<PAGE>
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 March 31, 1998
--------------
[_] 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.
- --------------------------------------------------------------------------------
Exact name of registrant as specified in charter
Colorado #84-0613514
- --------------------------------------------------------------------------------
State of incorporation I.R.S. employer I.D. #
9697 East Mineral Avenue, Englewood, Colorado 80112
---------------------------------------------------
Address of principal executive office
(303) 792-3111
--------------
Registrant's telephone number
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 during
the preceding l2 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Shares outstanding of each of the registrant's classes of common stock as of May
1, 1998.
5,113,021 - Common Stock, $.01 par value per share
35,650,988 - Class A Common Stock, $.01 par value per share
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
---------------------------------------
I N D E X
---------
Page
Number
------
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets 3
March 31, 1998 and December 31, 1997
Unaudited Consolidated Statements of Operations 5
Three Months Ended March 31, 1998 and 1997
Unaudited Consolidated Statements of Cash Flows 6
Three Months Ended March 31, 1998 and 1997
Notes to Unaudited Consolidated Financial Statements 7
March 31, 1998
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of
Operations
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
2
<PAGE>
UNAUDITED CONSOLIDATED Jones Intercable, Inc.
BALANCE SHEETS and Subsidiaries
As of March 31, 1998 and December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
ASSETS (Stated in Thousands)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 2,214 $ 3,595
RECEIVABLES:
Trade receivables, net of allowance for
doubtful accounts of $2,081,000 in March 1998
and $1,692,000 in December 1997 24,030 28,686
Affiliated entities 6,718 7,783
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 779,411 745,115
Less-accumulated depreciation (246,960) (224,893)
--------- ---------
532,451 520,222
Franchise costs and other intangible assets, net of
accumulated amortization of $307,124,000 in March
1998 and $285,212,000 in December 1997 700,217 721,336
Investments in domestic cable television
partnerships and affiliates 23,234 24,568
--------- ---------
TOTAL INVESTMENT IN CABLE TELEVISION PROPERTIES 1,255,902 1,266,126
--------- ---------
DEFERRED TAX ASSET, net of valuation
allowance of $ 92,138,000 in March 1998 and
$84,473,000 in December 1997 7,137 7,137
DEPOSITS, PREPAID EXPENSES AND OTHER ASSETS 56,116 58,044
--------- ---------
TOTAL ASSETS $1,352,117 $1,371,371
========= =========
</TABLE>
The accompanying notes to unaudited consolidated financial
statements are an integral part of these balance sheets.
3
<PAGE>
UNAUDITED CONSOLIDATED Jones Intercable, Inc.
BALANCE SHEETS and Subsidiaries
As of March 31, 1998 and December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
LIABILITIES AND SHAREHOLDERS' INVESTMENT (Stated in Thousands)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES:
Accounts payable and accrued liabilities $ 97,636 $ 115,189
Subscriber prepayments and deposits 3,193 2,932
Subordinated debentures and other debt 553,813 553,732
Credit Facilities 489,000 471,000
--------- ---------
TOTAL LIABILITIES 1,143,642 1,142,853
--------- ---------
SHAREHOLDERS' INVESTMENT:
Class A Common Stock, $.01 par value, 60,000,000
shares authorized; 35,605,757 and 35,554,223 shares issued
at March 31, 1998 and December 31, 1997, respectively 356 356
Common Stock, $.01 par value, 5,550,000 shares
authorized; 5,113,021 shares issued at March 31, 1998
and December 31, 1997 51 51
Additional paid-in capital 488,320 487,616
Accumulated deficit (280,252) (259,505)
--------- ---------
TOTAL SHAREHOLDERS' INVESTMENT 208,475 228,518
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $1,352,117 $1,371,371
========= =========
</TABLE>
The accompanying notes to unaudited consolidated financial
statements are an integral part of these balance sheets.
4
<PAGE>
UNAUDITED CONSOLIDATED Jones Intercable, Inc.
