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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1997
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[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ___________
Commission File Number 1-9953
JONES INTERCABLE, INC.
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Exact name of registrant as specified in charter
Colorado #84-0613514
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State of incorporation I.R.S. employer I.D.#
9697 East Mineral Avenue, Englewood, Colorado 80112
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Address of principal executive office
(303) 792-3111
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Registrant's telephone number
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 during
the preceding l2 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Shares outstanding of each of the registrant's classes of Common Stock, as of
July 25, 1997.
26,264,523 - Common Stock, $.01 par value per share
5,113,021 - Class A Common Stock, $.01 par value per share
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JONES INTERCABLE, INC. AND SUBSIDIARIES
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I N D E X
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Page
Number
PART I. FINANCIAL INFORMATION. ------
Item 1. Financial Statements
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Unaudited Consolidated Balance Sheets
June 30, 1997 and December 31, 1996 3
Unaudited Consolidated Statements of Operations
Three and Six Months Ended June 30, 1997 and 1996 5
Unaudited Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996 6
Notes to Unaudited Consolidated Financial Statements
June 30, 1997 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION.
Item 6. Exhibits and Reports on Form 8-K 16
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<TABLE>
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UNAUDITED CONSOLIDATED Jones Intercable, Inc.
BALANCE SHEETS and Subsidiaries
As of June 30, 1997 and December 31, 1996
_____________________________________________________________________________________________________
June 30, 1997 December 31, 1996
ASSETS (Stated in Thousands)
_____________________________________________________________________________________________________
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 6,174 $ 1,671
RESTRICTED CASH 912 1,016
RECEIVABLES:
Trade receivables, net of allowance for
doubtful accounts of $2,027,000 in June 1997
and $1,483,000 in December 1996 15,128 16,327
Affiliated entities 4,313 3,996
Other 886 962
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 685,122 569,148
Less-accumulated depreciation (215,228) (184,738)
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469,894 384,410
Franchise costs and other intangible assets, net of
accumulated amortization of $258,495,000 in June
1997 and $219,783,000 in December 1996 638,702 492,219
Investments in cable television
partnerships and affiliates 28,424 31,483
Investment in Bell Cablemedia plc - 111,767
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TOTAL INVESTMENT IN CABLE TELEVISION PROPERTIES 1,137,020 1,019,879
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DEFERRED TAX ASSET, net of valuation
allowance of $59,416,000 in June 1997 and
$53,006,000 in December 1996 3,862 3,862
DEPOSITS, PREPAID EXPENSES AND OTHER ASSETS 85,390 86,416
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TOTAL ASSETS $ 1,253,685 $ 1,134,129
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The accompanying notes to unaudited consolidated financial
statements are an integral part of these balance sheets.
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UNAUDITED CONSOLIDATED Jones Intercable, Inc.
BALANCE SHEETS and Subsidiaries
As of June 30, 1997 and December 31, 1996
________________________________________________________________________________________________________
June 30, 1997 December 31, 1996
LIABILITIES AND SHAREHOLDERS' INVESTMENT (Stated in Thousands)
________________________________________________________________________________________________________
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LIABILITIES:
Accounts payable and accrued liabilities $ 113,205 $ 89,563
Subscriber prepayments and deposits 2,928 3,112
Subordinated debentures and other debt 712,178 463,147
Credit facilities 230,500 343,000
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TOTAL LIABILITIES 1,058,811 898,822
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SHAREHOLDERS' INVESTMENT:
Class A Common Stock, $.01 par value, 60,000,000
shares authorized; 26,264,523 shares issued
at June 30, 1997 and December 31, 1996 263 263
Common Stock, $.01 par value, 5,550,000 shares
authorized; 5,113,021 shares issued at June 30, 1997
and December 31, 1996 51 51
Additional paid-in capital 395,404 395,278
Unrealized holding gain on marketable securities - 47,272
Accumulated deficit (200,844) (207,557)
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TOTAL SHAREHOLDERS' INVESTMENT 194,874 235,307
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TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $1,253,685 $ 1,134,129
========= ==========
</TABLE>
The accompanying notes to unaudited consolidated financial
statements are an integral part of these balance sheets.
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UNAUDITED CONSOLIDATED Jones Intercable, Inc.
