSs") representing
18,317,920 Ordinary Shares of Bell Cablemedia. At the closing, Jones Global
Group transferred its equity interests in the companies that own the Leeds and
Aylesbury-Chiltern franchises, its general partner interest in Jones United
Kingdom Fund, Ltd. and the assets of its United Kingdom management subsidiary
to Bell Cablemedia. Also on July 22, 1994, the Company and certain of its
wholly-owned subsidiaries transferred all of their interests in their
cable/telephony properties in the United Kingdom to Bell Cablemedia in exchange
for 6,035,648 ADSs representing 30,178,240 Ordinary Shares of Bell Cablemedia.
At the closing, the Company transferred its equity interests in the companies
that own the Leeds and South Hertfordshire franchises and the Company's equity
interest in and shareholder loans to ELT Acquisition Company Limited to Bell
Cablemedia. In addition, the Norwich, Peterborough, Broadland and Fenland
franchises, which were acquired by the Company for $15,500,000 during fiscal
1994, were also transferred. As a result of these transactions, the Company
and Jones Global Group no longer own any direct interest in cable/telephony
properties in the United Kingdom.
Prior to the closing of these transactions, Bell Cablemedia was
indirectly owned 80% by Bell Canada International Inc. ("BCI") and 20% by
Cable and Wireless plc ("C&W"). The Company's and Jones Global Group's
agreement to contribute their United Kingdom holdings to Bell Cablemedia was
contingent upon the successful completion of Bell Cablemedia's initial public
offering, which closed on July 22, 1994. The initial offering price for the
ADSs was $17.00 per ADS. As part of the initial offering, Jones Global Group
sold 1,100,000 ADSs providing net cash proceeds of $17,547,888. The proceeds
from the sale of the ADSs by Jones Global Group are intended to allow it to
satisfy estimated U.S. and U.K. tax liabilities in connection with the
transactions.
The ADSs received by the Company are "restricted securities" within
the meaning of Rule 144 promulgated under the Securities Act of 1933 (the
"Securities Act"), and the Company will not be able
69
<PAGE> 70
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1994, 1993 and 1992
to sell its ADSs unless an exemption from registration under the Securities Act
is available or unless its ADSs are registered by a subsequent registration
statement. Bell Cablemedia, BCI, C&W, the Company and Jones Global Group have
agreed that, for a period of 180 days after July 15, 1994 (the date of the
definitive prospectuses used in Bell Cablemedia's ADS Offerings), they will not
sell or otherwise dispose of any ADSs or Ordinary Shares of Bell Cablemedia
(except for those ADSs received by Jones Global Group that were sold as part of
the ADS Offerings) without prior written consent of the lead U.S. underwriters
of the ADS Offerings.
After giving effect to Bell Cablemedia's acquisition of the United
Kingdom holdings of the Company and Jones Global Group and the closings of the
ADSs Offerings on July 22, 1994, BCI indirectly owns approximately 42.2%, C&W
indirectly owns approximately 12.8%, the Company owns approximately 9.7% and
Jones Global Group owns approximately 4.2% of the issued and outstanding shares
of Bell Cablemedia. Based upon the quoted market price of $21.50 per ADS at
August 25, 1994, the quoted market value of the Company's direct investment
totaled approximately $129,766,400. The Company's indirect investment, through
its 38% ownership of Jones Global Group, totaled $20,944,500. Due to the
affiliated nature of the transaction and the Company's indirect continuing
interest in the UK properties, the investment in Bell Cablemedia is reflected
at the Company's cost. At May 31, 1994, the Company's net investment in these
UK properties totaled approximately $50,067,800.
The Company paid an advisory fee of L.414,854 (approximately
$632,600) to Jones Financial Group in fiscal 1995 for its services to the
Company in connection with the aforementioned transactions. Jones Global Group
paid an advisory fee of L.251,812 (approximately $384,000) to Jones Financial
Group for its services to Jones Global Group in connection with the
aforementioned transactions. Jones Financial Group is owned by International
and Glenn R. Jones.
Jones Spanish Holdings
Jones Spanish Holdings, Inc. ("Spanish Holdings") is an affiliate
indirectly owned 38% by the Company and 62% by International. Spanish Holdings
has continued cable television system acquisition, development and operations
in Zaragoza, Spain but has discontinued its operations in Jerez de la
Frontera/Puerto Santa Maria, Spain. These affiliates currently are seeking to
acquire the rights to develop cable television operations in Spain. The
Company has made advances totaling $769,300 during fiscal 1994, and has
advanced a total of $7,764,000 as of May 31, 1994 to fund Spanish Holdings'
activities to date. Additional advances may be made in the future. These
advances have been reflected as investments in foreign cable television
properties 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. The Company's net investment in all of its Spanish activities was
approximately $7,684,300 at May 31, 1994. The Company is seeking to sell its
Spanish system to Bell Cablemedia in fiscal 1995.
Mind Extension University, Inc.
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
70
<PAGE> 71
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1994, 1993 and 1992
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 and December 1993, the
Board of Directors of the Company also approved a $10,000,000 advance and a
$5,000,000 advance, respectively to ME/U on an as-needed basis. Of these
advances, 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 May 31, 1994, all of the total
$15,000,000 had been advanced. On May 3, 1994, the Board of Directors of the
Company approved an additional $5,000,000 advance to ME/U on an as needed
basis, interest accrued at the Company's weighted average cost of borrowing
plus two percent. As of May 31, 1994, $758,300 of the $5,000,000 had been
advanced. These advances, which total $15,758,300, 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. Payments
made to ME/U relating to the Company's owned cable television systems for
programming services for the fiscal years ended May 31, 1994, 1993 and 1992
totaled approximately $103,300, $84,300 and $76,800, respectively.
Jones Intercable Investors, L.P.
The Company is the general partner of this partnership, which was
formed on September 18, 1986, and owns a 1% general partner interest. In a
series of transactions, the Company purchased an approximate 19% ownership
interest. The Company has a gross investment of approximately $18,089,700 in
this partnership at May 31, 1994. The Company's net investment in this
partnership totaled approximately $5,129,800 at May 31, 1994. Based upon the
quoted market price of $10.00 per unit at May 31, 1994, the quoted market value
of this investment was approximately $15,926,300. The Company has accounted
for this investment using the equity method of accounting.
4. MANAGED PARTNERSHIPS
Organization
The Company is general partner for a number of limited partnerships
formed to acquire, construct, develop and operate cable television systems.
Partnership capital has been raised principally through a series of public
offerings of limited partnership interests. The Company made a capital
contribution of $1,000 to each partnership and is allocated 1% of all
partnership profits and losses. The Company may also purchase limited partner
interests in the partnerships and generally participates with respect to such
interests on the same basis as other limited partners.
As general partner, the Company defers costs of limited partnership
public offerings and costs of formation of each limited partnership. These
costs are reimbursed by the partnerships formed, subject to a limitation of
3-3/4% of sales proceeds, for currently offered partnerships. Any costs in
excess of this limitation are borne by the Company and expensed as "other
expense" in the Company's Consolidated Statements of Operations. The Company,
through its 38% ownership in Jones Global Funds, Inc., the General Partner of
Jones United Kingdom Fund, Ltd., absorbed $129,300 and $500,000
71
<PAGE> 72
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1994, 1993 and 1992
of such costs during fiscal 1994 and 1993. The Company, as general partner of
Cable TV Fund 15-A, Ltd. and, through an affiliate, managing general partner of
IDS/Jones Growth Partners II, L.P., absorbed approximately $700,000 and
$346,000, respectively, of such costs during fiscal 1992.
Management Fees
As general partner, the Company manages the partnerships and receives
a fee for its services generally equal to 5% of the gross operating revenues of
the partnerships, excluding revenues from the sale of cable television systems
or franchises.
Distributions
Any partnership distributions made from cash flow (defined as cash
receipts derived from routine operations, less debt principal and interest
payments and cash expenses) are generally allocated 99% to the limited partners
and 1% to the general partner. With respect to Cable TV Funds 11 and 12, any
distributions other than from cash flow, such as from sale or refinancing of
the system or upon dissolution of the partnership, are generally made as
follows: first, to the limited partners in an amount which, together with all
prior distributions, will equal the amount initially contributed to the
partnership capital by the limited partners and the balance, 75% to the limited
partners and 25% to the general partner. With respect to Cable TV Fund 14, any
distributions other than from cash flow are generally made as follows: first,
to the limited partners in an amount which, together with all prior
distributions from cash flow, will equal 125% of the amount initially
contributed to the partnership and the balance, 75% to the limited partners and
25% to the general partner. With respect to Cable TV Fund 15, any
distributions other than from cash flow are generally made as follows: first,
to the limited partners and general partner in an amount which, together with
all prior distributions, will equal the amount initially contributed to the
partnership capital by the limited partners and general partner; second, to the
limited partners which, together with all prior distributions, will equal a 6%
per annum cumulative and noncompounded return on the capital contributions of
the limited partners; the balance, 75% to the limited partners and 25% to the
general partner.
With respect to the Jones Cable Income Fund partnerships, any
distributions other than from cash flow are generally made as follows: first,
to the limited partners in an amount which, together with all prior
distributions made from sources other than cash flow, will equal the amount
initially contributed to partnership capital; second, to the limited partners
in an amount which, together with all prior distributions from cash flow, will
equal a liquidation preference ranging from 10% to 12% per annum, cumulative
and noncompounded, on their initial capital contributions and the balance, 75%
to the limited partners and 25% to the general partner.
Any distributions other than from cash flow made by Jones Intercable
Investors, L.P. (Note 3) are generally distributed as follows: first, to the
holders of the Class A Units an amount which, together with all prior
distributions of cash flow from operations, will equal a preferred return equal
to 10% per annum, cumulative and noncompounded, on an amount equal to $16.00
per Class A Unit, less any portion of such amount which may have been returned
to the Unitholders from prior sale or refinancing proceeds; second, to the
holders of Class A Units an amount which, together with all prior distributions
72
<PAGE> 73
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1994, 1993 and 1992
other than distributions of cash flow from operations, will equal $16.00 per
Class A Unit, and the remainder, 60% to the holders of the Class A Units and
40% to the general partner.
The Company recognized fees and distributions totaling $4,778,000 and
$26,790,000 for the years ended May 31, 1993 and 1992, respectively. No such
fees and distributions were recognized during fiscal 1994. The $4,778,000
distribution received during fiscal 1993 from Jones Intercable Investors L.P.,
in which the Company has a 19% limited partnership interest, upon the sale to
the Company of the cable television system serving the area in and around
Alexandria, Virginia was recorded as a reduction in the Company's investment in
Jones Intercable Investors, L.P. Approximately $20,373,000 of the
distributions recognized during fiscal 1992 was deferred in fiscal 1991 as a
result of the Company's continuing equity interest in Jones Crown Partners. An
additional $363,000 of such distributions, relating to the Jones Crown Partners
transaction, was received during fiscal 1992 but recognition was deferred. The
total of these two distributions, $20,736,000, was recognized upon the
liquidation of the Company's interest in Jones Crown Partners. The remaining
amount recognized in fiscal 1992 represents a distribution received upon the
sale of the remaining cable television system owned by Cable TV Fund 11-E/F
Joint Venture to an unaffiliated party.
Allocations
The Company's managed limited partnerships reimburse the Company for
certain allocated overhead and administrative expenses. These expenses
generally consist of salaries and related benefits paid to corporate personnel,
rent, data processing services and other corporate facilities costs. The
Company provides engineering, marketing, administrative, accounting,
information management, legal, investor relations and other services to the
partnerships. Allocations of personnel costs have been based primarily on
actual time spent by Company employees with respect to each partnership
managed. Remaining overhead costs have been allocated based on revenues and/or
the relative cost of partnership assets managed. As of December 1993,
remaining overhead costs have been allocated based solely on revenues.
Company-owned systems are also allocated a proportionate share of these
expenses under the allocation formulas described above. Amounts charged
partnerships and other affiliated companies have directly offset operating,
general and administrative expenses by approximately $28,499,600, $26,434,500
and $25,075,900 for the years ended May 31, 1994, 1993 and 1992, respectively.
Advances
The Company has made advances to certain of the limited partnerships
primarily to accommodate expansion and other financing needs of the
partnerships. Such advances bear interest at rates equal to the Company's
weighted average cost of borrowing which, for the year ended May 31, 1994 was
9.75%. Interest charged to the limited partnerships for the years ended May
31, 1994, 1993 and 1992 was $1,617,000, $1,497,600 and $1,795,000,
respectively.
73
<PAGE> 74
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1994, 1993 and 1992
Certain condensed financial information regarding managed
partnerships, on a combined basis, is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1993 1992 1991
-------- -------- ----------
(Stated in Thousands)
<S> <C> <C> <C>
Total assets $852,604 $921,664 $1,017,560
Debt 590,540 590,698 629,194
Amounts due general partner 16,467 12,690 8,762
Partners' Capital (Net of
accumulated deficit) 214,056 284,058 350,348
Revenues 344,373 334,948 361,431
Depreciation and amortization 135,736 151,879 187,607
Operating loss (24,458) (29,503) (58,429)
Net loss (60,327) (15,945) (126,584)
</TABLE>
The fair market values of the partnerships' assets, as determined by
independent appraisals, exceed the combined amounts due the Company and other
outstanding indebtedness for each individual partnership.
The amount reported as combined net loss for all managed limited
partnerships includes gains on sales and liquidations recognized by certain
partnerships which totaled approximately $0, $59,939,100 and $0 for the years
ended December 31, 1993, 1992 and 1991, respectively.
74
<PAGE> 75
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1994, 1993 and 1992
5. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
May 31,
----------------------------
1994 1993
---------- ----------
(Stated in Thousands)
<S> <C> <C>
SUBORDINATED DEBENTURES:
Debentures due July 15, 2004, interest payable
semi-annually at 11.5%, redeemable at the Company's
option on or after July 15, 1997 at 106.75% of par,
declining to par by July 15, 2000 $ 160,000 $ 160,000
Debentures due March 1, 2008, interest payable
semi-annually at 10.50%, redeemable at the Company's
option on or after March 1, 2000 at 105.25% of
par, declining to par by March 1, 2005 100,000 100,000
Convertible debentures due June 1, 2007, interest
payable semi-annually at 7.5%, redeemable at the
Company's option on or after June 1, 1990 at 107.5%
of par, declining to par by 1997 19,368 19,468
OTHER:
3.7% to 17.00% capitalized equipment lease
obligations due in installments through 1998 1,136 1,228
Non-interest bearing notes due 1995 through 1998 403 518
LENDING INSTITUTIONS:
Credit facility 63,000 46,000
---------- ----------
Total debt $ 343,907 $ 327,214
========== ==========
</TABLE>
In addition to the terms described above, the Company's Convertible
Subordinated Debentures may be converted into its Class A Common Stock at
$15.10 per share, subject to adjustment under certain conditions. Also, the
11.5% Senior Subordinated Debentures due 2004 and the Convertible Subordinated
Debentures described above provide for annual sinking fund payments which are
calculated to retire 62-1/2% to 75% of the issues prior to maturity after
consideration of the debt redemptions discussed below, as follows:
<TABLE>
<CAPTION>
Annual Sinking Commencement
Fund Payment Date
-------------- -------------
<S> <C> <C>
Debenture Issue:
Convertible Debentures $ 3,000,000 June 1, 1998
Debentures due July 2004 $50,000,000 July 15, 2002
</TABLE>
Other than the amounts listed above, there are no other significant debt
maturities.
75
<PAGE> 76
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1994, 1993 and 1992
As a result of the Company's various debenture redemptions during
fiscal 1992 and 1993, the Company has eliminated any cash requirements for
sinking fund payments scheduled above until fiscal 2003.
On June 18, 1993, the Company filed two 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 1994. The proceeds from these offerings would
be added to the general funds of the Company and may be used to make
acquisitions of cable television systems or interests therein, and for general
corporate purposes.
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 year ended May 31, 1994,
the Company's effective interest rate on the credit facility was 5.6%. 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. 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. At
May 31, 1994, 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 $42,000,000 of this availability.
The Company has never paid a cash dividend with respect to its shares
of Common Stock or Class A Common Stock, and it has no present intention to pay
cash dividends in the foreseeable future. The current policy of the Company's
Board of Directors is to retain earnings to provide funds for the operation and
expansion of its business. The Company's credit agreements restrict the right
of the Company to declare and pay cash dividends without the consent of the
lenders.
At May 31, 1994, the carrying amount of the Company's long-term debt
was $343,907,000 and the estimated fair value was $354,707,000. The fair value
of the Company's long-term debt is estimated based on the quoted market prices
for the same issues.
6. INCOME TAXES
Effective June 1, 1992, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". Under the
liability method specified by SFAS No. 109, a deferred tax liability or asset
is determined based on the temporary differences between the financial
reporting and tax bases of assets and liabilities as measured by the enacted
tax rates which are expected to be in effect when these differences reverse. A
valuation allowance must be established for
76
<PAGE> 77
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1994, 1993 and 1992
any portion of a deferred tax asset for which it is more likely than not that a
tax benefit will not be realized.
The cumulative effect of the change in the method of accounting for
income taxes, attributable to fiscal years prior to 1993, was a decrease in net
losses of $3,862,000, or $.27 per share, which has been reflected as a change
in accounting method in the accompanying financial statements. Deferred tax
expense or benefit is the result of changes in the liability or asset recorded
for deferred taxes. During fiscal 1994 and 1993, changes in the Company's
temporary differences and losses from operations, which result primarily from
depreciation and amortization, resulted in deferred tax benefits which were
offset by a valuation allowance of an equal amount.
Computation of the cumulative and current tax provision under SFAS
No. 109 requires recognition of the deferred tax liabilities and assets for the
expected future tax consequences of temporary differences. Additionally,
recognition is given for the future tax benefits of existing tax basis net
operating loss and tax credit carryforwards, after reduction by a valuation
allowance determined after evaluation of future factors affecting realization
of the carryforwards.
Components of income tax expense for Federal and state income tax
purposes are as follows:
<TABLE>
<CAPTION>
Year Ended May 31,
------------------------------------------------
1994 1993 1992
---------- ---------- ----------
(Stated in Thousands)
<S> <C> <C> <C>
Current (benefit) provision
Federal $ - $ - $ (1,185)
State - - 1,185
---------- ---------- ----------
Current provision - - -
---------- ---------- ----------
Deferred provision
Federal - - 7,389
State - - -
---------- ---------- ----------
Deferred provision - - 7,389
---------- ---------- ----------
Total income tax provision on income
from operations - - 7,389
---------- ---------- ----------
Total income tax benefit on
extraordinary items - - (7,389)
---------- ---------- -----------
Cumulative effect of change in
method of accounting for income taxes - (3,862) -
---------- --------- ----------
Total income tax benefit $ - $ (3,862) $ -
========== ========= ==========
</TABLE>
77
<PAGE> 78
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1994, 1993 and 1992
The following table reconciles the statutory Federal income tax rate
to the effective tax rate:
<TABLE>
<CAPTION>
Year Ended May 31,
----------------------------------------
1994 1993 1992
-------- -------- --------
(Stated in Thousands)
<S> <C> <C> <C>
Computed "normally expected" income
tax (benefit) provision at statutory
rates on income from operations $ (8,847) $(13,690) $ 7,950
Increases (reductions) in taxes
resulting from -
Alternative minimum taxes - - (1,183)
Amortization of costs in excess of
interest in net assets purchased 228 - 355
State income taxes, net of Federal
income tax benefit (822) (1,330) 643
Change in status of foreign investments (2,505) - -
Foreign equity investment 412 - -
Tax credits - (591) -
Enacted future tax rate changes - (576) -
Other (90) - (376)
-------- -------- --------
Total income tax (benefit) provision
from operations (11,624) (16,187) 7,389
-------- -------- --------
Tax effect of extraordinary items - (7,604) (7,389)
SFAS 109 valuation allowance 11,624 23,791 -
Cumulative effect of change in method
of accounting of income taxes - (3,862) -
-------- -------- --------
Total income tax benefit $ - $ (3,862) $ -
======== ======== ========
</TABLE>
78
<PAGE> 79
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1994, 1993 and 1992
Deferred tax (liabilities) assets are comprised of the following
components at May 31, 1994 and 1993:
<TABLE>
<CAPTION>
May 31, 1994 May 31, 1993
------------ ------------
(Stated in Thousands)
<S> <C> <C>
Deferred Tax Liabilites:
Depreciation and Amortization $(19,864) $(30,170)
------- --------
Deferred Tax Assets:
Regular tax loss carryforwards 54,291 42,401
Investment tax credit carryforwards 1,076 1,076
AMT credit carryforwards 1,116 1,116
Recognition of partnership items 4,040 14,816
Miscellaneous 988 784
-------- ---------
Total Deferred Tax Assets 61,511 60,193
-------- ---------
Valuation allowance (37,785) (26,161)
------- ---------
Net Deferred Tax Assets $ 3,862 $ 3,862
======== =========
</TABLE>
The benefit for deferred income taxes is the result of the following
timing differences:
<TABLE>
<CAPTION>
May 31, 1992
---------------------
(Stated in Thousands)
<S> <C>
Additional tax depreciation $ 4,362
Fund fees and distributions 17,184
Timing of partnership income (6,309)
Income recognized for tax
purposes from properties held for resale (590)
Differences in recognition of net
operating losses for tax and
financial statement purposes (15,056)
Other 409
--------
Total deferred tax benefit $ --
========
</TABLE>
As of May 31, 1994, the Company had net operating losses ("NOL's") of
approximately $66,347,000 for alternative minimum tax ("AMT") and $141,937,000
for regular tax which expire $45,191,000 in 2005, $24,138,000 in 2007,
$40,809,000 in 2008 and $31,799,000 in 2009. The Company also had investment
tax credit carryforwards of $1,076,000 expiring 1998 through 2005.