STATEMENTS OF OPERATIONS and Subsidiaries
For the three months ended March 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1998 March 31, 1997
(Stated in Thousands Except Per Share Data)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES FROM CABLE TELEVISION OPERATIONS:
Cable Television Revenue
Subscriber service fees $ 91,661 $ 75,113
Management fees 3,949 4,446
Distributions and brokerage fees 3,707 2,530
Non-cable Revenue 2,013 1,413
------- -------
TOTAL REVENUES 101,330 83,502
COSTS AND EXPENSES:
Cable Television Expenses
Operating expenses 47,479 38,835
General and administrative expenses
(including approximately $1,525,000 and$1,470,000 of
related party expenses in 1998 and 1997, respectively) 5,488 4,841
Non-cable operating, general and administrative 2,203 1,910
Depreciation and amortization 44,755 35,532
------- -------
OPERATING INCOME 1,405 2,384
OTHER INCOME (EXPENSE):
Interest expense (21,368) (19,665)
Equity in losses of affiliated entities (1,293) (1,695)
Interest income 307 382
Gain on sale of assets - 2,979
Other, net 202 (226)
------- -------
LOSS BEFORE INCOME TAXES (20,747) (15,841)
Income tax benefit - -
------- -------
NET LOSS $(20,747) $(15,841)
======= =======
ADJUSTMENTS TO ARRIVE AT COMPREHENSIVE LOSS - 1,028
------- -------
COMPREHENSIVE LOSS $(20,747) $(14,813)
======= =======
LOSS PER SHARE: $ (.51) $ (.50)
======= =======
LOSS PER SHARE assuming dilution $ (.51) $ (.50)
======= =======
AVERAGE NUMBER OF CLASS A COMMON AND
COMMON SHARES OUTSTANDING 40,692 31,378
======= =======
</TABLE>
The accompanying notes to unaudited consolidated financial
statements are an integral part of these statements.
5
<PAGE>
UNAUDITED CONSOLIDATED STATEMENTS OF Jones Intercable, Inc.
CASH FLOWS and Subsidiaries
For the three months ended March 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1998 March 31, 1997
(Stated in Thousands)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(20,747) $(15,841)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 44,755 35,532
Equity in losses of affiliates 1,293 1,695
Gain on sale of assets - (2,979)
Class A Stock option expense 63 63
Decrease in restricted cash - 111
Decrease in trade receivables 4,656 2,198
Decrease in other receivables, prepaid
expenses and other assets 299 805
Decrease in accounts payable, accrued
liabilities and subscriber prepayments and deposits (17,292) (5,699)
------- --------
Net cash provided by operating activities 13,027 15,885
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of cable television systems - (221,987)
Purchase of property and equipment (34,296) (24,346)
Other, net 101 480
------- --------
Net cash used in investing activities (34,195) (245,853)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 33,000 240,000
Repayment of debt (15,000) (254,000)
Proceeds from the sale of Senior Notes, net - 248,600
Senior Note Offering costs - (4,498)
Decrease in accounts receivable from affiliated entities 1,065 797
Proceeds from Class A stock options 641 -
Other, net 81 (275)
------- --------
Net cash provided by financing activities 19,787 230,624
------- --------
Increase in Cash and Cash Equivalents (1,381) 656
Cash and Cash Equivalents, beginning of period 3,595 1,671
------- --------
Cash and Cash Equivalents, end of period $ 2,214 $ 2,327
======= ========
</TABLE>
The accompanying notes to unaudited consolidated financial
statements are an integral part of these statements.
6
<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 Balance Sheets, Statements
of Operations and Statements of Cash Flows in conformity with generally accepted
accounting principles. However, in the opinion of management, this data includes
all adjustments, consisting only of normal recurring accruals, necessary to
present fairly the Company's financial position at March 31, 1998 and December
31, 1997 and its results of operations and cash flows for the three months ended
March 31, 1998 and 1997. Results of operations for these periods are not
necessarily indicative of results to be expected for the full year.
