<PAGE> 1
FORM 10-K/A NO. 2
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, 1995
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.
(Exact name of registrant as specified in its charter)
Colorado 84-0613514
(State of Organization) (IRS Employer
Identification No.)
P.O. Box 3309, Englewood, Colorado 80155-3309 (303) 792-3111
(Address of principal executive (Registrant's telephone no.
office and Zip Code) including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Class A Common Stock, $.01 par value
7.5% 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
--- ---
Aggregate market value as of July 14, 1995 of the voting stock held by
non-affiliates:
Common Stock $33,957,792 Class A Common Stock $116,589,596
Shares outstanding of each of the registrant's classes of common stock as of
July 14, 1995:
Common Stock: 5,113,021 Class A Common Stock: 26,158,305
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.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
<PAGE> 2
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants 52
Consolidated Balance Sheets 53
Consolidated Statements of Operations 55
Consolidated Statements of Shareholders' Investment 56
Consolidated Statements of Cash Flows 57
Notes to Consolidated Financial Statements 58
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<PAGE> 3
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, 1995
and 1994, and the related consolidated statements of operations, shareholders'
investment and cash flows for each of the three years in the period ended May
31, 1995. 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
May 31, 1995, 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, /s/ ARTHUR ANDERSEN LLP
August 11, 1995 ARTHUR ANDERSEN LLP
52
<PAGE> 4
<TABLE>
<CAPTION>
CONSOLIDATED
BALANCE SHEETS Jones Intercable, Inc.
As of May 31, 1995 and 1994 and Subsidiaries
--------------------------------------------------------------------------------------------------------------------------------
ASSETS 1995 1994
------------------------------------------------------------------------------------------(Stated in Thousands)-----------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 271,311 $ 4,239
RECEIVABLES:
Trade receivables, net of allowance for
doubtful accounts of $695,700 in 1995
and $393,900 in 1994 10,220 5,563
Affiliated entities 9,869 15,611
Other 3,668 715
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 360,275 292,381
Less - Accumulated depreciation (154,945) (121,235)
----------- -----------
205,330 171,146
Franchise costs, net of accumulated
amortization of $107,025,000 in 1995
and $76,113,800 in 1994 74,235 73,769
Cost in excess of interests in net assets
purchased, net of accumulated
amortization of $7,923,000 in 1995
and $5,918,600 in 1994 61,540 39,306
Noncompete agreement, net of accumulated
amortization of $1,273,000 in 1995
and $737,900 in 1994 407 412
Subscriber lists, net of accumulated
amortization of $39,354,000 in 1995
and $30,421,500 in 1994 14,434 18,524
Investments in domestic cable television
partnerships and affiliates 39,363 34,346
Investment in foreign cable television properties 61,193 57,752
----------- -----------
TOTAL INVESTMENT IN CABLE TELEVISION PROPERTIES 456,502 395,255
----------- -----------
DEFERRED TAX ASSET, net of valuation
allowance of $37,376,000 in 1995 and
$37,785,000 in 1994 3,862 3,862
DEPOSITS, PREPAID EXPENSES AND OTHER ASSETS 44,339 23,240
----------- -----------
TOTAL ASSETS $ 799,771 $ 448,485
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
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<PAGE> 5
<TABLE>
<CAPTION>
CONSOLIDATED
BALANCE SHEETS Jones Intercable, Inc.
As of May 31, 1995 and 1994 and Subsidiaries
--------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT 1995 1994
(Stated in Thousands)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES:
Accounts payable and accrued liabilities $ 47,338 $ 37,260
Subscriber prepayments and deposits 5,638 5,275
Subordinated debentures and other debt 481,358 280,907
Credit facility - 63,000
-------------- -------------
TOTAL LIABILITIES 534,334 386,442
-------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 10)
SHAREHOLDERS' INVESTMENT:
Class A Common Stock, $.01 par value, 30,000,000 * shares authorized;
26,158,305 and 14,817,088 shares issued at May 31, 1995
and 1994, respectively 262 148
Common Stock, $.01 par value, 5,550,000 shares
authorized; 5,113,021 and 4,913,021 shares issued
at May 31, 1995 and 1994, respectively 51 49
Additional paid-in capital 394,420 175,316
Accumulated deficit (129,296) (113,470)
-------------- -------------
TOTAL SHAREHOLDERS' INVESTMENT 265,437 62,043
-------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 799,771 $ 448,485
============== =============
</TABLE>
* On July 10, 1995, the shareholders of the Company approved a resolution to
amend the Company's Articles of Incorporation to increase the number of
authorized Class A Common Stock Shares from 30,000,000 to 60,000,000.
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
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<PAGE> 6
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS Jones Intercable, Inc.
For the years ended May 31, 1995, 1994 and 1993 and Subsidiaries
--------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
(In Thousands Except Per Share Data)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES FROM CABLE TELEVISION OPERATIONS:
Cable Television Revenue
Subscriber service fees $ 114,020 $ 100,902 $ 92,714
Management fees 19,508 17,360 17,104
Non-cable Revenue 17,418 8,217 7,352
--------- --------- ---------
TOTAL REVENUES 150,946 126,479 117,170
COSTS AND EXPENSES:
Cable Television Expenses
Operating expenses 64,714 53,036 50,737
General and administrative expenses (including
approximately $2,690,400, $4,246,000 and $2,222,600
of related party expenses during the fiscal years ended
May 31, 1995, 1994 and 1993, respectively) 7,887 8,715 7,650
Non-cable operating, general and administrative 18,996 8,637 7,551
Depreciation and amortization 45,897 43,831 42,720
--------- --------- ---------
OPERATING INCOME 13,452 12,260 8,512
OTHER INCOME (EXPENSE):
Interest expense (39,939) (36,189) (43,573)
Equity in losses of affiliated entities (2,981) (4,624) (2,900)
Interest income 9,652 4,695 4,060
Gain (loss) on sale of assets 15,496 -- (5,466)
Other, net 319 (1,419) (899)
--------- --------- ---------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (4,001) (25,277) (40,266)
Income tax provision -- -- --
--------- --------- ---------
LOSS BEFORE EXTRAORDINARY ITEM (4,001) (25,277) (40,266)
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt,
net of related income taxes -- -- (20,386)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING METHOD:
Change in method of accounting for income taxes -- -- 3,862
--------- --------- ---------
NET LOSS $ (4,001) $ (25,277) $ (56,790)
========= ========= =========
PRIMARY EARNINGS (LOSS) PER SHARE:
Loss before extraordinary item $ (.16) $ (1.43) $ (2.82)
Extraordinary item -- -- (1.43)
Accounting change -- -- .27
--------- --------- ---------
$ (.16) $ (1.43) $ (3.98)
========= ========= =========
WEIGHTED AVERAGE NUMBER OF CLASS A COMMON
AND COMMON SHARES OUTSTANDING: 24,848 17,662 14,277
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
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<PAGE> 7
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' INVESTMENT Jones Intercable, Inc.
For the years ended May 31, 1993, 1994 and 1995 and Subsidiaries
------------------------------------------------------------------------------------------------------------------------------------
Additional
Class A Common Stock Common Stock Paid-In Accumulated
-------------------- ------------
Shares Amount Shares Amount Capital Deficit
------------------------------------------------------------------------------------------------------------------------------------
(Stated in Thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCES, May 31, 1992 7,972 $ 79 4,908 $ 49 $ 57,777 $ (31,030)
Proceeds from stock options
exercised 54 1 - - 306 -
Purchase of interest in the
Jones Group, Ltd. - - 5 - 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. (60) (1) - - (413) (336)
Net loss - - - - - (56,790)
------ ----------- ----- ----------- ----------- -----------
BALANCES, May 31, 1993 12,236 122 4,913 49 119,671 (88,193)
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 14,817 148 4,913 49 175,316 (113,470)
Proceeds from stock options
exercised 27 1 200 2 1,383 -
Class A Common Stock Grants - - - - 261 -
Sale of Class A Common Stock to
Bell Canada International, net 7,414 74 - - 201,219 -
Spacelink Acquisition 3,900 39 - - 16,241 (11,825)
Net loss - - - - - (4,001)
------ ----------- ----- ----------- ----------- -----------
BALANCES, May 31, 1995 26,158 $ 262 5,113 $ 51 $ 394,420 $ (129,296)
====== =========== ===== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
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<PAGE> 8
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF
CASH FLOWS Jones Intercable, Inc.