The Company's regular tax NOL's are recognized for financial
statement purposes as a reduction of the deferred tax liability or increase of
the deferred tax asset. Consistent with the
79
<PAGE> 80
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1994, 1993 and 1992
requirements of SFAS 109, management believes that sufficient taxable income
will be incurred during the loss carryforward period to utilize approximately
$48,882,500 of the $141,937,000 of regular tax loss carryforwards at May 31,
1993. Therefore, a valuation allowance has been established for approximately
$93,054,500 of net operating losses and for all investment tax credits and
alternative minimum tax credit carryforwards.
7. STOCK OPTIONS
In 1984, the shareholders approved the adoption of a nonqualified
stock option plan to provide for the grant of stock options to key contributors
to the Company. Options to purchase 500,000 shares of the Company's Class A
Common Stock may be granted to an officer, employee, director, or independent
consultant to the Company, or of any affiliate, whose judgment, initiative and
efforts are expected to contribute to the successful conduct of the Company.
Options granted at a price equal to the fair market value of the stock at the
date of grant become exercisable in equal installments over a four year period
or in such installments as determined by the committee administrating the plan.
Effective December 5, 1990, all of the outstanding options under the 1983 Plan
were terminated and new options were granted to the holders of the terminated
options at the fair market value on that date. The number of shares subject to
the new options was identical to the number of shares under the former options
and the vesting of such new options was in most instances the same as under the
former option agreements. As of May 31, 1994, options to purchase 708,936
shares had been granted, of which 332,381 shares were exercised and options to
purchase 216,005 shares had been terminated or forfeited upon resignation of
the holders.
Effective December 6, 1992, the Company granted to certain persons,
including officers, five-year, fully-vested options to purchase Class A Common
Stock at the same exercise price as then in effect for the grantees, all of
whom had held options for the same number of shares which expired on December
5, 1992. The Company recognized $1,869,700 of non-cash compensation expense
related to these grants in the third quarter of fiscal 1993.
On April 17, 1992, the Board of Directors of the Company adopted by
unanimous vote, subject to shareholder approval, the Company's 1992 Stock
Option Plan (the "1992 Plan"). The 1992 Plan was approved by the Company's
shareholders on August 20, 1992. Under the terms of the 1992 Plan, a maximum
of 1,800,000 shares of Class A Common Stock are available for grant. All
employees of the Company, its parent or any participating subsidiary, including
directors of the Company who are also employees, are eligible to participate in
the 1992 Plan. Options generally become exercisable in equal installments over
a four-year period commencing on the first anniversary of the date of grant.
The options expire, to the extent not exercised, on the fifth anniversary of
the date of grant, or upon the recipient's earlier termination of employment
with the Company. Options can be incentive stock options or non-statutory
stock options. The exercise price may not be less than 100% of the fair market
value for incentive stock options, but may be less than fair market value for
non-statutory options. Stock appreciation rights may be granted in tandem with
the grant of stock options. The Board of Directors may, in its discretion,
establish provisions for the exercise of options different from those described
above, and has the power to grant options under the 1992 Plan that may extend
for a period of up to ten years. In fiscal 1994, the Company recognized
approximately $152,000 of non-cash compensation expense related to stock
options granted under the 1992 Plan on November 9, 1993. As of May 31,
80
<PAGE> 81
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1994, 1993 and 1992
1994, options to purchase 658,528 shares had been granted, of which options to
purchase 8,450 shares had been exercised and 11,963 shares had been terminated
or forfeited upon resignation of the holders.
Information concerning Class A Common Stock options is as follows:
<TABLE>
<CAPTION>
May 31,
-------------------------------------------------------
1994 1993 1992
-------------- -------------- -----------
<S> <C> <C> <C>
Available for grant 1,160,504 1,759,469 899,578
Outstanding 799,165 274,300 325,593
Price range, per share $ 5.625-13.81 $ 5.625-11.5 $ 5.625
Exercisable 195,950 269,300 325,593
Price range, per share $ 5.625-11.50 $ 5.625-6.1875 $ 5.625
Granted during period 610,928 174,900 -
Terminated during period 11,963 171,900 18,850
Exercised during period 74,600 54,293 187,850
Price range, per share $ 5.625 $ 5.625 $ 5.625
</TABLE>
The Board of Directors granted options to purchase 100,000 shares of
Common Stock on July 14, 1986 and options to purchase 100,000 shares of Common
Stock on December 31, 1987 to an officer of the Company at a price equal to
fair market value at each respective date. Effective December 5, 1990 these
options were terminated and a new option to purchase 200,000 shares of Common
Stock was granted at a price equal to the fair market value on that date.
Effective March 11, 1993, an option to purchase 200,000 shares of Common Stock
was granted under the 1992 Plan at the same exercise price as the former option
which had expired on December 5, 1992. The Company recognized approximately
$2,210,500 of non-cash compensation expense related to this grant in the fourth
quarter of fiscal 1993.
8. CLASS A COMMON STOCK
The Class A Common Stock has certain preferential rights with respect
to cash dividends and upon liquidation of the Company. In the case of cash
dividends, the holders of the Class A Common Stock will be paid one-half cent
per share per quarter in addition to any amount payable per share for each
share of Common Stock. In the event of liquidation, holders of the Class A
Common Stock are entitled to a preference of $1 per share. After such amount
is paid, holders of the Common Stock are entitled to receive $1 per share for
each share of Common Stock outstanding. Any remaining amount would be
distributed to the holders of the Class A Common Stock and the Common Stock on
a pro rata basis.
In general, with respect to the election of directors, the holders of
Class A Common Stock, voting as a separate class, are entitled to elect that
number of directors which constitutes 25% of the
81
<PAGE> 82
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1994, 1993 and 1992
total membership of the Board of Directors. In all other matters not requiring
a class vote, the holders of the Common Stock and the holders of Class A Common
Stock vote as a single class provided that holders of Class A Common Stock have
one-tenth of a vote for each share held and the holders of the Common Stock
have one vote for each share held.
9. COMMITMENTS AND CONTINGENCIES
The Company rents office facilities and equipment under various
long-term lease arrangements. Minimum commitments under noncancellable
operating leases for the five years ending May 31, 1999 and thereafter are as
follows:
<TABLE>
<CAPTION>
Building Facilities Equipment
Lease Leases Leases Total
-------- ---------- --------- -----
(Stated in Thousands)
<S> <C> <C> <C> <C>
1995 $ 1,753 $ 1,118 $ 589 $ 3,460
1996 1,753 1,074 255 3,082
1997 1,753 889 212 2,854
1998 1,753 717 146 2,616
1999 1,753 667 21 2,441
Thereafter 1,827 2,684 - 4,511
-------- -------- -------- --------
Total commitments $ 10,592 $ 7,149 $ 1,223 $ 18,964
======== ======== ======== ========
</TABLE>
Certain amounts included in lease commitments will be allocated to
managed limited partnerships using the method discussed in Note 4.
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.
In compliance with these rules, the Company reduced rates charged
from certain regulated services effective September 1, 1993. These reductions
resulted in some decrease in revenues and operating income before depreciation
and amortization; however the decrease was not as severe as originally
anticipated. The General Partner has undertaken actions to mitigate a portion
of these reductions primarily through (a) new service offerings in some
systems, (b) product re-marketing and re-packaging and (c) marketing efforts
directed at non-subscribers.
82
<PAGE> 83
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1994, 1993 and 1992
On February 22, 1994, the FCC adopted several additional rate orders
including an order which revised its earlier-announced regulatory scheme with
respect to rates. The FCC's new regulations will generally require rate
reductions, absent a successful cost-of-service showing, of 17% of September
30, 1992 rates, adjusted for inflation, channel modifications, equipment costs,
and increases in programming costs. However, the FCC held rate reductions in
abeyance in certain systems. The new regulations became effective on May 15,
1994, but operators could elect to defer rate reductions to July 14, 1994, so
long as they made no changes in their rates and did not restructure service
offerings between May 15 and July 14.
On February 22, 1994, the FCC also adopted interim cost-of-service
regulations. Rate reductions will not be required where it is successfully
demonstrated that rates for basic and other regulated programming services are
justified and reasonable using cost-of-service standards. The FCC established
an interim industry-wide 11.25% permitted rate of return, and requested
comments on whether this standard and other interim cost-of-service standards
should be made permanent. The FCC also established a presumption that
acquisition costs above a system's book value should be excluded from the rate
base, but the FCC will consider individual showings to rebut this presumption.
The need for special rate relief will also be considered by the FCC if an
operator demonstrates that the rates set by a cost-of-service proceeding would
constitute confiscation of investment, and that, absent a higher rate, the
return necessary to operate and to attract investment could not be maintained.
The FCC will establish a uniform system of accounts for operators that elect
cost-of-service rate regulation, and the FCC has adopted affiliate transaction
regulations. The FCC also proposed adopting a productivity factor to be offset
against future inflation increases to be applied regardless of which form of
regulation is used, cost-of-service or benchmark regulation. After a rate has
been set pursuant to a cost-of-service showing, rate increases for regulated
services will be indexed for inflation, and operators will also be permitted to
increase rates in response to increases in costs beyond their control, such as
taxes and increased programming costs.
The Company has elected to file cost-of-service showings for the
following Company-owned cable television systems: Jefferson County, Colorado;
Charles County, Maryland; Pima County, Arizona; Alexandria, Virginia; and North
Augusta, South Carolina. For these systems, the Company anticipates no further
reductions in revenues or operating income before depreciation and
amortization. The Company's Anne Arundel, Maryland cable television system is
subject to effective competition as defined by the 1992 Cable Act and as a
result, will not experience reductions in revenues or operating income before
depreciation and amortization due to the rate regulations. The Company
complied with the new benchmark regulations and reduced rates in its Oxnard and
Walnut Valley, California cable television systems. The annualized reduction
of revenues and operating income before depreciation and amortization in these
systems is approximately $800,000, or 1%, and approximately $800,000, or 2%,
respectively. The Company will continue its efforts to mitigate the effect of
such rate reductions. In addition, as a result of the Company's managed
partnerships' compliance with the 1992 Cable Act and the corresponding
reduction in Partnership revenues, the Company anticipates an annualized
reduction in management fee revenue of approximately $100,000, or 1%.
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
83
<PAGE> 84
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1994, 1993 and 1992
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
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"), which do not elect mandatory
carriage, 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 are being carried 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.
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 vs. 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 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. 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
84
<PAGE> 85
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1994, 1993 and 1992
believes that its defenses are meritorious and it intends to vigorously defend
the litigation. The Company and The Jones Group, Ltd. have filed motions to
dismiss this claim.
The Company is involved in certain litigation in its normal course of
business. Management believes that the ultimate resolution of such matters
will not have a material adverse affect on the Company's financial position or
results of operations.
10. ACQUISITIONS AND SALES
Sales by the Company
On August 13, 1991, the Company entered into an agreement with Crown
Cable Wisconsin, Inc. ("Crown"), a subsidiary of Hallmark Cards, Inc., to sell
its Onalaska, Wisconsin cable television system ("Onalaska System") for
approximately $15,000,000. Closing on this transaction occurred on December
19, 1991. The Company recognized a gain on the sale of the Onalaska System
before income taxes of approximately $6,400,000, or $.52 per share in fiscal
1992.
During fiscal 1993, the Company sold the cable television systems
serving a portion of San Diego, California and Riverside County, California
(the "California Systems") for $18,170,000. Brokerage fees totaling
approximately $454,000, or 2 1/2% of the sales prices, were paid to The Jones
Group, Ltd. The Company recognized a loss relating to these transactions of
$5,466,000, or $.38 per share, during fiscal 1993.
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. Closing on this
transaction occurred in the first quarter of fiscal 1995. The Company paid The
Jones Group, Ltd. $912,500 for brokerage services related to this acquisition.
Proceeds from the sale of the Gaston System were used to repay amounts
outstanding on the Company's credit facility. The Company recognized a gain
before income taxes of $15,496,400, or $.88 per share, related to this
transaction.
Acquisitions by the Company
On September 29, 1992, the Company entered into an agreement with
Jones Intercable Investors, L.P. (the "Partnership"), a publicly traded master
limited partnership for which the Company is general partner, to acquire from
the Partnership the cable television system serving the areas in and around
Alexandria, Virginia (the "Alexandria System") for $73,200,000. The Alexandria
System served approximately 34,800 basic subscribers at November 30, 1992. The
purchase price was determined based on the average of three separate,
independent appraisals. Closing occurred on November 2, 1992. In addition,
The Jones Group, Ltd. received a brokerage fee of approximately $1,831,000, or
2 1/2% of the purchase price. The Company funded this acquisition with
$60,000,000 drawn on its revolving credit facility, $4,778,000 which the
Company received as a Class A unit holder in the Partnership, $2,832,300 paid
to the Company which represented the accrued but unpaid distributions on Class
B units held by the Company during the first three years of the Partnership's
operations, and cash on hand. In addition, the Company, through its 19%
ownership interest in the Partnership, realized a $9,018,000
85
<PAGE> 86
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1994, 1993 and 1992
gain upon the sale of the Alexandria System which was recorded as a reduction
in the basis of the assets purchased as a result of the Company's continuing
equity interest in the Alexandria System. The Alexandria System acquisition
was accounted for using the purchase method of accounting. Its results of
operations are included in the Company's Consolidated Statements of Operations
from November 1992 forward.
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 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. $680,000 for brokerage
services related to this acquisition. The transaction closed on December 15,
1993. The North Augusta System acquisition was accounted for using the
purchase method of accounting. Its results of operations are included in the
Company's Consolidated Statements of Operations from December 15, 1993 forward.
11. SUPPLEMENTARY PROFIT AND LOSS INFORMATION
Supplementary profit and loss information is presented below:
<TABLE>
<CAPTION>
Year Ended May 31,
----------------------------------------------
1994 1993 1992
------- ------- -------
(Stated in Thousands)
<S> <C> <C> <C>
Maintenance and repairs $ 1,170 $ 1,079 $ 968
Taxes other than income
and payroll taxes 1,558 1,516 1,469
Advertising 2,095 1,933 1,458
Bad debt expense 1,097 805 600
Rent expense 2,963 2,918 2,821
Depreciation of property,
plant and equipment 21,918 23,141 21,528
</TABLE>
There were no royalties or research and development costs, or
significant bad debt write-offs.
86
<PAGE> 87
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1994, 1993 and 1992
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1994
----------------------------------------------------------
Three Months Ended
----------------------------------------------------------
August 31 November 30 February 28 May 31
---------- ----------- ----------- ----------
(In Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
Revenues $32,373 $32,479 $33,273 $34,311
Depreciation and
amortization 10,514 10,468 11,063 11,786
Operating income 3,591 3,015 3,171 2,483
Net loss (5,852) (5,776) (6,521) (7,128)
Net loss per share $ (.34) (.34) $ (.38) $ (.37)
</TABLE>
<TABLE>
<CAPTION>
1993
----------------------------------------------------------
Three Months Ended
----------------------------------------------------------
August 31 November 30 February 28 May 31
----------- ----------- ----------- ----------
(In Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
Revenues $27,264 $ 29,880 $32,387 $ 33,061
Depreciation and
amortization 9,877 10,462 11,504 10,877
Operating income 2,680 3,291 776 1,765
Loss before
extraordinary items
and accounting change (5,901) (9,624) (9,793) (14,948)
Net loss (8,848) (10,420) (9,845) (27,677)
Net loss per share $ (.69) $ (.80) $ (.70) $ (1.79)
</TABLE>
87
<PAGE> 88
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
We have audited in accordance with the generally accepted
auditing standards, the consolidated financial statements included in the JONES
INTERCABLE, INC. (a Colorado corporation) Form 10-K. We have also audited the
schedules listed in the accompanying index. These consolidated financial
statements and schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and schedules based on our audits. The schedules are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein, in relation to the basic
financial statements taken as a whole.
Denver, Colorado,
August 22, 1994. ARTHUR ANDERSEN & CO.
88
<PAGE> 89
JONES INTERCABLE, INC. AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED MAY 31, 1992, 1993, AND 1994
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
Balance at Sales Balance at
Beginning of Additions and Other End of
Classification Period at Cost Retirements Changes Period
- - -------------- ------------ ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended May 31, 1992
- - -----------------------
Cable distribution systems $177,498 $15,714 $ (4,940) $ (74) $188,198
Buildings 4,261 30 (291) - 4,000
Land 2,748 13 (24) - 2,737
Equipment and tools 4,831 339 (138) - 5,032
Premium service equipment 18,175 1,826 (238) (715) 19,048
Earth receive stations 4,709 138 (25) - 4,822
Vehicles 1,101 109 (60) (38) 1,112
Leasehold improvements and
office furniture 8,850 1,236 (192) - 9,894
Construction work in progress 3,169 (2,733) (298) - 138
Other 9,800 1,268 (1,156) (45) 9,867
-------- ------- -------- ------- --------
$235,142 $17,940 $ (7,362)(1) $ (872) $244,848
======== ======= ======== ======= ========
Year Ended May 31, 1993
- - -----------------------
Cable distribution systems $188,198 $14,057 $(14,781) $11,635 $199,109
Buildings 4,000 95 (433) 9 3,671
Land 2,737 - (37) - 2,700
Equipment and tools 5,032 533 (209) 313 5,669
Premium service equipment 19,048 2,012 (1,349) 2,997 22,708
Earth receive stations 4,822 90 (1,929) 74 3,057
Vehicles 1,112 165 (203) 195 1,269
Leasehold improvements and
office furniture 9,894 881 (241) 1,933 12,467
Construction work in progress 138 106 (20) - 224
Other 9,867 1,308 (315) 480 11,340
-------- ------- -------- ------- --------
$244,848 $19,247 $(19,517)(2) $17,636 (3) $262,214
======== ======= ======== ======= ========
Year Ended May 31, 1994
- - -----------------------
Cable distribution systems $199,109 $14,722 $ (15) $ 4,819 $218,635
Buildings 3,671 3,212 - 167 7,050
Land 2,700 12 - 30 2,742
Equipment and tools 5,669 586 - 220 6,475
Premium service equipment 22,708 2,040 (59) 206 24,895
Earth receive stations 3,057 16 (2) 272 3,343
Vehicles 1,269 133 (93) 91 1,400
Leasehold improvements and
office furniture 12,467 810 - 105 13,382
Construction work in progress 224 1,253 (228) - 1,249
Other 11,340 1,879 (9) - 13,210
-------- ------- -------- ------- --------
$262,214 $24,663 $ (406) $ 5,910 (4) $292,381
======== ======= ======== ======= ========
</TABLE>
(1) Amounts primarily represent the sale of the Onalaska, Wisconsin cable
television system in December 1991.