STATEMENTS OF OPERATIONS and Subsidiaries
<S> <C> <C> <C> <C>
For the three and six months ended June 30, 1997 and 1996
___________________________________________________________________________________________________________________________
For the Three Months Ended For the Six Months Ended
-------------------------- ------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
(Stated in Thousands Except Per Share Data)
___________________________________________________________________________________________________________________________
REVENUES FROM OPERATIONS:
Cable Television Revenue
Subscriber service fees $ 83,199 $ 63,800 $ 158,312 $ 116,142
Management fees 4,589 4,774 9,035 9,854
Distributions and brokerage fees 238 15,483 2,768 15,483
Non-cable Revenue 2,908 9,109 4,321 18,674
--------- --------- --------- ---------
TOTAL REVENUES 90,934 93,166 174,436 160,153
COSTS AND EXPENSES:
Cable Television Expenses
Operating expenses 43,911 33,696 82,746 61,580
General and administrative expenses * 5,242 4,492 10,083 7,929
Non-cable operating, general and
administrative 2,784 8,857 4,694 18,789
Depreciation and amortization 34,901 28,677 70,433 54,038
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OPERATING INCOME 4,096 17,444 6,480 17,817
OTHER INCOME (EXPENSE):
Interest expense (24,038) (17,469) (43,703) (32,568)
Equity in losses of affiliated entities (1,058) (1,122) (2,753) (2,008)
Gain on sale of assets 44,563 - 47,542 -
Interest income 421 1,466 803 2,492
Other, net (1,430) 572 (1,656) 369
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INCOME (LOSS) BEFORE INCOME TAXES 22,554 891 6,713 (13,898)
Income tax benefit - - - -
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 22,554 $ 891 $ 6,713 $ (13,898)
========== ========= ========= =========
PRIMARY INCOME (LOSS) PER SHARE: $ .72 $ .03 $ .21 $ (.44)
========== ========= ========= =========
AVERAGE NUMBER OF CLASS A COMMON AND
COMMON SHARES OUTSTANDING 31,378 31,377 31,378 31,367
========== ========= ========= =========
</TABLE>
* Of the total general and administrative expenses, approximately $1,218,000 and
$973,000 for the three months ended June 30, 1997 and 1996, respectively, and
approximately $2,688,000 and $1,864,000 for the six months ended June 30, 1997
and 1996, respectively, represent related party expenses.
The accompanying notes to unaudited consolidated financial
statements are an integral part of these statements.
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UNAUDITED CONSOLIDATED STATEMENTS OF Jones Intercable, Inc.
CASH FLOWS and Subsidiaries
<S> <C> <C>
For the six months ended June 30, 1997 and 1996
_____________________________________________________________________________________________________________
For the Six Months Ended
____________________________________
June 30, 1997 June 30, 1996
(Stated in Thousands)
_____________________________________________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 6,713 $ (13,898)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 70,433 54,038
Gain on sale of assets (47,542) -
Equity in losses of affiliates 2,753 2,008
Class A Stock option expense 126 126
Decrease in restricted cash 104 4,591
Decrease in trade receivables 1,199 2,983
Increase in other receivables, prepaid
expenses and other assets (5,311) (9,704)
Increase in accounts payable, accrued
liabilities and subscriber prepayments and deposits 23,458 6,741
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Net cash provided by operating activities 51,933 46,885
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of cable television systems (246,682) (299,475)
Deposit on cable television system 12,000 -
Purchase of property and equipment (54,447) (41,373)
Proceeds from sale of assets 109,276 -
Other, net 707 1,981
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Net cash used in investing activities (179,146) (338,867)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 250,000 290,000
Repayment of borrowings (362,500) -
Proceeds from the sale of Senior Notes, net 248,600 -
Senior note offering costs (4,498) -
Decrease (increase) in accounts receivable from affiliated entities (317) 6,728
Proceeds from Class A stock options - 149
Other, net 431 (166)
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Net cash provided by financing activities 131,716 296,711
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Increase in Cash and Cash Equivalents 4,503 4,729
Cash and Cash Equivalents, beginning of period 1,671 2,314
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Cash and Cash Equivalents, end of period $ 6,174 $ 7,043
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</TABLE>
The accompanying notes to unaudited consolidated financial
statements are an integral part of these statements.
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NOTES TO UNAUDITED CONSOLIDATED Jones Intercable, Inc.
FINANCIAL STATEMENTS and Subsidiaries
(1) This Form 10-Q is being filed by Jones Intercable, Inc. and its
subsidiaries (the "Company"). The majority of the Company's cable television
systems are owned by two of the Company's wholly owned subsidiaries, Jones Cable
Holdings, Inc. ("JCH") and Jones Cable Holdings II, Inc. ("JCH II"). This Form
10-Q is being filed in conformity with the SEC requirements for unaudited
financial statements and does not contain all of the necessary footnote
disclosures required for a fair presentation of the Consolidated Balance Sheets,
Consolidated Statements of Operations and Consolidated Statements of Cash Flows
in conformity with generally accepted accounting principles. However, in the
opinion of management, this data includes all adjustments, consisting only of
normal recurring accruals, necessary to present fairly the Company's financial
position at June 30, 1997 and December 31, 1996 and its results of operations
and cash flows for the three and six months ended June 30, 1997 and 1996.
Results of operations for these periods are not necessarily indicative of
results to be expected for the full year.
(2) The Company has completed the following transactions in 1997:
Acquisition of cable television systems
---------------------------------------
On January 31, 1997, the Company, purchased from Maryland Cable Partners,
L.P., an unaffiliated party, the cable television system serving the communities
of Berwyn Heights, Bladensburg, Bowie, Brentwood, Cheverly, College Park, Colmar
Manor, Cottage City, Edmonston, Glenarden, Greenbelt, Hyattsville, Landover
Hills, Laurel, Mt. Rainer, New Carrollton, North Brentwood, Riverdale, Takoma
Park, University Park and unincorporated portions of northern Prince Georges
County, all in the State of Maryland (the "North Prince Georges County System").
The purchase price was $231,367,000 and was funded by borrowings under JCH's
revolving credit facility. The Company paid Jones Financial Group, Ltd.
