<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 September 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
October 31, 1997.
5,113,021 - Common Stock, $.01 par value per share
35,544,973 - Class A Common Stock, $.01 par value per share
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
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INDEX
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Page
Number
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PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets
September 30, 1997 and December 31, 1996 3
Unaudited Consolidated Statements of Operations
Three and Nine Months Ended September 30, 1997 and 1996 5
Unaudited Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996 6
Notes to Unaudited Consolidated Financial Statements
September 30, 1997 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II. OTHER INFORMATION.
Item 6. Exhibits and Reports on Form 8-K 18
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<PAGE>
UNAUDITED CONSOLIDATED Jones Intercable, Inc.
BALANCE SHEETS and Subsidiaries
As of September 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
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September 30, 1997 December 31, 1996
ASSETS (Stated in Thousands)
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<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 4,590 $ 1,671
RESTRICTED CASH - 1,016
RECEIVABLES:
Trade receivables, net of allowance for
doubtful accounts of $1,935,000 in September 1997
and $1,483,000 in December 1996 21,511 16,327
Affiliated entities 5,867 3,996
Other 1,403 962
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 741,648 579,554
Less-accumulated depreciation (209,246) (184,738)
---------- ----------
532,402 394,816
Franchise costs and other intangible assets, net of
accumulated amortization of $275,190,000 in September
1997 and $219,783,000 in December 1996 732,419 492,219
Investments in cable television
partnerships and affiliates 24,650 31,483
Investment in Bell Cablemedia plc - 111,767
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TOTAL INVESTMENT IN CABLE TELEVISION PROPERTIES 1,289,471 1,030,285
DEFERRED TAX ASSET, net of valuation
allowance of $53,485,000 in September 1997 and
$53,006,000 in December 1996 3,862 3,862
DEPOSITS, PREPAID EXPENSES AND OTHER ASSETS 64,279 76,010
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TOTAL ASSETS $1,390,983 $1,134,129
========== ==========
</TABLE>
The accompanying notes to unaudited consolidated financial
statements are an integral part of these balance sheets.
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<PAGE>
UNAUDITED CONSOLIDATED Jones Intercable, Inc.
BALANCE SHEETS and Subsidiaries
As of September 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
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September 30, 1997 December 31, 1996
LIABILITIES AND SHAREHOLDERS' INVESTMENT (Stated in Thousands)
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<S> <C> <C>
LIABILITIES:
Accounts payable and accrued liabilities $ 93,678 $ 89,563
Subscriber prepayments and deposits 2,955 3,112
Subordinated debentures and other debt 553,160 463,147
Credit facilities 485,000 343,000
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TOTAL LIABILITIES 1,134,793 898,822
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SHAREHOLDERS' INVESTMENT:
Class A Common Stock, $.01 par value, 60,000,000
shares authorized; 35,544,523 and 26,264,523 shares issued
at September 30, 1997 and December 31, 1996, respectively 355 263
Common Stock, $.01 par value, 5,550,000 shares
authorized; 5,113,021 shares issued at September 30, 1997
and December 31, 1996 51 51
Additional paid-in capital 487,383 395,278
Unrealized holding gain on marketable securities - 47,272
Accumulated deficit (231,599) (207,557)
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TOTAL SHAREHOLDERS' INVESTMENT 256,190 235,307
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TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $1,390,983 $1,134,129
========== ==========
</TABLE>
The accompanying notes to unaudited consolidated financial
statements are an integral part of these balance sheets.
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<PAGE>
UNAUDITED CONSOLIDATED Jones Intercable, Inc.
