UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 1999
OR
( ) 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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Comcast Corporation
1500 Market Street, Philadelphia, PA 19102-2148
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
--------------------------
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 twelve 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 __
--------------------------
As of March 31, 1999, there were 36,248,482 shares of Class A Common Stock and
5,113,021 shares of Common Stock outstanding.
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
Page
Number
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Review Report of Independent Public Accountants............2
Condensed Consolidated Balance Sheet
as of March 31, 1999 and
December 31, 1998 (Unaudited)..............................3
Condensed Consolidated Statement of Operations
and Accumulated Deficit for the Three Months
Ended March 31, 1999 and 1998 (Unaudited)..................4
Condensed Consolidated Statement of
Cash Flows for the Three Months Ended
March 31, 1999 and 1998 (Unaudited)........................5
Notes to Condensed Consolidated Financial
Statements (Unaudited).................................6 - 8
ITEM 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................................9 - 12
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings.........................................13
ITEM 6 Exhibits and Reports on Form 8-K..........................14
SIGNATURES....................................................................15
-----------------------------------
This Quarterly Report on Form 10-Q is for the three months ended March 31,
1999. This Quarterly Report modifies and supersedes documents filed prior to
this Quarterly Report. The SEC allows us to "incorporate by reference"
information that we file with them, which means that we can disclose important
information to you by referring you directly to those documents. Information
incorporated by reference is considered to be part of this Quarterly Report. In
addition, information we file with the SEC in the future will automatically
update and supersede information contained in this Quarterly Report. In this
Quarterly Report, "Jones Intercable," "we," "us" and "our" refer to Jones
Intercable, Inc. and its subsidiaries.
You should carefully review the information contained in this Quarterly
Report and in other reports or documents that we file from time to time with the
SEC. In this Quarterly Report, we state our beliefs of future events and of our
future financial performance. In some cases, you can identify those so-called
"forward-looking statements" by words such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of those words and other comparable
words. You should be aware that those statements are only our predictions.
Actual events or results may differ materially. In evaluating those statements,
you should specifically consider various factors, including the risks outlined
below. Those factors may cause our actual results to differ materially from any
of our forward-looking statements.
Factors Affecting Future Operations
The cable communications industry may be affected by, among other things:
o changes in laws and regulations,
o changes in the competitive environment,
o changes in technology,
o franchise related matters,
o market conditions that may adversely affect the availability of debt
and equity financing for working capital, capital expenditures or
other purposes; and
o general economic conditions.
<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, 1999, and the related condensed consolidated statement of operations and
accumulated deficit and of cash flows for the three month periods ended March
31, 1999 and 1998. 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, 1998 (not presented herein), and, in our report
dated February 17, 1999, 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, 1998, 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 7, 1999
2
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands, except share data)
March 31, December 31,
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents....................................................... $7,916 $2,586
Accounts receivable, less allowance for doubtful
accounts of $3,082 and $2,822................................................. 33,855 32,452
Other current assets............................................................ 47,863 69,053
---------- ----------
Total current assets........................................................ 89,634 104,091
---------- ----------
INVESTMENTS........................................................................ 34,738 19,724
---------- ----------
PROPERTY AND EQUIPMENT............................................................. 1,051,640 1,005,080
Accumulated depreciation........................................................ (341,613) (311,655)
---------- ----------
Property and equipment, net..................................................... 710,027 693,425
---------- ----------
DEFERRED CHARGES AND OTHER......................................................... 1,314,469 1,290,192
Accumulated amortization........................................................ (404,375) (376,339)
---------- ----------
Deferred charges and other, net................................................. 910,094 913,853
---------- ----------
$1,744,493 $1,731,093
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses........................................... $78,252 $89,516
Accrued interest................................................................ 23,849 23,265
Current portion of long-term debt............................................... 1,809 2,237
---------- ----------
Total current liabilities................................................... 103,910 115,018
---------- ----------
LONG-TERM DEBT, less current portion............................................... 1,497,875 1,460,470
---------- ----------
OTHER LIABILITIES.................................................................. 16,243
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Class A common stock, $.01 par value - authorized, 60,000,000 shares;
issued, 36,248,482 and 36,143,054............................................. 362 361
Common stock, $.01 par value - authorized, 5,550,000 shares; issued, 5,113,021.. 51 51