(2) Amounts primarily represent the sale of the cable television systems
serving a portion of San Diego and Riverside County, California
in fiscal 1993.
(3) Amounts primarily represent the purchase of the cable television system
serving the areas in and around Alexandria, Virginia during fiscal 1993.
(4) Amounts primarily represent the purchase of the cable television system
serving the areas in and around North Augusta, South Carolina during
fiscal 1994.
See the accompanying notes to consolidated financial statements.
89
<PAGE> 90
JONES INTERCABLE, INC. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED MAY 31, 1992, 1993, AND 1994
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
Additions
Balance at Charged to Sales Balance at
Beginning of Cost and and Other End of
Description Period Expense Retirements Changes Period
- - ----------- ------------ ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended May 31, 1992
- - -----------------------
Cable distribution systems $ 38,972 $ 12,724 $ (1,389) $ 1,174 $ 51,481
Buildings 562 225 (48) - 739
Land - - - - -
Equipment and tools 1,697 655 (90) 253 2,515
Premium service equipment 7,632 3,412 (154) (443) 10,447
Earth receive stations 1,070 415 (19) - 1,466
Vehicles 774 149 (44) (13) 866
Leasehold improvements and
office furniture 4,101 1,387 (38) (7) 5,443
Other 3,802 2,561 (864) (5) 5,494
--------- --------- -------- ------- --------
$ 58,610 $ 21,528 $ (2,646)(1) $ 959 $ 78,451
========= ========= ======== ======= ========
Year Ended May 31, 1993
- - -----------------------
Cable distribution systems $ 51,481 $ 14,458 $ (3,285) $ 1,194 $ 63,848
Buildings 739 219 (42) - 916
Land - - - - -
Equipment and tools 2,515 1,089 (141) - 3,463
Premium service equipment 10,447 3,665 (912) - 13,200
Earth receive stations 1,466 362 (468) - 1,360
Vehicles 866 185 (70) - 981
Leasehold improvements and
office furniture 5,443 1,506 (140) - 6,809
Other 5,494 1,657 (227) - 6,924
--------- --------- -------- ------- --------
$ 78,451 $ 23,141 $ (5,285)(2) $ 1,194 $ 97,501
========= ========= ======== ======= ========
Year Ended May 31, 1994
- - -----------------------
Cable distribution systems $ 63,848 $ 13,770 $ (5) $ 1,977 $ 79,590
Buildings 916 252 - - 1,168
Land - - - - -
Equipment and tools 3,463 982 - - 4,445
Premium service equipment 13,200 3,112 (59) - 16,253
Earth receive stations 1,360 221 - - 1,581
Vehicles 981 206 (78) - 1,109
Leasehold improvements and
office furniture 6,809 1,600 - - 8,409
Other 6,924 1,775 (19) - 8,680
--------- --------- -------- ------- --------
$ 97,501 $ 21,918 $ (161) $ 1,977 $121,235
========= ========= ======== ======= ========
</TABLE>
(1) Amounts primarily represent the sale of the Onalaska, Wisconsin cable
television system in December 1991.
(2) Amounts primarily represent the sale of the cable television systems
serving a portion of San Diego and Riverside County, California during
fiscal 1993.
See the accompanying notes to consolidated financial statements.
90
<PAGE> 91
JONES INTERCABLE, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MAY 31, 1994, 1993, AND 1992
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Balance at Charged to Balance at
Beginning Costs and Deductions- End of
of Period Expenses Write-offs Period
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Year Ended May 31, 1994
- - -----------------------
Allowance for doubtful
accounts $339,600 1,097,000 (1,042,700) $393,900
Year Ended May 31, 1993
- - -----------------------
Allowances for doubtful
accounts $293,400 805,000 (758,800) $339,600
Year Ended May 31, 1992
- - -----------------------
Allowances for doubtful
accounts $377,100 600,000 (683,700) $293,400
</TABLE>
91
<PAGE> 92
JONES INTERCABLE, INC. AND SUBSIDIARIES
SCHEDULE IX - SHORT TERM BORROWINGS
FOR THE YEARS ENDED MAY 31, 1994, 1993, AND 1992
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
Maximum Average Weighted
Category of Weighted Amount Amount Average
Aggregate Balance at Average Outstanding Outstanding Interest Rate
Short-Term End of Interest During the During the During the
Borrowings Period Rate Period Period Period
- - ---------- ------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended May 31, 1994
- - -----------------------
Amounts payable to
banks for borrowings $63,000,000 6.306% $126,500,000 $72,083,000 5.550%
Year Ended May 31, 1993
- - -----------------------
Amounts payable to
banks for borrowings $46,000,000 5.374% $ 64,000,000 $29,700,000 6.208%
Year Ended May 31, 1992
- - -----------------------
Amounts payable to
banks for borrowings $66,000,000 6.612% $103,300,000 $68,650,000 7.203%
</TABLE>
* Computed by compiling the monthly weighted average interest rates during
the year.
92
<PAGE> 93
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information concerning the executive officers and directors of
the Company is set forth below.
<TABLE>
<CAPTION>
Name Age Positions with the General Partner
---- --- ----------------------------------
<S> <C> <C>
Glenn R. Jones (1) 64 Chairman of the Board and Chief Executive Officer
James B. O'Brien (1) 44 President, Chief Operating Officer and Director
Ruth E. Warren 44 Group Vice President/Operations
Kevin P. Coyle 43 Group Vice President/Finance
Christopher J. Bowick 38 Group Vice President/Technology
Timothy J. Burke 43 Group Vice President/Taxation, Administration
Raymond L. Vigil 47 Group Vice President/Human Resources and Director
Elizabeth M. Steele 42 Vice President/General Counsel and Secretary
Michael J. Bartolementi 35 Controller
George J. Feltovich (3) 63 Director
James J. Krejci 52 Director
Patrick J. Lombardi (2) 46 Director
Howard O. Thrall (2)(3) 47 Director
</TABLE>
______________
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Executive Officer Option Committee.
Mr. Glenn R. Jones has served as Chairman of the Board of Directors
and Chief Executive Officer of the Company since its formation in 1970, and he
was President from June 1984 until April 1988. Mr. Jones was elected a member
of the Executive Committee of the Board of Directors in April 1985. He is also
Chairman of the Board of Directors and Chief Executive Officer of Jones
Spacelink, Ltd., a publicly held cable television company that is a subsidiary
of Jones International, Ltd. and the parent of the Company. Mr. Jones is the
sole shareholder, President and Chairman of the Board of Directors of Jones
International, Ltd. He is also Chairman of the Board of Directors of the
subsidiaries of the Company and of certain other affiliates of the Company.
Mr. Jones has been involved in the cable television business in various
capacities since 1961, is a past and present member of the Board of
93
<PAGE> 94
Directors of the National Cable Television Association, and is a former member
of its Executive Committee. Mr. Jones is a past director and member of the
Executive Committee of C-Span. Mr. Jones has been the recipient of several
awards including the Grand Tam Award in 1989, the highest award from the Cable
Television Administration and Marketing Society; the Chairman's Award from the
Investment Partnership Association, which is an association of sponsors of
public syndications; the cable television industry's Public Affairs Association
President's Award in 1990, the Donald G. McGannon award for the advancement of
minorities and women in cable; the STAR Award from American Women in Radio and
Television, Inc. for exhibition of a commitment to the issues and concerns of
women in television and radio; and the Women in Cable Accolade in 1990 in
recognition of support of this organization. Mr. Jones is also a founding
member of the James Madison Council of the Library of Congress and is on the
Board of Governors of the American Society of Training and Development.
Mr. James B. O'Brien, the Company's President, joined the Company in
January 1982 as System Manager, Brighton, Colorado, and was later promoted to
the position of General Manager, Gaston County, North Carolina. Prior to being
elected President and a Director of the Company in December 1989, Mr. O'Brien
served as a Division Manager, Director of Operations Planning/Assistant to the
CEO, Fund Vice President and Group Vice President/Operations. Mr. O'Brien was
appointed to the Company's Executive Committee in August 1993. As President,
he is responsible for the day-to-day operations of the cable television systems
managed and owned by the Company. Mr. O'Brien is also President and a Director
of Jones Cable Group, Ltd., Jones Global Funds, Inc. and Jones Global
Management, Inc., all affiliates of the Company. Mr. O'Brien is a board member
of Cable Labs, Inc., the research arm of the U.S. cable television industry.
He also serves as a director of the Cable Television Administration and
Marketing Association and as a director of the Walter Kaitz Foundation, a
foundation that places people of any ethnic minority group in positions with
cable television systems, networks and vendor companies.
Ms. Ruth E. Warren joined the Company in August 1980 and has served in
various operational capacities, including system manager and Fund Vice
President, since then. Ms. Warren was elected Group Vice President/Operations
of the Company in September 1990. Ms. Warren also serves as Vice
President/Operations of Jones Spacelink, Ltd.
Mr. Kevin P. Coyle joined The Jones Group, Ltd. in July 1981 as Vice
President/Financial Services. In September 1985, he was appointed Senior Vice
President/Financial Services. He was elected Treasurer of the Company in
August 1987, Vice President/Treasurer in April 1988 and Group Vice
President/Finance and Chief Financial Officer in October 1990.
Mr. Christopher J. Bowick joined the Company in September 1991 as
Group Vice President/Technology and Chief Technical Officer. Previous to
joining the Company, Mr. Bowick worked for Scientific Atlanta's Transmission
Systems Business Division in various technical management capacities since
1981, and as Vice President of Engineering since 1989.
94
<PAGE> 95
Mr. Timothy J. Burke joined the Company in August 1982 as corporate
tax manager, was elected Vice President/Taxation in November 1986 and Group
Vice President/Taxation/Administration in October 1990. He is also a member of
the Board of Directors of Jones Spacelink, Ltd.
Mr. Raymond L. Vigil joined the Company in June 1993 as Group Vice
President/Human Resources. Previous to joining the Company, Mr. Vigil served
as Executive Director of Learning with USWest. Prior to USWest, Mr. Vigil
worked in various human resources posts over a 14-year term with the IBM
Corporation.
Ms. Elizabeth M. Steele joined the Company in August 1987 as Vice
President/General Counsel and Secretary. Ms. Steele also is an officer of
Jones Spacelink, Ltd. From August 1980 until joining the Company, Ms. Steele
was an associate and then a partner at the Denver law firm of Davis, Graham &
Stubbs, which serves as counsel to the Company.
Mr. Michael J. Bartolementi joined the Company in September 1984 as an
accounting manager and was promoted to Assistant Controller in September 1985
and named Controller in November 1990.
Mr. George J. Feltovich was elected a Director of the Company and a
member of the Executive Officer Option Committee in March 1993. Mr. Feltovich
has been a private investor since 1978. Prior to 1978, Mr. Feltovich served as
an administrative and legal consultant to various private and governmental
housing programs. Mr. Feltovich was admitted to practice law in California,
Pennsylvania and the District of Columbia and is a member of the California Bar
Association.
Mr. James J. Krejci joined Jones International, Ltd. in March 1985 as
Group Vice President. He was elected Group Vice President and a Director of
the Company in August 1987. He served as Group Vice President of the Company,
as an officer of Jones Futurex, Inc., a subsidiary of Jones Spacelink, Ltd.
engaged in manufacturing and marketing data encryption devices, Jones
Information Management, Inc., a subsidiary of Jones International, Ltd.
providing computer data and billing processing facilities and Jones Lightwave,
Ltd., a company owned by Jones International, Ltd. and Mr. Jones, and several
of its subsidiaries engaged in the provision of telecommunications services
until leaving the Company on May 13, 1994. Mr. Krejci continues to serve as a
Director of the Company.
Mr. Patrick J. Lombardi has been a Director of the Company since
February 1984 and has served as a member of the Audit Committee of the Board of
Directors since February 1985. Mr. Lombardi is Group Vice President/Finance
and a director of Jones International, Ltd. Mr. Lombardi also serves as
President of Jones Financial Group, Ltd., Vice President of The Jones Group,
Ltd., President of Jones Global Group, Inc., both affiliates of the Company.
Mr. Lombardi also serves as an executive officer and director of other
affiliates of the Company.
95
<PAGE> 96
Mr. Howard O. Thrall was elected a Director of the Company in December
1988, and serves as a member of the Audit Committee and the Executive Officer
Option Committee, which was established on August 20, 1992. From 1984 until
August 1993, Mr. Thrall was associated with Douglas Aircraft Company, an
aircraft manufacturing firm, most recently as Regional Vice President,
Marketing. In September, 1993, Mr. Thrall joined World Airways, Inc. as Vice
President of Sales, Asian Region.
ITEM 11. EXECUTIVE COMPENSATION
Compensation Summary
The following table sets forth certain information relating to the
compensation during the past three fiscal years of those persons who were, at
May 31, 1994, the Chief Executive Officer and the other four most highly
compensated executive officers of the Company.
96
<PAGE> 97
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ------------
NAME AND
------------------ FISCAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
------------------ ------ ------ ----- ------- ------------
<S> <C> <C> <C> <C> <C>
Glenn R. Jones 1994 $530,420 $630,000 418,708 (1) $136,226 (3)
Chairman of the Board 1993 684,651 600,000 230,000 (1)(2) 13,540 (3)
and Chief Executive 1992 520,020 300,000 0 480 (3)
Officer
James B. O'Brien 1994 $196,568 $52,500 12,307 (1) $ 19,404 (3)
President 1993 196,568 85,000 6,300 (1) 5,740 (3)
1992 189,000 72,000 0 480 (3)
Kevin P. Coyle 1994 $168,559 45,000 5,008 (1) $ 12,814 (3)
Group Vice President of 1993 157,530 40,000 0 $ 6,618 (3)
Finance 1992 150,027 40,000 0 480 (3)
Christopher J. Bowick 1994 $153,458 $45,000 5,317 (1) 11,907 (3)
Group Vice President/ 1993 139,507 41,850 -0- -0- (3)
Technology 1992 (4) 88,013 43,439 -0- -0- (3)
Elizabeth M. Steele 1994 $187,207 $30,000 0 $ 16,080 (3)
Vice President, General 1993 187,207 36,000 0 5,480 (3)
Counsel and Secretary 1992 200,008 20,000 0 433 (3)
Carl E. Vogel (4) 1994 135,686 $85,000 -0- 17,821 (3)
1993 141,965 50,000 37,500 (1) 5,470 (3)
1992 136,506 65,000 -0- 480 (3)
</TABLE>
(1) Represents the number of shares of the Company's Class A Common Stock
underlying the options granted.
(2) Represents 200,000 shares of the Company's Common Stock and 30,000
shares of the Company's Class A Common Stock underlying the options
granted.
(3) The Company's employees are entitled to participate in a 401(k) profit
sharing plan. As of January 1993, certain senior employees of the
Company are eligible to participate in a deferred compensation plan,
as an alternative to participation in the 401(k) profit sharing plan.
The amounts shown in the column reflect the Company's contributions
pursuant to these plans for the benefit of the named person's account.
(4) Mr. Bowick joined the Company as Group Vice President/Technology in
September 1991.
(5) Mr. Vogel resigned as an executive officer of the Company on April 2,
1994.
The following table sets forth information with respect to grants of
stock options during fiscal 1994 for the Executive Officers named in the
Summary Compensation Table.
97
<PAGE> 98
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
---------------------------------------------------------------------- -------------------------------------
% OF TOTAL
OPTIONS
GRANTED TO
ALL EMPLOYEES EXERCISE 10%
OPTIONS IN FISCAL PRICE EXPIRATION ----
NAME GRANTED(1) YEAR ($/SHARE) DATE 0% ANNUAL 5% ANNUAL ANNUAL
---- ---------- ------------- --------- ---------- --------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Glenn R. Jones 300,000 50% $ 12.65 6/30/98 $ -0- $ 853,171 $2,106,260
118,708 20% $ 13.81 11/9/2003 497,387 1,841,173 3,902,806
James B. O'Brien 12,307 2% $ 13.81 11/9/2003 $ 51,566 $ 190,883 $ 404,622
Kevin P. Coyle 5,008 1% $ 13.81 11/9/2003 $ 20,984 $ 77,675 $ 164,650
Christopher J. 5,317 1% $ 13.81 11/9/2003 $ 22,278 $ 82,467 $ 174,809
Bowick
</TABLE>
(1) Represents the number of shares of the Company's Class A Common Stock
underlying the options granted.
(2) The dollar amounts shown under these columns are the result of
calculations at 0%, 5% and 10% compound growth rates set by the
Securities and Exchange Commission, and therefore are not intended to
forecast possible future appreciation of the Company's stock price.
In all cases, the appreciation is calculated from the award date to
the end of the option term.
The following table sets forth information with respect to stock
option exercises during fiscal year 1994 by the Executive Officers named in the
Summary Compensation Table, including the aggregate value of gains on the date
of exercise. Also shown are the (i) number of shares covered by both
exercisable and unexercisable stock options as of May 31, 1994, and (ii)
values for in-the-money options which represent the spread between the
exercise price of such stock options and the price of the Company's Class A
Common Stock as of May 31, 1994.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR END 5/31/94 YEAR END 5/31/94
------------------ ----------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- -------------- -------- ----------------- -------------
<S> <C> <C> <C> <C>
Carl E. Vogel 37,500 $309,375 None/None None/None
</TABLE>
98
<PAGE> 99
Compensation of Directors
Directors of the Company who are not full-time employees of the
Company or any of its affiliates receive $5,000 per fiscal quarter for their
services as Directors, with an additional $1,250 to be paid to each outside
Director for each regularly scheduled quarterly meeting of the Board of
Directors attended in person by such outside Director. No additional
compensation for director service is paid to Directors who are full-time
employees of the Company or any of its affiliates. In December 1993, Messrs.
Feltovich and Thrall, independent directors of the Company, were appointed by
the Board of Directors to constitute a special committee regarding the proposed
acquisition by the Company of substantially all of the assets of Spacelink and
the proposed acquisition by Bell Canada International Inc. of shares of the
Company's Class A Common Stock. See Item 1. Each of Messrs. Feltovich and
Thrall were compensated $40,000 for their services on the special committee
through February 28, 1994. Commencing March 1, 1994, through the period of
discharge of the special committee, Messrs. Thrall and Feltovich will each be
compensated at the rate of $175.00 per hour of work performed on behalf of the
special committee.
Compensation Committee Interlocks and Insider Participation
The Company has no compensation committee or other board committee
performing equivalent functions. During fiscal year 1994, Glenn R. Jones, with
the assistance of Messrs. Vigil and Lombardi, directors of the Company, and the
heads of various departments, with respect to each of their departments,
participated in recommendations and deliberations concerning executive
compensation. Glenn R. Jones, James B. O'Brien, Ruth E. Warren, Timothy J.
Burke and Elizabeth M. Steele, executive officers of the Company, serve as
directors of certain of the Company's affiliates. As individuals, these
executive officers had no transactions with the Company during the fiscal year
1994. The various transactions between the Company and its affiliates are
described in Item 13 below.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT
The following table sets forth certain information as of August 15,
1994, regarding ownership of the Company's Common Stock or Class A Common Stock
by persons (including any group) known to the Company to be beneficial owners
of more than 5% of either class of stock, the individual directors of the
Company, each of the executive officers named in the Summary Compensation
Table, and the executive officers and directors of the Company as a group.