STATEMENTS OF OPERATIONS and Subsidiaries
For the three and nine months ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
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For the Three Months Ended For the Nine Months Ended
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Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996
(Stated in Thousands Except Per Share Data)
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<S> <C> <C> <C> <C>
REVENUES FROM OPERATIONS:
Cable Television Revenue
Subscriber service fees $ 85,201 $ 64,710 $ 243,513 $ 180,852
Management fees 4,201 4,740 13,236 14,594
Distributions and brokerage fees - - 2,768 15,483
Non-cable Revenue 2,543 5,693 6,864 24,367
--------- --------- --------- ---------
TOTAL REVENUES 91,945 75,143 266,381 235,296
COSTS AND EXPENSES:
Cable Television Expenses
Operating expenses 44,424 33,762 127,170 95,342
General and administrative expenses * 4,697 4,235 14,780 12,164
Non-cable operating, general and administrative 2,567 5,757 7,261 24,546
Depreciation and amortization 36,147 30,654 106,580 84,692
--------- --------- --------- ---------
OPERATING INCOME 4,110 735 10,590 18,552
OTHER INCOME (EXPENSE):
Interest expense (21,605) (17,620) (65,308) (50,188)
Equity in losses of affiliated entities (809) (1,695) (3,562) (3,703)
Gain on sale of assets 1,854 2,873 49,396 2,873
Interest income 292 573 1,095 3,065
Other, net (1,138) (2,074) (2,794) (1,705)
--------- --------- --------- ---------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (17,296) (17,208) (10,583) (31,106)
Income tax benefit - - - -
--------- --------- --------- ---------
LOSS BEFORE EXTRAORDINARY ITEM (17,296) (17,208) (10,583) (31,106)
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt,
net of related income tax (13,459) - (13,459) -
--------- --------- --------- ---------
NET LOSS $ (30,755) $ (17,208) $ (24,042) $ (31,106)
========= ========= ========= =========
PRIMARY LOSS PER SHARE: $ (.88) $ (.55) $ (.74) $ (.99)
========= ========= ========= =========
AVERAGE NUMBER OF CLASS A COMMON AND
COMMON SHARES OUTSTANDING 34,920 31,378 32,571 31,371
========= ========= ========= =========
</TABLE>
* Of the total general and administrative expenses, approximately $1,681,000 and
$1,380,000 for the three months ended September 30, 1997 and 1996, respectively,
and approximately $4,369,000 and $3,244,000 for the nine months ended September
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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<PAGE>
UNAUDITED CONSOLIDATED STATEMENTS OF Jones Intercable, Inc.
CASH FLOWS and Subsidiaries
For the nine months ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
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For the Nine Months Ended
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Sept. 30, 1997 Sept. 30, 1996
(Stated in Thousands)
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (24,042) $ (31,106)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 106,580 84,692
Gain on sale of assets (49,396) -
Loss on early extinguishment of debt 13,459 -
Equity in losses of affiliates 3,562 3,703
Class A Stock option expense 195 195
Decrease in restricted cash 1,016 5,252
Decrease (increase) in trade receivables (5,184) 3,679
Increase in other receivables, prepaid
expenses and other assets (234) (13,602)
Increase (decrease) in accounts payable, accrued
liabilities and subscriber prepayments and deposits 3,958 (6,489)
--------- ---------
Net cash provided by operating activities 49,914 46,324
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of cable television systems (388,483) (298,020)
Deposit on cable television system 12,000 (12,000)
Purchase of property and equipment (89,475) (66,033)
Proceeds from sale of assets 111,276 -
Other, net 841 2,217
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Net cash used in investing activities (353,841) (373,836)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 537,500 322,000
Repayment of borrowings (395,500) -
Redemption of 11.5% Debentures (170,800) -
Proceeds from the sale of Senior Notes, net 248,600 -
Senior note offering costs (4,498) -
Proceeds from issuance of Class A Common Stock, net 91,554 -
Decrease (increase) in accounts receivable from
affiliated entities (1,871) 4,950
Proceeds from Class A stock options 448 149
Other, net 1,413 227
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Net cash provided by financing activities 306,846 327,326
--------- ---------
Increase in Cash and Cash Equivalents 2,919 (186)
Cash and Cash Equivalents, beginning of period 1,671 2,314
--------- ---------
Cash and Cash Equivalents, end of period $ 4,590 $ 2,128
========= =========
</TABLE>
The accompanying notes to unaudited consolidated financial
statements are an integral part of these statements.