(2) In July 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, 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 to occur in June 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.
In March 1998, the Company entered into an agreement with the Venture to
purchase the cable television systems serving areas in and around Palmdale and
Lancaster, California (the "Palmdale/Lancaster System") for a purchase price of
$138,205,200, subject to customary closing adjustments. The purchase price
represents the average of three independent appraisals of the fair market value
of the Palmdale/Lancaster System. Upon closing, the Company anticipates that it
will receive, from the three partnerships that comprise the Venture, general
partner distributions totaling approximately $24,000,000, which will reduce the
Company's basis in the assets of the Palmdale/Lancaster System. Funding for this
transaction is expected to be provided by borrowings available under JCH II's
credit facility. The closing of this transaction, which is expected to occur in
the fourth quarter of 1998, is subject to a number of conditions including the
approval of the transaction by the holders of a majority of the limited
partnership interests of each of the three partnerships that comprise the
Venture; the expiration or termination of all waiting periods under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 applicable to the agreement or
the transactions contemplated thereby; and the receipt of consents of
governmental authorities and other third parties.
Also in March 1998, the Company entered into an agreement with Cable TV
Fund 14-B, Ltd. ("Fund 14-B"), a managed partnership, to purchase the cable
television system serving areas in and around Littlerock, California (the
"Littlerock System") for a purchase price of $10,720,400, subject to customary
closing adjustments. The purchase price represents the average of three
independent appraisals of the fair market value of the Littlerock System.
Funding for this transaction is expected to be provided by borrowings available
under JCH II's credit facility. The closing of this transaction, which is
expected to occur in the fourth quarter of 1998, is subject to a number of
conditions including the approval of the transaction by the holders of a
majority of the limited partnership interests of Fund 14-B, the expiration or
termination of all waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 applicable to the agreement or the transactions
contemplated thereby; and the receipt of consents of governmental authorities
and other third parties.
7
<PAGE>
(3) The Company is in the process of liquidating its managed partnerships and
17 partnership-owned cable television systems serving 577,000 basic subscribers
are currently in various stages of being sold. These systems include 7 systems,
serving 255,000 basic subscribers, in suburban Chicago which are to be sold to
TCI Communications, Inc. These systems also include 3 cable television systems,
serving 184,000 basic subscribers, which are to be purchased by the Company. See
note 2. The pending sales are expected to be completed by the first quarter of
1999.
(4) On April 6, 1998, the Company issued and sold $200,000,000 of its 7 5/8%
Senior Notes due April 15, 2008. Proceeds from the sale of the Senior Notes were
used to repay a portion of the amounts outstanding under the revolving credit
facilities of the Company's subsidiaries.
(5) Net loss per share of Class A Common Stock and Common Stock is based on
the weighted average number of shares outstanding during the periods.
Approximately 409,000 common stock equivalents were not included in the
computation of loss per share assuming dilution because the effect of such
common stock equivalents was antidilutive.
(6) 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 three months ended March 31, 1998 and 1997.
Approximately $23,917,000 and $ 31,590,000 of interest expense was paid during
the three months ended March 31, 1998 and 1997, respectively. No material non-
cash investing or financing transactions were recorded during the first three
months of fiscal 1998 and 1997.
(7) The Company has adopted Statement of Financial Accounting Standards No.
130 ("SFAS 130") "Reporting Comprehensive Income" in the first quarter of 1998.
SFAS 130 establishes standards for the reporting and display of comprehensive
income and its components. An unaudited reconciliation of the Company's net loss
and comprehensive loss follows.