("Financial Group"), an affiliated company, a fee of $2,082,000 upon closing of
this transaction for acting as the Company's financial advisor in connection
with this transaction. All fees paid to Financial Group by the Company are
based upon 90% of the estimated commercial rate charged by unaffiliated
financial advisors. The North Prince Georges County System is contiguous to the
Company's South Prince Georges County System. The Company now serves all
160,000 cable television subscribers in Prince Georges County.
On June 30, 1997, the Company purchased from Cable TV Joint Fund 11 (the
"Venture"), a venture comprised of four managed partnerships, the cable
television system serving the City of Manitowoc, Wisconsin (the "Manitowoc
System"). The purchase price for the Manitowoc System was $16,122,333. The
Company received, from the four managed partnerships that comprise the Venture,
general partner distributions totaling approximately $4,556,000 upon the closing
of the sale of the Manitowoc System. Funding of the net purchase price of
$11,566,000 was provided by borrowings under the Company's credit facilities.
Exchange of cable television systems
------------------------------------
On April 15, 1997, the Company conveyed to an affiliate of Tele-
Communications, Inc., the cable television systems serving areas in and around
Evergreen, Idaho Springs and Jefferson County, all in the State of Colorado, in
exchange for the cable television system serving areas in and around Annapolis,
Southern Anne Arundel County and the Naval Academy, all in the State of Maryland
(the "Annapolis System"), and cash in the amount of $2,500,000. The Company
paid Financial Group a $695,250 fee upon completion of this exchange as
compensation to it for acting as the Company's financial advisor in connection
with this transaction. All fees paid to Financial Group by the Company are
based upon 90% of the estimated commercial rate charged by unaffiliated
financial advisors. This transaction brought the Company's owned subscriber
count in the Washington, DC area to approximately 400,000 subscribers.
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Sale of Assets
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On April 25, 1997, the Company tendered its 7,210,764 American Depositary
Shares of Bell Cablemedia plc to Cable & Wireless Communications plc ("CWC") in
exchange for 25,017,385 ordinary shares of CWC. During April and May 1997, the
Company sold all of its 25,017,385 ordinary shares of CWC for an aggregate sales
price of $109,276,000. The Company recognized a gain on this transaction of
$44,563,000. Proceeds from the sale were used to reduce outstanding
indebtedness under the Company's credit facilities.
The pro forma effect of the above-described 1997 transactions on the
Company's results of operations for the six months ended June 30, 1997 are
presented in the following unaudited tabulation:
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For the six months ended June 30, 1997:
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As Reported Adjustments Pro Forma
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Revenues $ 174,436 $ 6,093 $ 180,529
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Operating Income $ 6,480 $ (241) $ 6,239
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Net Income (Loss) $ 6,713 $ (46,303) $ (39,590)
======= ======= =======
Income (Loss) Per Share $ .21 $ (1.26)
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</TABLE>
The pro forma effect of the above-described 1997 transactions as well as
the acquisition of the cable television system serving Manassas, Virginia in
January 1996, the acquisition of the cable television systems serving South
Prince Georges County, Maryland and Reston, Virginia in February 1996, the
acquisition of the cable television system serving Savannah, Georgia in April
1996, the sale of Galactic Radio, Inc. in June 1996, the sale of the assets of
Jones Satellite Programming, Inc. in July 1996 and the sale of certain cable
television systems owned by managed partnerships during 1996 and 1997 on the
Company's results of operations for the six months ended June 30, 1996 are
presented in the following unaudited tabulation:
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For the six months ended June 30, 1996:
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As Reported Adjustments Pro Forma
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<S> <C> <C> <C>
Revenues $ 160,770 $ 14,588 $ 175,358
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Operating Income $ 19,418 $ (8,055) $ 11,363
======= ======= =======
Net Loss $ (13,898) $ (17,511) $ (31,409)
======= ======= =======
Loss Per Share $ (.44) $ (1.00)
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</TABLE>
(3) On August 16, 1996, the Company entered into agreements with Century
Communications Corp., an unaffiliated party, to sell the Company's cable
television systems serving areas in and around Walnut Valley ("the "Walnut
Valley System") and Oxnard (the "Oxnard System"), both in the State of
California, for $33,493,000 and $70,507,000, respectively. The agreements
required that the sale of the systems occur on or before June 30, 1997.
However, this condition, among others, was not satisfied and therefore the
agreement to sell the Walnut Valley System was amended to extend the
closing date and to reduce the purchase price to $32,493,000. The sale of
the Walnut Valley System is now expected to occur on or before September
30, 1997. The agreement to sell the Oxnard System has expired and the
Company does not expect to sell the Oxnard
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System to Century Communications Corp. The Company will pay Financial Group a
fee upon completion of any sale for acting as the Company's financial advisor in
connection with these transactions. All fees paid to Financial Group by the
Company are based upon 90% of the estimated commercial rate charged by
unaffiliated financial advisors.
