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FORM 10-K
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
DECEMBER 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: 1-9935
COMCAST JOIN HOLDINGS, INC.
(SUCCESSOR TO JONES INTERCABLE, INC.)
(Exact name of registrant as specified in its charter)
DELAWARE 23-3025248
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1500 Market Street, Philadelphia, PA 19102-2148
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [Not applicable]
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As of March 3, 2000, there were 100 shares of Common Stock outstanding.
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The Registrant meets the conditions set forth in General Instructions I(1)(a)
and (b) of Form 10-K and is therefore filing this form with the reduced
disclosure format.
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DOCUMENTS INCORPORATED BY REFERENCE
NONE
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<PAGE>
COMCAST JOIN HOLDINGS, INC.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1 Business............................................................ 1
Item 2 Properties..........................................................12
Item 3 Legal Proceedings...................................................12
Item 4 Submission of Matters to a Vote of Security Holders.................15
PART II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters.........................................15
Item 6 Selected Financial Data.............................................15
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................16
Item 8 Financial Statements and Supplementary Data.........................19
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................................40
PART III
Item 10 Directors and Executive Officers of the Registrant..................40
Item 11 Executive Compensation..............................................40
Item 12 Security Ownership of Certain Beneficial Owners and Management......40
Item 13 Certain Relationships and Related Transactions......................40
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.....41
SIGNATURES...................................................................43
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This Annual Report on Form 10-K is for the year ending December 31, 1999.
This Annual Report modifies and supersedes documents filed prior to this Annual
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 Annual Report. In addition, information that we
file with the SEC in the future will automatically update and supersede
information contained in this Annual Report. In this Annual Report, "Comcast
JOIN Holdings," "we," "us" and "our" refer to Comcast JOIN Holdings, Inc. and
its subsidiaries. We are the successor to Jones Intercable, Inc., which was
merged with and into us on March 2, 2000.
You should carefully review the information contained in this Annual
Report, but should particularly consider any risk factors that we set forth in
this Annual Report and in other reports or documents that we file from time to
time with the SEC. In this Annual 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
We have in the past acquired and we will be acquiring cable communications
systems in new communities in which we do not have established relationships
with the franchising authority, community leaders and cable subscribers.
Further, a substantial number of new employees must be integrated into our
business practices and operations. Our results of operations may be
significantly affected by our ability to efficiently and effectively manage
these changes.
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,
o demand for the programming content we distribute, and,
o general economic conditions.
<PAGE>
PART I
ITEM 1. BUSINESS
In December 1999, we and Comcast Corporation entered into a merger
agreement with Jones Intercable, Inc. pursuant to which Comcast agreed to
acquire all of the remaining shares of Jones Intercable not then owned by
Comcast. Under the terms of the merger agreement, Jones Intercable's
shareholders received 1.4 shares of Comcast's Class A Special Common Stock for
each share of Jones Intercable's Class A Common Stock and Common Stock. On March
2, 2000, the shareholders of Jones Intercable approved the merger. As a result,
Jones Intercable was merged with and into us on that date and we are the
successor to Jones Intercable.
The consolidated financial statements included in Item 8 of this Annual
Report are those of Jones Intercable. Our consolidated financial statements will
not be significantly different from those of Jones Intercable as Comcast does
not intend to apply, to our financial statements, the accounting related to its
acquisition of the approximate 60.4% interest in Jones Intercable that it did
not already own.
We are principally involved in the cable communications business through
the development, management and operation of broadband communications networks.
We are in the process of deploying digital video applications and high-speed
Internet access service to expand the products available on our cable
communications networks. Our cable operations served approximately 1.1 million
subscribers and passed approximately 1.7 million homes as of December 31, 1999.
We are a wholly owned subsidiary of Comcast Corporation. We are a Delaware
corporation organized in December 1999 solely for the purpose of merging with
Jones Intercable. We have our principal executive offices at 1500 Market Street,
Philadelphia, Pennsylvania 19102-2148. Our telephone number is (215) 665-1700.
GENERAL DEVELOPMENTS OF OUR BUSINESS
Comcast's Acquisition of a Controlling Interest in Jones Intercable, Inc.
In April 1999, Comcast acquired a controlling interest in Jones Intercable
through its purchase of 12.8 million shares of Jones Intercable Class A Common
Stock and 2.9 million shares of Jones Intercable Common Stock for $706.3 million
in cash. In June 1999, Comcast acquired an additional 1.0 million shares of
Jones Intercable's Class A Common Stock for $50.0 million in cash in a private
transaction. Comcast contributed its shares in Jones Intercable to its wholly
owned subsidiary, Comcast Cable Communications, Inc. Comcast Cable has
consolidated the operating results of Jones Intercable since April 1999.
In connection with Comcast's acquisition of a controlling interest in Jones
Intercable on April 7, 1999, all of the persons who were executive officers of
Jones Intercable as of that date terminated their employment with Jones
Intercable. Jones Intercable's board of directors elected new executive
officers, each of whom also was an officer of Comcast. As of July 7, 1999, all
persons who were employed at Jones Intercable's former corporate offices in
Englewood, Colorado had terminated their employment with Jones Intercable. Jones
Intercable's corporate offices were relocated to 1500 Market Street,
Philadelphia, Pennsylvania 19102-2148.
To facilitate an orderly change in control to Comcast, Jones Intercable
established retention and severance programs for its corporate and field office
employees who were to be terminated due to the change in control. The programs
provide for cash severance payments to employees that have been or will be
terminated due to the change in control. During the year ended December 31,
1999, Jones Intercable incurred expense relating to the severance of
approximately 350 corporate and field office employees totaling $39.1 million.
In addition to the severance expense described above, during the year ended
December 31, 1999, Jones Intercable incurred an additional $16.3 million of
restructuring costs related to the change in control relating to an employment
contract termination, costs associated with the termination of an information
technology services agreement with a former affiliated entity and lease
termination costs.
Littlerock System Acquisition
In January 1999, Jones Intercable acquired the cable communications system
serving areas in and around Littlerock, California for $10.7 million in cash
from Cable TV Fund 14-B, Ltd., a partnership managed by Jones Intercable.
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Calvert County System Acquisition
In July 1999, Jones Intercable acquired the cable communications system
serving areas in and around Calvert County, Maryland for $39.5 million in cash
from Cable TV Fund 14-A, Ltd., a partnership managed by Jones Intercable.
Exchange of Cable Communications Systems
In May 1999, Jones Intercable entered into an agreement to exchange certain
cable communications systems with Adelphia Communications. Under the terms of
the agreement, we will receive 103,000 subscribers in Michigan from Adelphia. In
exchange, Adelphia will receive cable communications systems in California
currently owned by us serving 108,000 subscribers. The transaction is subject to
customary closing conditions and regulatory approvals and is expected to close
in the third quarter of 2000.
Partnership Liquidations
The sales of all of the cable communications systems that were owned by
Jones Intercable's managed partnerships were completed in July 1999 and we are
in the final stages of liquidating these managed partnerships. We are a
defendant in litigation filed by limited partners of five of the managed
partnerships challenging the terms of certain sales of partnership-owned cable
communications systems to Jones Intercable and/or its subsidiaries. We are and
most of the managed partnerships are defendants in litigation filed by a firm
that sought to do tender offers for limited partnership interests of the managed
partnerships. We expect that the managed partnerships that are involved in
litigation will not be dissolved until the litigation is finally resolved and
terminated.
DESCRIPTION OF OUR BUSINESS
Technology and Capital Improvements
Our cable communications networks receive signals by means of:
o special antennae,
o microwave relay systems,
o earth stations, and
o coaxial and fiber optic cables.
These networks distribute a variety of video, telecommunications and data
services to residential and commercial subscribers.
As of December 31, 1999, 64% of our cable subscribers were served by a
system with a capacity of at least 550-MHz and 39% of our cable subscribers were
served by a system with a capacity of at least 750-MHz. We are deploying fiber
optic cable and upgrading the technical quality of our cable communications
networks. As a result, the reliability and capacity of our systems have
increased, aiding in the delivery of additional video programming and other
services such as enhanced digital video, high-speed Internet access service and,
potentially, telephony.
We will incur significant capital expenditures in the future for the
upgrading and rebuilding of our existing cable communications systems and for
the systems to be acquired as a result of our pending system exchange with
Adelphia.
Franchises
Cable communications systems are constructed and operated under
non-exclusive franchises granted by state or local governmental authorities and
are subject to federal, state and local legislation and regulation. Franchises
typically contain many conditions which may include:
o rate and service conditions,
o construction schedules,
o types of programming and provision of services to schools and other
public institutions, and
o insurance and indemnity bond requirements.
Our franchises typically provide for periodic payment of fees to
franchising authorities of up to 5% of "revenues" (as defined by each franchise
agreement). We normally pass those fees on to subscribers. In many cases, we
need the consent of the franchising authority to transfer our franchises. The
franchises are granted for varying lengths of time.