Under the rules of the Securities and Exchange Commission, a person (or group
of persons) is deemed to be a "beneficial owner" of a security if he or she,
directly or indirectly, has or shares the power to vote or to direct the voting
of such security, or the power to dispose of or to direct the disposition of
such security. Accordingly, more than one person
99
<PAGE> 100
may be deemed to be a beneficial owner of the same security. A person is also
deemed to be a beneficial owner of any security which that person has the right
to acquire within 60 days.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL
BENEFICIAL OWNER (1) TITLE OF CLASS OWNERSHIP (2) PERCENT OF CLASS
-------------------- -------------- ------------- ----------------
<S> <C> <C> <C>
Jones Spacelink, Ltd. Common Stock 2,859,240 (3) 58.20
9697 East Mineral Avenue
Englewood, CO 80112
Jones International, Ltd. Common Stock 202,769 (3) 4.13
9697 East Mineral Avenue
Englewood, CO 80112
Glenn R. Jones Common Stock 3,287,009 (3)(4) 64.29
9697 East Mineral Avenue
Englewood, CO 80112 Class A 105,000 (3)(5) .70
Common Stock
Kevin P. Coyle Common Stock 720 (6) .01
9697 East Mineral Avenue
Englewood, CO 80112
James J. Krejci Class A 5,000 .03
9697 E. Mineral Avenue Common Stock
Englewood, CO 80112
Patrick J. Lombardi Common Stock 1,300 .03
9697 East Mineral Avenue
Englewood, CO 80112 Class A 27,123 (7) .18
Common Stock
James B. O'Brien Class A 16,300 (8) .11
9697 East Mineral Avenue Common Stock
Englewood, CO 80112
Raymond L. Vigil Class A 625 (9) less than .01
9697 East Mineral Avenue Common Stock
Englewood, CO 80112
</TABLE>
100
<PAGE> 101
<TABLE>
<S> <C> <C> <C>
All executive officers and Common Stock 3,289,029 (10) 64.33
directors as a group
(13 persons) Class A 158,548 (11) 1.06
Common Stock
Mutuelles AXA group Class A 2,470,255 (12)(15) 16.67
Vie Mutuelle Common Stock
101-100 Terrasse Boieldieu
92042 Paris La Defense
France
AXA
23, Avenue Matignon
75008 Paris France
The Equitable Companies
Incorporated
787 Seventh Avenue
New York, New York 10019
Bell Canada International Class A 2,500,000 (15) 16.87
Inc. Common Stock
1000 rue de la Gauchetiere
West, Bureau 1100
Montreal, Quebec, Canada
H3B-4Y8
The Capital Group, Inc. Class A 1,702,000 (13)(15) 11.49
Capital Research and
Management Company and Common Stock
SMALLCAP World Fund, Inc.
333 South Hope Street
Los Angeles, CA 90071
Neuberger & Berman Class A 2,053,300 (14)(15) 13.86
605 Third Avenue Common Stock
New York, NY 10158
</TABLE>
(1) Directors and executive officers named in the Summary Compensation
Table who are not listed in the table do not beneficially own any of
the Company's shares. Shares shown as subject to options means that
such options are exercisable immediately.
(2) Unless otherwise noted, all persons indicated in the table have full
voting and investment power with respect to the share ownership
described.
(3) Jones International, Ltd. ("International") owns 100% of the Class B
Common Stock and approximately 79% of the Class A Common Stock of
Jones Spacelink, Ltd. ("Spacelink"). Glenn R. Jones, Chairman of the
Board of Directors and Chief Executive Officer of the Company, owns
all of the outstanding
101
<PAGE> 102
shares of International. In addition, Mr. Jones directly owns 6.7% of
the Class A Common Stock of Spacelink. Mr. Jones is deemed to be the
beneficial owner of all shares of the Company owned by International
and Spacelink. By virtue of this ownership, Mr. Jones controls
approximately 48% of the total votes to be cast by all shareholders of
the Company's shares on matters not requiring a class vote, because,
with regard to such matters, a share of Common Stock has one vote and
a share of Class A Common Stock has 1/10th of a vote. The holders of
Class A Common Stock, as a class, are able to elect the greater of 25%
or the next highest whole number of the Company's Board of Directors.
Thus, holders of the Class A Common Stock, as a class, are presently
entitled to elect two Directors.
(4) Includes 202,769 shares held of record by International, 2,859,240
shares held of record by Spacelink, 25,000 shares held of record by
Mr. Jones directly and 200,000 shares pursuant to a stock option held
by Mr. Jones.
(5) Represents shares pursuant to a stock option held by Mr. Jones.
(6) Includes 320 shares held of record by Mr. Coyle's wife.
(7) Includes 25,000 shares pursuant to a stock option held by Mr. Lombardi
and 578 shares held of record by Mr. Lombardi's wife.
(8) Includes 6,300 shares pursuant to a stock option held by Mr. O'Brien.
(9) Includes shares pursuant to a stock option held by Mr. Vigil.
(10) Includes 200,000 shares pursuant to a stock option held by an
executive officer and director. See footnote 4.
(11) Includes 136,925 shares pursuant to stock options held by various
executive officers and directors.
(12) The Mutuelles AXA group includes AXA Assurances I.A.R.D. Mutuelle, AXA
Assurances Vie Mutuelle, Alpha Assurances I.A.R.D. Mutuelle, Alpha
Assurances Vie Mutuelle and Uni Europe Assurance Mutuelle. The
Mutuelles AXA group, AXA and The Equitable Companies Incorporated have
sole voting power over 2,187,457 shares, sole dispositive power over
2,469,255 shares and shared dispositive power over 1,000 shares.
(13) Capital Guardian Trust Company and Capital Research and Management
Company, operating subsidiaries of The Capital Group, Inc., exercised
as of December 31, 1993, investment discretion with respect to
722,000 and 980,000 shares, respectively, which was owned by various
institutional investors.
(14) Neuberger & Berman has sole voting power over 867,200 shares, shared
voting power over 928,400 shares and shared dispositive power over
2,053,300 shares.
(15) This information is based upon filings made by the shareholders with
the Securities and Exchange Commission, copies of which were provided
to the Company.
The following table sets forth certain information as of August 15,
1994, regarding ownership of Jones Spacelink, Ltd.'s Class B Common Stock and
Class A Common Stock by the individual directors of the Company, each of the
executive officers named in the Summary Compensation Table, and all executive
officers and directors of the Company as a group.
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<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL
BENEFICIAL OWNER(1) TITLE OF CLASS OWNERSHIP(2) PERCENT OF CLASS
------------------- -------------- ------------ ----------------
<S> <C> <C> <C>
Glenn R. Jones Class B 415,000 (3) 100.00
9697 East Mineral Avenue Common Stock
Englewood, CO 80112
Class A 66,476,148 (4) 85.05
Common Stock
Christopher J. Bowick Class A 25,000 (5) .03
9697 East Mineral Avenue Common Stock
Englewood, CO 80112
Kevin P. Coyle Class A 25,710 (6) .03
9697 East Mineral Avenue Common Stock
Englewood, CO 80112
Patrick J. Lombardi Class A 52,000 .07
9697 East Mineral Avenue Common Stock
Englewood, CO 80112
James B. O'Brien Class A 500 less than .1
969 7 East Mineral Avenue Common Stock
Englewood, CO 80112
Carl E. Vagel Class A 50,000 .06
9697 East Mineral Avenue Common Stock
Englewood, CO 80112
All executive officers and Class B 415,000 100.00
directors as a group Common Stock
(13 persons)
Class A 66,629,358 (6) 85.74
Common Stock
</TABLE>
(1) Directors or nominees for Director and executive officers named in the
Summary Compensation Table who are not listed in the table do not
beneficially own any of the Company's shares. Shares shown as subject
to options means that such options are exercisable immediately.
(2) Unless otherwise noted, all persons indicated in the table have full
voting and investment power with respect to the share ownership
described.
(3) These shares are held of record by Jones International, Ltd.
("International"). Mr. Glenn R. Jones, Chairman of the Board of
Directors and Chief Executive Officer of the Company, through his
ownership of all of the outstanding shares of International, is deemed
to be the beneficial owner of all of the shares of Jones Spacelink,
Ltd. owned by International.
(4) Includes 56,622,151 shares held of record by International, 2,811,752
shares held of record by Jones Entertainment Group, Ltd., a wholly
owned subsidiary of Jones 21st Century, Inc., a company owned by
International, Mr. Jones and members of Mr. Jones' family, 1,000,000
shares held of record by Jones Space Segment, Inc., a company owned by
International and Mr. Jones and 772,528 shares owned by Jones Global
Group, Inc., a company owned by International and the Company, 18,000
shares
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held of record by Jones Interdigital, Inc., a wholly owned subsidiary
of International, and 4,751,717 shares held of record by Mr. Jones
directly. This also includes 500,000 shares subject to a stock option
held by Mr. Jones.
(5) Represents shares pursuant to a stock option held by Mr. Bowick.
(6) Includes 25,000 shares pursuant to a stock option held by Mr. Coyle.
(7) Includes 575,000 shares pursuant to stock options held by various
executive officers and directors.
ITEM 13. CERTAIN TRANSACTIONS
Set forth below is a description of the Company's transactions with
Jones International, Ltd., certain of its subsidiaries and certain affiliates
of the Company during the fiscal year ended May 31, 1994. While the Company
believes that these transactions generally are as favorable as could have been
obtained from unaffiliated third parties, in most instances no third party bids
or appraisals were obtained and certain of the transactions are by their nature
unique to the companies involved. Accordingly, no assurance is given to such
effect. In some instances the amounts of transactions have been rounded to the
nearest thousand. Certain of the transactions described below are expected to
continue during the current fiscal year.
JONES INTERNATIONAL, LTD.
Jones International, Ltd. and certain of its subsidiaries provide
various services to the Company and its managed limited partnerships, including
information and data processing services, office space, programming services
and services associated with the marketing of limited partnership interests, as
described below. The costs of these services are charged to the Company, and
the Company reimburses Jones International, Ltd. accordingly. In some cases, a
portion of certain of these expenses are reallocated to the limited
partnerships managed by the Company pursuant to the terms of the limited
partnership agreements of such limited partnerships.
During the fiscal year ended May 31, 1994, the Company carried
accounts receivable from Jones International, Ltd. affiliates totaling
$2,000,000. Interest on such receivables is charged at the Company's average
cost of borrowing plus 2%.
Also, certain operating, general and administrative expenses
(principally salaries, which are allocated based on actual time spent by Jones
International, Ltd. employees with respect to the Company) incurred by Jones
International, Ltd. and its various subsidiaries are allocated to the Company.
During fiscal year ended May 31, 1994, Jones International, Ltd. allocated the
Company $64,172 of such expenses.
JONES INFOMERCIAL NETWORKS, INC.
Jones Infomercial Networks, Inc., ("Jones Infomercial") provides
advertising time for third parties on certain Company, Spacelink and their
managed partnership cable television
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systems, using those systems' ad sales slots. In consideration, the revenues
generated from the third parties are shared two-thirds and one-third between
Jones Infomercial and the entities owning the cable television systems. During
fiscal year ended May 31, 1994, the Company and its managed partnerships
received revenues from Jones Infomercial of $17,700 and $91,900 respectively.
JONES INTERACTIVE, INC.
Jones Interactive, Inc. (formerly Jones Information Management, Inc.)
provides information management and data processing services for all companies
affiliated with International, including the Company. Charges to the various
companies are based on usage of computer time by each entity. Fees paid by the
Company and its affiliated partnerships to Jones Information Management, Inc.
for the fiscal year ended May 31, 1994 totaled approximately $4,687,000, of
which $1,218,620 and $3,468,380 were paid by the Company and its managed
partnerships, respectively.
JONES INTERNATIONAL SECURITIES, LTD.
Jones International Securities, Ltd. has served as dealer-manager of
an offering by Jones United Kingdom Fund, Ltd., the general partner of which is
owned 38% by the Company and the remainder by International. The
dealer-manager received commissions totaling $3,237,100 during fiscal year
ended May 31, 1994 (10% of the capital contributed by the limited partners), of
which $3,013,190 (9% of the capital contributed by the limited partners) was
paid to unaffiliated broker-dealers that sold limited partnership interests in
this offering. Jones International Securities, Ltd. provides investor support
to the Company and its partnerships. The Company paid approximately 26% of
Jones International Securities, Ltd.'s expenses during fiscal 1994.
JONES PROPERTIES, INC.
The Company is a party to a lease with Jones Properties, Inc. under
which the Company has leased a 101,500 square foot office building in
Englewood, Colorado in which the Company's corporate offices are located. The
lease, which commenced in 1985, has a 15-year term with three 5-year renewal
options. The annual rent is currently $24.00 per square foot, plus operating
expenses and will not, by the terms of the lease, exceed such amount during the
remainder of the 15-year term. The Company has subleased approximately 26% of
the building to Spacelink, International and certain other affiliates on the
same terms and conditions of the above-mentioned lease. Payment to Jones
Properties, Inc. by the Company and its managed partnerships, net of subleasing
obligations, for the year ended May 31, 1994 was approximately $1,753,000, of
which $455,780 was paid by the Company.
JONES SPACE SEGMENT, INC.
In fiscal 1993, the Company entered into a license agreement with
Jones Space Segment, Inc. ("Space Segment"), to use a non-preemptible
transponder on a domestic communications satellite that Space Segment currently
leases. The Company agreed to pay Space Segment
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<PAGE> 106
$2,400,000 over a twelve-month period beginning on or about December 15, 1992,
the delivery date of the transponder. 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 subsequently
terminated the 1993 license agreement and entered into a new license agreement
with Space Segment. Under the new license agreement, the Company, Jones
Infomercial and Jones Computer Network, Ltd. have a license to use the
transponder for their respective purposes in consideration of the payment to
Space Segment of $200,000 each month during the term of the Agreement as a
license fee. Such fee is payable as follows: (i) the Company shall pay
$200,000 per month for the months of January-March 1994; (ii) the Company and
Jones Infomercial shall each pay $100,000 per month starting with April 1994
and until the launch of Jones Computer Network; (iii) thereafter, the Company,
Jones Infomercial and Jones Computer Network shall each pay $66,667 per month.
The launch of Jones Computer Network is expected to occur in September 1994.
The Company recognized $2,300,000 of rental expense during fiscal 1994.
MIND EXTENSION UNIVERSITY, INC.
Cable television systems owned by the Company and its managed
partnerships receive educational video programming from Mind Extension
University, Inc. ("MEU"), which is controlled by International for a fee based
upon the number of subscribers receiving the programming. Payments to MEU with
respect to programming provided to cable television systems owned by the
Company and its managed partnerships totaled approximately $484,100 in fiscal
1994, of which $103,400 was paid by the Company.
During fiscal 1992 and 1993, the Company invested $10,000,000 in MEU
for 25% of stock of MEU, which also received certain advertising avails and
administrative and marketing considerations. The number of shares of Class A
Common Stock of MEU issued to the Company was based on the average of two
separate independent appraisals of MEU. In May 1993 and December 1993, the
Board of Directors of the Company approved a $10,000,000 advance and a
$5,000,000 advance to MEU on an as needed basis. Of these advances, one-half
will be converted into shares of Class A Common Stock of MEU at a price per
share equal to the value of such shares as established by the next equity
investment in MEU 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. On May 3, 1994, the Board of Directors of the Company
approved an additional $5,000,000 advance to MEU on an as needed basis. Any
amount outstanding will earn interest at the Company's weighted average cost of
borrowing plus two percent. As of May 31, 1994, $758,300 of the $5,000,000 had
been advanced, for an aggregate total indebtedness of MEU to the Company of
$15,758,300, in addition to the Company's $10,000,000 equity investment.
_______________
In addition to transacting business with International and its
subsidiaries, the Company, and its managed limited partnerships have engaged in
transactions with other affiliates of the Company. Set forth below is a
description of such transactions during the fiscal year ended
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<PAGE> 107
May 31, 1994. Certain of the transactions described below are expected to
continue during the Company's current fiscal year.
JONES FINANCIAL GROUP, LTD.
Jones Financial Group, Ltd. ("Jones Financial Group") performs
services for the Company and certain of its affiliates as its agent in
connection with joint venture and other financing arrangements. If the
acquisition by BCI of an approximate 30% equity interest in the Company closes,
the Company will pay Jones Financial Group a fee of $2,000,000. See Item 1,
Proposed Acquisition by Bell Canada International Inc. of Shares of the
Company's Class A Common Stock. In addition, effective as of the closing of
the BCI Agreement, the Company will enter into a Financial Services Agreement
with Jones Financial Group to render financial advisory and related services to
the Company for a fee equal to 90% of the fees that would be charged to the
Company by unaffiliated third parties for the same or comparable purposes. The
Company will pay Jones Financial Group an annual $1,000,000 retainer as an
advance against payments due pursuant to this agreement and will reimburse
Jones Financial Group for its reasonable out-of-pocket expenses. The term of
the Financial Services Agreement is for eight years. Jones Financial Group and
BCI have entered into a separate agreement pursuant to which BCI is entitled to
receive one-half of the fees earned by Jones Financial Group under the
Financial Services Agreement.
During the fiscal year ended May 31, 1994, the Company paid Jones
Financial Group $500,000 of the $1,000,000 annual retainer. The remaining
$500,000 was paid in fiscal 1995. Any amounts due to Jones Financial Group by
the Company are applied against the retainer. The Company paid Jones Financial
Group an advisory fee of L.414,854 (approximately $632,600) in fiscal 1995 for
its services to the Company in connection with the Company's transfer of all of
its interests in its cable/telephony properties in the United Kingdom to Bell
Cablemedia. See Item 1, International Investments by the Company and its
Affiliates.
THE JONES GROUP, LTD.
The Jones Group, Ltd. ("Jones Group") performs brokerage services for
the Company and its managed partnerships and collects fees for these services
in connection with acquisitions from and sales to unaffiliated parties of cable
television properties. Jones Group is owned by Jones Spacelink, Ltd. (80%) and
the Company (20%). Brokerage fees paid to Jones Group by the Company and its
managed partnerships during the fiscal year ended May 31, 1994 totaled
$680,000, all of which was paid by the Company.
SUPERAUDIO
Cable television systems owned by the Company and its managed
partnerships receive stereo audio programming from Superaudio, a joint venture
owned 50% by a subsidiary of Jones Galactic Radio, Inc. (which is controlled by
Jones Spacelink, Ltd.) and 50% by an unrelated party, for a fee based upon the
number of subscribers receiving the programming.
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Payments to Superaudio with respect to programming provided to the cable
television systems owned by the Company and its managed partnerships totaled
approximately $636,700 in fiscal 1994, of which approximately $151,800 was paid
by the Company.
JONES GLOBAL GROUP, INC.
Jones Global Group, Inc. ("Global Group") is a corporation owned 62%
by Jones International, Ltd. and 38% by the Company. Jones Cable Group of
South Hertfordshire Limited ("Jones South Hertfordshire") has a franchise to
construct a cable television system in an area of the United Kingdom known as
South Hertfordshire (the "South Herts System"). Jones South Hertfordshire is a
United Kingdom corporation originally owned by Jones Cable Group, Ltd. ("Cable
Group"), a subsidiary of Global Group, and Jones Global Funds, Inc. ("Global
Funds"), another subsidiary of Global Group. In February 1992, Jones United
Kingdom Fund, Ltd. ("Jones UK Fund"), a Colorado limited partnership of which
Global Funds serves as the general partner, acquired through its nominees,
Global Funds and Cable Group, beneficial ownership of all of the shares of
Jones South Hertfordshire. Through May 31, 1994, the Company has made advances
to fund the development and construction of the South Herts System. Global
Group, on behalf of affiliated United Kingdom corporations, was awarded cable
television franchises to construct cable television systems in two other areas
in the United Kingdom, known as Aylesbury-Chiltern and Leeds. The Company has
advanced funds to Global Group for these purposes. At May 31, 1994, the
Company's net investment in its U.K. properties totaled approximately
$50,067,800.
In July 1994, the Company and certain of its affiliates sold all of
their cable/telephony properties in the United Kingdom. See Item 1,
International Investments by the Company and its Affiliates.
JONES SPANISH HOLDINGS, INC.
Jones Spanish Holdings, Inc., an affiliate owned 62% by Jones
International, Ltd. and 38% by the Company, through certain of its affiliates,
has explored cable television system acquisition, development and operation
opportunities in Spain. During fiscal year 1994, the Company advanced
approximately $769,300 in these operations, and as of May 31, 1994, the
Company's aggregate advances in these activities in Spain was approximately
$7,684,300. In June 1994, Jones Spanish Holdings, Inc. agreed to transfer all
of its interests in its
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cable/telephony properties in Spain to Bell Cablemedia. See Item 1,
International Investments by the Company and its Affiliates.
_______________
In addition to the foregoing described transactions, the Company
contemplates that it or its affiliates will engage in certain transactions in
connection with the proposed acquisition by BCI of shares of the Company's
Class A Common Stock. See Item 1, Proposed Acquisition by Bell Canada
International Inc. of Shares of the Company's Class A Common Stock. Set forth
below is a description of these proposed transactions.