(4) On February 28, 1997, JCH II entered into an asset purchase agreement to
acquire from Jones Intercable Investors, L.P. (the "Partnership"), a Colorado
limited partnership managed by the Company, the cable television systems serving
communities in and around Independence, Missouri (the "Independence System") for
a purchase price of $171,213,667, which represents the average of three
independent appraisals of the fair market value of the Independence System. The
Company anticipates that it will receive a limited partner distribution totaling
approximately $25,700,000 from the sale by the Partnership of the Independence
System because of the Company's equity interest in the Partnership, which will
be netted against the purchase price. The closing of the purchase of the
Independence System is expected to occur in the third quarter of 1997. The
Partnership will pay The Jones Group, Ltd., a wholly owned subsidiary of the
Company, a $4,280,000 brokerage fee in connection with this transaction, which
will be netted against the purchase price.
(5) On July 28, 1997, the Company entered into an agreement with Cable TV Fund
12-BCD Venture (the "Venture"), a managed partnership, to purchase the cable
television system serving areas in and around Albuquerque, New Mexico (the
"Albuquerque System") for $222,963,267. Upon closing, subject to amending the
Venture's current credit arrangements, the Company anticipates it will receive,
from the three partnerships that comprise the Venture, general partner
distributions totaling approximately $8,100,000, which will be netted against
the purchase price. The closing of this transaction, which is expected in the
first quarter of 1998, is subject to a number of conditions including the
approval of the holders of a majority of the limited partnership interests of
each of the managed partnerships that comprise the Venture and the consents of
governmental authorities and other third parties.
(6) On December 23, 1996, the Company redeemed 225 of its 380 shares of Jones
Global Group, Inc. ("Global Group") in exchange for a $8,950,188 note receivable
from Global Group. The note was repaid during the first quarter of 1997. As a
result of this transaction, the Company now only owns a 20% interest in Global
Group. The redemption price is subject to adjustment based on an appraisal of
Global Group. The Company does not expect this adjustment to be material. As a
result of this transaction, the Company recognized a gain of $2,979,000 in the
first quarter of 1997.
(7) On March 18, 1997, the Company issued and sold $250,000,000 of its 8 7/8%
Senior Notes due April 1, 2007. Proceeds from the sale of the Senior Notes were
used to redeem the Company's $160 million 11.5% Subordinated Debentures (the
"11.5% Debentures") due 2004 at 106.75% of par value on July 15, 1997 and for
general corporate purposes. The Company will recognize an extraordinary loss on
early extinguishment of debt of approximately $13,500,000 in the third quarter
of 1997 as a result of this redemption. Pending the redemption of the 11.5%
Debentures, the Company applied the proceeds to reduce amounts outstanding under
the Company's credit facilities.
(8) Net income (loss) per share of Class A Common Stock and Common Stock is
based on the weighted average number of shares outstanding during the periods.
Common stock equivalents were not significant to the computation of primary
earnings (loss) per share.
(9) For purposes of the Consolidated Statements of Cash Flows, the Company
considers all highly liquid investments purchased with a maturity of three
months or less to be cash equivalents. No amounts were paid or received relating
to income taxes during the six months ended June 30, 1997 and 1996.
Approximately $37,671,000 and $30,438,000 of interest expense was paid during
the six months ended June 30, 1997 and 1996, respectively. On April 25, 1997,
the Company tendered its Bell Cablemedia plc American Depositary Shares in
exchange for ordinary shares of CWC. No other material non-cash investing or
financing transactions were recorded during the first six months of 1997 and
1996.
(10) Certain prior period amounts have been reclassified to conform to the
current period presentation.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
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The following discussion of the Company's financial condition and results
of operations contains, in addition to historical information, forward-looking
statements that are based upon certain assumptions and are subject to a number
of risks and uncertainties. The Company's actual results may differ
significantly from the results predicted in such forward-looking statements.
FINANCIAL CONDITION
The Company is implementing a balanced strategy of acquiring cable
television systems from its managed partnerships and from third parties. As
part of this process, certain systems owned by the Company and its managed
partnerships will be sold to third parties and Company-owned systems will be
exchanged for systems owned by other cable system operators. It is the
Company's plan to cluster its cable television properties on the basis of
operating characteristics and/or geographic areas. Clustering systems should
enable the Company to obtain operating efficiencies, and it should position the
Company to capitalize on new revenue and business opportunities as the
telecommunications industry evolves.
The Company intends to liquidate its managed partnerships as such
partnerships achieve their investment objectives and as opportunities for sales
of partnership cable television systems arise in the marketplace. In accordance
with this strategy, the Company is marketing for sale many of the cable
television systems owned by its managed partnerships. During the first six
months of 1997, five cable television systems, serving 88,000 basic subscribers
were sold by managed partnerships. In addition, four cable television systems,
including the Independence System and the Albuquerque System which are to be
purchased by the Company, serving 234,300 basic subscribers are under contract
to be sold.
The Company also intends to maintain and enhance the value of its current
cable television systems through capital expenditures. Such expenditures will
include, among others, cable television plant extensions and the upgrade and
rebuild of certain systems. The Company also intends to institute new services
as they are developed and become economically viable.
In implementing the Company's acquisition strategy, the Company acquired
the North Prince Georges County System in January 1997 and the Annapolis System
in April 1997 because they are near other systems owned by the Company in the
Washington, DC area. In addition, the Company purchased the Manitowoc System in
June 1997. The net effect of the acquisitions of such systems and the
disposition of the Company's Colorado cable television systems has increased the
Company's owned basic subscriber base by approximately 98,000 basic subscribers
to approximately 694,000 basic subscribers at June 30, 1997. These transactions
are described in detail in Note 2 of the Notes to Unaudited Consolidated
Financial Statements.