Although franchises historically have been renewed, renewals may include
less favorable terms and conditions. Under existing law, franchises should
continue to be renewed for companies that have provided adequate service and
have complied generally with franchise terms. The franchising authority may
choose to award additional franchises to competing companies at any time.
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Revenue Sources
We receive the majority of our revenues from subscription services.
Subscribers typically pay us on a monthly basis and generally may discontinue
services at any time. Monthly subscription rates and related charges vary
according to the type of service selected and the type of equipment used by
subscribers. Packages of programming services offered to subscribers may consist
of:
o national television networks,
o local and distant independent, specialty and educational television
stations,
o satellite-delivered programming,
o locally originated programs,
o audio programming, and
o electronic retailing programs.
We also offer, for an additional monthly fee, premium services, such as:
o Home Box Office(R),
o Cinemax(R),
o Showtime(R),
o The Movie Channel(TM), and
o Encore(R).
These premium services generally offer, without commercial interruption,
feature motion pictures, live and taped sporting events, concerts and other
special features. The charge for premium services depends upon the type and
level of service selected by the subscriber.
We also generate revenues from advertising sales, pay-per-view services,
installation services, commissions from electronic retailing and other services.
We generate revenues from the sale of advertising time to local, regional and
national advertisers on non-broadcast channels. Pay-per-view services permit a
subscriber to order, for a separate fee, individual feature motion pictures and
special event programs, such as professional boxing, professional wrestling and
concerts.
Our sales efforts are primarily directed toward increasing the number of
subscribers we serve and generating incremental revenues in our franchise areas.
We sell our cable communications services through:
o telemarketing,
o direct mail advertising,
o door-to-door selling, and
o local media advertising.
Programming
We generally pay either a monthly fee per subscriber per channel or a
percentage of certain revenues for programming. Our programming costs are
increased by:
o increases in the number of subscribers,
o expansion of the number of channels provided to customers, and
o increases in contract rates from programming suppliers.
We attempt to secure long-term programming contracts with volume discounts
and/or marketing support and incentives from programming suppliers. Our
programming contracts are generally for a fixed period of time and are subject
to negotiated renewal. We anticipate that future contract renewals will result
in programming costs that are higher than our costs today, particularly for
sports programming.
Customer Service
We manage most of our cable communications systems in geographic clusters.
Clustering improves our ability to sell advertising, enhances our ability to
efficiently introduce and market new products, and allows us to more efficiently
and effectively provide customer service and support. As part of our clustering
strategy, we have recently consolidated our local customer service operations
into large regional call centers. These regional call centers have
technologically advanced telephone systems that provide 24-hour per day, 7-day
per week call answering capability, telemarketing and other services.
Subscribers in our remaining cable communications systems receive customer
service primarily through our local, system-based representatives.
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Our Cable Communications Systems
The table below summarizes certain subscriber information for our cable
communications systems as of December 31 (homes and subscribers in thousands):
<TABLE>
<CAPTION>
1999(4) 1998(5) 1997(6) 1996(7) 1995
---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Basic Cable
Homes Passed (1).............................. 1,738 1,596 1,186 894 651
Cable Subscribers (2)......................... 1,057 990 765 585 439
Cable Penetration (3)......................... 60.8% 62.0% 64.5% 65.4% 67.4%
<FN>
____________
(1) A home is "passed" if we can connect it to our distribution system without
further extending the transmission lines.
(2) A dwelling with one or more television sets connected to a system counts as
one basic cable subscriber.
(3) Basic cable penetration means the number of basic cable subscribers as a
percentage of basic cable homes passed.
(4) In 1999, we acquired cable communications systems serving Calvert County,
Maryland and Littlerock, California.
(5) In 1998, we acquired cable communications systems serving Palmdale,
California, Hinesville, Georgia, Socorro and Grants, New Mexico and
Albuquerque, New Mexico.
(6) In 1997, we acquired cable communications systems serving Independence,
Missouri, Manitowoc, Wisconsin and North Prince Georges County, Maryland,
and sold the cable communications system serving Walnut Valley, California.
(7) In 1996, we acquired cable communications systems serving South Prince
Georges County, Maryland, Savannah, Georgia and Manassas, Virginia.
</FN>
</TABLE>
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Competition
Our cable communications systems compete with a number of different sources
which provide news, information and entertainment programming to consumers,
including:
o local television broadcast stations that provide off-air programming
which can be received using a roof-top antenna and television set,
o program distributors that transmit satellite signals containing video
programming, data and other information to receiving dishes of varying
sizes located on the subscriber's premises,
o satellite master antenna television systems, commonly known as SMATV,
which generally serve condominiums, apartment and office complexes and
residential developments,
o multichannel, multipoint distribution service operators, commonly
known as MMDS or wireless cable operators, which use low-power
microwave frequencies to transmit video programming and other
information over-the-air to subscribers,
o other cable operators who build and operate cable systems in the same
communities that we serve, commonly known as overbuilders,
o interactive online computer services,
o newspapers, magazines and book stores,
o movie theaters,
o live concerts and sporting events, and
o home video products.
In order to compete effectively, we strive to provide, at a reasonable
price to subscribers:
o superior technical performance,
o superior customer service,
o a greater variety of video programming, and
o new products such as digital cable and cable modem Internet access and
potential products such as telephony.
Federal law allows local telephone companies to provide, directly to
subscribers, a wide variety of services that are competitive with our cable
communications services. Some local telephone companies:
o provide video services within and outside their telephone service
areas through a variety of methods, including cable networks,
satellite program distribution and wireless transmission facilities,
and/or
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o have announced plans to construct and operate cable communications
systems in various states.
New facilities-based competitors such as RCN Corporation are now developing
cable and related communications services in various areas where we hold
franchises. We anticipate that facilities-based competitors will develop in
other franchise areas we serve.
Local telephone companies and other businesses construct and operate
communications facilities that provide access to the Internet and distribute
interactive computer-based services, data and other non-video services to homes
and businesses. These competitors are not required, in certain circumstances, to
comply with some of the material obligations imposed upon our cable
communications systems under our franchises. We are unable to predict the
likelihood of success of competing video or cable service ventures by local
telephone companies or other businesses. Nor can we predict the impact these
competitive ventures might have on our business and operations.
We operate each of our cable communications systems pursuant to a
non-exclusive franchise that is issued by the community's governing body such as
a city council, a county board of supervisors or a state regulatory agency.
Federal law prohibits franchising authorities from unreasonably denying requests
for additional franchises, and it permits franchising authorities to operate
cable systems. Companies that traditionally have not provided cable services and
that have substantial financial resources (such as public utilities that own
certain of the poles to which our cables are attached) may also obtain cable
franchises and may provide competing communications services.
In the past few years, Congress has enacted legislation and the Federal
Communications Commission, commonly known as the FCC, has adopted regulatory
policies intended to provide a more favorable operating environment for existing
and new technologies that provide, or have the potential to provide, substantial
competition to our cable communications systems. These technologies include
direct broadcast satellite service, commonly known as DBS, among others.
According to recent government and industry reports, conventional, medium and
high-power satellites currently provide video programming to over 13.1 million
individual households, condominiums, apartment and office complexes in the
United States. DBS providers with high-power satellites typically offer to their
subscribers more than 300 channels of programming, including program services
similar to those provided by cable communications systems.
DBS service can be received virtually anywhere in the continental United
States through the installation of a small roof top or side-mounted antenna. DBS
systems use video compression technology to increase channel capacity and
digital technology to improve the quality of the signals transmitted to their
subscribers. Our digital cable service is competitive with the programming,
channel capacity and the digital quality of signals delivered to subscribers by
DBS systems. We are and will continue to deploy digital cable service in the
communities that we serve.
Two major companies, DirecTV and Echostar, are currently offering
nationwide high-power DBS services. Recently enacted federal legislation
establishes, among other things, a permanent compulsory copyright license that
permits satellite carriers to retransmit local broadcast television signals to
subscribers who reside inside the local television station's market. These
companies have already begun transmitting local broadcast signals in certain
major television markets and have announced their intention to expand this local
television broadcast retransmission service to other domestic markets. With this
legislation, satellite carriers become more competitive to cable communications
system operators like us because they are now able to offer programming which
more closely resembles what we offer. We are unable to predict the effects this
legislation and these competitive developments might have on our business and
operations.
Our cable communications systems also compete for subscribers with SMATV
systems. SMATV system operators typically are not subject to regulation like
local franchised cable communications system operators. SMATV systems offer
subscribers both improved reception of local television stations and many of the
same satellite-delivered programming services offered by franchised cable
communications systems. In addition, some SMATV operators are developing and/or
offering packages of telephony, data and video services to private residential
and commercial developments. SMATV system operators often enter into exclusive
service agreements with building owners or homeowners' associations, although
some states have enacted laws to provide cable communications systems access to
these complexes. Courts have reviewed challenges to these laws and have reached
varying results. Our ability to compete for subscribers in residential and
commercial developments served by SMATV system operators is uncertain. However,
we are developing competitive packages of services (video, data and telephony)
to offer to these residential and commercial developments.