Additional capital.............................................................. 496,887 495,116
Accumulated deficit............................................................. (370,835) (339,923)
---------- ----------
Total stockholders' equity.................................................. 126,465 155,605
---------- ----------
$1,744,493 $1,731,093
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
(Amounts in thousands, except per share data)
Three Months Ended March 31,
1999 1998
--------- ---------
<S> <C> <C>
REVENUES
Cable Communications Revenues
Subscriber service fees.................................................. $124,080 $91,661
Management fees.......................................................... 880 3,949
Distributions and brokerage fees......................................... 3,193 3,707
Non-cable revenue.......................................................... 867 2,013
--------- ---------
129,020 101,330
--------- ---------
COSTS AND EXPENSES
Cable Communications Expenses
Operating................................................................ 63,229 47,479
Selling, general and administrative...................................... 7,553 5,488
Non-cable operating, selling, general and administrative................... 711 2,203
Depreciation and amortization.............................................. 58,625 44,755
--------- ---------
130,118 99,925
--------- ---------
OPERATING (LOSS) INCOME....................................................... (1,098) 1,405
OTHER (INCOME) EXPENSE
Interest expense........................................................... 27,836 21,368
Equity in net losses of affiliates......................................... 1,481 1,293
Investment income.......................................................... (303) (307)
Other expense (income)..................................................... 800 (202)
--------- ---------
29,814 22,152
--------- ---------
LOSS BEFORE INCOME TAXES...................................................... (30,912) (20,747)
INCOME TAXES..................................................................
--------- ---------
NET LOSS...................................................................... (30,912) (20,747)
ACCUMULATED DEFICIT
Beginning of period........................................................ (339,923) (259,505)
--------- ---------
End of period.............................................................. ($370,835) ($280,252)
========= =========
BASIC LOSS FOR COMMON STOCKHOLDERS PER COMMON SHARE........................... ($.75) ($.51)
========= =========
BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING.................... 41,325 40,692
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
Three Months Ended March 31,
1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss......................................................................... ($30,912) ($20,747)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization.................................................. 58,625 44,755
Non-cash interest expense...................................................... 584
Equity in net losses of affiliates............................................. 1,481 1,293
Class A Common Stock option expense............................................ 63
--------- ---------
29,778 25,364
Changes in working capital and other liabilities............................... (1,205) (12,337)
--------- ---------
Net cash provided by operating activities................................ 28,573 13,027
--------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings......................................................... 37,000 33,081
Repayments of long-term debt..................................................... (23) (15,000)
Proceeds from Class A Common Stock options exercised............................. 1,772 641
Net transactions with affiliates................................................. (5,035) 1,065
--------- ---------
Net cash provided by financing activities................................ 33,714 19,787
--------- ---------
INVESTING ACTIVITIES
Acquisition, net of cash acquired................................................ (10,720)
Capital expenditures............................................................. (43,880) (34,296)
Additions to deferred charges.................................................... (2,120)
Other, net....................................................................... (237) 101
--------- ---------
Net cash used in investing activities.................................... (56,957) (34,195)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................... 5,330 (1,381)
CASH AND CASH EQUIVALENTS, beginning of period...................................... 2,586 3,595
--------- ---------
CASH AND CASH EQUIVALENTS, end of period............................................ $7,916 $2,214
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The condensed consolidated balance sheet as of December 31, 1998 has been
condensed from the audited consolidated balance sheet as of that date.
The condensed consolidated balance sheet as of March 31, 1999 and the
condensed consolidated statements of operations and accumulated deficit
and of cash flows for the three months ended March 31, 1999 and 1998 have
been prepared by Jones Intercable, Inc. (the "Company") and have not been
audited by the Company's independent auditors. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results
of operations and cash flows as of March 31, 1999 and for all periods
presented have been made.
Certain information and note disclosures normally included in the
Company's annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
These condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in
the Company's December 31, 1998 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The results of operations for the
period ended March 31, 1999 are not necessarily indicative of operating
results for the full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement, which
establishes accounting and reporting standards for derivatives and
hedging activities, is effective for fiscal years beginning after June
15, 1999. Upon the adoption of SFAS No. 133, all derivatives are required
to be recognized in the statement of financial position as either assets
or liabilities and measured at fair value. The Company is currently
evaluating the impact the adoption of SFAS No. 133 will have on its
financial position and results of operations.