For the years ended May 31, 1995, 1994 and 1993 and Subsidiaries
--------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
(Stated in Thousands)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,001) $ (25,277) $ (56,790)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Extraordinary loss on early extinguishment
of debentures, net of related income taxes - - 20,386
Cumulative effect of change in method of accounting for income taxes - - (3,862)
Class A Common Stock option expense 261 152 4,080
Loss (gain) on sale of assets (15,496) - 5,466
Depreciation and amortization 45,897 43,831 42,720
Equity in losses of affiliated entities 2,981 4,624 2,900
Amortization of discount on debentures - - 348
Increase in deferred distribution revenue - - 4,778
Increase in trade receivables (838) (627) (805)
Increase in other receivables, deposits,
prepaid expenses and other assets (10,059) (362) (1,548)
Increase in accounts payable, accrued
liabilities and subscriber prepayments and deposits 6,340 1,321 9,059
----------- ----------- -----------
Net cash provided by operating activities 25,085 23,662 26,732
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of cable television systems - (27,880) (74,165)
Sale of cable television systems 35,587 - 18,170
Purchase of property and equipment (44,958) (23,818) (18,238)
Investment in cable television partnerships and affiliates (12,930) (44,328) (14,147)
Acquisition Costs (5,438) - -
Other, net 1,387 3,524 3,385
----------- ----------- -----------
Net cash used in investing activities (26,352) (92,502) (84,995)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 16,500 84,500 207,000
Repayment of debt (154,500) (67,500) (227,000)
BCI Investment 203,893 55,000 -
Equity acquisition fees (2,600) - -
Proceeds from Senior Note Offering 200,000 - -
Senior Note offering costs (3,500) - -
Proceeds from issuance of Class A Common
Stock and Class A Common Stock options 1,386 519 58,234
Decrease (increase) in accounts receivable from affiliated entities 5,742 (264) (4,302)
Purchase of Treasury stock - - (750)
Redemption of debentures - - (225,557)
Proceeds from debenture offerings, net - - 253,839
Other, net 1,418 (307) (4,484)
----------- ----------- -----------
Net cash provided by financing activities 268,339 71,948 56,980
----------- ----------- -----------
Increase (decrease) In Cash and Cash Equivalents 267,072 3,108 (1,283)
Cash and Cash Equivalents, beginning of year 4,239 1,131 2,414
----------- ----------- -----------
Cash and Cash Equivalents, end of year $ 271,311 $ 4,239 $ 1,131
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
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<PAGE> 9
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended May 31, 1995, 1994 and 1993
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") to own,
operate and manage cable television systems. 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. On December 19, 1994, the
shareholders of the Company approved an Exchange Agreement and Plan of
Reorganization and Liquidation dated May 31, 1994, as amended, between the
Company and Spacelink providing for the acquisition by the Company of
substantially all of the assets of Spacelink and the assumption by the Company
of all of the liabilities of Spacelink. On December 20, 1994, the Company
acquired all of the assets of Spacelink (except for the 2,859,240 shares of the
Company's Common Stock owned by Spacelink) and assumed all of the liabilities of
Spacelink (other than liabilities with respect to shareholders exercising
dissenters' rights) in exchange for 3,900,000 shares of the Company's Class A
Common Stock. Spacelink is effecting its complete liquidation and is
distributing the aforesaid shares of the Company's Class A Common Stock and
Common Stock to its shareholders, other than to any dissenting shareholders. The
Company incurred costs related to this transaction, totaling $5,438,000 at May
31, 1995, which have been considered part of the purchase price of Spacelink.
The pro forma effect of this transaction, which has been accounted for using the
purchase method, on the Company's results of operations is presented in the
following unaudited tabulation:
Year ended May 31, 1995:
(In thousands except per share data)
<TABLE>
<CAPTION>
As
Reported Adjustments Pro Forma
-------- ----------- ---------
<S> <C> <C> <C>
Revenues $ 150,946 $ 19,266 $ 170,212
========= ========= =========
Operating Income $ 13,452 $ (2,875) $ 10,577
========= ========= =========
Net Loss $ (4,001) $ (7,307) $ (11,308)
========= ========= =========
Net Loss per Class A Common
and Common Share $ (.16) $ (.42)
========= =========
</TABLE>
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<PAGE> 10
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the years ended May 31, 1995, 1994 and 1993
Year ended May 31, 1994:
(In thousands except per share data)
<TABLE>
<CAPTION>
As
Reported Adjustments Pro Forma
-------- ----------- ---------
<S> <C> <C> <C>
Revenues $ 126,479 $ 34,124 $ 160,603
========= ========= =========
Operating Income $ 12,260 $ (2,259) $ 10,001
========= ========= =========
Net Loss $ (25,277) $ (6,423) $ (31,700)
========= ========= =========
Net Loss per Class A Common
and Common Share $ (1.43) $ (1.47)
========= =========
</TABLE>
In May 1994, the Company and Bell Canada International Inc. ("BCI")
entered into an agreement whereby BCI agreed to acquire an approximate 30
percent economic interest in the Company through the purchase of Class A Common
Stock of the Company. BCI is a wholly owned subsidiary of BCE Inc., Canada's
largest telecommunications company. On December 19, 1994, the shareholders of
the Company approved the agreement. The investment by BCI was made in two
installments: the purchase of 2,500,000 newly issued shares of Class A Common
Stock of the Company at $22 per share for $55,000,000 in the fourth quarter of
fiscal 1994, and the purchase of 7,414,300 newly issued shares of Class A Common
Stock of the Company at $27.50 per share for $203,893,250 in the third quarter
of fiscal 1995, resulting in BCI owning an approximate 30 percent economic
interest in the Company for a total consideration of approximately $258,900,000.
The $55,000,000 was used to reduce amounts then outstanding under the Company's
revolving credit facility. A portion of the $203,893,250 was used to repay all
amounts then outstanding under the Company's and Spacelink's credit facilities
of $38,000,000 and $75,000,000, respectively, to pay fees of $2,000,000 to Jones
Financial Group, Ltd. ("Jones Financial Group"), an affiliate of International
and $600,000 to BCI with the remainder being held for future needs. BCI also has
committed to invest up to an additional $141,100,000 to maintain its 30 percent
interest in the event the Company offers additional Class A Common Stock. BCI
has the right to maintain or increase its ownership by investing amounts beyond
the $400,000,000 commitment.
On December 20, 1994, International, which is wholly owned by Glenn R.
Jones, Chairman and Chief Executive Officer of the Company, as well as certain
subsidiaries of International, and Mr. Jones individually, granted BCI options
to acquire 2,878,151 shares of the Common Stock of the Company. Except in
limited circumstances, the option will only be exercisable during the eighth
year after December 20, 1994. The exercise of such options would result in BCI
holding a sufficient number of shares of the Common Stock of the Company to
enable BCI to elect 75 percent of the Company's Board of Directors.
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<PAGE> 11
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the years ended May 31, 1995, 1994 and 1993
Summary of Significant Accounting Policies
Basis of Presentation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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.