Cable communications systems also compete with MMDS or wireless cable
systems, which are authorized to operate in areas served by our cable
communications
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systems. The FCC recently amended its regulations to provide flexibility to
wireless system operators to employ digital technology in delivering two-way
communications services, including high-speed Internet access. Federal law
significantly limits certain local restrictions on the use of roof-top,
satellite and microwave antennae to receive satellite programming and
over-the-air broadcasting services.
Many of our cable communications systems are currently offering, or plan to
offer, interactive online computer services to subscribers. These systems will
compete with a number of other companies, many of whom have substantial
resources, such as:
o existing Internet service providers, commonly known as ISPs,
o local telephone companies, and
o long distance telephone companies.
Recently, a number of companies, including telephone companies and ISP's,
have asked local, state and federal governments to mandate that cable
communications systems operators provide capacity on their cable infrastructure
so that these companies and others may deliver Internet services directly to
customers over cable facilities. In response, several local jurisdictions
attempted to impose these capacity obligations on several cable communications
operators. Various cable communications companies, including Comcast, have
initiated litigation challenging these municipal requirements. In addition, two
antitrust lawsuits have been filed in federal courts alleging that Comcast and
other cable communications companies have improperly refused to allow its cable
facilities to be used by certain ISPs to serve their customers. Franchise
renewals and transfers could become more difficult depending upon the outcome of
this issue. In a 1999 report to Congress, the FCC declined to institute an
administrative proceeding to examine this issue. It is expected that the FCC,
Congress, and state and local regulatory authorities will continue to consider
actions in this area.
The deployment of Digital Subscriber Line technology, known as DSL, allows
Internet access to subscribers at data transmission speeds equal to or greater
than that of modems over conventional telephone lines. Numerous companies,
including telephone companies, have introduced DSL service and certain telephone
companies are seeking to provide high-speed broadband services, including
interactive online services, without regard to present service boundaries and
other regulatory restrictions. We are unable to predict the likelihood of
success of competing online services offered by our competitors or what impact
these competitive ventures may have on our business and operations.
We expect advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environment to occur in the
future. We refer you to page 7 of this Annual Report for a detailed discussion
of legislative and regulatory factors. Other new technologies and services may
develop and may compete with services that our cable communications systems
offer. Consequently, we are unable to predict the effect that ongoing or future
developments might have on our business and operations.
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LEGISLATION AND REGULATION
The Communications Act of 1934, as amended, establishes a national policy
to regulate the development and operation of cable communications systems. The
Communications Act allocates responsibility for enforcing federal policies among
the FCC, and state and local governmental authorities. The courts, and
especially the federal courts, play an important oversight role as these
statutory and regulatory provisions are interpreted and enforced by the various
federal, state and local governmental units.
We expect that court actions and regulatory proceedings will refine the
rights and obligations of various parties, including the government, under the
Communications Act. The results of these judicial and administrative proceedings
may materially affect our business operations. In the following paragraphs, we
summarize the principal federal laws and regulations materially affecting the
growth and operation of the cable communications industry. We also provide a
brief description of certain state and local laws applicable to our businesses.
The Communications Act and FCC Regulations
The Communications Act and the regulations and policies of the FCC affect
significant aspects of our cable system operations, including:
o subscriber rates,
o the content of programming we offer our subscribers, as well as the
way we sell our program packages to subscribers and other video
program distributors,
o the use of our cable systems by local franchising authorities, the
public and other unrelated third parties,
o our franchise agreements with governmental authorities,
o cable system ownership limitations and prohibitions, and
o our use of utility poles and conduit.
Subscriber Rates
The Communications Act and the FCC's regulations and policies limit the
ability of cable systems to raise rates for basic services and equipment in
communities that are not subject to effective competition, as defined by federal
law. Where there is no effective competition, federal law gives franchising
authorities the power to regulate the monthly rates charged by the operator for:
o the lowest level of programming service, typically called basic
service, which generally includes local broadcast channels and public
access or governmental channels required by the operator's franchise,
and
o the installation, sale and lease of equipment used by subscribers to
receive basic service, such as converter boxes and remote control
units.
The FCC has adopted detailed rate regulations, guidelines and rate forms
that we and the franchising authority must use in connection with the regulation
of our basic service and equipment rates. If the franchising authority concludes
that our rates are not in accordance with the FCC's rate regulations, it may
require us to reduce our rates and to refund overcharges to subscribers, with
interest. We may appeal adverse rate decisions to the FCC. Rate regulation of
non-basic cable programming service tiers ended after March 31, 1999.
The Communications Act and the FCC's regulations also:
o prohibit regulation of rates charged by cable operators for
programming offered on a per channel or per program basis, and for
multi-channel groups of non-basic programming,
o require operators to charge uniform rates throughout each franchise
area that is not subject to effective competition,
o prohibit regulation of non-predatory bulk discount rates offered by
operators to subscribers in commercial and residential developments,
and
o permit regulated equipment rates to be computed by aggregating costs
of broad categories of equipment at the franchise, system, regional or
company level.
Over the past few years, we have reached agreements with various regulatory
bodies to resolve outstanding rate disputes. We believe that the resolution of
these proceedings did not have and will not have a material adverse impact on
our financial position, results of operations or liquidity.
Content Requirements
The Communications Act and the FCC's regulations contain broadcast signal
carriage requirements that allow local commercial television broadcast stations:
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o to elect once every three years to require a cable communications
system to carry the station, subject to certain exceptions, or
o to negotiate with us on the terms by which we carry the station on our
cable communications system, commonly called retransmission consent.
The Communications Act requires a cable operator to devote up to one-third
of its activated channel capacity for the mandatory carriage of local commercial
television stations. The Communications Act also gives local non-commercial
television stations mandatory carriage rights; however, such stations are not
given the option to negotiate retransmission consent for the carriage of their
signals by cable systems. Additionally, cable systems must obtain retransmission
consent for:
o all "distant" commercial television stations (except for commercial
satellite-delivered independent "superstations" such as WGN),
o commercial radio stations, and
o certain low-power television stations.
The FCC has also initiated an administrative proceeding to consider the
requirements, if any, for the mandatory carriage of digital television signals
offered by local broadcasters. We are unable to predict the outcome of this
proceeding or the impact any new carriage requirements might have on the
operations of our cable systems.
The Communications Act requires our cable systems to permit subscribers to
purchase video programming on a per channel or a per program basis without the
necessity of subscribing to any tier of service, other than the basic cable
service tier. However, we are not required to comply with this requirement until
2002 for any of our cable systems that do not have addressable converter boxes
or that have other substantial technological limitations. A limited number of
our systems do not have the technological capability to offer programming in the
manner required by the statute and thus currently are exempt from complying with
this requirement.
To increase competition between cable operators and other video program
distributors, the Communications Act:
o precludes any satellite video programmer affiliated with a cable
company, or with a common carrier providing video programming directly
to its subscribers, from favoring an affiliated company over
competitors,
o requires such programmers to sell their satellite-delivered
programming to other video program distributors, and
o limits the ability of such programmers to offer exclusive programming
arrangements to their affiliates.
The Communications Act contains restrictions on the transmission by cable
operators of obscene or indecent programming. It requires cable operators to
block fully both the video and audio portion of sexually explicit or indecent
programming on channels that are primarily dedicated to sexually oriented
programming or alternatively to carry such programming only at "safe harbor"
time periods. A three-judge federal district court determined that this
provision was unconstitutional. The United States Supreme Court is currently
reviewing the lower court's ruling.
The FCC actively regulates other aspects of our programming, involving such
areas as:
o our use of syndicated and network programs and local sports broadcast
programming,
o advertising in children's programming,
o political advertising,
o origination cablecasting,
o sponsorship identification, and
o closed captioning of video programming.
Use of Our Cable Systems by The Government and Unrelated Third Parties
The Communications Act allows franchising authorities and unrelated third
parties to have access to our cable systems' channel capacity. For example, it:
o permits franchising authorities to require cable operators to set
aside channels for public, educational and governmental access
programming; and
o requires a cable system with 36 or more activated channels to
designate a significant portion of its channel capacity for commercial
leased access by third parties to provide programming that may compete
with services offered by the cable operator.
The FCC regulates various aspects of third party commercial use of channel
capacity on our cable systems, including the rates and certain terms and
conditions of the commercial use.