Option Agreements. Coincident with the closing of the BCI Agreement
and the Spacelink Agreement, International and Mr. Glenn R. Jones ("Grantors")
would enter into option agreements providing for the grant of options to BCI to
purchase all of the shares of the Company's Common Stock held, directly or
indirectly, by International and Mr. Jones in consideration of the payment by
BCI to the Grantors of an option deposit of $19.00 for each share of the
Company's Common Stock owned by Grantors on the date of the execution of the
option agreements. This option deposit payment will result in the Grantors
receiving approximately $53,551,000 (assuming the exercise of certain stock
options held by Mr. Jones) from BCI upon the closing of the BCI Agreement. If
the Spacelink Agreement does not close, a similar option agreement could exist
between Spacelink and BCI.
Employment Agreement. Upon the closing of the BCI Agreement, the
Company will enter into an Employment Agreement with Mr. Glenn R. Jones (the
"Employment Agreement") pursuant to which the Company will agree to employ Mr.
Jones as Chief Executive Officer of the Company for a period of up to eight
years. Under the terms of the Employment Agreement, Mr. Jones will receive a
base compensation of $2,500,000 ($1,500,000 if the Spacelink Agreement does not
close), with an annual cost of living index based adjustment. This amount
approximates the current combined compensation to Mr. Jones from the Company
and Spacelink. In addition, Mr. Jones will be entitled to participate in the
Company's bonus, stock option and other employee plans at a level generally
commensurate with his previous participation. No other employee of the Company
has an employment agreement with the Company.
Shareholders Agreement. Upon the closing of the BCI Agreement, BCI,
International, Glenn R. Jones and the Company will enter into certain
arrangements concerning the operation and governance of the Company and other
related matters pursuant to a Shareholders Agreement ( "Shareholders
Agreement"). Certain provisions of the Shareholders Agreement grant to Mr.
Jones, International and their affiliates the right to use a number of channels
on cable television systems now or hereafter owned by the Company for
distribution of their programming networks for a period of 15 years after
closing. International will be granted certain non-exclusive rights to provide
the Company with goods and services on competitive terms which will, at the
Company's discretion, be pursuant to competitive bidding or other processes.
BCI will be granted identical rights pursuant to a Supply and Services
Agreement
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among the Company, BCI and International. Immediately after the closing of the
BCI Agreement, the Company's board will consist of 13 directors: nine members
will be elected by the holders of the Company's Common Stock and four members
will be elected by holders of the Company's Class A Common Stock. Of the four
Class A Directors, BCI will be entitled to designate for nomination one
director and Mr. Jones and BCI will be entitled to jointly designate for
nomination three directors that are independent directors mutually acceptable
to Mr. Jones and BCI. Of the nine Common Directors, Mr. Jones will be entitled
to designate for nomination seven directors and BCI will be entitled to
designate two directors for nomination.
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PART IV
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 14. AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS AND REPORTS OF
INDEPENDENT PUBLIC ACCOUNTANTS.
See the Index to Financial Statements at page 54
for a list of the financial statements filed as
part of this report and Report of Independent
Public Accountants immediately following the Index.
(A)(2) FINANCIAL STATEMENT SCHEDULES.
Report of Independent Public Accountants on
Schedules: page 88
Schedule V - Property, Plant and Equipment for the
Years Ended May 31, 1992, 1993 and 1994: page 89
Schedule VI - Accumulated Depreciation of Property,
Plant and Equipment for the Years Ended May 31,
1992, 1993 and 1994: page 90
Schedule VIII - Valuation and Qualifying Accounts:
page 91
Schedule IX - Short-term Borrowings: page 92
(A)(3) EXHIBITS.
The following exhibits, which are numbered in
accordance with Item 601 of Regulation S-K, are
filed herewith or, as noted, incorporated by
reference herein:
2.1 Exchange Agreement and Plan of Reorganization and
Liquidation, dated as of May 31, 1994 by and
between the Company and Jones Spacelink, Ltd. (1)
2.2 Stock Purchase Agreement dated as of May 31, 1994,
between Bell Canada International Inc. and the
Company. (1)
2.3 Transaction Agreement dated as of May 31, 1994,
among Glenn R. Jones, Jones International, Ltd.,
Bell Canada International Inc. and Jones Spacelink,
Ltd. (1)
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2.4 Form of Financial Services Agreement between Jones
Financial Group, Ltd. and the Company. (1)
2.5 Form of Employment Agreement between Glenn R. Jones
and the Company. (1)
2.6 Form of Shareholders Agreement among Glenn R.
Jones, Jones International, Ltd., Bell Canada
International Inc. and the Company. (1)
2.7 Form of Supply and Services Agreement between Bell
Canada International Inc. and the Company. (1)
2.8 Form of Secondment Agreement between Bell Canada
International Inc. and the Company. (1)
2.9 Form of Option Agreement for Glenn R. Jones and
Jones International, Ltd. between Bell Canada
International Inc. and Newco. (1)
2.10 Form of Option Agreement for Jones Spacelink, Ltd.
between Bell Canada International Inc. and Newco.
(1)
3.1 Articles of Incorporation and all amendments thereto
of the Registrant. (2)
3.2 Bylaws of Registrant. (3)
4.1 Indenture, dated as of May 15, 1987, between the
Registrant and United Bank of Denver National
Association. (4)
4.2 Indenture, dated as of July 15, 1992, between the
Registrant and First Trust National Association.
(5)
4.3 First Supplemental Indenture, dated as of July 15,
1992, between the Registrant and First Trust
National Association. (5)
4.4 Second Supplemental Indenture, dated as of March 1,
1993, between the Registrant and First Trust
National Association. (6)
10.1.1 Non-Qualified Stock Option Plan of the Registrant.
(7)
10.1.2 Form of Non-Qualified Stock Option Agreement. (7)
10.1.3 1992 Stock Option Plan. (8)
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10.1.4 Form of Basic Incentive Stock Option Agreement. (8)
10.1.5 Form of Basic Non-Qualified Stock Option Agreement.
(8)
10.2.1 Office Lease, dated June 8, 1984, between the
Registrant and Jones Properties, Inc., regarding
office space at 9697 East Mineral Avenue,
Englewood, Colorado. (9)
10.3.1 Partnership Agreement for Cable TV Fund 11. (10)
10.3.2 Partnership Agreement for Cable TV Fund 12. (9)
10.3.3 Partnership Agreement for Cable TV Fund 14. (11)
10.3.4 Partnership Agreement for Jones Cable Income Fund 1.
(12)
10.3.5 First Restated Agreement of Limited Partnership for
Jones Intercable Investors, L.P. (13)
10.3.6 Partnership Agreement for IDS/Jones Growth Partners.
(14)
10.3.7 Partnership Agreement for Cable TV Fund 15. (15)
10.3.8 Partnership Agreement for IDS/Jones Growth Partners
II, L.P. (16)
10.3.9 Partnership Agreement of Jones United Kingdom Fund,
Ltd. (18)
10.4.1 Credit Agreement dated December 8, 1992 among the
Registrant, Barclays Bank PLC, Corestates Bank,
N.A. and The Bank of Nova Scotia, as Co-Agents and
the various lenders named therein. (3)
10.4.2 First Amendment and Waiver to Credit Agreement dated
as of January 22, 1993, among the Registrant,
Barclays Bank PLC, Corestates Bank, N.A. and The
Bank of Nova Scotia, as Co-Agents and NationsBank
of Texas, N.A., as Managing Agent for various
lenders. (3)
10.5.1 Copy of a franchise and related documents thereto
granting a cable television system franchise for
Town of Marana, Arizona. (3)
10.5.2 Copy of a franchise and related documents thereto
granting a cable television system franchise for
Oro Valley, Arizona. (2)
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10.5.3 Copy of a franchise and related documents thereto
granting a cable television system franchise for
Pima County, Arizona. (2)
10.5.4 Copy of a franchise and related documents thereto
granting a cable television system franchise for
The Tucson National Golf Club. (2)
10.5.5 Copy of a franchise and related documents thereto
granting a cable television system franchise for
Los Angeles County, California. (17)
10.5.6 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the City of Oxnard, California. (2)
10.5.7 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the City of Port Hueneme, California. (3)
10.5.8 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Naval Construction Battalion Center, Port
Hueneme, California. (2)
10.5.9 Modification of franchise agreement dated June 23,
1993 for the Naval Construction Battalion Center,
Port Hueneme, California. (3)
10.5.10 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the County of Ventura, California. (3)
10.5.11 Copy of a franchise and related documents thereto
granting a cable television system franchise for
Arapahoe County, Colorado. (2)
10.5.12 Copy of a franchise and related documents thereto
granting a cable television system franchise for
certain portions of Jefferson County, Colorado.
(2)
10.5.13 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Town of Morrison, Colorado. (3)
10.5.14 Copy of a franchise and related documents thereto
granting a cable television system franchise for
Anne Arundel County, Maryland. (2)
10.5.15 Copy of a franchise and related documents thereto
granting a cable television system franchise for
Elizabeth Landing, Maryland. (2)
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10.5.16 Copy of a franchise and related documents thereto
granting a cable television system franchise for
Ft. George G. Meade, Maryland. (17)
10.5.17 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Town of Indian Head, Maryland. (3)
10.5.18 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Indian Head Division, Naval Surface Warfare
Center, Indian Head, Maryland. (3)
10.5.19 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Town of La Plata, Maryland. (2)
10.5.20 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the City of Cherryville, North Carolina. (2)
10.5.21 Copy of a franchise and related documents thereto
granting a cable television system franchise for
Cleveland County, North Carolina. (2)
10.5.22 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Town of Cramerton, North Carolina. (3)
10.5.23 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the City of Gastonia, North Carolina. (2)
10.5.24 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Williamsburg and Jamestown subdivision of
Gastonia, North Carolina. (2)
10.5.25 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the City of Kings Mountain, North Carolina. (2)
10.5.26 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Town of Lowell, North Carolina. (2)
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10.5.27 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Town of McAdenville, North Carolina. (3)
10.5.28 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Town of Ranlo, North Carolina. (3)
10.5.29 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Town of Stanley, North Carolina. (3)
10.5.30 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Town of Clover, South Carolina. (3)
10.5.31 Copy of a franchise and related documents thereto
granting a cable television system franchise for
York County, South Carolina. (3)
10.5.32 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the City of Alexandria, Virginia.
10.5.33 Copy of a franchise and related documents thereto
granting a cable television system franchise for
Fort Myer, Virginia. (18)
10.5.34 Amendment dated April 6, 1990, of franchise
granting a cable television system franchise for
Fort Myer, Virginia. (20)
10.5.35 Copy of a franchise and related documents thereto
granting a cable television system franchise for
Aiken County, South Carolina. (21)
10.5.36 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Town of Dearing, Georgia. (21)
10.5.37 Copy of a franchise and related documents thereto
granting a cable television system franchise for
Edgefield County, South Carolina. (21)
10.5.38 Copy of a franchise and related documents thereto
granting a cable television system franchise for
McDuffie County, Georgia. (21)
10.5.39 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the City of North Augusta, South Carolina. (21)
116
<PAGE> 117
10.5.40 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the City of Thomson, Georgia. (21)
10.5.41 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Town of Trenton, South Carolina. (21)
10.6.1 Indemnification Agreement dated March 14, 1994,
among the Company, Howard O. Thrall and George J.
Feltovich. (21)
10.6.2 Indemnification Agreement dated April 18, 1994,
among Jones Spacelink, Ltd., John C. Amman and
Richard Henderson. (21)
11 Computation of Fully Diluted Earnings Per Share.
21 List of Subsidiaries of the Registrant.
23 Consent of Arthur Andersen & Co., independent
public accountants, to the incorporation by
reference of its report into the Registrant's Form
S-8 and Form S-3 Registration Statements.
________________
(1) Incorporated by reference from the Company's
Current Report on Form 8-K, filed on June 6, 1994.
(2) Incorporated by reference from the Company's
Annual Report on Form 10-K for the fiscal year
ended May 31, 1988.
(3) Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended May
31, 1993
(4) Incorporated by reference from Registration
Statement No. 33-13545 on Form S-2, filed on April
17, 1987, and Amendment No. 1 thereto, filed on May
8, 1987.
(5) Incorporated by reference from Registration
Statement No. 33-47030 on Form S-3, filed on April
8, 1992, and Amendment Nos. 1 and 2 thereof, filed
on April 24, 1992 and June 4, 1992, respectively,
and Post-Effective Amendment No. 1 thereof, filed
on July 15, 1992.
(6) Incorporated by reference from the Company's
Current Report on Form 8-K, filed on March 1, 1993.
117
<PAGE> 118
(7) Incorporated by reference from Registration
Statement No. 2-91911 on Form S-2, filed on June
27, 1984, and Amendment No. 1 thereto, filed on
July 17, 1984.
(8) Incorporated by reference from Registration No.
33-54596 on Form S-8, filed on November 16, 1992.
(9) Incorporated by reference from Registration
Statement No. 2-94127.
(10) Incorporated by reference from the Company's
Annual Report on Form 10-K for the fiscal year
ended May 31, 1983.
(11) Incorporated by reference from Registration
Statement No. 33-6976, filed on July 3, 1986, and
Amendment No. 1 thereto, filed on November 17,
1986.
(12) Incorporated by reference from Registration
Statement No. 33-00968 on Form S-1, filed on
October 18, 1985.
(13) Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended May
31, 1992.
(14) Incorporated by reference from Registration
Statement No. 33-12473.
(15) Incorporated by reference from Registration
Statement No. 33-24358.
(16) Incorporated by reference from the Company's
Registration Statement on Form 8-A No. 0-18133,
dated November 16, 1989.
(17) Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended May
31, 1989.
(18) Incorporated by reference from Form 8-A of Jones
United Kingdom Fund, Ltd. (Commission File No.
0-19889).
(19) Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended May
31, 1990.
(20) Incorporated by reference from the Annual Report on
Form 10-K of Jones Intercable Investors, L.P.
(Commission File No. 1-9287) for the fiscal year
ended May 31, 1986.
(21) Incorporated by reference from the Company's Form
S-4 Registration Statement filed on July 11, 1994.
118
<PAGE> 119
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
JONES INTERCABLE, INC.
By: /s/ Glenn R. Jones
Glenn R. Jones
Chairman of the Board and Chief
Dated: August 29, 1994 Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Glenn R. Jones
Glenn R. Jones
Chairman of the Board and Chief
Executive Officer
Dated: August 29, 1994 (Principal Executive Officer)
By: /s/ Kevin P. Coyle
Kevin P. Coyle
Group Vice President/Finance
and Treasurer
Dated: August 29, 1994 (Principal Financial Officer)
By: /s/ Michael J. Bartolementi
Michael J. Bartolementi
Controller
Dated: August 29, 1994 (Principal Accounting Officer)
By: /s/ James B. O'Brien
James B. O'Brien
Dated: August 29, 1994 President and Director
119
<PAGE> 120
By: /s/ Raymond L. Vigil
Raymond L. Vigil
Dated: August 29, 1994 Group Vice President and Director
By: /s/ Patrick J. Lombardi
Patrick J. Lombardi
Dated: August 29, 1994 Director
By: ______________________________
James J. Krejci
Dated: Director
By: ______________________________
George J. Feltovich
Dated: Director
By: ______________________________
Howard O. Thrall
Dated: Director
120
<PAGE> 121
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- - ------ ----------- ----
<S> <C> <C>
2.1 Exchange Agreement and Plan of Reorganization and
Liquidation, dated as of May 31, 1994 by and
between the Company and Jones Spacelink, Ltd. (1)
2.2 Stock Purchase Agreement dated as of May 31, 1994,
between Bell Canada International Inc. and the
Company. (1)
2.3 Transaction Agreement dated as of May 31, 1994,
among Glenn R. Jones, Jones International, Ltd.,
Bell Canada International Inc. and Jones Spacelink,
Ltd. (1)
2.4 Form of Financial Services Agreement between Jones
Financial Group, Ltd. and the Company. (1)
2.5 Form of Employment Agreement between Glenn R. Jones
and the Company. (1)
2.6 Form of Shareholders Agreement among Glenn R.
Jones, Jones International, Ltd., Bell Canada
International Inc. and the Company. (1)
2.7 Form of Supply and Services Agreement between Bell
Canada International Inc. and the Company. (1)
</TABLE>
<PAGE> 122
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- - ------ ----------- ----
<S> <C> <C>
2.8 Form of Secondment Agreement between Bell Canada
International Inc. and the Company. (1)
2.9 Form of Option Agreement for Glenn R. Jones and
Jones International, Ltd. between Bell Canada
International Inc. and Newco. (1)
2.10 Form of Option Agreement for Jones Spacelink, Ltd.
between Bell Canada International Inc. and Newco.
(1)
3.1 Articles of Incorporation and all amendments theret
of the Registrant. (2)
3.2 Bylaws of Registrant. (3)
4.1 Indenture, dated as of May 15, 1987, between the
Registrant and United Bank of Denver National
Association. (4)
4.2 Indenture, dated as of July 15, 1992, between the
Registrant and First Trust National Association.
(5)
4.3 First Supplemental Indenture, dated as of July 15,
1992, between the Registrant and First Trust
National Association. (5)
4.4 Second Supplemental Indenture, dated as of March 1,
1993, between the Registrant and First Trust
National Association. (6)
10.1.1 Non-Qualified Stock Option Plan of the Registrant.
(7)
10.1.2 Form of Non-Qualified Stock Option Agreement. (7)
10.1.3 1992 Stock Option Plan. (8)
</TABLE>
<PAGE> 123
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- - ------ ----------- ----
<S> <C> <C>
10.1.4 Form of Basic Incentive Stock Option Agreement. (8)
10.1.5 Form of Basic Non-Qualified Stock Option Agreement.
(8)
10.2.1 Office Lease, dated June 8, 1984, between the
Registrant and Jones Properties, Inc., regarding
office space at 9697 East Mineral Avenue,
Englewood, Colorado. (9)
10.3.1 Partnership Agreement for Cable TV Fund 11. (10)
10.3.2 Partnership Agreement for Cable TV Fund 12. (9)
10.3.3 Partnership Agreement for Cable TV Fund 14. (11)
10.3.4 Partnership Agreement for Jones Cable Income Fund 1
(12)
10.3.5 First Restated Agreement of Limited Partnership for
Jones Intercable Investors, L.P. (13)
10.3.6 Partnership Agreement for IDS/Jones Growth Partners
(14)
10.3.7 Partnership Agreement for Cable TV Fund 15. (15)
10.3.8 Partnership Agreement for IDS/Jones Growth Partners
II, L.P. (16)
10.3.9 Partnership Agreement of Jones United Kingdom Fund,
Ltd. (18)
10.4.1 Credit Agreement dated December 8, 1992 among the
Registrant, Barclays Bank PLC, Corestates Bank,
N.A. and The Bank of Nova Scotia, as Co-Agents and
the various lenders named therein. (3)
10.4.2 First Amendment and Waiver to Credit Agreement date
as of January 22, 1993,
among the Registrant, Barclays Bank PLC, Corestates
Bank, N.A. and The Bank of Nova Scotia, as
Co-Agents and NationsBank of Texas, N.A., as
Managing Agent for various lenders. (3)
10.5.1 Copy of a franchise and related documents thereto
granting a cable television system franchise for
Town of Marana, Arizona. (3)
10.5.2 Copy of a franchise and related documents thereto
granting a cable television system franchise for
Oro Valley, Arizona. (2)
</TABLE>
<PAGE> 124
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- - ------ ----------- ----
<S> <C> <C>
10.5.3 Copy of a franchise and related documents thereto
granting a cable television system franchise for
Pima County, Arizona. (2)
10.5.4 Copy of a franchise and related documents thereto
granting a cable television system franchise for
The Tucson National Golf Club. (2)
10.5.5 Copy of a franchise and related documents thereto
granting a cable television system franchise for
Los Angeles County, California. (17)
10.5.6 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the City of Oxnard, California. (2)
10.5.7 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the City of Port Hueneme, California. (3)
10.5.8 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Naval Construction Battalion Center, Port
Hueneme, California. (2)
10.5.9 Modification of franchise agreement dated June 23,
1993 for the Naval Construction Battalion Center,
Port Hueneme, California. (3)
10.5.10 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the County of Ventura, California. (3)
10.5.11 Copy of a franchise and related documents thereto
granting a cable television system franchise for
Arapahoe County, Colorado. (2)
10.5.12 Copy of a franchise and related documents thereto
granting a cable television system franchise for
certain portions of Jefferson County, Colorado.