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<PAGE>
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 September 30, 1997 and December 31, 1996 and its results of
operations and cash flows for the three and nine months ended September 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:
Acquisitions 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 and is operated as part of the Company's
Prince Georges County System in the Virginia/Maryland cluster.
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.
On August 31, 1997, the Company purchased from Jones Intercable Investors,
L.P. (the "Partnership"), a managed partnership, the cable television system
serving communities in and around Independence, Missouri (the "Independence
System") for a purchase price of $171,213,667, which represented the average of
three independent appraisals of the fair market value of the Independence
System. The Company received a limited partner distribution totaling
$25,721,000 from the sale by the Partnership of the Independence System because
of the Company's equity interest in the Partnership, which reduced the Company's
basis in the assets of the Independence System. The Partnership paid The Jones
Group, Ltd., a wholly owned subsidiary of the Company, a $4,280,000 brokerage
fee in connection with this transaction, which reduced the Company's basis in
the assets of the Independence System. Funding of the net purchase price of
$141,200,000 for the Independence System was provided by all of the net proceeds
from the Company's Class A Common Stock offering discussed in Note 4 and
borrowings from JCH II's credit facility.
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<PAGE>
Exchange of cable television system
-----------------------------------
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, Colorado in exchange for the
cable television system serving areas in and around Annapolis, 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. The
Annapolis System is now operated as part of the Company's Chesapeake Bay Group
in the Virginia/Maryland cluster.
Sales of Assets
---------------
On April 25, 1997, the Company tendered all of its shares of Bell
Cablemedia plc to Cable & Wireless Communications plc ("CWC") in exchange for
25,017,385 shares of CWC. During April and May 1997, the Company sold all of its
shares of CWC for an aggregate sales price of $109,276,000. The Company
recognized a pre-tax gain on this transaction of $44,563,000. Proceeds from the
sale were used to reduce outstanding indebtedness under the Company's credit
facilities.
On October 16, 1997, the Company sold the cable television system serving
areas in and around Walnut Valley, California for $33,493,000 to Century
Communications Corp., an unaffiliated party. The Company will recognize a pre-
tax gain of approximately $22,500,000 related to this sale in the fourth quarter
of 1997. Proceeds from the sale were used to reduce outstanding indebtedness
under the Company's credit facilities. The Company paid Financial Group a fee of
$678,000 upon completion of the sale 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 pro forma effect of the above-described 1997 transactions on the
Company's results of operations for the nine months ended September 30, 1997 are
presented in the following unaudited tabulation:
For the nine months ended September 30, 1997:
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<TABLE>
<CAPTION>
As Reported Adjustments Pro Forma
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<S> <C> <C> <C>
Revenues $ 266,381 $ 22,298 $ 288,679
=========== =========== =========
Operating Income $ 10,590 $ (1,077) $ 9,513
=========== =========== =========
Net Loss $ (24,042) $ (51,619) $ (75,661)
=========== =========== =========
Loss Per Share $ (.74) $ (2.32)
=========== =========
</TABLE>
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<PAGE>
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 nine months ended September 30, 1996 are
presented in the following unaudited tabulation:
For the nine months ended September 30, 1996:
--------------------------------------------
<TABLE>
<CAPTION>
As Reported Adjustments Pro Forma
----------- ----------- ---------
<S> <C> <C> <C>
Revenues $ 235,296 $ 48,086 $ 283,382
=========== =========== =========
Operating Income $ 18,552 $ (48,948) $ (30,396)
=========== =========== =========
Net Loss $ (31,106) $ (69,219) $(100,325)
=========== =========== =========
Loss Per Share $ (.99) $ (3.20)
=========== =========
</TABLE>
(3) On July 28, 1997, the Company entered into an agreement with Cable TV Fund
12-BCD Venture (the "Venture"), a venture comprised of three managed
partnerships, to purchase the cable television system serving areas in and
around Albuquerque, New Mexico (the "Albuquerque System") for $222,963,267,
subject to customary closing adjustments. The purchase price represents the
average of three independent appraisals of the fair market value of the
Albuquerque System. 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 reduce the Company's basis in the assets of
the Albuquerque System. Funding for this transaction is expected to be provided
by JCH II's credit facility. 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.