Franchise Matters
Although franchising matters are normally regulated at the local level
through a franchise agreement and/or a local ordinance, the Communications Act
provides oversight and guidelines
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to govern our relationship with local franchising authorities. For example, the
Communications Act:
o affirms the right of franchising authorities (state or local,
depending on the practice in individual states) to award one or more
franchises within their jurisdictions,
o generally prohibits us from operating in communities without a
franchise,
o encourages competition with our existing cable systems by:
o allowing municipalities to operate cable systems without
franchises, and
o preventing franchising authorities from granting exclusive
franchises or from unreasonably refusing to award additional
franchises covering an existing cable system's service area,
o permits local authorities, when granting or renewing our franchises,
to establish requirements for certain cable-related facilities and
equipment, but prohibits franchising authorities from establishing
requirements for specific video programming or information services
other than in broad categories,
o permits us to obtain modification of our franchise requirements from
the franchise authority or by judicial action if warranted by changed
circumstances,
o generally prohibits franchising authorities from:
o imposing requirements during the initial cable franchising
process or during franchise renewal that require, prohibit or
restrict us from providing telecommunications services,
o imposing franchise fees on revenues we derive from providing
telecommunications services over our cable systems, or
o restricting our use of any type of subscriber equipment or
transmission technology, and
o limits our payment of franchise fees to the local franchising
authority to 5% of our gross revenues derived from providing cable
services over our cable system.
The Communications Act contains procedures designed to protect us against
arbitrary denials of the renewal of our franchises, although a franchising
authority under various conditions could deny us a franchise renewal. Moreover,
even if our franchise is renewed, the franchising authority may seek to impose
upon us new and more onerous requirements such as significant upgrades in
facilities and services or increased franchise fees as a condition of renewal.
Similarly, if a franchising authority's consent is required for the purchase or
sale of our cable system or franchise, the franchising authority may attempt to
impose more burdensome or onerous franchise requirements on us in connection
with a request for such consent. Historically, cable operators providing
satisfactory services to their subscribers and complying with the terms of their
franchises have typically obtained franchise renewals. We believe that we have
generally met the terms of our franchises and have provided quality levels of
service. We anticipate that our future franchise renewal prospects generally
will be favorable.
Various courts have considered whether franchising authorities have the
legal right to limit the number of franchises awarded within a community and to
impose certain substantive franchise requirements (e.g. access channels,
universal service and other technical requirements). These decisions have been
inconsistent and, until the United States Supreme Court rules definitively on
the scope of cable operators' First Amendment protections, the legality of the
franchising process generally and of various specific franchise requirements is
likely to be in a state of flux.
Ownership Limitations
The Communications Act generally prohibits us from owning or operating a
SMATV or wireless cable system in any area where we provide franchised cable
service. We may, however, acquire and operate SMATV systems in our franchised
service areas if the programming and other services provided to SMATV
subscribers are offered according to the terms and conditions of our franchise
agreement.
The Communications Act also authorizes the FCC to impose nationwide limits
on the number of subscribers under the control of a cable operator. While a
federal district court has declared this limitation to be unconstitutional and
delayed its enforcement, the FCC has reconsidered its cable ownership
regulations and:
o reaffirmed its 30% nationwide subscriber ownership limit, but
maintained its voluntary stay on enforcement of that regulation
pending further court action,
o reaffirmed its subscriber ownership information reporting
requirements, and
o modified its attribution rules that identify when the ownership or
management by us or third parties of other communications businesses,
including cable systems, television broadcast stations and local
telephone companies, may be imputed to us for purposes
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of determining our compliance with the FCC's ownership restrictions.
Also pending on appeal is a challenge to the statutory and FCC regulatory
limitations on the number of channels that can be occupied on a cable system by
a video programmer in which a cable operator has an attributable ownership
interest. We are unable to predict the outcome of these judicial and regulatory
proceedings or the impact any ownership restrictions might have on our business
and operations.
The Communications Act eliminated the statutory prohibition on the common
ownership, operation or control of a cable system and a television broadcast
station in the same market. While the FCC has eliminated its regulations which
precluded the cross-ownership of a national broadcasting network and a cable
system, it has not yet completed its review of other regulations which prohibit
the common ownership of other broadcasting interests and cable systems in the
same geographical areas.
The 1996 amendments to the Communications Act made far-reaching changes in
the relationship between local telephone companies and cable service providers.
These amendments:
o eliminated federal legal barriers to competition in the local
telephone and cable communications businesses, including allowing
local telephone companies to offer video services in their local
telephone service areas,
o preempted state and local laws and regulations which impose barriers
to telecommunications competitions,
o set basic standards for relationships between telecommunications
providers, and
o generally limited acquisitions and prohibited certain joint ventures
between local telephone companies and cable operators in the same
market.
Local telephone companies may provide service as traditional cable
operators with local franchises or they may opt to provide their programming
over unfranchised "open video systems," subject to certain conditions,
including, but not limited to, setting aside a portion of their channel capacity
for use by unaffiliated program distributors on a non-discriminatory basis. A
federal appellate court overturned various parts of the FCC's open video rules,
including the FCC's preemption of local franchising requirements for open video
operators. The FCC has modified its open video rules to comply with the federal
court's decision, but we are unable to predict the impact these rule
modifications may have on our business and operations.
Pole Attachment Regulation
The Communications Act requires the FCC to regulate the rates, terms and
conditions imposed by public utilities for cable systems' use of utility pole
and conduit space unless state authorities demonstrate to the FCC that they
adequately regulate pole attachment rates, as is the case in certain states in
which we operate. In the absence of state regulation, the FCC administers pole
attachment rates on a formula basis. The FCC's current rate formula, which is
being reevaluated by the FCC, governs the maximum rate certain utilities may
charge for attachments to their poles and conduit by cable operators providing
only cable services and, until 2001, by certain companies providing
telecommunications services. The FCC also adopted a second rate formula that
will be effective in 2001 and will govern the maximum rate certain utilities may
charge for attachments to their poles and conduit by companies providing
telecommunications services, including cable operators.
Any resulting increase in attachment rates due to the FCC's new rate
formula will be phased in over a five-year period in equal annual increments,
beginning in February 2001. Several parties have requested the FCC to reconsider
its new regulations and several parties have challenged the new rules in court.
A federal appellate court recently upheld the constitutionality of the new
statutory provision which requires that utilities provide cable systems and
telecommunications carriers with nondiscriminatory access to any pole, conduit
or right-of-way controlled by the utility. We are unable to predict the outcome
of the legal challenge to the FCC's new regulations or the ultimate impact any
revised FCC rate formula or any new pole attachment rate regulations might have
on our business and operations.
Other Regulatory Requirements of the Communications Act and the FCC
The Communications Act also includes provisions, among others, regulating:
o customer service,
o subscriber privacy,
o marketing practices,
o equal employment opportunity, and
o technical standards and equipment compatibility.
The FCC actively regulates other parts of our cable operations and has
adopted regulations implementing its authority under the Communications Act.
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The FCC may enforce its regulations through the imposition of substantial
fines, the issuance of cease and desist orders and/or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate certain transmission facilities often used in connection with cable
operations. The FCC has ongoing rulemaking proceedings that may change its
existing rules or lead to new regulations. We are unable to predict the impact
that any further FCC rule changes may have on our business and operations.
Other bills and administrative proposals pertaining to cable communications
have previously been introduced in Congress or have been considered by other
governmental bodies over the past several years. It is probable that further
attempts will be made by Congress and other governmental bodies relating to the
regulation of cable communications services.
Copyright
Our cable communications systems provide our subscribers with local and
distant television and radio broadcast signals which are protected by the
copyright laws. We generally do not obtain a license to use this programming
directly from the owners of the programming; instead we comply with an
alternative federal copyright licensing process. In exchange for filing certain
reports and contributing a percentage of our revenues to a federal copyright
royalty pool, we obtain blanket permission to retransmit copyrighted material.
In a report to Congress, the U.S. Copyright Office recommended that
Congress make major revisions to both the cable television and satellite
compulsory licenses. Congress recently modified the satellite compulsory license
in a manner that permits DBS providers to become more competitive with cable
operators like us. The possible simplification, modification or elimination of
the cable communications compulsory copyright license is the subject of
continuing legislative review. The elimination or substantial modification of
the cable compulsory license could adversely affect our ability to obtain
suitable programming and could substantially increase the cost of programming
that remains available for distribution to our subscribers. We are unable to
predict the outcome of this legislative activity.
Our cable communications systems often utilize music in the programs we
provide to subscribers including local advertising, local origination
programming and pay-per-view events. The right to use this music is controlled
by music performance rights societies who negotiate on behalf of their copyright
owners for license fees covering each performance. The cable industry and one of
these societies have agreed upon a standard licensing agreement covering the
performance of music contained in programs originated by cable operators and in
pay-per-view events. Negotiations on a similar licensing agreement are in
process with another music performance rights organization. Rate courts
established by a federal court exist to determine appropriate copyright coverage
and payments in the event the parties fail to reach a negotiated settlement. We
are unable to predict the outcome of these proceedings or the amount of any
license fees we may be required to pay for the use of music. We do not believe
that the amount of such fees will be significant to our financial position,
results of operations or liquidity.
State and Local Regulation
Our cable systems use local streets and rights-of-way. Consequently, we
must comply with state and local regulation which is typically imposed through
the franchising process. The terms and conditions of our franchises vary
materially from jurisdiction to jurisdiction. Each franchise generally contains
provisions governing:
o cable service rates,
o franchise fees,
o franchise term,
o system construction and maintenance obligations,
o system channel capacity,
o design and technical performance,
o customer service standards,
o franchise renewal,
o sale or transfer of the franchise,
o service territory of the franchisee,
o indemnification of the franchising authority,
o use and occupancy of public streets, and
o types of cable services provided.