Statements of Cash Flows
The Company considers all highly liquid investments purchased with a
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,
-----------------------------------------
1995 1994 1993
------- ------- -------
(Stated in Thousands)
<S> <C> <C> <C>
Income taxes $ -- $ -- $ --
======= ======= =======
Interest $39,516 $35,689 $38,871
======= ======= =======
</TABLE>
Non-cash transactions: 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 plc ("Bell
Cablemedia"), in exchange for 6,035,648 ADSs representing 30,178,240 Ordinary
Shares of Bell Cablemedia. On October 13, 1994, Jones Spanish Holdings, Inc.
("Spanish Holdings") and Jones International Spanish Investments, Inc.
transferred all of their interests in their Spanish cable/telephony properties
to Bell Cablemedia in exchange for a total of 190,148 ADSs, representing 950,740
Ordinary Shares of Bell Cablemedia. As described above, on December 20, 1994,
the Company acquired substantially all of the assets of Spacelink and assumed
all of the liabilities of Spacelink in exchange for 3,900,000 shares of the
Company's Class A Common Stock. As described in Note 3, on April 11, 1995, the
Company converted its $20,000,000 in advances to the Mind Extension University
("ME/U") into Class A Common Shares of Jones Education Networks, Inc. ("JEN").
During fiscal 1995, 1994 and 1993, the Company recorded $261,000, $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.
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<PAGE> 12
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the years ended May 31, 1995, 1994 and 1993
Property, Plant and Equipment
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 18 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 an expense on the
Company's Consolidated Statements of Operations.
Deferred Financing Costs
Costs incurred in connection with the issuance of 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.
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.
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<PAGE> 13
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the years ended May 31, 1995, 1994 and 1993
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 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.
Treasury Stock
Due to an amendment to the Colorado Business Corporation Act, effective
July 1, 1994, the Company changed its accounting for treasury stock. Shares held
in treasury have been retired and classified as authorized but unissued shares.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
1995 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:
Jones Interactive, Inc. ("Jones Interactive"), 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. Amounts
charged to the Company and its affiliated partnerships for the years ended May
31, 1995, 1994 and 1993 totaled $5,499,000, $4,687,000 and $4,082,400,
respectively.
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 47% 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, 1995, 1994 and 1993
were $1,696,000, $1,753,000 and $1,753,000, respectively.
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<PAGE> 14
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the years ended May 31, 1995, 1994 and 1993
Upon the closing of the BCI investment, the Company entered into a
Secondment Agreement with BCI. Pursuant to the Secondment Agreement, BCI will
provide up to 10 people with specific experience in certain areas of operations
and other aspects of BCI's business. The Company will reimburse BCI for the full
employment costs of such individuals. The Company reimbursed BCI $220,800 during
the year ended May 31, 1995. No reimbursements were made during fiscal 1994 or
fiscal 1993.
The Company paid approximately 23%, 26% and 22% of the above-described
expenses during the years ended May 31, 1995, 1994 and 1993, respectively. The
remainder of the expenses were paid by the Company's managed limited
partnerships.
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. 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, which expired December 31, 1994, the Company, Jones
Infomercial Networks, Inc. ("PIN") and Jones Computer Network, Ltd. ("JCN"),
affiliates of International, had 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. Through December 1994, the Company, PIN and JCN
each paid $66,667 per month. The Company recognized $572,000, $2,300,000 and
$700,000 of rental expense related to these lease agreements during the fiscal
years ended May 31, 1995, 1994 and 1993, respectively.
Jones Informercial Network Ventures, Inc., ("Jones Infomercial"), an
affiliate of International, provided advertising time for third parties on
certain Company and its managed partnership cable television systems, using
those systems' ad sales slots. In consideration, the revenues generated from the
third parties were shared two-thirds and one-third between Jones Infomercial and
the entities owning the cable television systems. Effective January 31, 1995,
Jones Infomercial and an unaffiliated third party formed the Product Information
Network ("PIN"). PIN provides advertising time for third parties in the same
manner as Jones Infomercial. PIN and the entity owning the cable system share
revenue generated 50% and 50%. Aggregate payments made to the Company by Jones
Infomercial and PIN relating to the Company's owned cable television systems
totaled approximately $223,900 and $17,700 for the years ended May 31, 1995 and
1994, respectively. No such payments were received during the year ended May 31,
1993.
Effective upon the closing of the BCI investment, the Company entered
into a Supply and Services Agreement with BCI. Pursuant to the Supply and
Services Agreement, 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. The Company will pay an annual fee of $2,000,000
to BCI during the term of the agreement. Payments under the Supply and Services
Agreement during the year ended May 31, 1995 totaled $1,000,000. No payments
were made during the fiscal years ended May 31, 1994 and 1993.
-63-
<PAGE> 15
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the years ended May 31, 1995, 1994 and 1993
Jones Financial Group performs services for the Company as its agent in
connection with negotiations regarding various financial arrangements on behalf
of the Company. The Company has entered into a Financial Services Agreement with
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 Financial Group an annual $1,000,000 retainer as an advance against payments
due pursuant to this agreement and will reimburse Financial Group for its
reasonable out-of-pocket expenses. The term of the Financial Services Agreement
is for eight years. In December 1994, the Company paid fees of $2,000,000 to
Jones Financial Group for its services to the Company in connection with the BCI
agreement (see Note 1). In addition, the Company paid an advisory fee of
(pound)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).
The Company has incurred approximately $2,690,400, $4,246,000 and
$2,222,600 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, 1995, 1994 and
1993, 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 1995, 1994 and 1993, the Company carried accounts
receivable from International and its affiliates totaling $2,000,000. This
receivable was repaid in January 1995. Interest on such receivables was charged
at the Company's average cost of borrowing plus 2%.
3. INVESTMENTS IN CABLE TELEVISION PARTNERSHIPS AND JOINT VENTURES
Jones Global Group
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. 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. 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. Spanish Holdings is an affiliate indirectly
owned 38% by the Company and 62% by International. On October 13, 1994, Spanish
Holdings and Jones International Spanish Investments, Inc., a subsidiary of
International, transferred all of their interests in their cable/telephony
properties in Spain to Bell Cablemedia in exchange for a total of 190,148 ADSs
representing 950,740 Ordinary Shares of Bell Cablemedia. Such shares
subsequently were transferred to the Company in repayment of advances made to
finance such affiliates' Spanish operations. As a result of this transaction,
the Company and its affiliates no longer own any direct interest in
cable/telephony properties in Spain.
-64-
<PAGE> 16
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the years ended May 31, 1995, 1994 and 1993
Prior to the closing of these transactions, Bell Cablemedia was
indirectly owned 80% by BCI and 20% by Cable and Wireless plc ("C&W"). The
Company's, Jones Global Group's and Spanish Holdings' agreement to contribute
their United Kingdom and Spanish 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 to Jones Global Group.
The ADSs received by the Company and its affiliates are "restricted
securities" within the meaning of Rule 144 promulgated under the Securities Act
of 1933 (the "Securities Act"), and the Company and its affiliates will not be
able to sell their ADSs unless an exemption from registration under the
Securities Act is available or unless its ADSs are sold under the terms of a
shelf registration statement that is required to be available to the Company,
its affiliates and others for three years following July 20, 1994.
The Company directly or indirectly owns approximately 11.6% of the
issued and outstanding shares of Bell Cablemedia. The Company and its wholly
owned subsidiaries own 6,225,796 ADSs. The Company also indirectly owns 974,162
ADSs, representing 38% of the 2,563,584 ADSs owned by Jones Global Group and its
wholly owned subsidiaries. In the aggregate, the Company's direct and indirect
investment in 7,199,958 ADSs had a quoted market value of approximately
$134,999,200, based on the quoted market price of $18.75 per ADS on July 14,
1995. Due to the affiliated nature of the transactions and the Company's
indirect continuing interest in the United Kingdom and Spanish properties, the
investment in Bell Cablemedia is reflected at the Company's cost. At May 31,
1995, the Company's net investment in Bell Cablemedia totaled approximately
$61,193,000.