Loss for Common Stockholders Per Common Share
Loss for common stockholders per common share is computed by dividing net
loss by the weighted average number of common shares outstanding during
the period.
For the three months ended March 31, 1999 and 1998, the Company's
potential common shares of 468,000 shares and 409,000 shares,
respectively, have an antidilutive effect on loss for common stockholders
per common share and, therefore, have not been used in determining the
total weighted average number of common shares outstanding.
Reclassifications
Certain reclassifications have been made to the prior year condensed
consolidated financial statements to conform to those classifications
used in 1999.
3. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
Closing of Acquisition by Comcast Corporation
On April 7, 1999, Comcast Corporation ("Comcast") completed the
acquisition of a controlling interest in the Company for aggregate
consideration of $706.3 million. Comcast now owns approximately 12.8
million shares of the Company's Class A Common Stock and approximately
2.9 million shares of the Company's Common Stock, representing
approximately 37% of the economic interest and 47% of the voting interest
in the Company. Also on that date, Comcast contributed its shares in the
Company to Comcast's wholly owned subsidiary, Comcast Cable
Communications, Inc. ("Comcast Cable"). The approximately 2.9 million
shares of Common Stock owned by Comcast Cable represent approximately 57%
of the Company's outstanding Common Stock, which class of stock is
entitled to elect 75% of the Board of Directors of the Company. As a
result of this transaction, the Company is now a consolidated public
company subsidiary of Comcast Cable.
6
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Also on April 7, 1999, the Bylaws of the Company were amended to
establish the size of the Board of Directors as a range from eight to
thirteen directors and the board was reconstituted so as to have eight
directors. The independent members of the Company's Board of Directors
have approved Comcast and the Company entering into a management
agreement pursuant to which Comcast will provide supervisory management
services to the Company for a fee of 4.5% of the Company's gross revenues
derived from cable systems.
To facilitate an orderly change in control to Comcast, the Company
established a retention and severance program for its corporate
associates who will be terminated due to the change in control. The
program provides incentives to corporate associates to remain with the
Company through a transition period following April 7, 1999. The program
provides for cash severance payments to associates that have been or will
be terminated due to the change in control.
The Company anticipates incurring between $50 million and $65 million in
costs related to the change in control. Such costs include severance
payments to personnel, employment contract terminations, salaries during
the transition period following the change in control, costs associated
with the termination of an information technology services agreement with
a former affiliated entity, lease termination costs and professional fees
incurred by the Company in connection with the change in control.
Littlerock System Acquisition
On January 29, 1999, the Company, through a wholly owned subsidiary,
acquired the cable communications system serving areas in and around
Littlerock, California (the "Littlerock System") for $10.7 million in
cash from Cable TV Fund 14-B, Ltd., a partnership managed by the Company.
The acquisition was accounted for under the purchase method of
accounting. As such, the operating results of the Littlerock System have
been included in the accompanying condensed consolidated statement of
operations and accumulated deficit from the acquisition date. The
acquisition was funded with borrowings under the subsidiary's existing
credit facility.
Calvert County System Acquisition
In June 1998, the Company, through a wholly owned subsidiary, entered
into an agreement with Cable TV Fund 14-A, Ltd., a partnership managed by
the Company, to purchase the cable communications system serving areas in
and around Calvert County, Maryland for $39.4 million in cash, subject to
customary closing adjustments. The acquisition is expected to be funded
with borrowings under the subsidiary's existing credit facility. The
closing of this acquisition, which is expected to occur in the second
quarter of 1999, is subject to the receipt of necessary regulatory and
other approvals.
4. INVESTMENTS
Partnership Liquidations
The Company is in the final stages of liquidating its managed
partnerships and the remaining three partnership- owned cable
communications systems serving 44,000 basic subscribers are currently in
various stages of being sold. The pending sales are expected to be
completed by the end of the second quarter of 1999. The Company is and/or
has been the defendant in litigation filed by limited partners of certain
of its managed partnerships challenging the terms of certain sales of
partnership-owned cable communications systems to the Company and/or its
subsidiaries (see Note 8). Those managed partnerships that are involved
in litigation will not be dissolved until such litigation is finally
resolved and terminated.