(2)
10.5.13 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Town of Morrison, Colorado. (3)
10.5.14 Copy of a franchise and related documents thereto
granting a cable television system franchise for
Anne Arundel County, Maryland. (2)
10.5.15 Copy of a franchise and related documents thereto
granting a cable television system franchise for
Elizabeth Landing, Maryland. (2)
</TABLE>
<PAGE> 125
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- - ------ ----------- ----
<S> <C> <C>
10.5.16 Copy of a franchise and related documents thereto
granting a cable television system franchise for
Ft. George G. Meade, Maryland. (17)
10.5.17 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Town of Indian Head, Maryland. (3)
10.5.18 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Indian Head Division, Naval Surface Warfare
Center, Indian Head, Maryland. (3)
10.5.19 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Town of La Plata, Maryland. (2)
10.5.20 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the City of Cherryville, North Carolina. (2)
10.5.21 Copy of a franchise and related documents thereto
granting a cable television system franchise for
Cleveland County, North Carolina. (2)
10.5.22 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Town of Cramerton, North Carolina. (3)
10.5.23 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the City of Gastonia, North Carolina. (2)
10.5.24 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Williamsburg and Jamestown subdivision of
Gastonia, North Carolina. (2)
10.5.25 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the City of Kings Mountain, North Carolina. (2)
10.5.26 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Town of Lowell, North Carolina. (2)
</TABLE>
<PAGE> 126
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- - ------ ----------- ----
<S> <C> <C>
10.5.27 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Town of McAdenville, North Carolina. (3)
10.5.28 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Town of Ranlo, North Carolina. (3)
10.5.29 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Town of Stanley, North Carolina. (3)
10.5.30 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Town of Clover, South Carolina. (3)
10.5.31 Copy of a franchise and related documents thereto
granting a cable television system franchise for
York County, South Carolina. (3)
10.5.32 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the City of Alexandria, Virginia.
10.5.33 Copy of a franchise and related documents thereto
granting a cable television system franchise for
Fort Myer, Virginia. (18)
10.5.34 Amendment dated April 6, 1990, of franchise
granting a cable television system franchise for
Fort Myer, Virginia. (20)
10.5.35 Copy of a franchise and related documents thereto
granting a cable television system franchise for
Aiken County, South Carolina. (21)
10.5.36 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Town of Dearing, Georgia. (21)
10.5.37 Copy of a franchise and related documents thereto
granting a cable television system franchise for
Edgefield County, South Carolina. (21)
10.5.38 Copy of a franchise and related documents thereto
granting a cable television system franchise for
McDuffie County, Georgia. (21)
10.5.39 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the City of North Augusta, South Carolina. (21)
</TABLE>
<PAGE> 127
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- - ------ ----------- ----
<S> <C> <C>
10.5.40 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the City of Thomson, Georgia. (21)
10.5.41 Copy of a franchise and related documents thereto
granting a cable television system franchise for
the Town of Trenton, South Carolina. (21)
10.6.1 Indemnification Agreement dated March 14, 1994,
among the Company, Howard O. Thrall and George J.
Feltovich. (21)
10.6.2 Indemnification Agreement dated April 18, 1994,
among Jones Spacelink, Ltd., John C. Amman and
Richard Henderson. (21)
11 Computation of Fully Diluted Earnings Per Share.
21 List of Subsidiaries of the Registrant.
23 Consent of Arthur Andersen & Co., independent
public accountants, to the incorporation by
reference of its report into the Registrant's Form
S-8 and Form S-3 Registration Statements.
________________
(1) Incorporated by reference from the Company's
Current Report on Form 8-K, filed on June 6, 1994.
(2) Incorporated by reference from the Company's
Annual Report on Form 10-K for the fiscal year
ended May 31, 1988.
(3) Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended May
31, 1993
(4) Incorporated by reference from Registration
Statement No. 33-13545 on Form S-2, filed on April
17, 1987, and Amendment No. 1 thereto, filed on May
8, 1987.
(5) Incorporated by reference from Registration
Statement No. 33-47030 on Form S-3, filed on April
8, 1992, and Amendment Nos. 1 and 2 thereof, filed
on April 24, 1992 and June 4, 1992, respectively,
and Post-Effective Amendment No. 1 thereof, filed
on July 15, 1992.
(6) Incorporated by reference from the Company's
Current Report on Form 8-K, filed on March 1, 1993.
</TABLE>
<PAGE> 128
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- - ------ ----------- ----
<S> <C> <C>
(7) Incorporated by reference from Registration
Statement No. 2-91911 on Form S-2, filed on June
27, 1984, and Amendment No. 1 thereto, filed on
July 17, 1984.
(8) Incorporated by reference from Registration No.
33-54596 on Form S-8, filed on November 16, 1992.
(9) Incorporated by reference from Registration
Statement No. 2-94127.
(10) Incorporated by reference from the Company's
Annual Report on Form 10-K for the fiscal year
ended May 31, 1983.
(11) Incorporated by reference from Registration
Statement No. 33-6976, filed on July 3, 1986, and
Amendment No. 1 thereto, filed on November 17,
1986.
(12) Incorporated by reference from Registration
Statement No. 33-00968 on Form S-1, filed on
October 18, 1985.
(13) Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended May
31, 1992.
(14) Incorporated by reference from Registration
Statement No. 33-12473.
(15) Incorporated by reference from Registration
Statement No. 33-24358.
(16) Incorporated by reference from the Company's
Registration Statement on Form 8-A No. 0-18133,
dated November 16, 1989.
(17) Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended May
31, 1989.
(18) Incorporated by reference from Form 8-A of Jones
United Kingdom Fund, Ltd. (Commission File No.
0-19889).
(19) Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended May
31, 1990.
(20) Incorporated by reference from the Annual Report on
Form 10-K of Jones Intercable Investors, L.P.
(Commission File No. 1-9287) for the fiscal year
ended May 31, 1986.
(21) Incorporated by reference from the Company's Form
S-4 Registration Statement filed on July 11, 1994.
</TABLE>
<PAGE> 1
Exhibit 10.5.32
CABLE TELEVISION FRANCHISE AGREEMENT
BETWEEN CITY OF ALEXANDRIA, VIRGINIA,
AND JONES INTERCABLE OF ALEXANDRIA, INC.
June 18, 1994
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Definitions............................................ 2
(a) Alexandria Community Channel...................... 2
(b) Cable Act......................................... 2
(c) Cable Ordinance................................... 2
(d) Cable Service..................................... 3
(e) Cable System...................................... 3
(f) FCC............................................... 3
(g) Franchise Agreement............................... 4
(h) Franchisee........................................ 4
(i) Gross Revenues.................................... 4
(j) Local Origination Programming..................... 5
(k) Prior Franchise Agreement......................... 6
(1) Public Rights-of-Way.............................. 6
(m) Subscribers....................................... 6
2. Grant of Authority; Limits and Reservations............ 6
(a) Grant of Authority................................ 6
(b) Franchise Area.................................... 7
(c) Term.............................................. 7
(d) Grant Not Exclusive............................... 7
(e) Franchise Agreement Subject to Other Laws ........
(f) Franchise Agreement Subject to Exercise of Police
Powers............................................ 9
(g) Approval and Effective Date....................... 9
(h) Effect of Acceptance.............................. 9
(i) Claims Related to Prior Franchise Agreement....... 10
(j) Franchisee Bears Its Own Costs.................... 10
(k) No Waiver......................................... 10
(1) No Recourse....................................... 11
(m) Amendment of Franchise Agreement.................. 11
(n) Periodic Review................................... 12
3. Regulation and Oversight............................... 13
(a) Severability...................................... 13
(b) Preemption........................................ 14
4. Provision of Video Service............................. 15
5. System Facilities, Equipment and Services.............. 16
(a) System Upgrade.................................... 16
(b) Institutional Network............................. 17
(c) System Upgrade and Institutional Network Schedule. 21
(d) Full Cable Service to Certain Facilities.......... 22
(e) Technical Standards and Proof of Performance Tests 23
(f) Provision of Broad categories of Programming...... 24
(g) Service to Multiple Dwelling Units................ 25
(h) Programming Information........................... 25
(i) Leased Access Channels............................ 26
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
6. Community, Educational and Governmental Use of System 26
(a) Access Channels................................. 26
(b) Local Origination Programming................... 28
(c) Capital Grants for Access Equipment and
Facilities...................................... 30
(d) Equipment Repairs and Replacement............... 32
(e) Access and Program Support...................... 33
(f) Return Feed From Facilities..................... 33
(g) Management of Channels.......................... 34
(h) Governmental Programming Services............... 34
(i) Educational Programming......................... 35
7. Franchise Fee........................................ 35
8. Liquidated Damages................................... 36
9. Miscellaneous Provisions
(a) Governing Law................................... 38
(b) Notices......................................... 38
(c) Time of Essence; Maintenance of Records of ..... 38
Essence.........................................
(d) Captions........................................ 38
(e) Other Telecommunications Services............... 39
(f) Consultants' Fees and Costs..................... 39
(g) Proprietary Records............................. 39
(h) Transfer of Franchise........................... 40
</TABLE>
ii
<PAGE> 4
CABLE TELEVISION FRANCHISE AGREEMENT
BETWEEN THE CITY OF ALEXANDRIA, VIRGINIA,
AND JONES INTERCABLE OF ALEXANDRIA, INC.
WHEREAS, Jones Intercable of Alexandria, Inc. ("Jones"), a Colorado
corporation, has asked the City of Alexandria ("City"), a municipal corporation
of Virginia, to renew the nonexclusive franchise ("Prior Franchise") which
Jones holds to provide cable television service to the City; and
WHEREAS, the City has reviewed Jones' performance under the Prior
Franchise, has identified the future cable-related needs and interests of the
Alexandria community, has considered the financial, technical and legal
qualifications of Jones, and has determined whether Jones' plans for
constructing, operating and maintaining its cable television system are
adequate; and
WHEREAS, the City has relied on Jones' representations and has
considered all information that Jones has presented to it; and
WHEREAS, based on Jones' representations and information, and in
response to its request for renewal, the City Council of Alexandria has
determined that, subject to the terms and conditions set forth herein, the
grant of a new non-exclusive franchise to Jones, to supersede the Prior
Franchise, is consistent with the public interest, and has granted a new
franchise; and
WHEREAS, the City and Jones have reached agreement on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration for the City's grant of a new
franchise to Jones, Jones' promise to provide cable video
<PAGE> 5
programming services to residents of the City pursuant to and consistent with
the terms and conditions set forth herein, the promises and undertakings
herein, and other good and valuable consideration, the receipt and the adequacy
of which is hereby acknowledged,
THE SIGNATORIES DO HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS.
The capitalized terms used in this Franchise Agreement and
not defined in this section 1 shall have the meanings set forth
in Article B of Chapter 3, Title 9 of The Code of the City of
Alexandria, Virginia, 1981, as amended, known as the Alexandria
Cable Communications Code (the "Cable Ordinance" or "Ordinance").
In this Agreement, the following definitions shall apply:
(a) Alexandria Community Channel: Video channel controlled by the
Franchisee, which shall carry Local Origination Programming, including
programming produced by the general public (subject to Franchisee's editorial
discretion), together with any other programming Franchisee may elect to
provide.
(b) Cable Act: Title VI of the Communications Act of 1934, as
amended, 47 U.S.C. Section 151 et seq., and all other provisions of the Cable
Communications Policy Act of 1984, Pub. L. No. 98-549, and the Cable
Television Protection and Competition Act of 1992, Pub. L. No. 102-385, as
such statutes may be amended from time to time.
(c) Cable Ordinance: Chapter 3 of Title 9 of The Code of the City
of Alexandria, 1981, as amended, and as it may be amended from time to time.
2
<PAGE> 6
(d) Cable Service: (i) The one-way transmission on a Cable System
of video programming or other programming services to Subscribers, and any
Subscriber interaction that is required for the selection of such video
programming or other programming services ("Video Service"), and (ii) the
provision on a Cable System of any other lawful communications services ("Other
Service").
(e) Cable System: A facility consisting of a set of closed
transmission paths and associated signal generation, reception and control
equipment that is designed and is used to provide Cable Service, which includes
Video Service, to multiple customers within the City, but the term Cable System
does not include any of the following: (1) any facility that serves only to
retransmit the television signals of one or more television broadcast stations;
(2) any facility that serves only customers in one or more multiple unit
dwellings under common ownership, control or management, unless such facility
uses any Public Right-of-Way, including streets or easements; (3) any facility
of a common carrier which is subject, in whole or in part, to the provisions of
Title II of the Cable Act, provided that such facility shall be considered a
Cable System if it is used in the transmission of video programming directly to
Subscribers, whether on a common carrier or non-common carrier basis; or (4)
any facility of any electric utility used solely for operating its electric
utility systems.
(f) FCC: The Federal Communications Commission, its designee or
any successor governmental entity.
3
<PAGE> 7
(g) Franchise Agreement or Agreement: This contract and any
amendments, exhibits or appendices hereto.
(h) Franchisee: Jones Intercable of Alexandria, Inc., a Colorado
corporation, and its lawful and permitted successors, assigns and transferees.
(i) Gross Revenues: Any and all cash, credits, property and other
consideration of any kind or nature received directly or indirectly by the
Franchisee or any other entity that is a cable operator of the Franchisee's
Cable System, which is attributable to, arises from or is in any way derived
from the operation of the Franchisee's Cable System, including the studios and
other facilities associated therewith, and whether in conjunction with the
provision of Video Service or Other Service. Gross Revenues include, by way of
illustration and not limitation, monthly fees charged Subscribers for any
basic, optional, premium, per-channel or per-program service; installation,
disconnection, reconnection and change-in-service fees; leased channel fees;
late fees and administrative fees; fees, payments or other consideration
received from programmers for carriage of programming on the Cable System;
launch support received from programmers for carriage of programming on the
Cable System; revenues from the rentals and Sales of converters or other
equipment; fees for the rental of studios and production equipment and the use
of Franchisee personnel; advertising revenues; revenues from program guides;
revenues from the Sale or carriage of non-cable services, including information
services and bypass services; and revenues from home shopping and bank-at-
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home channels. Gross Revenues shall be the basis for computing the Franchise
Fee under this Agreement. Gross Revenues shall not include barter, launch
support received from a programmer in conjunction with a cooperative marketing
effort between the programmer and the Franchisee in the Washington, D.C.,
metropolitan area, the Franchise Fee imposed by this Franchise Agreement, or
any taxes on services furnished by the Franchisee which are imposed directly on
any Subscriber or User by the state, City or other governmental unit and which
are collected by the Franchisee on behalf of said governmental unit. Gross
Revenues shall also include any consideration received directly or indirectly
by any Affiliate of the Franchisee or by any Person in which the Franchisee has
a financial interest which is attributable to, arises from or is in any way
derived from the operation of the Franchisee's Cable System, except to the
extent it constitutes reasonable consideration paid to such Affiliate or Person
by the Franchisee for actual goods or services that the Franchisee has received
from the Affiliate or Person.
(j) Local Origination Programming: Programming (i) produced by the
Franchisee, intended for use in the City, and of specific local interest to
residents of the City, (ii) produced by Franchisee but not both intended for
use in the City and of specific local interest to residents of the City, (iii)
produced in the City by members of the public, which programming is subject to
the Franchisee's editorial control, or (iv) produced by the parents or
affiliates of the Franchisee or the affiliates of any parent of the Franchisee;
provided, that the term Local
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Origination Programming shall not include either character generated
programming (except to the extent such programming fulfills the local
Origination Programming requirement regarding election returns under Section
6(b)(3) of this Agreement) or any of the programming required under Section
6(h) of this Agreement.
(k) Prior Franchise Agreement: Nonexclusive Franchise Contract
dated July 26, 1979, as amended, assigned to Franchisee by Resolution No. 1622.
(1) Public Rights-of-Way: The surface, the air space above the
surface, and the area below the surface of any public street, highway, lane,
path, alley, sidewalk, boulevard, drive, bridge, tunnel, park, parkway,
waterway, easement or similar property in which the City holds any property
interest and which, consistent with the purposes for which it was acquired or
dedicated, may be used for the installation and maintenance of a Cable System.
No reference in this Franchise Agreement to a "Public Right-of-Way" shall be
deemed to be a representation or guarantee by the City that its interests or
other rights in such property are sufficient to permit its use for the
installation and maintenance of a Cable System, and the Franchisee shall be
deemed to gain only those rights which the City has the undisputed right and
power to give.
(m) Subscribers: Any Person who legally receives any service
delivered over the Franchisee's Cable System.
2. GRANT OF AUTHORITY; LIMITS AND RESERVATIONS.
(a) Grant of Authority: Subject to the terms and conditions of
this Agreement, the Franchisee has been granted by
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the City Council of Alexandria a franchise to construct, operate, maintain,
repair and replace in, upon, along, across, above and over the Public
Rights-of-Way in the City a Cable System for the purpose of providing Cable
Service ("Franchise"), and this Agreement confirms the grant of the Franchise.
No privilege or power of eminent domain has been bestowed by this grant; nor is
such privilege or power bestowed by this Agreement. This Agreement does not
confer any rights other than as expressly provided herein or as mandated by
federal, state or local law.
(b) Franchise Area: The Franchise is issued for the entire present
territorial limits of the City of Alexandria and any area annexed thereto
during the term of the Franchise.
(c) Term: The Franchise and this Franchise Agreement shall expire
on June 17, 2009, unless the Franchise is earlier revoked or its term shortened
as provided herein or in any applicable provision of the Cable Ordinance.
(d) Grant Not Exclusive: The Franchise and the right it grants to
use and occupy the Public Rights-of-Way shall not be exclusive and do not,
explicitly or implicitly, preclude the issuance of other franchises to operate
Cable Systems within the City, affect the City's right to authorize use of
Public Rights-of-Way by other persons to operate Cable Systems or for other
purposes as it determines appropriate, or affect the City's right to itself
construct, operate or maintain a Cable System, with or without a franchise.
However, the City agrees that it shall not authorize another franchisee of a
Cable System to utilize the Public Rights-of-Way on terms and conditions which
are more
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favorable or less burdensome than those applied to Franchisee, with respect to
the following specific matters: (1) the term of any such other franchise shall
be no more than the term of this Franchise; (2) the franchise fee assessed on
any such other franchisee shall be no less, as a percent of the portion of the
franchisee's Gross Revenues that are attributable to its provision of Video
Service, than the fee for this Franchise; (3) the channels and support for
local origination and access channels provided by any such other franchisee
shall be no less than the channels and support provided by the Franchisee; (4)
the payments and other benefits received by the City from any such other
franchisee, pursuant to requirements imposed by the franchise or a franchise
agreement between the City and the franchisee, exclusive of any franchise fee,
shall be comparable to the payments and other benefits provided the City under
this Agreement, and such comparability shall be deemed to exist (i) if the
payments and other benefits received from such other franchisee are of a value
that is equal to $3,500,000, such value to be calculated in present value terms
as of the effective date of the other franchise, and, in addition, (ii) such
other franchisee is required to pay the City, regardless of the form, timing or
manner of the payment, at least two (2) percent of the portion of its Gross
Revenues that are attributable to its provision of Video Service for each year
of the franchise. In the event the terms and conditions in another franchise
are, with respect to any of the specific matters identified above, more
favorable or less burdensome than the terms and conditions
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applicable to Franchisee under this Agreement, the City shall adjust the terms
and conditions in such other franchise or in this Agreement so that such terms
and conditions applicable to the other franchisee are not more favorable or
less burdensome than those that are applicable to Franchisee.
(e) Franchise Agreement Subject to Other Laws: This Franchise
Agreement is subject to and shall be governed by all terms, conditions and
provisions of the Cable Act and any other applicable provision of federal,
state, and local law.
(f) Franchise Agreement Subject to Exercise of Police Powers: All
rights and privileges granted herein are subject to the police powers of the
City.
(g) Approval and Effective Date: This Franchise Agreement shall
become effective upon its approval by the City Council, and its effective date
shall be the date of such Council approval.