The Company paid an advisory fee of (pound)414,854 (approximately
$632,600) to Jones Financial Group in fiscal 1995 for its services to the
Company in connection with the aforementioned United Kingdom transactions. Jones
Global Group paid an advisory fee of (pound)251,812 (approximately $384,000) to
Jones Financial Group for its services to Jones Global Group in connection with
the aforementioned United Kingdom transactions. Jones Financial Group is owned
by International and Glenn R. Jones.
Mind Extension University, Inc.
During fiscal 1992 and 1993, the Company invested $10,000,000 in ME/U,
an affiliated company and subsidiary of JEN, 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. Through its acquisition
of the assets of Spacelink, the Company obtained an additional 13% interest in
ME/U in December 1994. Spacelink had acquired such interest in fiscal 1991 for
$3,135,000. Payments made to ME/U relating to the Company's owned cable
television systems for programming services for the fiscal years ended May 31,
1995, 1994 and 1993 totaled approximately $141,200, $103,300 and $84,300,
respectively. At May 31, 1995, the Company's net investment in ME/U was
$3,648,391.
-65-
<PAGE> 17
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the years ended May 31, 1995, 1994 and 1993
Jones Education Networks
In fiscal 1993, 1994 and 1995 the Company advanced a total of
$20,000,000 to ME/U. Interest on such advances was charged at the Company's
weighted average cost of borrowing plus two percent. On April 11, 1995, the
Company converted its advances to ME/U into shares of Class A Common Stock of
JEN, the parent company of ME/U. The Company owns an approximate 17% interest in
JEN. JEN is an affiliate of International and, in addition to its 51% ownership
of ME/U, JEN owns an 81% interest in Jones Computer Network, Ltd.
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's net investment in this partnership totaled approximately
$4,482,900 at May 31, 1995. Based upon the quoted market price of $11.38 per
unit at May 31, 1995, the quoted market value of this investment was
approximately $18,124,200. The Company has accounted for this investment using
the equity method of accounting.
Subscriber Billing Venture
In fiscal 1995, the Company and Jones Interactive formed a venture
for the purpose of developing a subscriber billing and management system. The
Company invested $4.5 million in the venture during fiscal 1995.
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. In
addition, through its acquisition of Spacelink, the Company obtained general
partner interests in a number of partnerships previously managed by Spacelink.
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.
Management Fees
As general partner, the Company manages the partnerships and receives a
fee for its services generally equal to 5% of the gross revenues of the
partnerships, excluding revenues from the sale of cable television systems or
franchises.
-66-
<PAGE> 18
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the years ended May 31, 1995, 1994 and 1993
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 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.
For the partnerships formerly managed by Spacelink, any partnership
distributions made from cash flow, as defined, are generally allocated 99
percent to the limited partners and one percent to the general partner. The
general partner is also entitled to partnership distributions other than from
cash flow, such as from the sale or refinancing of systems or upon dissolution
of the partnerships, which are a portion of the net remaining assets of such
partnership ranging from 15 percent to 40 percent after payment of partnership
debts and after investors have received an amount equal to their capital
contribution plus, in most cases, a preferential return on their investment.
-67-
<PAGE> 19
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the years ended May 31, 1995, 1994 and 1993
The Company recognized fees and distributions totaling $4,778,000 for
the year ended May 31, 1993. No such fees and distributions were recognized
during fiscal 1994 or fiscal 1995. 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.
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
$32,929,000, $28,499,600 and $26,434,500 for the years ended May 31, 1995, 1994
and 1993, 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, 1995 was
10.5%. Interest charged to the limited partnerships for the years ended May 31,
1995, 1994 and 1993 was $1,448,500, $1,617,000 and $1,497,600, respectively.
Certain condensed financial information regarding managed partnerships,
on a combined basis, is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1994 1993 1992
----------------------------------------------------
(Stated in Thousands)
<S> <C> <C> <C>
Total assets $ 923,117 $ 986,560 $ 1,069,142
Debt 688,393 668,015 665,538
Amounts due general partner 25,735 20,631 16,009
Partners' Capital (Net of
accumulated deficit) 174,001 262,230 348,905
Revenues 397,318 385,990 372,718
Depreciation and amortization 153,520 157,643 172,342
Operating loss (34,565) (32,987) (37,678)
Net loss (80,988) (73,655) (29,503)
</TABLE>
-68-
<PAGE> 20
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the years ended May 31, 1995, 1994 and 1993
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, with the exception of
Spacelink Fund 4, Ltd. ("Fund 4"). The Company has reserved the portion of its
advance to Fund 4 that exceeds the fair value of Fund 4's assets.
The amount reported as combined net loss for all managed limited
partnerships for the year ended December 31, 1992 includes gains on sales and
liquidations recognized by certain partnerships which totaled approximately
$59,939,100. No such gains were recognized during the years ended December 31,
1994 or 1993.
5. NOTES RECEIVABLE
On December 19, 1994, Spacelink received a promissory note from Jones
Earth Segment, Inc., then an affiliate ("Earth Segment"), in conjunction with
the transfer of Earth Segment to International. The principal sum is $6,554,500.
Interest on the principal is at the prime rate plus one percent and is paid
quarterly. The note matures on December 19, 1999. The note is secured by the
real and personal property of Earth Segment. The Company acquired this note as
part of the acquisition of Spacelink's assets.
Pursuant to a tax sharing agreement with International, Spacelink was
allocated tax benefits based on its pro rata share of taxable loss generated as
part of the consolidated group. The tax sharing agreement was terminated
effective June 1, 1993. The allocated benefits are to be paid no later than five
years from the date they were created. The benefits accrue interest at the prime
rate in effect at the time they were created. The Company, through its
acquisition of Spacelink's assets, acquired a receivable from International
totaling $2,152,000 at May 31, 1995 relating to this tax sharing agreement.
6. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
May 31,
--------------------------------
1995 1994
------------- --------------
(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 19,368
</TABLE>
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<PAGE> 21
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the years ended May 31, 1995, 1994 and 1993
<TABLE>
<S> <C> <C>
SENIOR NOTES:
Senior Notes due March 15, 2002, interest payable
semi-annually at 9 5/8% 200,000 -
OTHER:
Capitalized equipment lease
obligations due in installments through 1998 1,702 1,136
Non-interest bearing notes due 1995 through 1998 288 403
LENDING INSTITUTIONS:
Credit facility - 63,000
------------- --------------
Total debt $ 481,358 $ 343,907
============= ==============
</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>
As a result of debenture redemptions during fiscal 1992 and 1993, the
Company has eliminated any cash requirements for sinking fund payments scheduled
above until fiscal 2003, because the redeemed bonds can be applied against the
sinking fund payments.
Other than the amounts listed above, and the $200 million of Senior
Notes due March 15, 2002, there are no other significant debt maturities.
On March 23, 1995, the Company sold $200 million of 9 5/8% Senior Notes
due 2002. The Senior Notes mature on March 15, 2002. The Senior Notes bear
interest from the date of issuance at the rate of 9 5/8% per annum, payable
semi-annually on March 15 and September 15 of each year, commencing September
15, 1995. The Senior Notes are not redeemable prior to maturity and are not
subject to any sinking fund. The Senior Notes are senior unsecured obligations
of the Company. The Company paid fees of $3,500,000 relating to this
transaction. Such fees will be amortized over the life of the notes.
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 was $300,000,000 through August 30,
1995, after which availability is reduced quarterly until expiration
-70-
<PAGE> 22
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the years ended May 31, 1995, 1994 and 1993
on November 30, 2000. The maximum available will reduce 14 1/2 %, to
$256,500,000, during fiscal 1996. Interest on amounts outstanding under the
credit facility range from LIBOR plus .75% to LIBOR plus 1.625% depending upon
whether certain financial ratios have been achieved. For the year ended May 31,
1995, the Company's effective interest rate on amounts outstanding under the
credit facility was 7.51%. A fee ranging from 3/16% to 3/8% per annum on the
unused portion of the commitment is also required. Substantially all of the
Company's cable television related assets are pledged as security under the
agreement. At May 31, 1995, no amounts were outstanding under this credit
facility.