The North Prince Georges System was purchased for $231,367,000. Funding
was provided by borrowings available under JCH's revolving credit facility. The
Annapolis System, together with $2,500,000 in cash, was acquired in exchange for
the Colorado cable television systems owned by the Company. The Manitowoc
System was purchased for a net purchase price of $11,556,000. Funding was
provided by borrowings under the Company's credit facilities.
In addition to the systems already acquired during 1997, the Company has
entered into agreements to acquire the Independence System for $171,213,667 and
the Albuquerque System for $222,963,267. The purchase of the Independence
System is expected to close in the third quarter of 1997. The purchase of the
Albuquerque System is expected to close in the first quarter of 1998. These
transactions are described in detail in Note 4 and Note 5 of the Notes to
Unaudited Consolidated Financial Statements.
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Acquisitions of cable television systems, the development of new services
and capital expenditures for system extensions and upgrades are subject to the
availability of cash generated from operations, borrowings under the Company's
credit facilities, debt and/or equity financing. In addition, the Company is
exploring other financing options and/or the sale of additional non-strategic
assets. There can be no assurance that the capital resources necessary to
accomplish the Company's acquisition and development plans will be available on
terms and conditions acceptable to the Company, or at all.
From time to time, the Company makes loans to its managed partnerships,
although it is not required to do so. As of June 30, 1997, the Company had
advanced funds to various managed partnerships totaling approximately
$4,313,000, an increase of approximately $317,000 over the amount advanced at
December 31, 1996. These advances represent funds for capital expansion and
improvements of properties owned by the Company's managed partnerships where
additional credit sources were not then available to the partnerships. None of
these advances are individually significant. These advances reduce the
Company's available cash and its liquidity. The Company anticipates the
repayment of these advances over time. The Company does not anticipate
significant increases in the amount advanced to its managed partnerships during
the remainder of 1997. These advances bear interest at rates equal to the
Company's weighted average cost of borrowing.
The Company purchased property, plant and equipment totaling approximately
$54,447,000 during the first six months of 1997. Of the capital expenditures,
$45,249,000 are principally the result of the following: (a) the upgrade and
rebuild of the cable plant in the Company's cable television systems in the
Washington, DC area and (b) new extension projects, drop materials, converters
and various maintenance projects in the Pima County, Arizona; Augusta, Georgia;
and Washington, DC area systems. The remainder of the capital expenditures
included $3,012,000 expended related to the development of a new customer
care/billing system and $6,186,000 related to the development of telephone
service in Maryland and Virginia. Estimated capital expenditures for the
remainder of 1997 are approximately $50,600,000. Of these capital expenditures,
approximately $43,300,000 will be for cable extensions, rebuilds and other
enhancements in the cable television systems owned by the Company and $7,300,000
will be for the development of a customer care/billing system. Funding for such
expenditures is expected to be provided by cash generated from operations and
borrowings available under the Company's credit facilities, as discussed below.
Sources of Funds
----------------
The Company's main sources of capital consist of cash generated from
operations and borrowings available under two revolving credit facilities, one
for JCH and one for JCH II. Each revolving credit facility has maximum
available borrowings of $600 million.
The $600 million JCH revolving credit facility is a reducing revolving
credit facility. The entire $600 million commitment is available through March
31, 1999, at which time the commitment will be reduced quarterly with a final
maturity date of December 31, 2004. The balance outstanding on JCH's revolving
credit facility at June 30, 1997 was $172,000,000.
The $600 million JCH II Revolving Credit Facility consists of a $300
million reducing revolving credit facility and a $300 million 364 day revolving
credit facility. The reducing revolving credit facility allows for borrowings
through the final maturity date of December 31, 2005. The maximum amount
available reduces quarterly beginning March 31, 2000 through the final maturity
date of December 31, 2005. The 364 day revolving credit facility allows for
borrowings through October 28, 1997, at which time any outstanding borrowings
convert to a term loan payable in semi-annual installments commencing June 30,
2001 with a final maturity date of December 31, 2005. The balance outstanding
on the JCH II Revolving Credit Facility at June 30, 1997 was $58,500,000. This
amount was borrowed under the reducing revolving credit facility.
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During April and May 1997, the Company sold all of its 25,017,385 ordinary
shares of CWC for an aggregate sales price of $109,276,000. Proceeds from the
sale were used to reduce amounts outstanding under the Company's credit
facilities.
The Company has an effective registration statement relating to the sale of
$600 million of senior debt securities, senior subordinated debt securities,
subordinated debt securities and/or Class A Common Stock. Pursuant to this
registration statement, March 1997, the Company issued and sold $250,000,000 of
its 8 7/8% Senior Notes due April 1, 2007 leaving $350,000,000 available for
future security issues. Proceeds from the sale of the Senior Notes were used to
redeem the Company's $160 million 11.5% Subordinated Debentures (the "11.5%
Debentures") due 2004 at 106.75% of par value on July 15, 1997 and for general
corporate purposes. Pending the redemption of the 11.5% Debentures, the Company
used the proceeds from the 8 7/8% Senior Notes to reduce amounts outstanding
under the Company's credit facilities.