At Home Warrants
In June 1998, the Company entered into a six year Distribution Agreement
with At Home Corporation ("@Home"), which provides for the distribution
of high speed Internet services to the Company's cable communications
systems. Deployment began in December 1998. In conjunction with the
Distribution Agreement, the Company and @Home entered into a Warrant
Purchase Agreement providing for the Company's purchase of up to a
maximum of 2,046,100 shares of @Home Series A Common Stock at $10.50 per
share. The warrants become exercisable after March 31 each year,
beginning in 1999, as the Company launches @Home services in its cable
communications systems. As of March 31, 1999, warrants to purchase
130,000 shares of @Home Series A Common Stock were exercisable.
Accordingly, as of March 31, 1999, the Company recorded an investment
7
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
in @Home warrants of $19.1 million and deferred revenue of an equal
amount. Beginning in the second quarter of 1999, the Company's investment
in @Home Warrants will be classified as available for sale and recorded
at their fair value, with unrealized gains or losses resulting from
changes in fair value between measurement dates recorded as a component
of other comprehensive income.
5. LONG-TERM DEBT
Interest Rates
As of March 31, 1999 and December 31, 1998, the Company's effective
weighted average interest rate on its long-term debt outstanding was
6.66% and 6.76%, respectively.
Lines of Credit
As of March 31, 1999, certain subsidiaries of the Company had unused
lines of credit of $453.0 million, $65.8 million of which is restricted
by the covenants of the related debt agreements and to subsidiary general
purposes and dividend declaration.
6. RELATED PARTY TRANSACTIONS
The Company has certain transactions with related parties for programming
services, employment costs, information technology services and rent for
leased facilities. Of the Company's total operating, selling, general and
administrative expenses, approximately $2.0 million and $1.5 million for
the three months ended March 31, 1999 and 1998, respectively, was with
related parties.
7. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made cash payments for interest of $27.3 million and $23.9
million during the three months ended March 31, 1999 and 1998,
respectively.
The Company's investment in @Home warrants (see Note 4) had no impact on
the Company's condensed consolidated statement of cash flows due to its
non-cash nature.
8. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially
affect the financial position, results of operations or liquidity of the
Company.
In April 1999, the Company and the parties to a shareholders' derivative
action filed by a shareholder of the Company against certain directors of
the Company entered into a Stipulation of Voluntary Dismissal (the
"Stipulation") of the case challenging the determination by the Board of
Directors in December 1997 that The Jones Internet Channel had a
contractual right to distribute its programming on a channel in the
Company's cable communications systems. Pursuant to the Stipulation, the
action was dismissed as moot and counsel for the derivative plaintiff was
paid $375,000 in legal fees. Also in April 1999, in connection with the
closing of Comcast's acquisition of a controlling interest in the
Company, the pending litigation among former shareholders of the Company
relating to the same December 1997 determination by the Board of
Directors relating to The Jones Internet Channel was dismissed by
agreement of the parties and the appeal by certain of the defendants that
was pending was dismissed.
In April 1999, the two pending limited partner class action complaints
challenging the Company's acquisitions of the Palmdale and Littlerock,
California cable communications systems, respectively, were dismissed on
the grounds that the plaintiffs in these cases could only bring the
actions derivatively and not as class actions. There can be no assurance,
however, that the plaintiffs will not refile the complaints as derivative
actions.
8
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
We have experienced significant growth in recent years both through
strategic acquisitions and growth in our existing business. We have historically
met our cash needs for operations through our cash flows from operating
activities. Cash requirements for acquisitions and capital expenditures have
been provided through our financing activities, as well as our existing cash and
cash equivalents.
We are engaged primarily in the cable communications business. Over the
last several years, we have taken significant steps to simplify our corporate
structure. This process has included the sale of cable communications systems
owned by certain managed partnerships to either us or to third parties, and the
divestiture of certain of our non-strategic assets. During this process, we have
also made significant progress in clustering our owned subscribers into two
primary groups of cable systems. Our Virginia/Maryland cluster is based
primarily on geography, while our suburban cluster is based on similar market
and operating characteristics rather than geography. These clusters represent
approximately 95% of our owned subscribers.