A number of states subject cable systems to the jurisdiction of state
governmental agencies. State and local franchising jurisdiction is not
unlimited, however; it must be exercised consistently with federal law. The
Communications Act immunizes franchising authorities from monetary damage awards
arising from the regulation of cable systems or decisions made on franchise
grants, renewals, transfers and amendments.
The summary of certain federal and state regulatory requirements in the
preceding pages does not describe all present and proposed federal, state and
local regulations and legislation affecting the cable industry. Other existing
federal regulations, copyright licensing, and, in many jurisdictions, state and
local franchise requirements, are currently the subject of
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judicial proceedings, legislative hearings and administrative proposals which
could change, in varying degrees, the manner in which cable systems operate. We
are unable to predict the outcome of these proceedings or their impact upon our
cable operations at this time.
EMPLOYEES
As of December 31, 1999 we had approximately 2,300 employees. We believe
that our relationships with our employees are good.
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ITEM 2. PROPERTIES
A central receiving apparatus, distribution cables, converters, customer
service call centers and local business offices are the principal physical
assets of a cable communications system. We own or lease the receiving and
distribution equipment of each system and own or lease parcels of real property
for the receiving sites, customer service call centers and local business
offices. In order to keep pace with technological advances, we are maintaining,
periodically upgrading and rebuilding the physical components of our cable
communications systems.
We believe that substantially all of our physical assets are in good
operating condition.
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ITEM 3. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims that arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these legal proceedings and claims will not
materially affect the Company's financial position, results of operations or
liquidity.
In addition, the Company is a named defendant in the following legal
proceedings relating to acquisitions by Jones Intercable or one of its
subsidiaries of cable communications systems from several of the Company's
managed partnerships or actions taken by Jones Intercable or one of its
subsidiaries in its role as general partner of several of the Company's managed
partnerships:
Litigation Challenging the Acquisition of the Tampa System
Jones Intercable was a defendant in a consolidated civil action filed by
limited partners of Cable TV Fund 12-D, Ltd., one of the Company's managed
limited partnerships, captioned David Hirsch, Marty, Inc. Pension Plan (by its
trustee and beneficiary, Martin Ury) and Jonathan and Eileen Fussner,
derivatively on behalf of Cable TV Fund 12-B, Ltd., Cable TV Fund 12-C, Ltd. and
Cable TV Fund 12-D, Ltd., plaintiffs v. Jones Intercable, Inc., defendant, and
Cable TV Fund 12-BCD Venture, Cable TV Fund 12-B, Ltd., Cable TV Fund 12-C, Ltd.
and Cable TV Fund 12-D, Ltd., nominal defendants (District Court, Arapahoe
County, State of Colorado, Case No. 95-CV-1800, Division 3). The consolidated
complaint generally alleged that Jones Intercable breached its fiduciary duty to
the plaintiffs and to the other limited partners of the three named partnerships
and to the Cable TV Fund 12-BCD Venture (the "Venture") in connection with the
Venture's sale of the Tampa, Florida cable communications system (the "Tampa
System") to a subsidiary of Jones Intercable and the subsequent trade of the
Tampa System and other cable communications systems owned by Jones Intercable in
exchange for cable communications systems owned by an unaffiliated cable system
operator. The consolidated complaint also set forth a claim for breach of
contract and a claim for breach of the implied covenant of good faith and fair
dealing. Among other things, the plaintiffs asserted that the subsidiary of
Jones Intercable that acquired the Tampa System paid an inadequate price for it.
The price paid for the Tampa System was determined by the average of three
separate, independent appraisals of the Tampa System's fair market value as
required by the terms of the limited partnership agreements of the three named
partnerships. The plaintiffs also challenged the adequacy and independence of
the appraisals. The consolidated complaint sought compensatory damages, an award
of attorneys' fees, punitive damages and certain equitable relief. On October
25, 1999, the district court granted Jones Intercable's motion to dismiss and
for summary judgment based upon the August 1998 report of independent counsel,
which had concluded that the plaintiffs' claims were not meritorious and were
not supported by a preponderance of the evidence. The
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plaintiffs gave notice of their intention to appeal the district court's
decision, but in return for Jones Intercable's settlement offer to pay a portion
of the plaintiffs' attorneys' costs in the amount of approximately $229,000, the
plaintiffs voluntarily dismissed their appeal and this litigation has been
finally resolved and terminated.
Litigation Challenging the Acquisitions of the Albuquerque, Palmdale,
Littlerock and Calvert County Systems
In June 1999, Jones Intercable was named a defendant in a case captioned
City Partnership Co., derivatively on behalf of Cable TV Fund 12-C, Ltd., Cable
TV Fund 12-D, Ltd. and Cable TV Fund 12-BCD Venture, plaintiff v. Jones
Intercable, Inc., defendant and Cable TV Fund 12-C, Ltd., Cable TV Fund 12-D,
Ltd. and Cable TV Fund 12-BCD Venture, nominal defendants (U.S. District Court,
District of Colorado, Civil Action No. 99-WM-1151)("City Partnership I") brought
by City Partnership Co., a limited partner of the named partnerships. The
plaintiff's complaint alleges that Jones Intercable breached its fiduciary duty
to the plaintiff and to the other limited partners of the partnerships and to
Cable TV Fund 12-BCD Venture (the "Venture") in connection with the Venture's
sale of the Palmdale, California cable communications system (the "Palmdale
System") to a subsidiary of Jones Intercable in December 1998. The complaint
alleges that Jones Intercable acquired the Palmdale System at an unfairly low
price that did not accurately reflect the market value of the Palmdale System.
The plaintiff also alleges that the proxy solicitation materials delivered to
the limited partners of the partnerships in connection with the votes of the
limited partners on the Venture's sale of the Palmdale System contained
inadequate and misleading information concerning the state of the market for
cable systems and the fairness of the transaction, which the plaintiff claims
caused Jones Intercable to breach its fiduciary duty of candor to the limited
partners and which the plaintiff claims constituted acts and omissions in
violation of Section 14(a) of the Securities Exchange Act of 1934, as amended.
The plaintiff also claims that Jones Intercable breached the contractual
provision of the partnerships' limited partnership agreements requiring that the
sale price be determined by the average of three separate, independent
appraisals, challenging both the independence and the currency of the
appraisals. The complaint finally seeks declaratory injunctive relief to prevent
Jones Intercable from making use of the partnerships' funds to finance Jones
Intercable's defense of this litigation. Jones Intercable has filed motions to
dismiss certain of the plaintiff's claims for relief. The Company believes that
the procedures followed by Jones Intercable in conducting the votes of the
limited partners of the partnerships on the sale of the Palmdale System,
including the fairness opinion in the proxy statements delivered to the limited
partners of the partnerships, were proper and that the Venture's sale of the
Palmdale System at a price determined by averaging three separate, independent
appraisals was in accordance with the express provisions of the partnerships'
limited partnership agreements. The Company intends to defend this lawsuit
vigorously.
In June 1999, Jones Intercable was named a defendant in a case captioned
City Partnership Co., derivatively on behalf of Cable TV Fund 14-B, Ltd.,
plaintiff v. Jones Intercable, Inc., defendant and Cable TV Fund 14-B, Ltd.,
nominal defendant (U.S. District Court, District of Colorado, Civil Action No.
99-WM-1051)("City Partnership II") brought by City Partnership Co., a limited
partner of Cable TV Fund 14-B, Ltd. ("Fund 14-B"). The plaintiff's complaint
alleges that Jones Intercable breached its fiduciary duty to the plaintiff and
to the other limited partners of Fund 14-B in connection with Fund 14-B's sale
of the Littlerock, California cable communications system (the "Littlerock
System") to a subsidiary of Jones Intercable in January 1999. The complaint
alleges that Jones Intercable acquired the Littlerock System at an unfairly low
price that did not accurately reflect the market value of the Littlerock System.
The plaintiff also alleges that the proxy solicitation materials delivered to
the limited partners of Fund 14-B in connection with the vote of the limited
partners on Fund 14-B's sale of the Littlerock System contained inadequate and
misleading information concerning the state of the market for cable systems and
the fairness of the transaction, which the plaintiff claims caused Jones
Intercable to breach its fiduciary duty of candor to the limited partners and
which the plaintiff claims constituted acts and omissions in violation of
Section 14(a) of the Securities Exchange Act of 1934, as amended. Plaintiff also
claims that Jones Intercable breached the contractual provision of Fund 14-B's
limited partnership agreement requiring that the sale price be determined by the
average of three separate, independent appraisals, challenging both the
independence and the currency of the appraisals. The complaint finally seeks
declaratory injunctive relief to prevent Jones Intercable from making use of
Fund 14-B's funds to finance Jones Intercable's defense of this litigation.