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1998 1997
---- ----
<S> <C> <C>
Net loss, as reported $(20,747) $(15,841)
Adjustments to arrive at comprehensive net loss
Change in unrealized holding gain on marketable securities, net - 1,028
------- -------
Comprehensive net loss $(20,747) $(14,813)
======= =======
</TABLE>
(8) Certain prior period amounts have been reclassified to conform to the
current period presentation.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- -------------------------------------------------
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 owns and manages cable television systems totaling approximately 1.4
million basic subscribers. As of March 31, 1998, on a pro forma basis for all
acquisitions of cable television systems by the Company and sales of cable
television systems by managed partnerships pending as of April 1998, Company-
owned and managed cable television systems served approximately 1 million basic
subscribers with Company-owned systems serving approximately 957,000 basic
subscribers and systems held by Company-managed partnerships serving
approximately 56,000 basic subscribers. The pending sales and acquisitions are
expected to be completed by the first quarter of 1999. 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 for all
cable television system acquisitions and sales pending as of April 1998, 95% of
total subscribers would have been owned by the Company as of March 31, 1998,
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 95% 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 is liquidating 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, two partnership-owned cable television systems, serving
68,000 subscribers, were sold during the first quarter of 1998. In addition, 17
partnership-owned cable television systems serving 577,000 subscribers
(including the Albuquerque System, the Palmdale System and the Littlerock System
which are to be purchased by the Company) are currently in various stages of
being sold. The Company is marketing for sale the remaining 7 cable
television systems, serving approximately 56,000 basic subscribers, owned by its
managed partnerships. The Company expects to complete its transformation from a
management company to an operating company by the first quarter of 1999.
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 has entered
into agreements to acquire the Albuquerque System for $222,963,267, the Palmdale
System for $138,205,200 and the Littlerock System for $10,720,400 because their
operating characteristics are similar to the other systems in JCH II. Closing
is expected
9
<PAGE>
in the second quarter of 1998 for the Albuquerque System. Closings for the
Palmdale System and the Littlerock System are expected in the fourth quarter of
1998. Funding for these acquisitions is expected to be provided by borrowings
under JCH II's credit facility. These transactions are described in detail in
Note 2 of the Notes to Unaudited Consolidated Financial Statements.
From time to time, the Company makes loans to its managed partnerships,
although it is not required to do so. As of March 31, 1998, the Company had
advanced funds to various managed partnerships totaling approximately
$6,718,000, a decrease of approximately $1,065,000 over the amount advanced at
December 31, 1997. 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 1998. 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
$34,296,000 during the first three months of 1998. Of the capital expenditures,
$33,015,000 are principally the result of the following: (a) the upgrade and
rebuild of the cable plant in the Company's cable television systems in
Virginia/Maryland; Savannah, Georgia; Independence, Missouri and Oxnard,
California and (b) new extension projects, drop materials, converters and
various maintenance projects in all of the Company's cable television systems.
Approximately $1,281,000 of the expenditures was for the deployment of telephone
service in the Virginia/Maryland Cluster. Funding for these capital expenditures
was provided by cash generated from operations and borrowings available under
the Company's credit facilities. Estimated capital expenditures for the
remainder of 1998 are approximately $130,000,000. 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 March 31, 1998 was $359,000,000.
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 March 31, 1998 was $130,000,000. This
amount was borrowed under the reducing revolving credit facility.
In April 1998, the Company issued and sold $200,000,000 of its 7 5/8%
Senior Notes due April 15, 2008. Proceeds from the sale of the Senior Notes were
used to reduce amounts outstanding under the revolving credit facilities of the
Company's subsidiaries.
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 first quarter of 1998. In addition, the
Company through The Jones Group, Ltd., a wholly owned subsidiary, may earn
brokerage fees upon the sale of the managed partnerships' cable
10
<PAGE>
television systems to third parties. During the first quarter of 1998, the
Company earned brokerage fees of $3,955,000, less expenses of $248,000.
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.
Acquisitions of additional cable television systems, the development of new
services and capital expenditures for system 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.
Impact of the Year 2000 Issue
-----------------------------
The Year 2000 issue is the result of many computer programs being written
such that they will malfunction when reading a year of "00". This problem could
cause system failure or miscalculations causing disruptions of business
processes.