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 agreement restricts the right of
the Company to declare and pay cash dividends without the consent of the
lenders.
At May 31, 1995, the carrying amount of the Company's long-term debt
was $481,358,000 and the estimated fair value was $513,526,000. The fair value
of the Company's long-term debt is estimated based on the quoted market prices
for the same issues.
7. INCOME TAXES
The Financial Accounting Standards Board Statement No. 109, "Accounting
for Income Taxes" requires the use of the asset and liability method of
accounting for income taxes for the Company. Deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled. Deferred
tax expense or benefit is the result of changes in the liability or asset
recorded for deferred taxes.
During fiscal years 1995, 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. No current or deferred
federal income tax expense or benefit was recorded from continuing operations
during the reporting periods. However a tax benefit was recorded as an
extraordinary item in fiscal year 1993 as a result of the Company's adoption of
the new method of accounting and reporting deferred income taxes.
Income tax expense attributable to income or loss from continuing
operations differs from the amounts computed by applying the Federal income tax
rate of 35% in 1995, 1994, and 1993 as a result of the following:
-71-
<PAGE> 23
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the years ended May 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Year Ended May 31,
-----------------------------------------------------
1995 1994 1993
-----------------------------------------------------
(Stated in Thousands)
<S> <C> <C> <C>
Computed "expected" tax (benefit) expense $ (1,400) $ (8,847) $ (13,690)
Dividends excluded for income tax purposes 176 39 -
Intangibles not deductible for tax purposes 1,064 228 317
State and local taxes, net of federal income
tax benefit (130) (822) (1,330)
Change in status and equity losses of foreign investments - (2,093) -
Adjustment to deferred tax assets and liabilities
for enacted change in Federal income tax rate - - (576)
Tax credits and other 26 (129) (908)
------------- ------------- --------------
Total income tax (benefit) provision from operations (264) (11,624) (16,187)
Tax effect of extraordinary operations - (7,604)
SFAS 109 valuation allowance 264 11,624 23,791
Cumulative effect of change in method of
accounting of income taxes - - (3,862)
------------- ------------- --------------
Total income tax benefit $ - $ - $ (3,862)
============= ============= ==============
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at May 31, 1995
and 1994 are presented below:
<TABLE>
<CAPTION>
May 31, 1995 May 31, 1994
--------------------- ---------------------
(Stated in Thousands)
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforwards 55,244 54,291
Investment tax credit carryforwards 1,076 1,076
Alternative minimum tax credit carryforwards 1,116 1,116
Investment in affiliates, due principally to losses
of partnerships and affiliates recognized for
financial statement purposes in excess of
losses recognized for income tax purposes 2,901 4,040
Future deductible amounts for nondeductible tax
accruals 2,173 988
------- -------
Total gross deferred tax assets 62,510 61,511
Valuation allowance on deferred tax assets (37,376) (37,785)
Deferred tax liabilities
Property and equipment, due to differences
in depreciation methods for financial statement
and tax purposes (21,272) (19,864)
------- -------
Net deferred tax liability $ 3,862 $ 3,862
======= =======
</TABLE>
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<PAGE> 24
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the years ended May 31, 1995, 1994 and 1993
At May 31, 1995, the Company had net operating loss carryforwards for
income tax purposes aggregating approximately $69,864,000 for alternative
minimum tax ("AMT") and $144,428,000 for regular tax which expire $43,126,000 in
2004, $26,203,000 in 2007, $40,809,000 in 2008, $30,216,000 in 2009 and
$4,074,000 in 2010. The Company also had investment tax credit carryforwards
of $1,076,000 expiring in 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 requirements of SFAS 109, management
believes that sufficient taxable income will be incurred during the loss
carryforward period to utilize approximately $52,443,000 of the $144,428,000 of
regular tax loss carryforwards at May 31, 1994. Therefore, a valuation allowance
has been established for approximately $91,985,000 of net operating losses and
for all investment tax credits and alternative minimum tax credit carryforwards.
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.
8. 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, 1995, options to purchase 708,936 shares
had been granted, of which 357,381 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
-73-
<PAGE> 25
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the years ended May 31, 1995, 1994 and 1993
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 and 200,000 shares of 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 and 1995, the Company recognized approximately $152,000 and $261,000,
respectively, of non-cash compensation expense related to stock options granted
under the 1992 Plan on November 9, 1993. As of May 31, 1995, options to purchase
1,058,148 shares had been granted, of which options to purchase 10,367 shares
had been exercised and 19,578 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,
-----------------------------------------------------------------
1995 1994 1993
-----------------------------------------------------------------
<S> <C> <C> <C>
Available for grant 768,499 1,160,504 1,759,469
Outstanding 1,163,753 799,165 274,300
Price range, per share $ 5.625-13.81 $ 5.625-13.81 $ 5.625-11.5
Exercisable 318,923 195,950 269,300
Price range, per share $ 5.625-13.81 $ 5.625-11.50 $ 5.625-6.1875
Granted during period 399,620 610,928 174,900
Terminated during period 7,615 11,963 171,900
Exercised during period 26,917 74,600 54,293
Price range, per share $ 5.625-13.81 $ 5.625 $ 5.625
</TABLE>
On December 5, 1990, the Board of Directors granted options to purchase
200,000 shares of Common Stock to an officer of the Company 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
-74-
<PAGE> 26
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the years ended May 31, 1995, 1994 and 1993
1992 Plan at the same exercise price as the December 5, 1990 option which had
expired on December 5, 1992. Such option was exercised on December 6, 1994. The
Company recognized approximately $2,210,500 of non-cash compensation expense
related to this grant in the fourth quarter of fiscal 1993.
9. 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 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.
10. 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, 2000 and thereafter are as follows:
<TABLE>
<CAPTION>
Building Facilities Equipment
Lease Leases Leases Total
----------- ----------- ----------- -----------
(Stated in Thousands)
<S> <C> <C> <C> <C>
1996 $ 1,280 $ 1,792 $ 362 $ 3,434
1997 1,280 1,465 312 3,057
1998 1,280 1,206 235 2,721
1999 1,280 1,066 85 2,431
2000 1,280 913 69 2,262
Thereafter 74 2,673 - 2,747
----------- ----------- ----------- -----------
Total commitments $ 6,474 $ 9,115 $ 1,063 $ 16,652
=========== =========== =========== ===========
</TABLE>
Rent paid during the years ended May 31, 1995, 1994 and 1993, totaled
$3,409,000, $2,963,000 and $2,918,000, respectively.
Certain amounts included in lease commitments will be allocated to
managed limited partnerships using the method discussed in Note 4.
-75-
<PAGE> 27
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the years ended May 31, 1995, 1994 and 1993
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 imposes a greater degree of regulation on the cable
television industry. Under the 1992 Cable Act's definition of effective
competition, nearly all cable systems in the United States, including almost all
of 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 for certain regulated
services effective September 1, 1993.
On February 22, 1994, however, the FCC adopted several additional rate
orders including orders which revised its earlier-announced regulatory scheme
with respect to rates and established interim cost-of-service regulations. The
FCC's February 22, 1994 regulations 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. 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.
After analyzing the effects of the two methods of rate regulation, the
Company 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 resulting from the FCC's
rate regulations. The cost-of-service showings have not yet received final
approval from franchising authorities, however, and there can be no assurance
that the cost-of-service showings will prevent further rate reductions until
such final approvals are received. The Company complied with the February 22,
1994 benchmark regulations and reduced rates in its Oxnard and Walnut Valley,
California; Hilo, Hawaii; Panama City Beach, Florida; and Kenosha, Wisconsin
cable television systems. The Company will continue its efforts to mitigate the
effect of such rate reductions in these systems. 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, is not subject to the rate regulation.