(4) On August 26, 1997, the Company sold 9,200,000 shares of its Class A Common
Stock to the public at a price of $10.50 per share. Net proceeds to the Company
were $91,554,000. The proceeds were used to fund a portion of the purchase of
the Independence System.
(5) 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 recognized 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.
(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 owns a 20% interest in Global Group.
As a result of this transaction, the Company recognized a gain of $2,979,000 in
the first quarter of 1997.
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<PAGE>
(7) 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.
(8) 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 nine months ended September 30, 1997 and 1996.
Approximately $68,718,000 and $60,137,000 of interest expense was paid during
the nine months ended September 30, 1997 and 1996, respectively. On April 25,
1997, the Company tendered its Bell Cablemedia plc shares in exchange for shares
of CWC. No other material non-cash investing or financing transactions were
recorded during the first nine months of 1997 and 1996.
(9) Certain prior period amounts have been reclassified to conform to the
current period presentation.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------
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 engaged primarily in the cable television business,
operating cable systems for itself and for its managed partnerships. The
Company currently is the ninth largest cable television system operator in the
United States, with owned and managed systems totaling approximately 1.4 million
basic subscribers. As of September 30, 1997, on a pro forma basis for all
completed and pending acquisitions and sales of cable systems, Company-owned
systems served approximately 895,000 basic subscribers and systems held by
Company-managed partnerships served approximately 493,000 basic subscribers.
Key elements of the Company's operating strategy include increasing the number
of owned subscribers clustered in attractive demographic areas and increasing
penetration and revenues per subscriber by targeted marketing, superior customer
service and the maintenance of high technical standards.
Over the last several years, the Company has taken significant steps to
simplify its corporate structure. This process has included the sale of cable
television systems owned by certain managed partnerships to either the Company
or to third parties and the divestiture of certain of the Company's non-
strategic assets. As a result of this strategy, on a pro forma basis as of
September 30, 1997, 64% of total subscribers would have been owned by the
Company compared to 23% in June 1995. During this process, the Company has also
made significant progress in clustering its owned subscribers in two primary
groups of cable systems. The Company's Virginia/Maryland cluster, owned by JCH,
is based primarily on geography. The Company's suburban cluster, owned by JCH
II, is based on similar market and operating characteristics, rather than
geography. These clusters represent approximately 90% of Company-owned
subscribers. The Company believes that its clustering strategy should allow it
to obtain both economies of scale and operating efficiencies, for example in
areas such as marketing, administrative and capital expenditures.
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 nine
months of 1997, six cable television systems serving 174,000 basic subscribers,
including the Independence System and the Manitowoc System which were purchased
by the Company, were sold by managed partnerships. In addition, five cable
television systems serving 216,000 basic subscribers, including the Albuquerque
System which is to be purchased by the Company, 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. The Company purchased the Independence System in August
1997 because its operating characteristics are similar to the other systems in
JCH II. 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, as well as internal growth, have
increased the Company's owned basic subscriber base by approximately 196,000
basic subscribers since January 1, 1997
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<PAGE>
to approximately 781,000 basic subscribers at September 30, 1997. Such
transactions are described in detail in Note 2 of the Notes to Unaudited
Consolidated Financial Statements.
The North Prince Georges County 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. The
Independence System was purchased for net cash of $141,200,000. Funding was
provided by the net proceeds from the Company's Class A Common Stock offering
discussed below and borrowings from JCH II's credit facility.
The Company has entered into an agreement to acquire the Albuquerque System
for $222,963,267, because its operating characteristics are similar to the other
systems in JCH II. Closing is expected late in the first quarter of 1998.
Funding is expected to be provided by borrowings under JCH II's credit facility.
This transaction is described in detail in Note 3 of the Notes to Unaudited
Consolidated Financial Statements.