The Company has initiated an assessment of its computer applications to
determine the extent of the problem. Based on this assessment, the Company has
determined that the majority of its computer applications supporting business
processes, including accounting and billing, are designed to handle the Year
2000 appropriately.
The Company is currently focusing its efforts on the impact of the Year
2000 issue on service delivery. The Company has established an internal team to
address this issue. The Company is identifying and testing all date-sensitive
equipment involved in delivering service to its customers. In addition, the
Company will assess its options regarding repair or replacement of affected
equipment during this testing. The Company currently has no definitive estimate
of the cost or the extent of the impact, if any, this problem will have on
service delivery, however the Company does not believe that the impact will be
material. The Company anticipates completion of its testing in 1998, at which
time it will determine the financial impact on the Company.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
--------------------------------------------------------------------------
1997
- ----
Revenues
The Company derives its revenues from four primary sources: subscriber
service fees from Company-owned cable television systems, management fees from
managed partnerships, fees and distributions paid upon the sale of certain cable
television properties owned by managed partnerships and revenues from a non-
cable television subsidiary.
Total revenues for the three months ended March 31, 1998 totaled
$101,330,000, an increase of $17,828,000, or 21%, over the total of $83,502,000
for the three months ended March 31, 1997. This increase reflects the Company's
acquisition of the following cable television systems: 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 a decrease in management fees due to the sale of certain cable television
systems owned by managed partnerships and the sale of the Walnut Valley System
in October, 1997. Adjusting for the effect of the Acquired Systems, brokerage
fees earned, the decrease in management fees and the sale of the Walnut Valley
System (the "Pro Forma Adjustments"), total revenues would have increased
$6,440,000, or 7%.
The Company's subscriber service fees for the three months ended March 31,
1998 totaled $91,661,000, an increase of $16,548,000 or 22%, over the total of
$75,113,000 three months ended March 31, 1997. The
11
<PAGE>
acquisition of the Acquired Systems accounted for $10,882,000, or 66%, of the
increase in subscriber service fees. With the Pro Forma Adjustments, subscriber
service fees would have increased $5,666,000, or 7%. This increase was due
primarily to an increase in the number of basic subscribers and basic service
rate adjustments in the cable television systems owned by the Company. During
the first three months of 1998, basic subscribers increased 6,682, an annualized
increase of 3.5%.
The Company receives management fees generally equal to 5% of the gross
operating revenues of its managed limited partnerships. Management fees totaled
$3,949,000 in the first three months of 1998, a decrease of $497,000, or 11%,
over the total of $4,446,000 reported in the first three months of 1997. The
sale of certain systems owned by managed partnerships during 1998 and 1997
caused this decrease. As the Company liquidates its managed partnerships,
management fees will continue to decrease. On a pro forma basis, management
fees would have increased $174,000, or 5%. This increase was due to the revenue
growth from basic rate adjustments and increases in the subscriber base of the
remaining systems owned by managed partnerships.
In its capacity as the general partner of its managed partnerships, the
Company may receive general partner distributions upon the sale of certain cable
television properties owned by such partnerships. No such revenue was received
in the first three months of 1998 or 1997. In addition, The Jones Group, Ltd., a
wholly owned subsidiary of the Company, may earn brokerage fees upon the sale of
certain managed cable television systems to third parties. The Company earned
brokerage fees of $3,955,000 less expenses of $248,000 during the first quarter
of 1998. Brokerage fees of $3,193,000, less expenses of $663,000, were earned in
the first quarter of 1997.
The Company operates Jones Futurex, Inc. ("Futurex"), a manufacturer of
various electronic components. Futurex revenues totaled $2,013,000 in the first
three months of 1998, an increase of $600,000, or 42%, over the $1,413,000
recognized in the first three months of 1997.
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 Futurex. The Company is reimbursed by its managed
partnerships for costs associated with the administration of the partnerships.