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 , 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. As originally filed, the suit sought 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 sought a constructive trust on the profits derived from the operation of
the Alexandria System since the date of the sale and an accounting and other
equitable relief. The plaintiffs also alleged that the $1,800,000 commission
paid to Jones Group by the Partnership in connection with such sale was
improper, and asked the Court to order that such commission be repaid to the
Partnership.
-76-
<PAGE> 28
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the years ended May 31, 1995, 1994 and 1993
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 amount of damages being sought by the plaintiffs has not yet been specified.
On October 21, 1994, plaintiffs filed a motion to dismiss Jones Group
in response to Jones Group's argument that Missouri lacked personal jurisdiction
over it. Plaintiffs' motion was granted, and plaintiffs then filed an action in
Colorado against Jones Group seeking a return of the brokerage commission.
The Company and Jones Group filed motions for summary judgment in the
Missouri and Colorado cases, respectively. The Missouri court granted the
Company's motion in part and dismissed all counts of the complaint for
rescission. It also struck the plaintiffs' jury demand. The Colorado court also
granted Jones Group's motion in part finding that the payment of the brokerage
commission was not a breach of the partnership agreement, but leaving for trial
the issue of whether such payment constituted a breach of fiduciary duty.
Subsequently, the plaintiffs have filed an amended complaint in the
Missouri case, recasting their allegations in terms of breach of contract,
common law fraud, conversion and breach of fiduciary duty. The plaintiffs have
reasserted their right to a jury trial.
The Company has conducted written discovery in the form of
interrogatories and requests for production of documents, and has noticed the
depositions of plaintiffs and plaintiffs' expert. No trial date has been set in
the Missouri case or in the Colorado case. Because discovery has just commenced,
it is premature to present a realistic evaluation of the probability of a
favorable or unfavorable outcome. However, the Company believes both that the
appraisals were proper and that 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.
In addition to the above matters, the Company is involved in certain
other litigation in its normal course of business. Management believes that the
ultimate resolution of such matters will not have a material adverse effect on
the Company's financial position or results of operations.
11. ACQUISITIONS AND SALES
Sales by the Company
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.
-77-
<PAGE> 29
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the years ended May 31, 1995, 1994 and 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, through its 19% ownership interest in
the Partnership, realized a $9,018,000 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.
In December 1993, the Company acquired the cable television systems
serving North Augusta, South Carolina and surrounding areas (the "North Augusta
System") for $27,200,000. The North Augusta System is contiguous to the Augusta,
Georgia cable system managed by the Company on behalf of one of its
partnerships. The Company paid The Jones Group, Ltd. $680,000 for brokerage
services related to this acquisition. 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.
On February 22, 1995, the Company entered into a purchase and sale
agreement with Cable TV Fund 12-B, Ltd., a Colorado limited partnership ("Fund
12-B"), one of the Company's managed limited partnerships that owns the cable
television system serving areas in and around Augusta, Georgia ("The Augusta
System"), providing for the sale by Fund 12-B to the Company of the Augusta
System for a purchase price of $141,718,000 in cash, subject to normal closing
adjustments. The purchase price was determined by averaging the three separate
independent appraisals of the fair market value of the Augusta system as of
December 31, 1994. In July 1995, the Company was informed by one of the three
appraisers of the Augusta System that, taking into account the regulatory,
legislative and competitive developments in the cable television industry since
December 31, 1994, their appraised value of the Augusta System would be
increased. In July 1995, the Company and Fund 12-B accordingly amended the
purchase and sale agreement to increase the purchase price for the Augusta
System from $141,718,000 to $142,618,000 to reflect this increased appraised
value. The closing of the acquisition of the Augusta System is subject to a
number of conditions including the approval of the holders of a majority of the
limited partnership interests
-78-
<PAGE> 30
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the years ended May 31, 1995, 1994 and 1993
in Fund 12-B. The Company believes that the approval of the limited partners
will be received. The Company expects that its acquisition of the Augusta System
will occur during 1995. The Company, as general partner of Fund 12-B, expects to
receive a distribution from Fund 12-B of approximately $12,985,000 upon the
closing of the transaction. The Augusta System passes approximately 102,000
homes and serves approximately 66,600 basic subscribers. The Augusta System is
contiguous with the cable television system owned by the Company serving areas
in and around North Augusta, South Carolina ("The North Augusta System").
Together, the Augusta System and the North Augusta System will, upon closing of
the Company's acquisition of the Augusta System, form an operating cluster that
will serve approximately 81,700 basic subscribers and pass approximately 125,700
homes.
On May 31, 1995, the Company entered into Asset Purchase Agreements
with Cablevision of Manassas Park, Inc. and Benchmark/Manassas Cable Fund, Ltd.
to acquire cable television systems serving Manassas, Manassas Park, Haymarket
and portions of unincorporated Prince William County, all in Virginia (the
"Virginia Systems"). The total purchase price for the Virginia Systems is
$71,100,000, subject to normal closing adjustments. The Virginia Systems serve
approximately 26,000 basic subscribers, and are located approximately 20 miles
from the Company's wholly owned cable television system serving Alexandria,
Virginia. The acquisition of the Virginia Systems is subject to a number of
conditions, including the approval of the applicable governmental authorities
to the transfer of the franchises for the Virginia Systems, the approval of the
Department of Justice and the Federal Trade Commission pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the consent of
various other third parties. These transactions are expected to close during
1995. The Company will pay Jones Financial Group a fee of $896,000 for acting
as its financial advisor in connection with these transactions. Funding for the
Virginia Systems acquisition is expected to be provided from the net proceeds
from the Senior Notes offering discussed in Note 6 and from cash on hand.
On June 30, 1995, the Company entered into an agreement with Columbia
Associates, L.P., an unaffiliated party, to acquire the cable television
systems serving Dale City, Lake Ridge, Woodbridge, Fort Belvoir, Triangle,
Dumfries, Quatico, Accoquan and portions of Prince William County, all in the
state of Virginia. These systems serve approximately 50,000 subscribers. The
purchase price is $123,000,000. The acquisition of such systems is subject to a
number of conditions including the consent of governmental franchising
authorities and other regulatory authorities having jurisdiction, and other
matters. Funding is expected to be provided from cash on hand and from
available borrowings under the Company's credit facility. The Company will pay
Jones Financial Group a fee of $1,328,400 for acting as its financial advisor
in connection with this transaction.
On August 11, 1995, the Company entered into a purchase and sale
agreement with IDS/Jones Growth partners 87-A, Ltd., a Colorado limited
partnership, one of the Company's managed limited partnerships, to acquire from
such partnership the cable television system serving areas in and around Carmel,
Indiana (the "Carmel System"). The purchase price is $44,235,333, which is the
average of three separate independent appraisals of the fair market value of the
Carmel System. The Carmel System passes approximately 24,400 homes and serves
approximately 18,500 basic subscribers. The Company expects to acquire and to
trade the Carmel System, along with certain other properties, to an unaffiliated
cable television system operator during 1995, as discussed below.
-79-
<PAGE> 31
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the years ended May 31, 1995, 1994 and 1993
On August 11, 1995, the Company entered into a purchase and sale
agreement with Jones Cable Income Fund 1-B, Ltd., a Colorado limited
partnership, one of the Company's managed limited partnerships, to acquire from
such partnership the cable television system serving areas in and around
Orangeburg, South Carolina (the "Orangeburg System"). The purchase price is
$18,347,667, which is the average of three separate independent appraisals of
the fair market value of the Orangeburg System. The Orangeburg System passes
approximately 16,530 homes and services approximately 12,000 basic subscribers.
The Company expects to acquire and then to trade the Orangeburg System, along
with certain other properties, to an unaffiliated cable television system
operator during 1995, as discussed below.