The Company, in its capacity as the general partner of its managed
partnerships, may from time to time receive distributions upon the sale of cable
television systems owned by such partnerships. No such distributions were
received during the six months ended June 30, 1997. In addition, the Company
through The Jones Group, Ltd., a wholly owned subsidiary, may receive brokerage
fees upon the sale of the managed partnerships' cable television systems to
third parties. During the six months ended June 30, 1997, the Company received
brokerage fees of $3,695,000, less expenses of $927,000.
On August 16, 1996, the Company entered into agreements with Century
Communications Corp. to sell the Walnut Valley System and the Oxnard System for
$33,493,000 and $70,507,000, respectively, subject to closing adjustments. The
agreements required that the sale of the systems occur on or before June 30,
1997. However, this condition, among others, was not satisfied and therefore
the agreement to sell the Walnut Valley System was amended to extend the closing
date. The sale of the Walnut Valley System is now expected to occur on or
before September 30, 1997. The agreement to sell the Oxnard System has expired
and the Company does not expect to sell the Oxnard System to Century
Communications Corp. Proceeds from any sale will be used to repay a portion of
the amounts outstanding on the Company's revolving credit facilities.
On December 23, 1996, the Company redeemed 225 of its 380 shares of Global
Group in exchange for a $8,950,188 note receivable from Global Group. The note
was repaid during the first quarter of 1997. As a result of this transaction,
the Company recognized a gain of $2,979,000 in the first quarter of 1997.
The Company has sufficient sources of capital available, consisting of cash
generated from operations and available borrowings from its credit facilities,
to fund its committed acquisition requirements and to meet its operational
needs.
RESULTS OF OPERATIONS
Revenues
--------
The Company derives its revenues from four primary sources: subscriber fees
from Company-owned cable television systems, management fees from managed
partnerships, fees and distributions payable upon the sale of cable television
properties owned by managed partnerships and revenues from non-cable television
subsidiaries.
Total revenues for the three months ended June 30, 1997 totaled
$90,934,000, a decrease of $2,232,000, or 2%, over the total of $93,166,000 for
the three months ended June 30, 1996. The decrease in revenue was due to the
following: (i) the receipt of a general partner distribution and a brokerage
fee totaling $15,483,000 in the second quarter of 1996, (ii) the sale of two
non-cable subsidiaries in 1996, and (iii) a reduction in management fees due to
the sale of certain cable television systems owned by managed partnerships in
1996 and 1997. The effect of the above reductions were offset, in part, by the
effect of the acquisition of the Savannah
-12-
<PAGE>
System in April 1996 and the North Prince Georges County System in January 1997.
Adjusting for the above transactions, total revenues would have increased
$7,639,000, or 9%.
Total revenues for the six months ended June 30, 1997 totaled $174,436,000,
an increase of $14,283,000, or 9%, over the total of $160,153,000 for the six
months ended June 30, 1996. This increase reflects the Company's acquisition of
the following: the cable television system serving Manassas, Virginia on
January 10, 1996; the cable television system serving South Prince Georges
County, Maryland on February 29, 1996; the cable television system serving
Reston, Virginia on February 29, 1996; the cable television system serving
Savannah, Georgia on April 12, 1996 and the cable television system serving
North Prince Georges County, Maryland on January 31, 1997 (the "Acquired
Systems"). The increase in revenues in the 1997 period from the acquisition of
the Acquired Systems was offset, in part, by the receipt of a general partner
distribution and a brokerage fee totaling $15,483,000 in the second quarter of
1996, the sale of two non-cable subsidiaries in 1996 as well as a decrease in
management fees due to the sale of certain cable television systems owned by
managed partnerships. Adjusting for the effect of the Acquired Systems, the
general partner distribution and the brokerage fee, the sale of the non-cable
subsidiaries and the decrease in management fees (the "Pro Forma Adjustments"),
total revenues would have increased $13,631,000, or 9%.
The Company's subscriber service fees increased $19,399,000, or 30%, to
$83,199,000 for the three months ended June 30, 1997 from $63,800,000 for the
three months ended June 30, 1996. Subscriber service fees for the six months
ended June 30, 1997 increased $42,170,000, or 36%, to $158,312,000 from
$116,142,000 for the six months ended June 30, 1996. The acquisition of the
Acquired Systems accounted for $12,093,000, or 62%, and $29,119,000, or 69%,
respectively, of the increases in subscriber service fees for the three and six
month periods. With the Pro Forma Adjustments, subscriber service fees would
have increased $7,306,000, or 10%, and $13,051,000, or 9%, respectively, for the
three and six month periods ended June 30, 1997. These increases were due
primarily to increases in the number of basic subscribers and basic service rate
adjustments in the cable television systems owned by the Company. Disregarding
the effect of acquisitions during the first six months of 1997, basic
subscribers increased 12,977, an annualized increase of 4.7%.