Jones Intercable has filed motions to dismiss certain of the plaintiff's claims
for relief. The Company believes that the procedures followed by Jones
Intercable in conducting the vote of the limited partners of Fund 14-B on the
sale of the Littlerock System, including the fairness opinion in the proxy
statement delivered to the limited partners of Fund 14-B, were proper and that
Fund 14-B's sale of the Littlerock System at a price determined by averaging
three separate, independent appraisals was in accordance with the express
provisions of Fund 14-B's limited partnership agreement. The Company intends to
defend this lawsuit vigorously.
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In August 1999, Jones Intercable was named a defendant in a case captioned
Gramercy Park Investments, LP, Cobble Hill Investments, LP and Madison/AG
Partnership Value Partners II, plaintiffs v. Jones Intercable, Inc. and Glenn R.
Jones, defendants, and Cable TV Fund 12-B, Ltd., Cable TV Fund 12-C, Ltd., Cable
TV Fund 12-D, Ltd., Cable TV Fund 14-A, Ltd. and Cable TV Fund 14-B, Ltd.,
nominal defendants (U.S. District Court, District of Colorado, Civil Action No.
99-B-1508)("Gramercy Park") brought as a class and derivative action by limited
partners of the named partnerships. The plaintiffs' complaint alleges that the
defendants made false and misleading statements to the limited partners of the
named partnerships in connection with the solicitation of proxies and the votes
of the limited partners on the sales of the Albuquerque, Palmdale, Littlerock
and Calvert County cable communications systems by the named partnerships to
Jones Intercable or one of its subsidiaries in violation of Sections 14 and 20
of the Securities Exchange Act of 1934, as amended. The plaintiffs specifically
allege that the proxy statements delivered to the limited partners in connection
with the limited partners' votes on these sales were false, misleading and
failed to disclose material facts necessary to make the statements made not
misleading. The plaintiffs' complaint also alleges that the defendants breached
their fiduciary duties to the plaintiffs and to the other limited partners of
the named partnerships and to the named partnerships in connection with the
various sales of the Albuquerque, Palmdale, Littlerock and Calvert County cable
communications systems to subsidiaries of Jones Intercable. The complaint
alleges that Jones Intercable acquired these cable communications systems at
unfairly low prices that did not accurately reflect the market values of the
systems. The plaintiffs seek on their own behalf and on behalf of all other
limited partners compensatory and nominal damages, the costs and expenses of the
litigation, including reasonable attorneys' and experts' fees, and punitive and
exemplary damages.
In August 1999, Jones Intercable was named a defendant in a case captioned
William Barzler, plaintiff v. Jones Intercable, Inc. and Glenn R. Jones,
defendants and Cable TV Fund 14-B, Ltd., nominal defendant (U.S. District Court,
District of Colorado, Civil Action No. 99-B-1604)("Barzler") brought as a class
and derivative action by a limited partner of the named partnership. The
substance of the plaintiff's complaint is similar to the allegations raised in
the Gramercy Park case except that it relates only to the sale of the Littlerock
cable communications system by Cable TV Fund 14-B, Ltd.
In September 1999, Jones Intercable was named a defendant in a case
captioned Sheryle Trainer, plaintiff v. Jones Intercable, Inc. and Glenn R.
Jones, defendants, and Cable TV Fund 14-B, Ltd., nominal defendant (U.S.
District Court, District of Colorado, Civil Action No. 99-B-1751)("Trainer")
brought as a class and derivative action by a limited partner of the named
partnership. The substance of the plaintiff's complaint is similar to the
allegations raised in the Gramercy Park case except that it relates only to the
sale of the Littlerock cable communications system by Cable TV Fund 14-B, Ltd.
In September 1999, Jones Intercable was named a defendant in a case
captioned Mary Schumacher, Charles McKenzie and Geraldine Lucas, plaintiffs v.
Jones Intercable, Inc. and Glenn R. Jones, defendants and Cable TV Fund 12-B,
Ltd., Cable TV Fund 12-C, Ltd., Cable TV Fund 12-D, Ltd., Cable TV Fund 14-A,
Ltd. and Cable TV Fund 14-B, Ltd., nominal defendants (U.S. District Court,
District of Colorado, Civil Action No. 99-WM-1702)("Schumacher") brought as a
class and derivative action by three limited partners of the named partnerships.
The substance of the plaintiffs' complaint is similar to the allegations raised
in the Gramercy Park case.
In September 1999, Jones Intercable was named a defendant in a case
captioned Robert Margolin, Henry Wahlgren and Joan Wahlgren, plaintiffs v. Jones
Intercable, Inc. and Glenn R. Jones, defendants and Cable TV Fund 12-B, Ltd.,
Cable TV Fund 12-C, Ltd., Cable TV Fund 12-D, Ltd., Cable TV Fund 14-A, Ltd. And
Cable TV Fund 14-B, Ltd., nominal defendants (U.S. District Court, District of
Colorado, Civil Action No. 99-B-1778)("Margolin") brought as a class and
derivative action by three limited partners of the named partnerships. The
substance of the plaintiffs' complaint is similar to the allegations raised in
the Gramercy Park case.
The Company believes that the procedures followed by Jones Intercable in
conducting the votes of the limited partners of the various partnerships on the
sales of the Albuquerque, Palmdale, Littlerock and Calvert County systems and
the disclosures in the proxy statements delivered to the limited partners in
connection with the limited partners' votes on these sales were proper and
complete, and the Company believes that the various sale transactions were fair
because they were at prices determined by averaging three separate, independent
appraisals of the various cable communications systems sold in accordance with
the express provisions of the partnerships' limited partnership agreements. The
Company intends to defend the Gramercy Park, Barzler, Trainer, Schumacher and
Margolin lawsuits vigorously.
In November 1999, the United States District Court for the District of
Colorado entered an order consolidating all seven of the cases challenging Jones
Intercable's acquisitions of the Albuquerque, Palmdale,
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Littlerock and Calvert County systems because these seven cases (City
Partnership I, City Partnership II, Gramercy Park, Barzler, Trainer, Schumacher
and Margolin) involve common questions of law and fact.
Litigation Relating to Limited Partnership List Requests
In July 1999, Jones Intercable, each of its subsidiaries that serve as
general partners of managed partnerships and most of its managed partnerships
were named defendants in a case captioned Everest Cable Investors, LLC, Everest
Properties, LLC, Everest Properties II, LLC and KM Investments, LLC, plaintiffs
v. Jones Intercable, Inc., et al., defendants (Superior Court, Los Angeles
County, State of California, Case No. BC 213632). Plaintiffs allege that certain
of them formed a plan to acquire up to 4.9% of the limited partnership interests
in each of the partnerships named as defendants, and that plaintiffs were
frustrated in this purpose by Jones Intercable's alleged refusal to provide
plaintiffs with lists of the names and addresses of the limited partners of
these partnerships. The complaint alleges that Jones Intercable's actions
constituted a breach of contract, a breach of the implied covenant of good faith
and fair dealing, a breach of Jones Intercable's fiduciary duty and tortious
interference with prospective economic advantage. Plaintiffs allege that Jones
Intercable's failure to provide them with the partnership lists prevented them
from making their tender offers and that they have been injured by such action
in an amount to be proved at trial, but not less than $17 million.
In September 1999, Jones Intercable and the defendant subsidiaries and
managed partnerships filed demurrers to the plaintiffs' complaint and a hearing
on this matter was held in October 1999. In December 1999, the Court sustained
the defendants' demurrers in part but the Court gave the plaintiffs leave to
amend their complaint to attempt to cure the deficiencies in the pleadings. The
plaintiffs filed their first amended complaint in January 2000. Discovery in the
case also has begun. The Company believes that it and the defendant subsidiaries
and managed partnerships have defenses to the plaintiffs' claims for relief and
challenges to the plaintiffs' claims for damages. The Company intends to defend
this lawsuit vigorously both on its own behalf and on behalf of the defendant
subsidiaries and managed partnerships.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Information for this Item is omitted pursuant to SEC General Instruction I
to Form 10-K.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Common Stock
Absence of Trading Market
Our common stock is not publicly traded. Therefore, there is no established
public trading market for the common stock, and none is expected to develop in
the foreseeable future.
Holder
All of our shares of common stock, $.01 par value, are owned by Comcast
Corporation.
Dividends
None.
ITEM 6 SELECTED FINANCIAL DATA
Information for this Item is omitted pursuant to SEC General Instruction I
to Form 10-K.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information for this Item is omitted pursuant to SEC General Instruction I
to Form 10-K, except as noted below.
Interest Rate Risk Management
See Note 5 to our consolidated financial statements included in Item 8.
We are exposed to market risk including changes in interest rates. To
manage the volatility relating to these exposures, we enter into various
derivative transactions pursuant to our policies in areas such as counterparty
exposure and hedging practices. Positions are monitored using techniques
including market value and sensitivity analyses. We do not hold or issue any
derivative financial instruments for trading purposes and are not a party to
leveraged instruments. The credit risks associated with our derivative financial
instruments are controlled through the evaluation and monitoring of the
creditworthiness of the counterparties. Although we may be exposed to losses in
the event of nonperformance by the counterparties, we do not expect such losses,
if any, to be significant.