General Developments of Business
See Note 3 to our condensed consolidated financial statements included in
Item 1.
Liquidity and Capital Resources
See Note 3 to our condensed consolidated financial statements included in
Item 1.
Cash and Cash Equivalents
Cash and cash equivalents as of March 31, 1999 were $7.9 million.
Investments
See Note 4 to our condensed consolidated financial statements included in
Item 1.
We do not have any significant contractual funding commitments with respect
to any of our investments. However, to the extent we do not fund our investees'
capital calls, we expose ourselves to dilution of our ownership interests. We
continually evaluate our existing investments as well as new investment
opportunities.
Financing
See Note 5 to our condensed consolidated financial statements included in
Item 1.
As of March 31, 1999 and December 31, 1998, our long-term debt, including
current portion, was $1.500 billion and $1.463 billion, respectively, of which
49.6% and 50.9%, respectively, was at variable rates.
We may from time to time, depending on certain factors including market
conditions, make optional repayments on our debt obligations.
We, in our capacity as the general partner of our managed partnerships,
have from time to time received general partner distributions upon the sale of
cable communications systems owned by such partnerships. No such distributions
were received during the three months ended March 31, 1999. In addition, we,
through a wholly owned subsidiary, have earned brokerage fees upon the sale of
the managed partnership's cable communications systems to third parties. During
the three months ended March 31, 1999, we earned brokerage fees, net of
expenses, of $3.2 million. Upon the completion of the sale of the remaining
three cable communications systems owned by managed partnerships in the second
quarter of 1999, general partner distributions and brokerage fees will cease to
be a source of funds for us.
Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Certain of our
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000 (the "Year 2000 Issue"). If this
situation occurs, the potential exists for computer system failure or
miscalculations by computer programs, which could cause disruption of
operations.
We are in the process of evaluating and addressing the impact of the Year
2000 Issue on our operations to ensure that our information technology and
business systems recognize calendar Year 2000. We are utilizing both internal
and external resources in implementing our Year 2000 program, which consists of
the following phases:
o Assessment Phase. Structured evaluation, including a detailed
inventory outlining the
9
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
impact that the Year 2000 Issue may have on current operations.
o Detailed Planning Phase. Establishment of priorities, development of
specific action steps and allocation of resources to address the
issues identified in the Assessment Phase.
o Conversion Phase. Implementation of the necessary system modifications
as outlined in the Detailed Planning Phase.
o Testing Phase. Verification that the modifications implemented in the
Conversion Phase will be successful in resolving the Year 2000 Issue
so that all inventory items will function properly, both individually
and on an integrated basis.
o Implementation Phase. Final roll-out of fully tested components into
an operational unit.
Based on an inventory conducted in 1997, we have identified computer
systems that will require modification or replacement so that they will properly
utilize dates beyond December 31, 1999. Many of our critical systems are new and
are already Year 2000 compliant as a result of our recent rebuild of many of our
cable communications systems. In addition, we have initiated communications with
all of our significant software suppliers and service bureaus to determine their
plans for remediating the Year 2000 Issue in their software which we use or rely
upon.
As of March 31, 1999, we are in the Conversion Phase of our Year 2000
remediation program and have entered the Testing Phase with respect to certain
of our key systems. Through March 31, 1999, we have incurred approximately $1.5
million in connection with our Year 2000 remediation program. We estimate that
we will incur between approximately $1.5 million to $2.0 million of additional
expense through December 1999 in connection with our Year 2000 remediation
program. Our estimate to complete the remediation plan includes the estimated
time associated with mitigating the Year 2000 Issue for third party software.
However, there can be no guarantee that the systems of other companies on which
we rely will be converted on a timely basis, or that a failure to convert by
another company would not have a material adverse effect on us.
Our management will continue to periodically report the progress of our
Year 2000 remediation program to the Audit Committee of our Board of Directors.
We plan to complete the Year 2000 mitigation by the third quarter of 1999. Our
management has investigated and may consider potential contingency plans in the
event that our Year 2000 remediation program is not completed by that date.