The Company receives management fees generally equal to 5% of the gross
operating revenues of its managed partnerships. Management fees totaled
$4,589,000 for the three months ended June 30, 1997, a decrease of $185,000, or
4%, over the total of $4,774,000 reported for the three months ended June 30,
1996. For the six months ended June 30, 1997, management fees totaled
$9,035,000 compared to $9,854,000 in 1996, a decrease of $819,000, or 8%. These
decreases in management fees were the result of the sale of certain cable
television systems owned by managed partnerships in 1996 and 1997. Disregarding
the effect of the sale of such cable television systems, management fees would
have increased $230,000, or 5%, and $481,000, or 6%, respectively, for the three
and six months ended June 30, 1997.
In its capacity as the general partner of its managed partnerships, the
Company receives revenues in the form of distributions upon the sale of cable
television properties owned by such partnerships. The Company received a
distribution of $14,000,000 upon the sale of Cable TV Fund 11-B's Lancaster, New
York System in April 1996. No such revenue was recognized during the three and
six month periods ended June 30, 1997. In addition, the Company through The
Jones Group, Ltd. may earn brokerage fees upon the sale of managed cable
television systems to third parties. The Company earned brokerage fees of
$502,000 and $3,695,000, respectively, less expenses of $264,000 and $927,000,
respectively, during the three and six months ended June 30, 1997. A brokerage
fee of $2,100,000, less expenses of $617,000, was earned in April 1996.
The Company also operates certain non-cable subsidiaries. Non-cable revenue
totaled $2,908,000 for the three months ended June 30, 1997, a decrease of
$6,201,000, or 68%, over the $9,109,000 recorded for the three months ended June
30, 1996. For the six months ended June 30, 1997, non-cable revenue totaled
$4,321,000, compared to $18,674,000 in 1996, a decrease of $14,353,000, or 77%.
These decreases were due primarily to the sale of Jones Galactic Radio, Inc.
("GRI") and the assets of Jones Satellite Programming, Inc. ("JSP") in June 1996
and July 1996, respectively.
-13-
<PAGE>
Costs and Expenses
------------------
Operating, general and administrative expenses consist primarily of costs
associated with the operation and administration of Company-owned cable
television systems, the administration of managed partnerships and the operation
and administration of the non-cable subsidiaries . The Company is reimbursed by
its managed partnerships for costs associated with the administration of the
partnerships. The principal cost components are salaries paid to corporate and
system personnel, programming expenses, consumer marketing expenses,
professional fees, subscriber billing costs, data processing costs, rent for
leased facilities and cable system maintenance expenses.
Cable operating expenses increased $10,215,000, or 30%, to $43,911,000 for
the three months ended June 30, 1997 from $33,696,000 in 1996. For the six
months ended June 30, 1997, cable operating expenses increased $21,166,000, or
34%, to $82,746,000 in 1997 from $61,580,000 in 1996. The acquisition of the
Acquired Systems accounted for $6,583,000, or 64%, and $15,171,000, or 72%,
respectively, of the increases for the three and six month periods. With the
Pro Forma Adjustments, cable operating expense would have increased $3,632,000,
or 9%, and $5,995,000, or 8%, respectively, for the three and six months ended
June 30, 1997. These increases were due primarily to increases in basic and
tier programming costs.
Cable general and administrative expenses increased $750,000, or 17%, to
$5,242,000 for the three months ended June 30, 1997 from $4,492,000 in 1996.
For the six months ended June 30, 1997, cable general and administrative
expenses increased $2,154,000, or 27%, to $10,083,000 in 1997 from $7,929,000 in
1996. As the Company acquires cable television systems on its own behalf and
sells cable television systems owned by managed partnerships, and thereby
transitions from a management company to an operating company, the Company's
proportionate percentage of total general and administrative expenses will
increase. With the Pro Forma Adjustments, cable general and administrative
expenses would have decreased $131,000, or 2%, and $180,000, or 2%,
respectively, for the three and six month periods ended June 30, 1997. These
decreases are due to effective cost controls relating to general and
administrative expense.
Non-cable operating, general and administrative expenses decreased
$6,073,000, or 69%, to $2,784,000 for the three months ended June 30, 1997 from
$8,857,000 in 1996. For the six months ended June 30, 1997, non-cable
operating, general and administrative expense decreased $14,095,000, or 75%, to
$4,694,000 in 1997 from $18,789,000 in 1996. These decreases were due primarily
to the sale of GRI and the assets of JSP.
Depreciation and amortization increased $6,224,000, or 22%, to $34,901,000
for the three months ended June 30, 1997 from $28,677,000 in 1996. For the six
months ended June 30, 1997, depreciation and amortization increased $16,395,000,
or 30%, to $70,433,000 in 1997 from $54,038,000 in 1996. Depreciation and
amortization relating to the Acquired Systems was primarily responsible for
these increases.
Operating Income
----------------
Operating income decreased $13,348,000, or 77%, to $4,096,000 for the three
months ended June 30, 1997 from $17,444,000 in 1996. For the six months ended
June 30, 1997, operating income decreased $11,337,000, or 64%, to $6,480,000 in
1997 from $17,817,000 in 1996. These decreases were due primarily to the fee
and distribution revenue recognized upon the sale of Cable TV Fund 11-B's
Lancaster, New York cable television system in April 1996.
The cable television industry generally measures the performance of a cable
television company in terms of cash flow or operating income before depreciation
and amortization. The value of a cable television company is often determined
using multiples of cable television system cash flow. This measure is not
intended to be a substitute or improvement upon the items disclosed on the
financial statements, rather it is included because it is an industry standard.