Interest Rate Risk
Our policy is to manage interest costs using a mix of fixed and variable
rate debt. Using interest rate exchange agreements ("Swaps"), we agree to
exchange, at specified intervals, the difference between fixed and variable
interest amounts calculated by reference to an agreed-upon notional principle
amount.
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The table set forth below summarizes the fair values and contract terms of
financial instruments subject to interest rate risk maintained by us as of
December 31, 1999 (dollars in millions):
<TABLE>
<CAPTION>
Expected Maturity Date Fair
-------------------------------------------- Value at
2000 2001 2002 2003 2004 Thereafter Total 12/31/99
---- ---- ---- ---- ---- ---------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt
Fixed Rate.................... $2.5 $5.0 $200.0 $545.7 $753.2 $768.9
Average Interest Rate.... 10.0% 10.0% 9.6% 8.5% 8.8%
Variable Rate................. $88.0 $204.0 $240.0 $240.0 $150.0 $922.0 $922.0
Average Interest Rate.... 7.6% 7.5% 7.5% 7.5% 7.6% 7.6%
Interest Rate Instruments
Variable to Fixed Swaps....... $50.0 $100.0 $150.0 $300.0 $6.4
Average Pay Rate......... 6.5% 5.3% 5.5% 5.6%
Average Receive Rate..... 6.7% 7.1% 7.0% 7.0%
</TABLE>
The notional amounts of interest rate instruments, as presented in the
table above are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The estimated fair value
approximates the proceeds (costs) to settle the outstanding contracts. Interest
rates on variable debt are estimated by us using the average implied forward
London Interbank Offer Rate ("LIBOR") rates for the year of maturity based on
the yield curve in effect at December 31, 1999, plus the borrowing margin in
effect for each facility at December 31, 1999. Average receive rates on the
Variable to Fixed Swaps are estimated by us using the average implied forward
LIBOR rates for the year of maturity based on the yield curve in effect at
December 31, 1999. While Swaps represent an integral part of our interest rate
risk management program, their incremental effect on interest expense for the
years ended December 31, 1999 and 1998 was not significant.
16
<PAGE>
Year 2000 Readiness Disclosure
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. 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 evaluated and
addressed the impact of the Year 2000 Issue on our operations to ensure that our
information technology and business systems recognize calendar Year 2000. We
utilized both internal and external resources in implementing our Year 2000
program.
Based on an inventory conducted in 1997, we identified computer systems
that required modification or replacement so that they would properly utilize
dates beyond December 31, 1999. Many of our critical systems were new and were
already Year 2000 compliant as a result of the recent rebuild of many of our
cable communications systems. In addition, we have communicated with 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 December 31, 1999, we have completed our Year 2000 remediation
program. We believe that all key systems are Year 2000 compliant and as of March
13, 2000 we have incurred no significant disruption in operations. Further,
contingency plans have been created for our key systems and operations.
Additionally, in the majority of our operations, business continuity
preparations have been implemented to create post-Year 2000 response teams to
further mitigate Year 2000 risk. There can be no guarantee that the systems of
other companies on which we rely are Year 2000 compliant, or that a failure to
be Year 2000 compliant by another company would not have a material adverse
effect on us.
Through December 31, 1999, we have incurred approximately $3.0 million in
connection with our Year 2000 remediation program.
Our management will continue to periodically report the results of our Year
2000 remediation program to the Audit Committee of Comcast's Board of Directors.
Results of Operations
Our summarized consolidated financial information for the years ended
December 31, 1999 and 1998 is as follows (dollars in millions, "NM" denotes
percentage is not meaningful):
<TABLE>
<CAPTION>
Year Ended Increase /
December 31, (Decrease)
1999 1998 $ %
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues.................................................. $541.0 $472.3 $68.7 14.5%
Operating, selling, general and administrative expenses... 344.1 244.2 99.9 40.9
--------- -------- ---------
Operating income before depreciation and
amortization (1)...................................... 196.9 228.1 (31.2) (13.7)
Restructuring charges..................................... 55.4 55.4 NM
Depreciation and amortization............................. 265.0 206.2 58.8 28.5
--------- -------- ---------
Operating (loss) income................................... (123.5) 21.9 (145.4) NM
--------- -------- ---------
Interest expense.......................................... 119.0 94.3 24.7 26.2
Investment income......................................... (2.1) (3.3) (1.2) (36.4)
Equity in net losses (income) of affiliates............... 3.9 (1.4) 5.3 NM
Other expense............................................. 4.0 12.7 (8.7) (68.5)
--------- -------- ---------
($248.3) ($80.4) $167.9 NM
========= ======== =========
<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 is the primary basis
used by our management to measure the operating performance of our business.
Operating cash flow does not purport to represent net income or net cash
provided by operating activities, as those terms are defined under generally
17
<PAGE>
accepted accounting principles, and should not be considered as an alternative
to such measurements as an indicator of our performance.
</FN>
</TABLE>
Revenues
Of the $68.7 million increase in revenues from 1998 to 1999, $120.2 million
is attributable to increases in subscriber service fees, offset by an $11.3
million decrease in management fees, a $37.8 million decrease in distributions
and brokerage fees and a $2.4 million decrease in non-cable revenue.
Of the $120.2 million increase in subscriber service fees, $81.3 million is
attributable to the effects of the acquisitions of cable communications systems,
$9.8 million is attributable to subscriber growth, $14.7 million relates to
changes in rates, $2.8 million is attributable to growth in cable advertising
sales and $11.6 million relates to other product offerings, including the
increase in digital cable and cable modem services.
Operating, Selling, General & Administrative Expenses
Of the $99.9 million increase in operating, selling, general and
administrative expenses from 1998 to 1999, $51.9 million is attributable to the
effects of the acquisitions of cable communications systems, $22.4 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 $11.7
million results from increases in the cost of labor, the effects of an
adjustment to the cost component factor used to capitalize indirect costs
relating to network construction activity, other volume related expenses and
costs associated with new product offerings. In addition, $13.9 million of the
increase in operating, selling, general and administrative expenses for the year
ended December 31, 1999 is attributable to one-time adjustments related to
recent court rulings on late fees (see Note 10 to our consolidated financial
statements included in Item 8), sales and use tax audits and other adjustments
recorded in the second quarter of 1999.
Management Agreement
See Note 7 to our consolidated financial statements included in Item 8.
Restructuring Charges
See Note 1 to our consolidated financial statements included in Item 8.
Depreciation and Amortization Expense
The $58.8 million increase from 1998 to 1999 is primarily a result of the
effects of our acquisitions of cable communications systems and of our capital
expenditures.
Interest Expense
The $24.7 million increase from 1998 to 1999 is due to higher outstanding
balances on our long-term debt and to increases in the effective weighted
average interest rate on our long-term debt. Borrowings were used to fund the
acquisitions of cable communications systems, fund restructuring costs and to
fund capital expenditures.
Equity in Net Losses (Income) of Affiliates
The $5.3 million change from 1998 to 1999 is primarily due to income
recognized in 1998 relating to the sale of certain cable communications systems
by our managed partnerships.
Other Expense
The $8.7 million decrease from 1998 to 1999 is primarily due to the $3.6
million loss on the disposition of one of our non-cable business units in 1998
and to legal and investment advisory fees incurred in 1998 relating to the
Company's change in control.
We believe that our losses 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.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
BOARD OF DIRECTORS AND STOCKHOLDERS
JONES INTERCABLE, INC.
We have audited the accompanying consolidated balance sheets of Jones
Intercable, Inc. (a Colorado corporation) and subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of operations,
stockholders' equity (deficiency) and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Jones Intercable, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 18, 2000
19
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents....................................................... $23,027 $2,586
Accounts receivable, less allowance for doubtful
accounts of $5,265 and $4,039................................................. 40,137 32,452
Inventories, net................................................................ 15,524 20,239
Other current assets............................................................ 6,502 28,734
------------ ------------
Total current assets...................................................... 85,190 84,011
------------ ------------
INVESTMENTS........................................................................ 54,525 19,724
------------ ------------
PROPERTY AND EQUIPMENT............................................................. 946,623 818,871
Accumulated depreciation........................................................ (303,875) (244,631)
------------ ------------
Property and equipment, net..................................................... 642,748 574,240
------------ ------------
DEFERRED CHARGES
Franchise acquisition costs..................................................... 979,757 932,358
Excess of cost over net assets acquired and other............................... 671,092 567,725
------------ ------------
1,650,849 1,500,083
Accumulated amortization........................................................ (597,060) (446,965)
------------ ------------
Deferred charges, net........................................................... 1,053,789 1,053,118
------------ ------------
$1,836,252 $1,731,093
============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses........................................... $120,326 $89,516
Accrued interest................................................................ 25,892 23,265
Current portion of long-term debt............................................... 2,460 2,237
Due to affiliates............................................................... 67,375
------------ ------------
Total current liabilities................................................. 216,053 115,018
------------ ------------
LONG-TERM DEBT, less current portion............................................... 1,672,716 1,460,470
------------ ------------
OTHER LIABILITIES.................................................................. 29,837
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' (DEFICIENCY) EQUITY
Class A common stock, $.01 par value - authorized, 60,000,000 shares;
issued, 36,937,420 and 36,143,054............................................. 369 361
Common stock, $.01 par value - authorized, 5,550,000 shares; issued, 5,113,021.. 51 51
Additional capital.............................................................. 504,472 495,116
Accumulated deficit............................................................. (588,227) (339,923)
Accumulated other comprehensive income.......................................... 981
------------ ------------
Total stockholders' (deficiency) equity................................... (82,354) 155,605
------------ ------------
$1,836,252 $1,731,093
============ ============
</TABLE>
See notes to consolidated financial statements.