The principal administrative cost components are salaries paid to corporate and
system personnel, programming expenses, consumer marketing expenses,
professional fees, subscriber billing costs, data processing costs, rent for
leased facilities and cable system maintenance expenses.
Cable operating expenses totaled $47,479,000 for the three months ended
March 31, 1998, an increase of $8,644,000, or 22%, over the total of $38,835,000
for the three months ended March 31, 1997. The acquisition of the Acquired
Systems accounted for $6,248,000, or 72%, of this increase. With the Pro Forma
Adjustments, cable operating expenses would have increased $2,396,000, or 5%,
for the first quarter of 1998 compared to the first quarter of 1997. This
increase was due primarily to increases in basic and tier programming costs.
Cable general and administrative expenses totaled $5,488,000 for the three
months ended March 31, 1998, an increase of $647,000, or 13%, over the total of
$4,841,000 for the three months ended March 31, 1997. This increase was due to
the effect of the Acquired Systems. As the Company acquires cable television
systems for its own account 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 $116,000, or 2%, for
the three months ended March 31, 1998. This decrease was due to effective cost
controls relating to general and administrative expenses.
Non-cable operating, general and administrative expenses totaled $2,203,000
for the three months ended March 31, 1998, an increase of $293,000, or 15%, over
the total of $1,910,000 for the three months ended March 31, 1997.
12
<PAGE>
Depreciation and amortization expense totaled $44,755,000 for the three
months ended March 31, 1998, an increase of $9,223,000, or 26%, over the total
of $35,532,000 for the three months ended March 31, 1997. Depreciation and
amortization relating to the Acquired Systems was primarily responsible for this
increase.
Operating Income
Operating income totaled $1,405,000 for the three months ended March 31,
1998 a decrease of $979,000, or 41%, over the total $2,384,000 recognized in the
first quarter of 1997.
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 expressed
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.
Operating income before depreciation and amortization totaled $46,160,000 for
the three months ended March 31, 1998, an increase of $8,244,000, or 22%, over
the total of $37,916,000 for three months ended March 31, 1997. The effect of
the Acquired Systems was primarily responsible for this increase. With the Pro
Forma Adjustments, operating income before depreciation and amortization would
have increased $3,867,000, or 10%.
Other Income (Expense)
Interest expense totaled $21,368,000 for the three months ended March 31,
1998, an increase of $1,703,000, or 9%, over the total of $19,665,000 for the
three months ended March 31, 1997. This increase was due to higher outstanding
balances on the Company's interest bearing obligations and was offset, in part,
by lower effective interest rates. Borrowings were used to fund the acquisition
of the Acquired Systems.
Interest income totaled $307,000 for the three months ended March 31, 1998,
a decrease of $75,000, or 20%, over the total of $382,000 for the three months
ended March 31, 1997. This decrease was due to lower effective interest rates.
Equity in losses of affiliated entities totaled $1,293,000 for the three
months ended March 31, 1998 a decrease of $402,000, or 24%, over the total of
$1,695,000 for the three months ended March 31, 1997. This decrease was due
primarily to a decrease in the recognition of losses of Jones Education Company
and Knowledge TV, Inc.
The Company recognized a gain on the sale of assets in the first quarter of
1997 totaling $2,979,000, related to the redemption of shares of Jones Global
Group, Inc., an affiliate. No similar gains were recognized during the first
quarter of 1998.
Net loss totaled $20,747,000 for the three months ended March 31, 1998, an
increase of $4,906,000, or 31%, over the loss of $15,841,000 for the three
months ended March 31, 1997. This increase was due primarily to the decrease in
operating income, the increase in interest expense and the gain on the sale of
assets 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.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In February 1998, BCI Telecom Holding Inc. ("BTH"), the Company's largest
shareholder, filed a lawsuit in the United States District Court for the
District of Colorado against the Company, Jones International, Ltd.
("International"), Jones Internet Channel, Inc. ("JICI") and Glenn R. Jones. Mr.