(h) Effect of Acceptance: By accepting the Franchise and executing
this Franchise Agreement, the Franchisee (1) acknowledges and accepts the
City's legal right to grant the Franchise pursuant to the Cable Ordinance and
to enter into this Franchise Agreement, (2) agrees that it will not oppose
intervention by the City in any proceeding affecting the Franchisee's Cable
System, (3) accepts and agrees to comply with each provision of this Agreement,
and (4) agrees that the Franchise was granted pursuant to processes and
procedures consistent with applicable law, and that it will not raise any claim
to the contrary.
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(i) Claims Related to Prior Franchise Agreement:
(1) In addition to satisfying all the provisions of this
Franchise Agreement, the Franchisee shall remain liable for payments of all
franchise fees and other amounts owed under the Prior Franchise Agreement up to
the effective date of this Franchise Agreement. The grant of the Franchise
shall have no effect on the Franchisee's duty under the Prior Franchise
Agreement or any ordinance in effect prior to the effective date of the Cable
Ordinance to indemnify or insure the City against acts and omissions occurring
during the period that the Prior Franchise Agreement was in effect.
(2) Except as required to carry out the intent of the
previous paragraph, as of the effective date of this Franchise Agreement, the
Prior Franchise Agreement is superseded and is of no further force and effect,
and the City and the Franchisee mutually release each other from any claims
each had, has or may have against the other under the Prior Franchise
Agreement.
(j) Franchisee Bears Its Own Costs: Unless otherwise expressly
provided in this Franchise Agreement, all acts that the Franchisee is required
to perform under the Franchise, this Agreement or applicable law shall be
performed at the Franchisee's own cost and expense.
(k) No Waiver:
(1) The failure of either party on one or more occasions
to exercise a right or to require compliance or performance under this
Franchise Agreement, the Cable Ordinance or any other applicable law shall not
be deemed to constitute a
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waiver of such right or a waiver of compliance or performance by such party,
unless such right or such compliance or performance has been specifically
waived in writing.
(2) Waiver of a breach of this Agreement shall not be a
waiver of any other breach, whether similar to or different from that waived.
Neither the granting of the Franchise, nor any provision herein, nor any action
by the City hereunder shall constitute a waiver of or a bar to the exercise of
any governmental right or power of the City, including without limitation the
right of eminent domain.
(l) No Recourse: The Franchisee shall have no recourse against the
City or its officials, boards, commissions, agents or employees for any loss,
cost, expense, claim, liability or damage arising out of any action or decision
undertaken or not undertaken by Franchisee pursuant to the Franchise, this
Franchise Agreement or the Cable Ordinance.
(m) Amendment of Franchise Agreement: The City shall liberally
amend this Franchise Agreement upon the application of the Franchisee whenever
necessary to enable the Franchisee to take advantage of developments in the
field of telecommunications which, in the City's opinion, will afford the
Franchisee an opportunity to serve its Subscribers more efficiently,
effectively and economically. Such amendments shall be subject to such
conditions as the City determines are appropriate to protect the public
interest.
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(n) Periodic Review:
(1) Subject to the provisions of this subsection 2(n), the
City may amend this Franchise Agreement in a manner that will have the effect
of requiring the Franchisee to upgrade or rebuild the Cable System ("Upgrade
Option").
(2) The City may not initiate any Upgrade Option at a time
when the Franchisee is subject to effective competition, as defined in 47
U.S.C. Section 543(1)(1).
(3) In order to initiate the Upgrade Option, the City shall
first commence a review of the Cable System, which review may not commence
prior to the ninth (9th) or after the twelfth (12th) anniversary of the
effective date of this Agreement. Such review shall be conducted to enable the
City to determine the following: (i) whether the Cable System should be
upgraded or rebuilt; (ii) whether the Cable System's technical standards
should be revised or improved; (iii) whether additional channels, equipment,
facilities or support are required for community, educational and governmental
use of the Cable System; and (iv) in general, whether any other changes in
Franchise requirements should be made. Each determination under this paragraph
shall be based upon the reasonable cable-related needs and interests of the
Alexandria community, considering the costs to the Franchisee of meeting those
needs and interests.
(4) If, after conducting such review, the City decides that
the exercise of the Upgrade Option may be warranted, it shall hold at least two
(2) public hearings to enable the
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Franchisee and the public to comment on the Upgrade Option and the issues it
presents.
(5) If, following such hearings, the City determines that
the exercise of the Upgrade Option is warranted under the standard set out in
paragraph (2) and thus that material changes in the Franchisee's obligations
under the Franchise are also warranted, and if the Franchisee is willing to
comply with such changes, the parties shall amend this Franchise Agreement
accordingly. If, however, the Franchisee is not willing to comply with such
changes, the Franchisee, as its sole remedy, may, within sixty (60) days after
the City's determination, provide notice to the City, pursuant to Section 626
of the Cable Act, that it wishes to commence proceedings to renew the
Franchise. If, at the time of such notice, more than thirty-six (36) months
remain in the term of the Franchise, notice shall be deemed, by mutual
agreement, to shorten the term of the Franchise and this Agreement so that the
Franchise and this Agreement shall terminate thirty-six (36) months from the
date of the notice.
(6) Notwithstanding any provisions of this subsection 2(n) to
the contrary, the City and the Franchisee may at any time amend this Agreement
by mutual consent.
3. REGULATION AND OVERSIGHT.
(a) Severability: In the event that a court or agency of competent
jurisdiction declares that any nonmaterial provision of this Franchise
Agreement is unenforceable according to its terms or is otherwise void, said
provision shall be considered a separate, distinct and independent part of this
Agreement, and
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such declaration shall not affect the validity and enforceability of all other
provisions of this Agreement. In the event that a court or agency of competent
jurisdiction declares that any material provision of this Agreement is
unenforceable according to its terms or is otherwise void, or in the event a
material provision is preempted by federal or state laws, rules or regulations,
the parties shall negotiate an amendment to this Agreement which places the
City, the Franchisee, Subscribers and other users of the Cable System
substantially in the same position as if such provision had not been declared
unenforceable, voided or preempted. By way of illustration and not limitation,
the following provisions shall be considered material: Sections 2(a) (Grant
of Authority), 2(c) (Term), 2(f) (Franchise Subject to Exercise of Police
Powers), 2(n) (Periodic Review), 5(a) (System Upgrade), 5(b) (Institutional
Network), 5(d) (Full Cable Service to Certain Facilities), 6 (Community,
Educational and Governmental Use), and 7 (Franchise Fee).
(b) Preemption: In the event that federal or state laws, rules or
regulations preempt a provision or limit the enforceability of a provision of
this Agreement, then the provision shall be read to be preempted to the extent
and for the time, but only to the extent and for the time, required by law. In
the event such federal or state law, rule or regulation is subsequently
repealed, rescinded, amended or otherwise changed so that the provision hereof
that had been preempted is no longer preempted, such provision shall thereupon
return to full force and effect, and shall thereafter be binding on the parties
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hereto, without the requirement of further action on the part of the City, and
any amendments to this Agreement negotiated pursuant to subsection (a) as a
result of such provision initially being preempted shall no longer be of any
force or effect.
4. PROVISION OF VIDEO SERVICE.
The Franchisee shall provide Video Service to any occupant of a
residential or commercial structure who requests such service, including any
multiple dwelling unit building (except that Franchisee shall not be required
to provide service to any structure to which it cannot obtain access), subject
to the cost-sharing provisions of this section. The Franchisee shall bear all
the costs of providing Video Service to all new residential structures, new
structures being those on which construction was commenced after the effective
date of this Agreement. As to existing residential structures and as to
existing and new commercial structures, the Franchisee shall bear all the costs
of providing such service to the structure so long as the space occupied by the
person requesting the service can be served with an aerial cable extension of
1,000 feet or less or, in cases where undergrounding is required, with an
underground cable extension to the face of said structure of 150 feet or less.
If an aerial cable extension of more than 1,000 feet is required to serve such
space, the costs of the cable extension in excess of 1,000 feet shall be shared
by the person requesting the service and the Franchisee in accordance with the
following formula and,
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if said person refuses to share the costs, the Franchisee shall not be
obligated to provide the requested service:
C = N/30
C = the proportion of the costs to be borne by the
Franchisee
N = the number of residential dwelling units in
structures passed by the entire cable extension that
could be served from the extension with a standard
aerial drop of no more than 150 feet
If an underground cable of more than 150 feet is required to serve the space of
the person requesting Video Service, the costs of the portion of the cable
extension in excess of 150 feet shall be borne entirely by the person
requesting the service and, if the person refuses to bear such costs, the
Franchisee shall not be obligated to provide the requested service.
5. SYSTEM FACILITIES, EQUIPMENT AND SERVICES.
(a) System Upgrade: The Franchisee's Cable System shall be upgraded
within three years of the effective date of this Agreement; provided, that the
City may extend this deadline for up to one year as to those portions of the
System upgrade which, despite its diligent efforts, Franchisee has been unable
to complete. The Franchisee's upgrade shall, at a minimum, ensure that, at all
times following its completion, the System meets or exceeds the following
requirements:
(1) The System shall have a capacity of at least 750 MHz, and at least
110 6-MHz equivalent channels, downstream to all Subscribers.
(2) The System shall utilize a fiber-optic wire trunk and distribution
design ("fiber-to-the-neighborhood"). In
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general, no more than two hundred (200) residences, businesses and other
structures (counting as only one structure a single building that is a multiple
dwelling unit structure) shall be served by any single fiber node. However,
the Franchisee shall be permitted to serve up to 250 such residences,
businesses and other structures where necessary.
(3) The System shall allow all unscrambled channels, to the
extent transmitted on frequencies which a Subscriber's television set is
technically capable of receiving, to be viewable on such a set without the aid
of a converter, and shall minimize interference with consumer electronic
equipment.
(4) The System shall comply with regulations of the FCC
regarding the compatibility between cable service and consumer receiving,
recording and related equipment.
(b) Institutional Network:
(1) Within three years of the effective date of this
Franchise Agreement, the Franchisee shall make available, at a cost to the City
of no more than one dollar ($1.00) per year, an optical fiber communications
system with a minimum transmission capacity of 2.4 gigabits per second which
shall link governmental and educational facilities in Alexandria and which
shall be for use by governmental and educational users (the "Institutional
Network" or "Network"). This Institutional Network and its communications
capacity shall be in addition to the engineered capacity required by Section
5(a)(1).
(2) The Institutional Network shall be designed, operated and
maintained by Franchisee to support both analog and
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digital transmissions as the City may require. At a minimum, the Network shall
be capable of supporting operation of an Ethernetlike data network having a
transmission speed of at least 100 megabits per second, linking together all
sites on the Network. In addition to this data transmission facility, which
shall be available for use on a full-time basis with a reliability of at least
99.998 percent, the Network shall be capable of supporting simultaneous
upstream (to the headend) carriage of at least the following:
(A) Six standard 6-MHz upstream channels, or at the City's
option 36-MHz of bandwidth, for the Alexandria Public Schools;
(B) Two standard 6-MHz upstream channels, or at the City's
option 12-MHz of bandwidth, for the Northern Virginia Community College;
(C) One standard 6-MHz upstream channel, or at the City's
option 6-MHz of bandwidth, for use by the City's library system;
(D) Two standard 6-MHz upstream channels, or at the City's
option 12-MHz of bandwidth, from City Hall; and
(E) Two standard 6-MHz upstream channels, or at the City's
option 12-MHz of bandwidth, from the Alexandria Courthouse and the Alexandria
Public Safety Center. The minimum downstream capacity of the Network (outbound
from the headend to all designated locations) shall be 20 standard 6-MHz
television channels, or the equivalent bandwidth, in addition to the data
capacity specified under this subsection 5(b)(2).
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Additional upstream and downstream channel capacity, up to the transmission
capacity limit specified in subsection 5(b)(1), shall be provided by the
Franchisee upon request of the City within thirty days of the date of any such
request. The Network shall include central office route switching capability
that can be remotely controlled from any site on the Network and that can
accommodate all upstream and downstream television channels on the Network.
(3) The Institutional Network shall be designed, operated and
maintained so that any transmission on the Network may be simultaneously
retransmitted on the downstream educational and governmental channels provided
under Section 6 and any downstream public channel provided under Section
6(a)(6).
(4) Prior to beginning construction of the Network, the
Franchisee shall submit full and complete engineering plans to the City, which
shall have sixty (60) days to review these plans. If the City and the
Franchisee agree that the plans do not satisfy the terms of this Agreement, the
Franchisee shall resubmit revised plans for a similar 60-day review.
Franchisee agrees to give good faith consideration to any comments and any
recommendations for change which the City provides on the Network engineering
plans. No construction of the Network shall commence until the City has had at
least 60 days to review and comment upon the Network engineering plans.
(5) The Franchisee shall be responsible, at its sole cost
and expense, for the construction, the activation at designated user sites, the
operation and management, and the
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maintenance, repair and replacement of the Institutional Network, including all
Network control and remotely-controlled route switching, as well as all radio
frequency-to-optical, optical-toradio frequency, and similar conversions, and
all equipment required for such control, switching and conversions, that is
required within the Network. For purposes of this subsection, the term
"replacement" shall mean the acquisition and installation of new equipment of
similar or better quality and characteristics as the equipment that is no
longer capable of performing the function for which it was acquired.
(6) The Franchisee shall, at its sole cost and expense,
connect to the Institutional Network such schools, libraries, courts, City
offices and agencies, and such other public, educational and governmental
facilities as are designated in Appendix A ("Current Facilities), together with
all schools, libraries, courts, and City offices and agencies as shall be
designated by the City after the effective date of this Agreement ("Future
Facilities"); provided, that, for any Future Facilities that are not designated
by the City prior to the commencement of construction of the Network and that
would require a line extension of more than 500 feet from the planned or
existing Network, the Franchisee may require the City to pay up to half of the
cost of constructing the portion of such necessary line extension that exceeds
500 feet.
(7) All Current and Future Facilities shall be connected to
the Institutional Network with an industry standard connector at a location
specified by the City inside the
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facility, and shall include a standard interface (such as DS1, DS3, STS-1 or
0C-3) consistent with the technology used by the Franchisee in the Network.
Such connections, including the outside construction of drops, shall be
performed by the Franchisee at its sole cost and expense, and shall be made
within a reasonable time after a written request by the City.
(8) If the City wishes to use transmission capacity on the
Institutional Network or the Cable System beyond its rights as specified in
this Agreement, the charges for such use shall be freely negotiated on terms
and conditions equal to or more favorable to the City than those offered to any
other major user by the Franchisee.
(9) The City and the Franchisee agree that no costs
associated with the construction, operation or maintenance of this Network or
associated in any other way with this subsection 5(b) may be passed through to
Subscribers in any form as part of the price they must pay for regulated Video
Service or equipment, or itemized on Subscriber bills, and that no such costs
constitute franchise fees or are subject to any limitations on franchise fees
under applicable law.
(c) System Upgrade and Institutional Network Schedule: No later than
six (6) months following the effective date of this Franchise Agreement, the
Franchisee shall complete a schedule for the construction of the upgrade of its
current Cable System required by Section 5(a) and a schedule for the
construction of the Institutional Network required by Section 5(b), which shall
include an identification of the control, switching, conversion
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and similar equipment to be installed in the Institutional Network, and shall
thereafter meet with the City to discuss each schedule. Following the
commencement of construction of the System upgrade, every three (3) months
until the upgraded System is completed, the Franchisee shall provide detailed
written reports to the City on the Franchisee's progress in constructing the
upgraded System and shall meet with the City to discuss such progress.
Similarly, following the commencement of construction of the Institutional
Network, every three (3) months until the Network is completed, the Franchisee
shall provide detailed written reports to the City on the Franchisee's progress
in constructing the Network and shall meet with the City to discuss such
progress.
(d) Full Cable Service to Certain Facilities: Upon the request of
the City, the Franchisee shall install, at its sole cost and expense, one or
more service outlets at, and shall provide the full complement of video
programming subject to regulation (i.e., basic and any cable programming
service tiers) free of charge to, each school and other educational facility,
each facility occupied by a City office or agency, and each City-owned and
City-leased residential structure within the Franchise Area as shall be
designated by the City from time to time; provided, that the Franchisee's
obligation to provide service outlets at City-owned and City-leased residential
structures shall be limited to a total of 250 service outlets, which shall be
allocated among such structures at the City's discretion.
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(e) Technical Standards and Proof of Performance Tests:
(1) The Cable System shall meet or exceed the technical
standards set forth in 47 C.F.R. Section 76.601 and any other applicable
technical standards required by federal or state law, including any such
standards as may be amended or adopted by the City, in the Cable Ordinance, in
a manner consistent with federal and state law.
(2) The Franchisee shall use in the upgraded Cable System
equipment generally used in high-quality, reliable, modern systems of similar
design, including, but not limited to, back-up power supplies at all active
locations and at the headend capable of providing power to the System for a
minimum of three (3) hours in the event of an electrical outage, and
modulators, antennae, amplifiers and other electronics that permit and are
capable of passing through the signal received at the headend with minimal
alteration or deterioration. This obligation shall include the obligation to
install equipment to retransmit in stereo satellite and local broadcast signals
provided in stereo. The obligation to provide backup power supplies requires
the Franchisee to install equipment that will (i) cut in automatically on
failure of commercial utility AC power, (ii) revert automatically to
commercial power when it is restored, and (iii) prevent the standby power
source from powering a "dead" utility line.
(3) The Franchisee shall not design, install or operate its
upgraded Cable System in a manner that will interfere with the signals of any
broadcast station, the facilities of any public utility, the cable system of
another franchisee, or
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individual or master antennae used for receiving television or other broadcast
signals.
(4) The Franchisee shall conduct proof of performance tests, in
the manner and with the frequency required by the FCC (but in no event less
frequently than once a year), and shall provide to the City a written report
showing the results of such tests. If the tests reveal that the Franchisee is
not in compliance with any applicable requirement, the Franchisee shall
immediately take whatever steps are necessary to achieve compliance. No later
than ten days following completion of the tests which reveal non-compliance,
the Franchisee shall conduct additional proof of performance tests to determine
whether it has corrected its non-compliance; provided, that the City may extend
this ten-day requirement as it deems necessary.
(f) Provision of Broad Categories of Programming:
(1) In addition to the service requirements in this Franchise
Agreement, the Franchisee agrees to provide programming responsive to the
programming needs and interests of Subscribers in the City. To this end, the
Franchisee shall conduct an annual survey of Subscribers for the purpose of
ascertaining those needs and interests, which survey shall be in addition to
any survey required by the Cable Ordinance. Both a copy of, and the results
of, the survey required by this paragraph shall be provided to the City and
shall be made available for public inspection.
(2) The Franchisee shall provide a basic cable service option
which permits persons on fixed or limited incomes to
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purchase basic cable service without the need to purchase all Video Service
provided by the Cable System.
(3) The Franchisee agrees to provide a substantial amount of
programming directed specifically to children and a substantial amount of
programming providing coverage of national and world news.
(4) The Franchisee agrees to provide a substantial amount of
programming directed specifically to the needs of the deaf and
hearing-impaired.
(5) The parties expressly agree that the programming described
in paragraphs (3) and (4) represents broad categories of video programming
within the meaning of 47 U.S.C. Section 544(b)(2)(B).
(g) Service to Multiple Dwelling Units: The Franchisee shall not offer
to Subscribers who reside in multiple dwelling unit buildings Video Service at
terms or prices that are less favorable than those offered to Subscribers who
reside in single family homes; provided, that this subsection (g) shall not
apply to Video Service provided pursuant to a lawful agreement between the
Franchisee and the owner of the multiple dwelling unit building, so long as, at
the time the agreement was entered, the owner's consent was required in order
for the Franchisee to gain access to the building, or pursuant to a lawful
agreement between the Franchisee and the body authorized to represent the
residents of the building.
(h) Programming Information: The Franchisee shall provide programming
information in print, in electronic program guide
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format or in menu-driven format, either through its agents, by reliance on
adequate schedules available through guides in the community or through other
media, in its discretion, which programming information shall be sufficient to
enable each Subscriber to locate and select programs made available to that
Subscriber by the Franchisee.
(i) Leased Access Channels: The Franchisee shall provide leased access
channels as required by federal law.