The costs of the project and the date on which we plan to complete the Year
2000 modifications and replacements are based on management's best estimates,
which were derived using assumptions of future events including the continued
availability of resources and the reliability of third party modification plans.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those plans. Specific factors that
may cause such material differences include, but are not limited to, the
availability and cost of personnel with appropriate necessary skills and the
ability to locate and correct all relevant computer code and similar
uncertainties.
We believe that with modifications to existing software and conversions to
new software, the Year 2000 Issue can be mitigated. However, if such
modifications and conversions are not made, or are not completed within an
adequate time frame, the Year 2000 Issue could have a material adverse impact on
our operations.
10
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
Statement of Cash Flows
Cash and cash equivalents increased $5.3 million as of March 31, 1999 from
December 31, 1998. The increase in cash and cash equivalents resulted from cash
flows from operating, financing and investing activities
which are explained below.
Net cash provided by operating activities amounted to $28.6 million for the
three months ended March 31, 1999, due principally to our operating income
before depreciation and amortization (see "Results of Operations"), changes in
working capital as a result of the timing of receipts and disbursements, and the
acquisition of cable communications systems.
Net cash provided by financing activities was $33.7 million for the three
months ended March 31, 1999. During the three months ended March 31, 1999, we
borrowed $37.0 million under subsidiary credit facilities, primarily for capital
expenditures and to fund the acquisition of the cable communications system
serving areas in and around Littlerock, California (the "Littlerock System").
During the three months ended March 31, 1999, we advanced $5.0 million to
partnerships managed by us to fund operations and for capital expenditures.
Net cash used in investing activities was $57.0 million for the three
months ended March 31, 1999. Net cash used in investing activities includes the
acquisition of the Littlerock System, net of cash acquired, of $10.7 million and
capital expenditures of $43.9 million.
Results of Operations
Our summarized consolidated financial information for the three months
ended March 31, 1999 and 1998 is as follows (dollars in millions, "NM" denotes
percentage is not meaningful):
<TABLE>
<CAPTION>
Three Months Ended
March 31, Increase / (Decrease)
1999 1998 $ %
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues............................................... $129.0 $101.3 $27.7 27.3%
Operating, selling, general and administrative
expenses............................................ 71.5 55.2 16.3 29.5
-------- --------
Operating income before depreciation and
amortization (1).................................... 57.5 46.1 11.4 24.7
Depreciation and amortization.......................... 58.6 44.7 13.9 31.1
-------- --------
Operating (loss) income................................ (1.1) 1.4 (2.5) NM
-------- --------
Interest expense....................................... 27.8 21.4 6.4 29.9
Equity in net losses of affiliates..................... 1.5 1.3 0.2 15.4
Investment income...................................... (0.3) (0.3)
Other expense (income)................................. 0.8 (0.2) 1.0 NM
-------- --------
Net loss............................................... ($30.9) ($20.8) $10.1 48.6%
======== ========
<FN>
- ------------
(1) Operating income before depreciation and amortization is commonly referred
to in the cable communications business as "operating cash flow." Operating
cash flow is a measure of a company's ability to generate cash to service
its obligations, including debt service obligations, and to finance capital
and other expenditures. In part due to the capital intensive nature of the
cable communications business and the resulting significant level of
non-cash depreciation and amortization expense, operating cash flow is
frequently used as one of the bases for comparing businesses in the cable
communications industry, although our measure of operating cash flow may
not be comparable to similarly titled measures of other companies.
Operating cash flow does not purport to represent net income or net cash
provided by operating activities, as those terms are defined under
generally accepted accounting principles, and should not be considered as
an alternative to such measurements as an indicator of our performance.
</FN>
</TABLE>
11
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
We derive our revenues from four sources: subscriber service fees from
owned cable communications systems, management fees from managed partnerships,
brokerage fees and distributions paid upon the sale of cable communications
systems owned by managed partnerships and revenues from a non-cable subsidiary.
We receive management fees generally equal to 5% of gross operating revenues of
our managed limited partnerships. Upon the completion of the sale of the
remaining three cable communications systems owned by managed partnerships in
the second quarter of 1999, general partner distributions and brokerage fees
will cease to be a source of revenue for us.