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. 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 September 30, 1997, the Company had
advanced funds to various managed partnerships totaling approximately
$5,867,000, an increase of approximately $1,871,000 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
$89,475,000 during the first nine months of 1997. Of the capital expenditures,
$71,593,000 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 $9,369,000 related to the development of a new customer care/billing
system and $8,513,000 related to the development of telephone service in
Maryland and Virginia. Estimated capital expenditures for the remainder of 1997
are approximately $15,500,000. Of these capital expenditures, approximately $
14,550,000 will be for cable extensions, rebuilds and other enhancements in the
cable television systems owned by the Company and $950,000 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.
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<PAGE>
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 September 30, 1997 was $351,000,000.
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 1998, 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 September 30, 1997 was $134,000,000.
This amount was borrowed under the reducing revolving credit facility.
On August 26, 1997, the Company sold 9,200,000 shares of its Class A
Common Stock to the public at a price of $10.50 per share. Net proceeds to the
Company were $91,554,000. The proceeds were used to fund a portion of the
purchase of the Independence System.
During April and May 1997, the Company sold all of its 25,017,385 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.
In March 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. 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 general partner distributions upon
the sale of cable television systems owned by such partnerships. No such
distributions were received during the nine months ended September 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 nine months ended September 30,
1997, the Company received brokerage fees of $3,695,000, less expenses of
$927,000.
On October 16, 1997, the Company sold the cable television system serving
areas in and around Walnut Valley, California for $33,493,000 to Century
Communications Corp., an unaffiliated party. The Company will recognize a gain
of approximately $22,500,000 related to this sale in the fourth quarter of 1997.
Proceeds from the sale were used to reduce outstanding indebtedness under the
Company's credit facilities. The Company paid Financial Group a fee of $678,000
upon completion of the sale 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.
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.
-13-
<PAGE>
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 a non-cable
television subsidiary.
Total revenues for the three months ended September 30, 1997 totaled
$91,945,000, an increase of $16,802,000, or 22%, over the total of $75,143,000
for the three months ended September 30, 1996. The increase in revenue between
the three month periods is due primarily to the acquisition of the North Prince
Georges County System on January 31, 1997, the acquisition of the Manitowoc
System on June 30, 1997 and the acquisition of the Independence System on August
31, 1997. The increase in revenues due to these acquisitions was offset, in
part, by the sale of two non-cable subsidiaries in 1996 and a decrease in
management fees due to the sale of certain cable systems owned by managed
partnerships. On a pro forma basis, adjusting for all of the foregoing
transactions, total revenues would have increased $6,727,000, or 8%.
Total revenues for the nine months ended September 30, 1997 totaled
$266,381,000, an increase of $31,085,000, or 13%, over the total of $235,296,000
for the nine months ended September 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; the North Prince Georges
County System, on January 31, 1997; the Annapolis System on April 15, 1997; the
Manitowoc System on June 30, 1997 and the Independence System on August 31, 1997
(the "Acquired Systems"). The increase in revenues would have been greater but
for the following: (i) the receipt of a general partner distribution and
brokerage fee totaling $15,483,000 in 1996 compared to brokerage fees of
$2,768,000 in 1997; (ii) the reduction in 1997 non-cable revenue due to the sale
of two non-cable subsidiaries in 1996; and (iii) 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 second
quarter 1996 general partner distribution and brokerage fee, the sale of the
non-cable subsidiaries and the decrease in management fees (the "Pro Forma
Adjustments"), total revenues would have increased $20,358,000, or 8%.
The Company's subscriber service fees increased $20,491,000, or 32%, to
$85,201,000 for the three months ended September 30, 1997 from $64,710,000 for
the three months ended September 30, 1996. Subscriber service fees for the nine
months ended September 30 increased $62,661,000, or 35%, to $243,513,000 in 1997
from $180,852,000 in 1996. The acquisition of the Acquired Systems accounted
for $14,106,000, or 69%, and $43,225,000, or 69%, respectively, of the increases
in subscriber service fees for the three and nine month periods. With the Pro
Forma Adjustments, subscriber service fees would have increased $6,385,000, or
8%, and $19,436,000, or 9%, respectively, for the three and nine month periods
ended September 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 nine months of 1997, basic subscribers increased
14,385, an annualized increase of 3.5%.