6. COMMUNITY, EDUCATIONAL AND GOVERNMENTAL USE OF SYSTEM.
(a) Access Channels:
(1) The Franchisee shall make available to all Subscribers on
the upgraded Cable System required under Section 5(a) of this Agreement at
least four (4) standard 6-MHz video channels, or at the City's option 24-MHz of
bandwidth, for educational and governmental access use, which channels shall be
in addition to the Alexandria Community Channel or Channels provided pursuant
to Section 6(b), any channels provided pursuant to Section 6(a)(6) (subject to
the limitations set out in Section 6(a)(7)), and the channel or channels
provided on the Institutional Network pursuant to Section 5(b). Unless
otherwise specified by the City, two of these channels shall be for educational
access programming and two shall be for governmental access programming. Until
a Subscriber is connected to the upgraded System required by Section 5(a), the
Franchisee shall make available to such Subscriber the Alexandria Community
Channel and one (1) video channel each for educational and governmental use.
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(2) In addition to the channels for educational and
governmental access programming specified in subsection (a)(1), the City may
require the Franchisee to make available additional standard 6-MHz equivalent
video channels, up to a maximum of four (4) total additional channels, for
educational or governmental access programming, whenever any channel set aside
for such programming, on average over a consecutive 10-week period, meets the
following conditions:
(A) the channel shows at least 28 hours per week
during prime time of first-run programming or programming that has been shown
once previously in the City, or both; and
(B) the channel shows at least 50 hours per week of
programming of any kind.
(3) As used in this subsection (a), "prime time" shall mean 6
p.m. to 11 p.m. for all channels provided pursuant to subsection (a)(1) or
subsection (a)(6), except governmental access channels for which "prime time"
shall mean 7 p.m. to 12 p.m.
(4) The Franchisee shall make any additional channel required
by the City under subsection (a)(2) or subsection (a)(6) available within six
(6) months of the city's determination to require it.
(5) All access channels required by subsections (a)(1), (a)(2)
and (a)(6), and all Alexandria Community Channels provided pursuant to Section
(6)(b), shall be provided as part of the Franchisee's basic cable service, as
that term is defined in 47 U.S.C. Section 522, unless the City determines
otherwise.
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(6) If, at any time during the franchise term, the City
determines, in its sole discretion, that community needs and interests require
one or more channels to be set aside for access and use by the general public,
including groups and individuals, on a non-discriminatory basis and without
editorial control by the Franchisee, the City may require the Franchisee to set
aside one standard 6-MHz equivalent video channel for such access and use. The
City may require the Franchisee to make available an additional standard 6-MHz
equivalent video channel for public access and use whenever the initial public
access channel made available under this subsection (a)(6) meets the conditions
identified in subsections (a)(2)(A) and (a)(2)(B).
(7) Notwithstanding the provisions of subsection (a)(6), at no
time shall the Franchisee be required to make available more than eight
educational, governmental or public access channels on the Cable System.
(b) Local Origination Programming:
(1) During the Franchise term, the Franchisee shall provide
thirty (30) or more hours per week of Local Origination Programming on the
Alexandria Community Channel, at least ten (10) hours of which (subject to the
phase-in schedule in subsection 6(b)(2)) shall consist of Local Origination
Programming that has been produced by the Franchisee, is intended for use in
the City and is of specific local interest to residents of the City, and has
not previously been transmitted on the Cable System ("First-Run LO
Programming").
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(2) The Franchisee may phase in its provision of the ten (10)
hours of First-Run LO Programming specified in subsection (b)(1) in the
following manner:
(A) During the first year after the effective date of
this Agreement, an average of at least three (3) hours of First-Run LO
Programming must be provided each week;
(B) During the second year after the effective date of
this Agreement, at least six (6) hours of First-Run LO Programming must be
provided each week; and
(C) In the third year after the effective date of
this Agreement and thereafter, at least ten (10) hours of First-Run LO
Programming must be provided each week.
(3) In any week during which a local, state or national
election is conducted in Alexandria, the Franchisee shall provide, as part of
the required ten (10) hours of First-Run LO Programming, live coverage of the
City's election returns.
(4) All programming provided pursuant to this subsection (b)
shall be of a quality at least equivalent to the Local Origination Programming
produced on the Cable System during 1993. The Franchisee shall engage
sufficient personnel and shall maintain sufficient equipment to comply with the
programming requirement of this section or, if greater, with the public demand
for Local Origination Programming services.
(5) The Franchisee shall make the schedule of Local
Origination Programming available to all Subscribers and to appropriate news
sources, in the same manner as it does all other programming on the System.
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(c) Capital Grants for Access Equipment and Facilities:
(1) The Franchisee shall provide a capital fund to the City of
$1,000,000 to be used by the City, in its sole discretion, for access equipment
(including, but not limited studio and portable production equipment, editing
equipment and program playback equipment), for the renovation of facilities
used in or related to access programming, and/or for use of the Institutional
Network (including, but not limited to, computers and other Network terminal
equipment). The Franchisee shall, at the City's request, provide the City with
amounts from this fund in cash or expend such amounts to purchase equipment on
the City's behalf, and the entire amount of this fund shall be available for
the City's use within thirty (30) days of the effective date of this Agreement.
(2) For each year of the franchise term, beginning with the
fourth year, the Franchisee shall pay a capital grant to the City, in addition
to the amount specified in subsection (c)(1), that may be used, in the City's
sole discretion, for some or all of the purposes described in subsection
(c)(1). Said grant shall be $500,000 adjusted annually for any inflation
occurring between the effective date of this Agreement and the start of the
year in which the payment is due; provided, that such payment shall, in no
event, (i) be less than two percent (2%) of the Franchisee's Gross Revenues in
the fiscal year immediately prior to the year in which the payment is due, or
(ii) more than three percent (3%) of such Gross Revenues. The annual inflation
adjustments required by this subsection (c)(2)
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shall be based upon the Gross National Product Fixed Weight Price Index
("GNP-PI"). Payment of such grant shall be made in two equal installments for
each year in which it is due, the first of which shall be within 30 days of the
beginning of that year, and the second of which shall be six months thereafter.
(3) Beginning in the tenth year of this Agreement, the
Franchisee shall expend, at the City's request, up to the sum of $500,000
adjusted annually for any inflation occurring between the effective date of
this Agreement and the end of the ninth (9th) year of this Agreement to upgrade
the Institutional Network, including, but not limited to, all Network control
and remotely-controlled route switching, as well as all radio-
frequency-to-optical and optical-to-radio frequency conversions, and all
equipment required for such control and switching within the Network, provided
that the City contributes a matching amount. Such fund shall be in addition to
the amounts specified in subsections (c)(1) and (c)(2). The annual inflation
adjustments required by this subsection (c)(3) shall be based upon the GNP-PI.
(4) The City and the Franchisee agree that, if the Franchisee
elects at any time to pass through to Subscribers any of the cost of the
capital fund, of the capital grants and/or of the matching fund addressed in
this subsection (c), (i) the amount of any such pass-through shall be governed
by the applicable provisions of law, including FCC regulations, if any, the
time of the desired pass-through, (ii) any such pass-through shall not be
itemized on Subscriber bills, and (iii)
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the City shall not, as part of any FCC rule-making proceeding, oppose the
inclusion of such costs as externals under FCC regulations.
(d) Equipment Repairs and Replacement: Throughout the Franchise term,
the Franchisee shall provide for the timely repair and replacement, as that
term is defined in Section 5(b)(5), of all equipment (including, but not
limited to, studio and portable production equipment, editing equipment,
program playback equipment, and switching and multiplexing equipment) acquired
using the capital fund specified in Section 6(c)(1), except equipment installed
or used in a Current or Future Facility following, or "downstream" from, any
switching and multiplexing equipment used in the Institutional Network. The
Franchisee shall, no later than thirty (30) days after the effective date of
this Agreement, enter into an agreement with the City to provide for the repair
and replacement of such equipment. The agreement shall, at a minimum, provide,
with respect to the equipment subject to this subsection (d), for capital
support for the following:
(1) Prompt repair or replacement of non-serviceable equipment;
(2) Prompt replacement of irreparable equipment with equipment
of similar quality and capabilities;
(3) Insurance to cover equipment damage, breakage, theft or
loss of equipment; and
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(4) An annual review by the Franchisee and the City, no later
than the end of the second quarter of the Franchisee's fiscal year, of
projected equipment replacement needs.
(e) Access and Program Support: The Franchisee shall make available
sufficient staff to provide training to members of the City staff in the use of
production equipment and assistance in the production of programming on the
educational and governmental access channels made available pursuant to Section
6(a), to provide training to members of the public in the use of production
equipment and assistance in the production of programming on the Alexandria
Community Channel, to provide community education and outreach, to maintain all
equipment used in the production of programming on the educational and
governmental channels, to provide for the check-in and check-out of such
equipment, to schedule the use of the Franchisee's facilities by persons other
than employees of the Franchisee producing Local Origination Programming, and
to perform related matters, up to a maximum staff requirement of one full-time
equivalent staff person. In addition, each calendar year the Franchise shall
produce up to six (6) thirty-minute programs for the City, at the City's
request. In the event the City requires the provision of one or more public
access channels pursuant to Section 6(a)(6), the provisions of this subsection
(e) shall extend to members of the public and shall apply to such channels.
(f) Return Feed From Facilities: The Franchisee shall provide all
necessary technical equipment and support to provide a high-quality return feed
of cable signals from all Current and
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Future Facilities to the Cable System headend and a feed of all downstream
channels made available pursuant to Section 6(a) to such facilities. The
return feed shall be constructed and activated during the System upgrade
required by Section 5(a), and shall permit signals to be switched to any of the
downstream channels made available pursuant to Section 6(a).
(g) Management of Channels: The City may designate one (1) or more
entities, including a non-profit access management corporation, to manage the
use of all or part of the Institutional Network and the educational and
governmental access channels provided under Section 6(a) of this Agreement,
including any channels required to be set aside pursuant to Section 6(a)(6).
(h) Governmental Programming Services: The Franchisee shall, at its
sole cost and expense, and at the City's request, provide at least the
following services to be distributed on the Governmental access channel;
provided that, absent a substantial need, the City may require the Franchisee
to provide live coverage of only one of the following events at a time and
will, upon the Franchisee's request, identify which such event shall be covered
in case of a conflict:
(1) Live coverage of all City Council meetings (including Council work
sessions conducted at City Hall) and all Council public hearings, including
closed captioning for up to four (4) such meetings or hearings a year as
specified by the City;
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(2) Live coverage of all Planning Commission and Board of
Zoning Appeals public hearings conducted at City Hall;
(3) Live coverage of the T.C. Williams High School graduation;
and
(4) Live coverage of all School Board meetings and public
hearings.
(i) Educational Programming Feed: The Franchisee shall make available
on both the Subscriber network and the Institutional Network, at the City's
request, one educational training and programming feed that is reasonably
accessible from any domestic satellite using Ku-band, plus one other
educational training and programming feed that shall be designated by the City
from time to time and shall be reasonably accessible from any domestic
satellite using C-band.
7. FRANCHISE FEE.
Each year during the Franchise term, as compensation for use of Public
Rights-of-Way, the Franchisee shall pay to the City, on a quarterly basis, a
Franchise fee in an amount not less than, nor more than, three (3) percent of
the Franchisee's Gross Revenues; provided, that, in the event the City grants a
franchise authorizing another franchisee to utilize the Public Rights-of-Way
for purposes of constructing, operating and maintaining a Cable System, the
Franchisee shall not be required to pay a franchise fee on the portion of its
Gross Revenues attributable to its provision of Other Service, unless such
other franchisee is required to pay a franchise fee on said portion of its
Gross Revenues, in which case the fee payable by the
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Franchisee, as a percentage of said portion of its Gross Revenues, shall not
exceed the percentage payable by the other franchisee on the same portion of
its Gross Revenues. Each quarterly payment under this section shall be made by
the Franchisee within 30 days of the final day of the quarter to which it
relates, and shall be accompanied by a statement, certified by the Franchisee's
chief financial officer, that the figure reported by Franchisee as its Gross
Revenues for the quarter is true and correct. The City shall have the right,
upon twenty-four hours written notice, to inspect, during normal business hours
and at such location as the City may designate, all books, receipts, financial
statements, contracts and like materials which may be relevant to the
computation of any Franchise fee payment made under this Agreement.
8. LIQUIDATED DAMAGES.
Because the Franchisee's failure to comply with provisions of the
Franchise and this Franchise Agreement will result in injury to the City, and
because it will be difficult to estimate the extent of such injury, the City
and the Franchisee agree to the following liquidated damages for the following
violations of the Franchise and of this Agreement, which represent both
parties' best estimate of the damages resulting from the specified violation.
To maintain that estimate, the parties agree that the liquidated damage amounts
are in 1994 dollars and shall be increased each year by the increase in the
GNP-PI.
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(a) For failure to submit plans indicating expected dates of
installation of various parts of the System: $100/day for each violation for
each day the violation continues;
(b) For failure to commence operations in accordance with the
requirements of the Franchise or this Agreement: $500/day for each violation
for each day the violation continues;
(c) For failure to substantially complete construction in accordance
with the Franchise or this Agreement: $500/day for each violation for each
day the violation continues;
(d) For transferring the Franchise without approval: $500/day for
each violation for each day the violation continues;
(e) For failure to comply with requirements for public, educational
and governmental use of the System, as specified in the Franchise or this
Agreement: $500/day for each violation for each day the violation continues;
(f) For failure to supply data required by the City in connection
with installation, construction, Subscribers, finances, financial reports or
rate review, as required by the Franchise or this Agreement: $100/day for each
violation for each day the violation continues;
(g) For violation of customer service standards, as contained in the
Franchise or this Agreement: $100 per violation; and
(h) For any other material violation of the Franchise or this
Agreement for which actual damages may not be ascertainable: $100/day for each
violation for each day the violation continues.
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9. MISCELLANEOUS PROVISIONS.
(a) Governing Law: This Franchise Agreement shall be governed in
all respects by the law of the State of Virginia.
(b) Notices: Unless otherwise expressly stated herein, notices
required under this Franchise Agreement shall be mailed first class, postage
prepaid, to the addressees below. Each party may change its designee by
providing written notice to the other party, but each party may only designate
one entity to receive notice.
(1) Notices to the Franchisee shall be mailed to:
Jones Intercable, Inc.
617 South Pickett Street
Alexandria, Virginia 22304
with a copy to:
Jones Intercable, Inc.
9697 East Mineral Avenue
Post Box 3309
Denver, Colorado 80155
Attention: Legal Department
(2) Notices to the City shall be mailed to:
City Manager
City of Alexandria
City Hall
301 King Street
Alexandria, Virginia 22314
with a copy to:
City Attorney
City of Alexandria
City Hall
301 King Street
Alexandria, Virginia 22314
(c) Time of Essence; Maintenance of Records of Essence: In
determining whether the Franchisee has substantially complied with this
Franchise Agreement, the parties agree that time is of
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the essence with respect to the performance of Franchisee's obligations under
Sections 2(n), 5(a), 5(b), 5(c), 6(b), 6(c), 6(f), 6(h) and 7 of the Agreement.
As a result, the Franchisee's failure to complete performance of any of the
obligations imposed by such sections within the time specified shall constitute
a material breach of this Agreement.
(d) Captions: The captions and headings of this Agreement are for
convenience and reference purposes only, and shall not affect in any way the
meaning and interpretation of any provisions of this Agreement.
(e) Other Telecommunications Services: The Franchisee shall be given
the opportunity to participate in any bidding process conducted by the City for
Other Service. At least ten (10) calendar days before awarding any contract
for such services on a sole source basis, the City shall provide the Franchisee
with a written notice of the City's intent to award the contract and shall
provide the Franchisee with at least five (5) calendar days to comment on the
contract.
(f) Consultants' Fees and Costs: Notwithstanding any provision in the
Cable Ordinance to the contrary, the fees and costs incurred by the City in
retaining consultant services in conjunction with matters affecting the
Franchisee, as authorized by the Ordinance, shall be shared equally by the City
and the Franchisee; provided, that the Franchisee's obligation for such fees
and costs shall not exceed $200,000 over the term of this Agreement.
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(g) Proprietary Records: Notwithstanding any provision in the Cable
Ordinance to the contrary, with respect to documents and other tangible
materials which contain information claimed by the Franchisee, and confirmed by
the City, to be proprietary, and to which the City has a right of access under
the Ordinance, any copy of such documents or materials that is requested by the
City shall be placed with a third party mutually agreeable to the Franchisee
and the City, and, with respect to any such copy, said third party shall
provide access to it to the City, but shall not re-copy it for any Person,
including the City, without the consent of the Franchisee and shall not make it
available to any Person other than the City without the consent of the
Franchisee.
(h) Transfer of Franchise: Notwithstanding any provision in the
Cable Ordinance to the contrary, the term "Transfer," as used in the Ordinance
and as applied to the Franchisee and its Cable System, shall, for so long as
the Franchisee is under the control of Jones Intercable, Inc., mean a
transaction in which any of the following occur:
(1) control of the a Franchisee or control of Jones
Intercable, Inc., which as of the effective date of this Agreement wholly owns
and controls the Franchisee, is transferred from one Person or group of Persons
acting in concert to another Person or another group of Persons acting in
concert;
(2) any of the rights and/or obligations of the Franchisee
under the Franchise and/or under this Agreement are assigned or otherwise
transferred, whether directly or indi-
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rectly; provided, that the mortgage or pledge of this Franchise or the Cable
System shall not be deemed a "Transfer"; or
(3) one or more general partners, with management responsibilities,
are removed from or added to the Franchisee. "Control," for purposes of this
definition, shall mean the legal or practical ability to exert actual working
control over the affairs of the Franchisee, whether directly or indirectly and
whether by contractual agreement, by majority or lesser ownership interest or
by any other means.
AGREED TO THIS 18TH DAY OF JUNE, 1994.
CITY OF ALEXANDRIA, a municipal
corporation of Virginia
By: /s/ VOLA LAWSON
City Manager
ATTEST:
/s/ BEVERLY I. JETT
City Clerk
APPROVED AS TO FORM:
/s/ CITY ATTORNEY
City Attorney
JONES INTERCABLE OF ALEXANDRIA, INC.,
a Colorado corporation
By: /s/ JAMES B. O'BRIEN
President
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<PAGE> 1
Exhibit 11
JONES INTERCABLE, INC. AND SUBSIDIARIES
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
FOR THE YEARS ENDED MAY 31, 1994, 1993 AND 1992
(Unaudited)
<TABLE>
<CAPTION>
For the Years Ended May 31,
-----------------------------------------------------
1994 1993 1992
----------- ----------- ---------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
Consolidated Net Income (Loss):
As Reported $ (25,277) $ (56,790) $ 19,579
Adjusted for interest on
convertible debentures,
net of tax 1,453 1,460 1,514
----------- ---------- ----------
As Adjusted $ (23,824) $ (55,330) $ 21,093
=========== ========== ==========
Weighted Average Shares Outstanding:
As Reported 17,662 14,277 12,294
Assumed conversion of convertible
debt and exercise of stock
option plans 1,542 1,570 1,534
----------- ---------- ----------
As Adjusted 19,204 15,847 13,828
=========== ========== ==========
Fully diluted income (loss)
per share $ (1.24) $ (3.49) $ 1.53
=========== ========== ==========
Income (loss) per share as reported $ (1.43) $ (3.98) $ 1.59
=========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 21
JONES INTERCABLE, INC.
LIST OF SUBSIDIARIES
Evergreen Intercable, Inc.
International Aviation, Ltd.
Jones British Acquisition, Inc.
Jones Cable Corporation
Jones Intercable of Alexandria, Inc.
Jones Intercable of Ft. Myers, Inc.
Jones Intercable of Leeds, Inc.
Jones Intercable of San Diego, Inc.
Jones Intercable of South Hertfordshire, Inc.
Jones of Wisconsin, Inc.
Jones Panorma Properties, Inc.
Jones Satellite Programming, Inc.
Jones Tri-City Intercable, Inc.
Jones U.K. Holdings, Inc.
Saturn Cable T.V., Inc.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our reports included in this Form 10-K into the
Company's previously filed Registration Statements on Form S-8, File 33-3087,
33-25577, 33-54596, and 33-52813, and on Form S-3, File Nos. 33-41392,
33-45161, 33-47030, 33-64602 and 33-64604 and on Form S-4, 33-54527.
Denver, Colorado
August 29, 1994 ARTHUR ANDERSEN & CO.