With the Pro Forma Adjustments, operating income before depreciation and
amortization
-14-
<PAGE>
would have increased $4,433,000, or 13%, and $8,115,000, or 12%,
respectively for the three and six month periods ended June 30, 1997.
Other Income (Expense)
----------------------
Interest expense increased $6,569,000, or 38%, to $24,038,000 for the three
months ended June 30, 1997 from $17,469,000 in 1996. For the six months ended
June 30, 1997, interest expense increased $11,135,000, or 34%, to $43,703,000 in
1997 from $32,568,000 in 1996. These increases are due to higher outstanding
balances on interest bearing obligations. Borrowings were used to fund the
acquisition of the Acquired Systems.
Equity in losses of affiliated entities decreased $64,000, or 6%, to
$1,058,000 for the three months ended June 30, 1997 from $1,122,000 in 1996.
The decrease was due to a decrease in the losses of Jones Customer Service
Management, LLC, which were offset, in part, by an increase in the losses of
Jones Education Company ("JEC"). For the six month periods, equity in losses of
affiliated entities increased $745,000, or 37%, to $2,753,000 in 1997 from
$2,008,000 in 1996, due primarily to an increase in the losses of JEC.
The Company recognized a gain of $44,563,000 on the sale of its 25,017,385
CWC shares in the second quarter of 1997. In addition, the Company recognized a
gain of $2,979,000 on the redemption of its Global Group shares in the first
quarter of 1997. No similar gains were recorded during the three and six months
ended June 30, 1996.
Interest income decreased $1,045,000, or 71%, to $421,000 for the three
months ended June 30, 1997 from $1,466,000 in 1996. For the six months ended
June 30, 1997, interest income decreased $1,689,000, or 68%, to $803,000 in 1997
from $2,492,000 in 1996. These decreases were due to a reduction in receivables
from managed partnerships.
Net income increased $21,663,000 to $22,554,000 for the three months ended
June 30, 1996 from $891,000 for the three months ended June 30, 1996 primarily
due to the gain on the sale of CWC shares. The Company recognized net income
of $6,713,000 for the six months ended June 30, 1997 compared to a net loss of
$13,898,000 in 1996 due primarily to the gain on the sale of CWC shares.
The Company anticipates the continued recognition of operating income prior
to depreciation and amortization charges, but net losses resulting from
depreciation, amortization and interest expenses may occur in the future. To
the extent the Company recognizes general partner distributions from its managed
partnerships and/or gains on the sale of Company-owned systems in the future,
such losses may be reduced or eliminated; however, there is no assurance as to
the timing or recognition of these distributions or sales.
-15-
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
15) Letter Regarding Unaudited Interim Financial Statements.
23) Accountants' Review letter, dated July 31, 1997.
27) Financial Data Schedule
b) Reports on Form 8-K
Report on Form 8-K dated June 11, 1997, reported that during April and
May 1997, the Company had sold its 25,017,385 ordinary shares of CWC.
Report on Form 8-K/A dated June 24, 1997, amended the Form 8-K filed on
April 24, 1997 to note that the exchange of the Company's Colorado
Systems for the Annapolis System should have been filed under Item 5
of Form 8-K rather than Item 2 of Form 8-K.
Report on Form 8-K dated July 11, 1997, reported that on June 30, 1997
the Company purchased the Manitowoc System.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
JONES INTERCABLE, INC.
/S/Kevin P. Coyle
-----------------------------------
Kevin P. Coyle
(Group Vice President/Finance)
Dated: July 31, 1997
-17-
<PAGE>
Exhibit 15
July 31, 1997
Jones Intercable, Inc. and Subsidiaries:
We are aware that Jones Intercable, Inc. has incorporated by reference in its
Registration Statements on Form S-8, File Nos. 33-3087, 33-25577, 33-52813, and
33-54596, and on Form S-3, File Nos. 33-62537, and 33-62539 its Form 10-Q for
the quarter ended June 30, 1997, which includes our report dated July 31, 1997
covering the unaudited interim financial information contained therein.
Pursuant to Regulation C of the Securities Act of 1933, that report is not
considered a part of the registration statements or a report prepared or
certified by our firm within the meaning of Sections 7 and 11 of the Securities
Act of 1933.
Very truly yours,
ARTHUR ANDERSEN LLP
<PAGE>
Exhibit 23
REVIEW REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------------
To the Board of Directors and Shareholders
of Jones Intercable, Inc.:
We have made a review of the accompanying condensed consolidated balance sheet
of JONES INTERCABLE, INC. (a Colorado corporation) and subsidiaries as of June
30, 1997, and the related condensed consolidated statements of operations and
cash flows for the three and six month periods ended June 30, 1997 and 1996.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists primarily of applying analytical review procedures to the
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Jones Intercable, Inc., and
subsidiaries as of December 31, 1996 (not presented herein), and, in our report
dated February 14, 1997, we expressed an unqualified opinion on that statement.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of June 30, 1997, is fairly stated in all material
respects in relation to the consolidated balance sheet from which it has been
derived.
ARTHUR ANDERSEN LLP
DENVER, COLORADO
JULY 31, 1997
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<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
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