Of the $27.7 million increase in revenues for the three month period from
1998 to 1999, $32.4 million is attributable to an increase in subscriber service
fees, offset by a $3.1 million decrease in management fees, a $1.1 million
decrease in non-cable revenue and a $0.5 million decrease in distributions and
brokerage fees. Of the $32.4 million increase in subscriber fees, $23.0 million
is attributable to the effects of the acquisitions of cable communications
systems, $1.5 million is attributable to subscriber growth, $3.4 million relates
to changes in rates, $0.8 million is attributable to growth in cable advertising
sales and $3.7 million relates to other product offerings.
Operating, general and administrative expenses consist primarily of costs
associated with the operation and administration of owned cable communications
systems, the administration of managed partnerships and the operation and
administration of our non-cable subsidiary. We are reimbursed by our 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.
Of the $16.3 million increase in operating, selling, general and
administrative expenses for the three month period from 1998 to 1999, $12.9
million is attributable to the effects of the acquisitions of cable
communications systems, $2.1 million is attributable to increases in the costs
of cable programming as a result of changes in rates, subscriber growth and
additional channel offerings and $1.3 million results from increases in the cost
of labor, other volume related expenses and costs associated with new product
offerings. It is anticipated that the cost of cable programming will increase in
the future as cable programming rates increase and additional sources of cable
programming become available.
The $13.9 million increase in depreciation and amortization expense for the
three month period from 1998 to 1999 is primarily a result of the effects of our
acquisition of cable communications systems and of our capital expenditures.
The $6.4 million increase in interest expense is due to higher outstanding
balances on our interest bearing obligations. Borrowings were used to fund the
acquisitions of cable communications systems.
The $1.0 million increase in other expense for the three month period from
1998 to 1999 is primarily attributable to the disposition of cable
communications systems by the managed partnerships during the three months ended
March 31, 1999.
For the three months ended March 31, 1999 and 1998, our (losses) earnings
before income taxes, equity in net losses of affiliates and fixed charges
(interest expense) were ($1.6 million) and $1.9 million, respectively. Such
(losses) earnings were not adequate to cover our fixed charges of $27.8 million
and $21.4 million for the three months ended March 31, 1999 and 1998,
respectively. Our fixed charges include non-cash interest expense of $0.6
million for the three months ended March 31, 1999. The inadequacy of these
(losses) earnings to cover fixed charges is primarily due to the substantial
non-cash charges for depreciation and amortization expense.
We believe that our losses and inadequacy of earnings to cover fixed
charges will not significantly affect the performance of our normal business
activities because of our existing cash and cash equivalents, our ability to
generate operating income before depreciation and amortization and our ability
to obtain external financing.
We believe that our operations are not materially affected by inflation.
12
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
We are subject to legal proceedings and claims which arise in the
ordinary course of our business. In the opinion of our management,
the amount of ultimate liability with respect to these actions will
not materially affect our financial position, results of operations
or liquidity.
Shareholder Litigation
On April 6, 1999, the Company and the parties to a shareholders'
derivative action in U.S. District Court for the District of
Colorado, entitled Leslie Susser, plaintiff v. Glenn R. Jones, James
J. Krejci, James B. O'Brien, Howard O. Thrall, Raphael M. Solot,
Robert E. Cole, Sanford Zisman, and Donald L. Jacobs, defendants,
Civil Action No. 98-M-616, entered into a Stipulation of Voluntary
Dismissal Pursuant to Rule 41(a)(1) of the Federal Rules of Civil
Procedure (the "Stipulation"). This action had been filed against the
named directors of the Company by a shareholder, suing derivatively
on behalf of the Company, in connection with a determination by the
Board of Directors on December 23, 1997, that The Jones Internet
Channel, a provider of high-speed internet programming services via
cable modem, had a contractual right to distribute such programming
on a channel in the Company's systems. Under the Stipulation, this
action was dismissed as moot, in light of a determination by the
Company to contract with @Home, Inc., an alternative provider of high
speed internet programming services via cable modem, for the
distribution of @Home on the Company's systems following an
injunction relating to The Jones Internet Channel issued by the Court
on May 5, 1998. Pursuant to the Stipulation, counsel for the
derivative plaintiff was to be paid $375,000 in legal fees, subject
to the approval of the Board of Directors of the Company, or a
committee of the Board, pursuant to Colorado law pertaining to the
indemnification of directors. The fees were stipulated to be
reasonable compensation for actions undertaken by counsel for the
derivative plaintiff that contributed to benefits conferred on the
Company and its public shareholders. On April 7, 1999, the Court
"so-ordered" the Stipulation. The derivative Complaint and other
public documents in this action are available in the files of the
Court. The $375,000 in legal fees was paid to counsel for the
derivative plaintiff in April 1999.