The Company receives management fees generally equal to 5% of the gross
operating revenues of its managed partnerships. Management fees totaled
$4,201,000 for the three months ended September 30, 1997, a decrease of
$539,000, or 11%, over the total of $4,740,000 reported for the three months
ended September 30, 1996. For the nine months ended September 30, 1997,
management fees totaled $13,236,000 compared to $14,594,000 in 1996, a decrease
of $1,358,000, or 9%. 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
-14-
<PAGE>
effect of the sale of such cable television systems, management fees would have
increased $182,000, or 5%, and $663,000, or 5%, respectively, for the three and
nine months ended September 30, 1997.
In its capacity as the general partner of its managed partnerships, the
Company may receive general partner 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
nine month periods ended September 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 no brokerage fees during
the three months ended September 30, 1997. The Company earned brokerage fees of
$3,695,000, less expenses of $927,000, during the nine months ended September
30, 1997. A brokerage fee of $2,100,000, less expenses of $617,000, was earned
in April 1996.
The Company also operates a non-cable subsidiary. Non-cable revenue
totaled $2,543,000 for the three months ended September 30, 1997, a decrease of
$3,150,000, or 55%, over the $5,693,000 recorded for the three months ended
September 30, 1996. For the nine months ended September 30, 1997, non-cable
revenue totaled $6,864,000, compared to $24,367,000 in 1996, a decrease of
$17,503,000, or 72%. 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.
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
managed 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 $10,662,000, or 32%, to $44,424,000 for
the three months ended September 30, 1997 from $33,762,000 in 1996. For the
nine months ended September 30, cable operating expenses increased $31,828,000,
or 33%, to $127,170,000 in 1997 from $95,342,000 in 1996. The acquisition of
the Acquired Systems accounted for $8,022,000, or 75%, and $23,193,000, or 73%,
respectively, of the increases for the three and nine month periods. With the
Pro Forma Adjustments, cable operating expenses would have increased $2,640,000,
or 6%, and $8,635,000, or 7%, respectively, for the three and nine months ended
September 30, 1997. These increases were due primarily to increases in basic
and tier programming costs.
Cable general and administrative expenses increased $462,000, or 11%, to
$4,697,000 for the three months ended September 30, 1997 from $4,235,000 in
1996. For the nine months ended September 30, cable general and administrative
expenses increased $2,616,000, or 22%, to $14,780,000 in 1997 from $12,164,000
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
proportion of total general and administrative expenses will increase. With the
Pro Forma Adjustments, cable general and administrative expenses would have
decreased $478,000, or 9%, and $658,000, or 4%, respectively, for the three and
nine month periods ended September 30, 1997. These decreases are due to
effective cost controls relating to general and administrative expenses.
Non-cable operating, general and administrative expenses decreased
$3,190,000, or 55%, to $2,567,000 for the three months ended September 30, 1997
from $5,757,000 in 1996. For the nine months ended September 30, non-cable
operating, general and administrative expenses decreased $17,285,000, or 70%, to
-15-
<PAGE>
$7,261,000 in 1997 from $24,546,000 in 1996. These decreases were due primarily
to the sale of GRI and the assets of JSP.
Depreciation and amortization increased $5,493,000, or 18%, to $36,147,000
for the three months ended September 30, 1997 from $30,654,000 in 1996. For the
nine months ended September 30, depreciation and amortization increased
$21,888,000, or 26%, to $106,580,000 in 1997 from $84,692,000 in 1996.
Depreciation and amortization relating to the Acquired Systems was primarily
responsible for these increases.
Operating Income
----------------
Operating income increased $3,375,000 to $4,110,000 for the three months
ended September 30, 1997 from $735,000 in 1996. This increase was due to the
acquisition of the Acquired Systems. For the nine months ended September 30,
operating income decreased $7,962,000, or 43%, to $10,590,000 in 1997 from
$18,552,000 in 1996. This decrease was due primarily to the decrease in
brokerage fee and distribution revenue between periods.