On August 11, 1995, the Company entered into a purchase and sale
agreement with the Cable TV Fund 12-BCD Venture, a joint venture of three of the
Company's managed limited partnerships, to acquire from the Venture the cable
television system serving areas in and around Tampa, Florida (the "Tampa
System"). The purchase price is $110,395,667, which is the average of three
separate independent appraisals of the fair market value of the Tampa System.
The Tampa System passes approximately 125,000 homes and serves approximately
62,500 basic subscribers. The Company expects to acquire and then to trade the
Tampa System, along with certain other properties, to an unaffiliated cable
television system operator during 1995, as discussed below.
On August 11, 1995, the Company entered into an Asset Exchange
Agreement (the "Exchange Agreement") with Time Warner
Entertainment-Advance/Newhouse Partnership ("TWEAN"), an unaffiliated cable
television system operator. Pursuant to the Exchange Agreement, the Company
will convey to TWEAN substantially all of the assets of the Carmel System, the
Orangeburg System and the Tampa System and cash in the amount of $3,500,000
(subject to normal closing adjustments). In return, the Company will receive
from TWEAN substantially all of the assets of the cable television systems
serving Andrews Air Force Base, Capitol Heights, Cheltenham, District Heights,
Fairmount Heights, Forest Heights, Morningside, Prince George's County, Seat
Pleasant and Upper Marlboro, Maryland, portions of Fairfax County, Virginia.
The closing of the transaction contemplated by the Exchange Agreement
is subject to customary closing conditions, including obtaining necessary
governmental and other third party consents. The parties intend to complete the
transaction by the end of 1995, but there can be no assurances that all
conditions will be satisfied or waived by that time. Either party may terminate
the Exchange Agreement if the transaction is not completed on or before June 30,
1996. The Company will pay Financial Group, an affiliate of the Company, a
$1,667,723 fee upon the completion of the transaction as compensation to it for
acting as the Company's financial advisor in connection with this exchange.
-80-
<PAGE> 32
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1995, 1994 and 1993
12. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of May 31, 1995 and 1994, consisted of
the following:
<TABLE>
<CAPTION>
May 31,
--------------------------
1995 1994
--------- ---------
<S> <C> <C>
Cable distribution systems $ 261,816 $ 218,635
Buildings 11,396 7,050
Land 2,920 2,742
Equipment and tools 10,544 6,475
Premium service equipment 29,401 24,895
Earth receive stations 3,672 3,343
Vehicles 2,064 1,400
Leasehold improvements and office furniture 15,967 13,382
Construction work in progress 4,748 1,249
Other 17,747 13,210
--------- ---------
360,275 292,381
Accumulated depreciation (154,945) (121,235)
--------- ---------
$ 205,330 $ 171,146
========= =========
</TABLE>
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1995
-------------------------------------------------------------
Three Months Ended
-------------------------------------------------------------
August 31 November 30 February 28 May 31
----------- ----------- ----------- -----------
(In Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
Revenues $ 32,428 $ 32,762 $ 42,360 $ 43,396
Depreciation and
amortization 11,012 10,627 12,022 12,236
Operating income 2,855 3,285 3,381 3,931
Net income (loss) 10,293 (5,215) (4,152) (4,927)
Net loss per share $ .51 $ (.26) $ (.15) $ (.16)
</TABLE>
-81-
<PAGE> 33
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended May 31, 1995, 1994 and 1993
<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 $ 30,943 $ 31,051 $ 31,750 $ 32,735
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>
14. SUBSEQUENT EVENT: AUTHORIZED SHARES
On July 10, 1995, the shareholders of the Company approved a resolution
to amend the Company's Articles of Incorporation to increase the number of
authorized Class A Common Stock shares from 30,000,000 to 60,000,000.
-82-
<PAGE> 34
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, 1995. 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. ("International") and certain of its
subsidiaries provide various services to the Company and its managed limited
partnerships, including information and data processing services, office space
and programming services, as described below. The costs of these services are
charged to the Company, and the Company reimburses International 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 fiscal 1995, the Company carried accounts receivable from
International and its affiliates totaling $2,000,000. This receivable was repaid
in January 1995. Interest on such receivable was charged at the Company's
average cost of borrowing plus 2%. Interest charged International for the year
ended May 31, 1995 was $162,100.
On December 9, 1994, Jones Panorama Properties, Inc., a wholly-owned
subsidiary of the Company, granted an option to International to acquire the
Panorama Falls Building. The option is for a period of one year for a purchase
price of $3,050,000 plus the purchase price paid for certain surrounding
property for a parking lot, the cost of capital improvements and certain leasing
costs incurred by the Company (collectively the "Property Cost") and interest on
the Property Cost at an annual interest rate equal to the average cost of funds
to the Company.
95
<PAGE> 35
JONES COMPUTER NETWORK, LTD.
The Company and Jones Computer Network, Ltd. ("JCN") have entered into
an Affiliation Agreement whereby JCN provides computer related video programming
to cable television systems owned by the Company and its managed partnerships.
JCN is a subsidiary of Jones Education Networks, Inc., which is controlled by
International. JCN charges a fee based upon the number of subscribers receiving
the programming. Payments to JCN with respect to programming provided to cable
television systems owned by the Company and its managed partnerships totaled
approximately $686,402 in fiscal 1995, of which $184,831 was paid by the
Company.
JONES EARTH SEGMENT, INC.
International owns an 81% interest in Jones Earth Segment, Inc. ("Earth
Segment"), with the remaining 19% owned by Glenn R. Jones. Earth Segment owns a
ground-to-satellite ("uplink") facility that permits the satellite transmission
of programming originated by ME/U and the Company's affiliated audio programming
companies. During fiscal 1995, Jones Satellite Networks, Inc., a subsidiary of
the Company, used the uplink facility and paid Earth Segment $20,565 in
connection with such use.
JONES FINANCIAL GROUP, LTD.
Jones Financial Group, Ltd. ("Financial Group") performs services for
the Company and certain of its affiliates as its agent in connection with
acquisitions and sales of cable television systems, joint venture and other
financing arrangements. Financial Group is owned 81% by International and 19% by
Glenn R. Jones. The Company has entered into a Financial Services Agreement with
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 Financial Group an annual $1,000,000 retainer as an advance against payments
due pursuant to this agreement and will reimburse Financial Group for its
reasonable out-of-pocket expenses. The term of the Financial Services Agreement
is for eight years. Financial Group and BCI have entered into a separate
agreement pursuant to which BCI is entitled to receive one-half of the net fees
earned (gross fees less reasonable and customary operating expenses) by
Financial Group under the Financial Services Agreement.
The Company paid Financial Group an advisory fee of (pound)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. In December 1994,
upon the acquisition by BCI of a 30% equity interest in the Company, the Company
paid Financial Group a fee of $2,000,000. These fees were first applied against
the annual retainer.
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JONES INFOMERCIAL NETWORKS, INC.
Jones Infomercial Networks, Inc. ("JIN") is owned 81% by International
and 19% by Glenn R. Jones. The Company and JIN have entered into an Affiliation
Agreement whereby JIN provides advertising time for third parties on certain
cable television systems owned by the Company or its managed partnerships,
using those systems' ad sales slots. Effective January 31, 1995, the
Affiliation Agreement was amended, in part, to increase the revenue share to
the Company from 33% to 50%. The Affiliate Agreement, as amended, has been
assigned by JIN to its wholly-owned subsidiary, Jones Infomercial Network
Ventures, Inc. which has entered into a joint venture with an unaffiliated
party to combine the infomercial networks that each has developed. The revenues
generated from the third parties were shared with the Company from June 1, 1994
through January 30, 1995, two-thirds and one-third, and from January 31, 1995
through May 31, 1995, fifty-fifty. During fiscal year ended May 31, 1995, the
Company and its managed partnerships received revenues from JIN of $223,900 and
$306,400, respectively.