Jones is the Company's Chairman and Chief Executive Officer. International is
owned by Mr. Jones, and it also is one of the Company's largest shareholders.
JICI is a wholly owned subsidiary of International. BTH, the Company,
International and Mr. Jones are parties to a Shareholders Agreement dated as of
December 20, 1994 (the "Shareholders Agreement"). In its complaint, BTH alleged
that the defendants had violated the Shareholders Agreement and certain duties
allegedly owed to BTH, and conspired with each other to do so. More
specifically, BTH claimed that under the Shareholders Agreement, the offering of
the service known as the "Internet Channel" to the Company's subscribers, and
any affiliation agreement between the Company and JICI for the provision of the
Internet Channel service, could not proceed without approval of the "unrelated
directors" of the Company as such term is defined in the Shareholders Agreement,
including the three directors designated by BTH. BTH also maintained, in
connection with the relationship and proposed affiliate agreement between the
Company and JICI, that the defendants have breached a provision of the
Shareholders Agreement defining the "core business" of the Company. In addition
to damages, BTH sought an injunction prohibiting the Company from making the
Internet Channel available to additional subscribers and from entering into an
affiliate agreement with JICI for the Internet Channel, as well as other
equitable relief. On May 5, 1998, the Court permanently enjoined the Company and
the other defendants in this civil action from proceeding further with any
expansion of the Internet Channel, or any similar internet service provider
business, without the approval of the unrelated directors of the Company. The
Company currently is weighing the merits of an appeal of the decision to the
U.S. Tenth Circuit Court of Appeals.
In March 1998, a minority shareholder of the Company filed a shareholder
derivative action in the United States District Court for the District of
Colorado against Glenn R. Jones and seven other directors of the Company. In
its complaint, the plaintiff alleges that the defendants have violated certain
fiduciary and other duties allegedly owed to the Company and its shareholders in
connection with the Company's offering of the Internet Channel service. The
allegations raised in this complaint are similar to those raised by BTH in its
complaint. The plaintiff seeks certain equitable relief and damages.
Item 6. Exhibits and Reports on Form 10-K.
a) Exhibits
15) Letters Regarding Unaudited Interim Financial Statements.
27) Financial Data Schedule
b) Reports on Form 8-K
Report on Form 8-K dated February 18, 1998, reporting that on or about
February 3, 1998 BTH, the Company's largest shareholder, filed an
action in the United States District Court for the District of Colorado
against the Company and others. The action alleges violations of the
Shareholders Agreement dated December 20, 1994.
Report on Form 8-K dated April 6, 1998, describing the issuance and
sale of $200,000,000 of 7 5/8% Senior Notes on April 6, 1998.
14
<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: May 12, 1998
15
<PAGE>
Exhibit 15
May 1, 1998
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. 33-52813 and 33-54596, and on
Form S-3, File Nos. 333-40147, and 333-40149 its Form 10-Q for the quarter ended
March 31, 1998, which includes our report dated May 1, 1998 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>
REVIEW REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------------
To 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 March
31, 1998, and the related condensed consolidated statements of operations and
cash flows for the three-month periods ended March 31, 1998 and 1997. 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, 1997 (not presented herein), and, in our report
dated March 10, 1998, we expressed an unqualified opinion on that statement. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 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
MAY 1, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,214
<SECURITIES> 0
<RECEIVABLES> 24,030
<ALLOWANCES> 2,081
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 799,411
<DEPRECIATION> (246,960)
<TOTAL-ASSETS> 1,352,117
<CURRENT-LIABILITIES> 100,829
<BONDS> 1,042,813
0
0
<COMMON> 407
<OTHER-SE> 208,068
<TOTAL-LIABILITY-AND-EQUITY> 1,352,117
<SALES> 0
<TOTAL-REVENUES> 101,330
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 100,709
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,368
<INCOME-PRETAX> (20,747)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20,747)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,747)
<EPS-PRIMARY> (.51)
<EPS-DILUTED> (.51)
</TABLE>