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. 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. Operating income before
depreciation and amortization increased $8,868,000, or 28%, to $40,257,000 for
the three months ended September 30, 1997 from $31,389,000 in 1996. For the
nine months ended September 30, operating income before depreciation and
amortization increased $13,926,000, or 13%, to $117,170,000 in 1997 from
$103,244,000 in 1996. With the Pro Forma Adjustments, operating income before
depreciation and amortization would have increased $4,182,000, or 12%, and
$12,297,000, or 12%, respectively for the three and nine month periods ended
September 30, 1997.
Other Income (Expense)
----------------------
Interest expense increased $3,985,000, or 23%, to $21,605,000 for the three
months ended September 30, 1997 from $17,620,000 in 1996. For the nine months
ended September 30, interest expense increased $15,120,000, or 30%, to
$65,308,000 in 1997 from $50,188,000 in 1996. These increases were 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 $886,000, or 52%, to
$809,000 for the three months ended September 30, 1997 from $1,695,000 in 1996.
For the nine month periods, equity in losses of affiliated entities decreased
$141,000, or 4%, to $3,562,000 in 1997 from $3,703,000 in 1996. These decreases
were due primarily to a reduction in the recognition of losses of Jones Customer
Service Management, LLC.
The Company recognized gains on the sale of assets of $1,854,000 in the
third quarter of 1997 due primarily to insurance and sale proceeds from the
Company's aircraft. In addition, 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 and a
gain of $2,979,000 on the redemption of its Global Group shares in the first
quarter of 1997. The Company recognized a gain of $2,873,000 on the sale of the
assets of JSP in the third quarter of 1996.
Interest income decreased $281,000, or 49%, to $292,000 for the three
months ended September 30, 1997 from $573,000 in 1996. For the nine months
ended September 30, interest income decreased $1,970,000, or 64%, to $1,095,000
in 1997 from $3,065,000 in 1996. These decreases were due to a reduction in
receivables from managed partnerships.
-16-
<PAGE>
The Company recognized a loss on early extinguishment of debt of
$13,459,000 in the third quarter of 1997 related to the redemption of the 11.5%
Debentures. No similar losses were recorded in 1996.
Net loss increased $13,547,000, or 79%, to $30,755,000 for the three months
ended September 30, 1997 for $17,208,000 in 1996. This increase is due primarily
to the loss recognized on the redemption of the 11.5% Debentures. Net loss
decreased $7,064,000, or 23%, to $24,042,000 for the nine months ended September
30, from $31,106,000 in 1996 due primarily to the gains on sales recognized in
1997.
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 are expected to 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 not occur; however, there is no assurance as to the
timing or recognition of these distributions or sales.
-17-
<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 November 3, 1997.
27) Financial Data Schedule
b) Reports on Form 8-K
Report on Form 8-K dated June 30, 1997, reported that on June 30,
1997 the Company purchased the Manitowoc System.
Report on Form 8-K dated July 15, 1997, reported that on July 15,
1997 the Company redeemed its 11.5% debentures.
Report on Form 8-K dated August 1, 1997 to file the Purchase and
Sale Agreements, the historical financial statements and the pro
forma financial statements relating to the Company's purchase of the
Independence System and the Albuquerque System.
Report on Form 8-K dated August 1, 1997 to file the consents to
incorporation by reference of previously filed historical financial
statements into the Company's registration statement by Arthur
Andersen LLP and Ernst & Young, LLP.
Report on Form 8-K dated August 20, 1997, reported that the Company
had agreed to sell 8,000,000 shares of Class A Common Stock pursuant
to its effective registration statement.
-18-
<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: November 6, 1997
-19-
<PAGE>
Exhibit 15
November 3, 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 September 30, 1997, which includes our report dated
November 3, 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
September 30, 1997, and the related condensed consolidated statements of
operations and cash flows for the three and nine month periods ended September
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 September 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
November 3, 1997
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