JONES INTERACTIVE, INC.
Jones Interactive, Inc. ("Interactive") is a wholly-owned subsidiary of
International. The Company and Interactive have entered into a Services
Agreement whereby Interactive provides information management and data
processing services for the Company in exchange for reimbursement by the
Company to Interactive of Interactive's expenses plus a management fee equal to
10% of such expenses. Amounts paid by the Company and its affiliated
partnerships to Jones Interactive, Inc. for the fiscal year ended May 31, 1995
totaled approximately $5,499,000, of which $1,265,000 was paid by the Company.
In fiscal 1995, the Company and Interactive formed a venture for the
purpose of developing a subscriber billing and management system. The Company
invested $4,500,000, and Interactive invested $500,000 in the venture.
JONES PROPERTIES, INC.
Jones Properties, Inc. is a wholly-owned subsidiary of International.
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 23,500 square feet of
the building to 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, 1995 was approximately $1,696,000 of which $390,000 was
paid by the Company.
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JONES SPACE SEGMENT, INC.
Jones Space Segment, Inc. ("Space Segment") is owned 81% by
International and 19% by Glenn R. Jones. The Company entered into a license
agreement with Space Segment to use a non-preemptible transponder on a
domestic communications satellite that Space Segment currently leases. Under
the license agreement, which expired December 31, 1994, the Company, JIN and
JCN had a license to use the transponder for their respective purposes. Under
the terms of the agreement, the Company agreed to pay Space Segment $200,000
per month from January 1994 through March 1994 and the Company and JIN each
agreed to pay $100,000 per month beginning April 1994 and until the launch of
JCN, in September 1994. Thereafter, until termination of the agreement on
December 31, 1994, the Company, JIN and JCN each paid $66,667 per month. The
Company recognized $572,000 of rental expense related to this agreement during
the fiscal year ended May 31, 1995.
MIND EXTENSION UNIVERSITY, INC. AND
JONES EDUCATION NETWORKS, INC.
Cable television systems owned by the Company and its managed
partnerships distribute the video programming of Mind Extension University, Inc.
("ME/U"), which is controlled by International, for a fee based upon the number
of subscribers receiving the programming. Payments to ME/U with respect to
programming provided to cable television systems owned by the Company and its
managed partnerships totaled approximately $694,600 in fiscal 1995, of which
$141,200 was paid by the Company.
During fiscal 1992 and 1993, the Company invested $10,000,000 in ME/U
for 25% of the stock of ME/U, which also received certain advertising avails and
administrative and marketing considerations from the Company. The number of
shares of Class A Common Stock of ME/U issued to the Company was based on the
average of two separate independent appraisals of ME/U. In fiscal 1993 and
fiscal 1994, the Company also made advances to ME/U totaling $20,000,000. On
April 11, 1995, the Company agreed converted its advances to ME/U into shares of
the Class A Common Stock of Jones Education Networks, Inc. ("JEN"), the parent
company of ME/U. JEN is an affiliate of International and, in addition to its
51% ownership of ME/U, JEN owns an 81% interest in Jones Computer Network, Ltd.
The Company now owns a 17% interest in JEN.
---------------
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 May 31, 1995.
Certain of the transactions described below are expected to continue during the
Company's current fiscal year.
THE JONES GROUP, LTD.
The Jones Group, Ltd. ("Jones Group"), a wholly-owned subsidiary of the
Company, 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
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properties. Prior to the Company's acquisition of Spacelink in December 1994
(see Item 1, Acquisition of Jones Spacelink, Ltd.), Jones Group was owned 80% by
Spacelink and 20% by the Company. Brokerage fees paid to Jones Group by the
Company and its managed partnerships during the fiscal year ended May 31, 1995
totaled $912,500, all of which were paid by the Company.
JONES GLOBAL GROUP, INC.
Jones Global Group, Inc. ("Global Group") is a corporation owned 62% by
International and 38% by the Company. Global Group and the Company owned
interests in cable/telephony properties in the United Kingdom. In July 1994, the
Company and Global Group 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 American Depositary Shares ("ADSs") representing
Ordinary Shares of Bell Cablemedia. The Company and Global Group, respectively,
paid advisory fees of (pound)414,854 (approximately $632,600) and (pound)251,812
(approximately $384,000) to Financial Group, for its services to the Company and
Global Group in connection with the aforementioned transactions. The allocation
of these advisory fees was based on the ratio of ADSs of Bell Cablemedia
received by the Company and Global Group. 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 investments in Bell Cablemedia. The Company directly and
indirectly owns approximately 11.6% of Bell Cablemedia through its direct
ownership of 6,225,796 ADSs and its indirect ownership of 974,162 ADSs,
representing 38% of the 2,563,584 ADSs owned by Global Group. Messrs. Glenn R.
Jones, a director and Chief Executive Officer of the Company and Global Group,
and Patrick J. Lombardi, a director and officer of Global Group, have become
members of the board of directors of Bell Cablemedia.
JONES SPANISH HOLDINGS, INC.
Jones Spanish Holdings, Inc. ("Spanish Holdings"), is owned 38% by the
Company and 62% by International, and has explored cable television system
acquisition, development and operation opportunities in Spain. In October 1994,
Spanish Holdings and Jones International Spanish Investments, Inc. transferred
all of their interests in their cable/telephony properties in Spain to Bell
Cablemedia in exchange for a total of 190,148 ADSs representing 950,740 Ordinary
Shares of Bell Cablemedia. Such shares subsequently were transferred to the
Company in repayment of advances made to finance the Spanish operations. As a
result of this transaction, the Company and its affiliates no longer own any
direct interest in cable/telephony properties in Spain.
-------------------
In addition to the foregoing described transactions, the Company has
engaged in certain transactions in connection with the acquisition by BCI of
shares of the Company's Class A Common Stock. Set forth below is a description
of these transactions.
On December 20, 1994, contemporaneous with the closing of the
acquisition by BCI of shares of the Company's Class A Common Stock,
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1. International and Glenn R. Jones and certain affiliates of
International (collectively, the "Grantors") entered into option agreements
providing for the grant of options to Morgan Guaranty Trust Company of New York,
acting as agent for BCI, to purchase all of the shares of the Company's Common
Stock held, directly or indirectly, by International, Mr. Jones and the
affiliates of International in consideration for 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 resulted in the Grantors receiving approximately
$54,684,869 from BCI.
2. The Company entered into an Employment Agreement with Glenn R. Jones
(the "Employment Agreement") pursuant to which the Company agreed 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 is to receive a
base compensation of $2,500,000 in fiscal year 1995 (which approximates his
fiscal year 1994 combined compensation from the Company and Spacelink), with an
annual cost of living index based adjustment. In addition, Mr. Jones is
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.
3. BCI, International, Glenn R. Jones and the Company entered 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 or controlled by the Company
for distribution of their programming networks for a period of 15 years after
closing; BCI was also granted a similar right for a fewer number of channels.
International was 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 was
granted identical rights pursuant to a Supply and Services Agreement among the
Company and BCI.
4. The Company entered into a Supply and Services Agreement with BCI.
Pursuant to the Supply and Services Agreement, 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. The company will pay an annual
fee of $2,000,000 to BCI during the term of the agreement. Payments under the
Supply and Services Agreement during the year ended May 31, 1995 totaled
$1,000,000.
5. The Company entered into a Secondment Agreement with BCI. Pursuant
to the Secondment Agreement, BCI will provide up to 10 people with specific
experience in certain areas of operations and other BCI's business. The Company
will reimburse BCI for the full employment costs of such individuals. The
Company reimbursed BCI $220,800 during the year ended May 31, 1995.
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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/ Robert S. Zinn
---------------------------------
Robert S. Zinn
Vice President
Dated: August 21, 1995
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