On April 7, 1999, in connection with the closing of Comcast's
acquisition of a controlling interest in the Company, the pending
litigation entitled BCI Telecom Holding Inc., plaintiff v. Jones
Intercable, Inc., Jones International, Ltd., Jones Internet Channel,
Inc. and Glenn R. Jones, defendants, Civil Action No, 98-M- 224, U.S.
District Court for the District of Colorado, was dismissed by
agreement of the parties thereto, and Jones International, Ltd.,
Jones Internet Channel, Inc. and Glenn R. Jones dismissed the appeal
that was pending in the U.S. Tenth Circuit Court of Appeals of the
Order entered against them in such litigation.
Palmdale Litigation
In December 1998, City Partnership Co. ("City Partnership"), a
limited partner of Cable TV Fund 12-C, Ltd. and Cable TV Fund 12-D,
Ltd., filed a class action complaint in the District Court, Arapahoe
County, State of Colorado (Case No. 98-CV-4493) naming the Company as
defendant. City Partnership, on its behalf and on behalf of all other
persons who are limited partners of Cable TV Fund 12-B, Fund 12-C and
Fund 12-D, challenged the terms of sale of the cable television
systems serving the communities in and around Palmdale and Lancaster,
California to an affiliate of the Company. The Company filed a motion
to dismiss the class action complaint on the grounds that the
plaintiff could only bring the action derivatively and not as a class
action. The court granted the Company's motion to dismiss in April
1999. There can be no assurance, however, that the plaintiff will not
refile its complaint as a derivative action.
13
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
Littlerock Litigation
In January 1999, City Partnership Co. ("City Partnership"), a limited
partner of Cable TV Fund 14-B, Ltd., filed a class action complaint
in the District Court, Arapahoe County, State of Colorado (Case No.
99-CV- 0150) naming the Company as defendant. City Partnership, on
its behalf and on behalf of all other persons who are limited
partners of Cable TV Fund 14-B, Ltd., challenged the terms of sale of
the cable television system serving Littlerock, California to an
affiliate of the Company. The Company filed a motion to dismiss the
class action complaint on the grounds that the plaintiff could only
bring the action derivatively and not as a class action. The court
granted the Company's motion to dismiss in April 1999. There can be
no assurance, however, that the plaintiff will not refile its
complaint as a derivative action.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
15.1 Letter Regarding Unaudited Interim Financial Statements.
27.1 Financial Data Schedule
(b) Reports on Form 8-K - none.
14
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
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/ LAWRENCE S. SMITH
----------------------------------------
Lawrence S. Smith
Principal Accounting Officer
/S/ JOSEPH J. EUTENEUER
----------------------------------------
Joseph J. Euteneuer
Vice President (Authorized Officer)
Date: May 14, 1999
15
May 12, 1999
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, 1999, which includes our report dated May 7, 1999 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated statement of operations and condensed consolidated
balance sheet and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000275605
<NAME> JONES INTERCABLE, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 7,916
<SECURITIES> 0
<RECEIVABLES> 36,937
<ALLOWANCES> 3,082
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,051,640
<DEPRECIATION> (341,613)
<TOTAL-ASSETS> 1,744,493
<CURRENT-LIABILITIES> 103,910
<BONDS> 1,497,875
0
0
<COMMON> 413
<OTHER-SE> 126,052
<TOTAL-LIABILITY-AND-EQUITY> 1,744,493
<SALES> 0
<TOTAL-REVENUES> 129,020
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 132,096
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,836
<INCOME-PRETAX> (30,912)
<INCOME-TAX> 0
<INCOME-CONTINUING> (30,912)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,912)
<EPS-PRIMARY> (.75)
<EPS-DILUTED> (.75)
</TABLE>