20
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
----------- ---------- -----------
<S> <C> <C> <C>
REVENUES
Cable Communications Revenues
Subscriber service fees...................................... $533,180 $412,977 $345,154
Management fees.............................................. 957 12,284 17,253
Distributions and brokerage fees............................. 3,966 41,780 2,768
Non-cable revenue.............................................. 2,890 5,294 8,741
-------- -------- --------
540,993 472,335 373,916
-------- -------- --------
COSTS AND EXPENSES
Cable Communications Expenses
Operating.................................................... 211,800 128,503 111,104
Selling, general and administrative.......................... 129,422 109,685 94,833
Non-cable operating, selling, general and administrative....... 2,883 6,009 9,297
Restructuring charges.......................................... 55,400
Depreciation and amortization.................................. 264,996 206,202 175,839
-------- -------- --------
664,501 450,399 391,073
-------- -------- --------
OPERATING (LOSS) INCOME........................................... (123,508) 21,936 (17,157)
OTHER (INCOME) EXPENSE
Interest expense............................................... 119,012 94,291 86,764
Investment income.............................................. (2,064) (3,258) (50,847)
Equity in net losses (income) of affiliates.................... 3,883 (1,372) 3,804
Other expense (income)......................................... 3,965 12,693 (15,114)
-------- -------- --------
124,796 102,354 24,607
-------- -------- --------
LOSS BEFORE INCOME TAX BENEFIT AND
EXTRAORDINARY ITEM............................................. (248,304) (80,418) (41,764)
INCOME TAX BENEFIT................................................ 3,275
-------- -------- --------
LOSS BEFORE EXTRAORDINARY ITEM.................................... (248,304) (80,418) (38,489)
EXTRAORDINARY ITEM................................................ (13,459)
-------- -------- --------
NET LOSS.......................................................... ($248,304) ($80,418) ($51,948)
======== ======== ========
BASIC AND DILUTED LOSS FOR COMMON
STOCKHOLDERS PER COMMON SHARE
Loss before extraordinary item................................. ($5.93) ($1.96) ($1.11)
Extraordinary item............................................. (.39)
-------- -------- --------
Net loss....................................................... ($5.93) ($1.96) ($1.50)
======== ======== ========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING...................................... 41,854 40,933 34,610
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss....................................................... ($248,304) ($80,418) ($51,948)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization................................ 264,996 206,202 175,839
Equity in net losses (income) of affiliates.................. 3,883 (1,372) 3,804
Noncash interest expense..................................... 362 286 67
Amortization of deferred revenue............................. (6,319)
(Gain) loss on sale of assets................................ (994) 3,616 (70,232)
Extraordinary item........................................... 13,459
Deferred income tax benefit.................................. (3,275)
---------- ---------- ---------
13,624 128,314 67,714
Changes in working capital and other liabilities............. 46,878 (19,708) 11,347
---------- ---------- ---------
Net cash provided by operating activities............. 60,502 108,606 79,061
---------- ---------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings....................................... 213,427 991,689 816,587
Retirement and repayment of debt............................... (1,462) (554,000) (613,300)
Proceeds from issuance of Class A Common Stock................. 91,602
Proceeds from Class A Common Stock options..................... 9,364 7,505 829
Net transactions with affiliates............................... 68,399 2,215 (3,787)
---------- ---------- ---------
Net cash provided by financing activities............. 289,728 447,409 291,931
---------- ---------- ---------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired............................. (50,213) (387,646) (379,393)
Proceeds from sales of assets.................................. 6,187 350 142,991
Capital expenditures........................................... (175,185) (116,234) (95,585)
Additions to deferred charges.................................. (110,776) (57,865) (38,013)
Other, net..................................................... 198 4,371 932
---------- ---------- ---------
Net cash used in investing activities................. (329,789) (557,024) (369,068)
---------- ---------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 20,441 (1,009) 1,924
CASH AND CASH EQUIVALENTS, beginning of year...................... 2,586 3,595 1,671
---------- ---------- ---------
CASH AND CASH EQUIVALENTS, end of year............................ $23,027 $2,586 $3,595
========== ========== =========
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Amounts in thousands)
<TABLE>
<CAPTION>
Accumulated
Class A Common Stock Common Stock Additional Other
-------------------- ----------------- Paid-In Accumulated Comprehensive
Shares Amount Shares Amount Capital Deficit Income Total
------ ------ ------ ------ ------- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1997............. 26,264 $263 5,113 $51 $395,278 ($207,557) $47,272 $235,307
Proceeds from stock
options exercised........... 90 1 567 568
Proceeds from Class A
Common Stock offering....... 9,200 92 91,510 91,602
Class A Common Stock
option grants............... 261 261
Gains realized on
marketable securities....... (47,272)
Net loss....................... (51,948)
Total comprehensive loss....... (99,220)
-------- -------- --------- --------- ---------- ------------ ----------- ---------
BALANCE,
DECEMBER 31, 1997........... 35,554 356 5,113 51 487,616 (259,505) 228,518
Proceeds from stock
options exercised........... 589 5 7,283 7,288
Class A Common Stock
option grants............... 217 217
Net loss....................... (80,418)
Total comprehensive loss....... (80,418)
-------- -------- --------- --------- ---------- ------------ ----------- ---------
BALANCE,
DECEMBER 31, 1998........... 36,143 361 5,113 51 495,116 (339,923) 155,605
Proceeds from stock
options exercised........... 794 8 9,356 9,364
Unrealized gains on
marketable securities,
net of deferred taxes....... 981
Net loss....................... (248,304)
Total comprehensive loss....... (247,323)
-------- -------- --------- --------- ---------- ------------ ----------- ---------
BALANCE,
DECEMBER 31, 1999........... 36,937 $369 5,113 $51 $504,472 ($588,227) $981 ($82,354)
======== ======== ========= ========= ========== ============ =========== =========
</TABLE>
See notes to consolidated financial statements.
23
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. BUSINESS
Jones Intercable, Inc. and its subsidiaries (the "Company") is principally
engaged in the development, management and operation of broadband cable
networks. The Company served approximately 1.1 million subscribers and
passed approximately 1.7 million homes as of December 31, 1999.
On April 7, 1999, Comcast Corporation ("Comcast") completed the acquisition
of a controlling interest in the Company for aggregate consideration of
$706.3 million. In June 1999, Comcast acquired an additional 1.0 million
shares of the Company's Class A Common Stock for $50.0 million in a private
transaction. As of December 31, 1999, Comcast owned approximately 13.8
million shares of the Company's Class A Common Stock and approximately 2.9
million shares of the Company's Common Stock, representing 39.6% of the
economic interest and 48.3% of the voting interest in the Company. Comcast
has contributed its shares in the Company to its wholly owned subsidiary,
Comcast Cable Communications, Inc. ("Comcast Cable"). The approximately 2.9
million shares of Common Stock owned by Comcast Cable represent shares
having the right to elect approximately 75% of the board of directors of
the Company. The Company is now a consolidated public company subsidiary of
Comcast Cable.
In connection with Comcast's acquisition of a controlling interest in the
Company on April 7, 1999, all of the persons who were executive officers of
the Company as of that date terminated their employment with the Company.
The Company's board of directors elected new executive officers, each of
whom also is an officer of Comcast. As of July 7, 1999, all persons who
were employed at the Company's former corporate offices in Englewood,
Colorado had terminated their employment with the Company. The Company's
corporate offices are now located at 1500 Market Street, Philadelphia,
Pennsylvania 19102-2148.
To facilitate an orderly change in control to Comcast, the Company
established retention and severance programs for its corporate and field
office employees who were to be terminated due to the change in control.
The programs provide for cash severance payments to employees that have
been or will be terminated due to the change in control. During the year
ended December 31, 1999, the Company incurred expense relating to the
severance of approximately 350 corporate and field office employees
totaling $39.1 million, of which $37.5 million had been paid and $1.6
million was accrued at December 31, 1999. Such costs were included in
restructuring charges in the Company's consolidated statement of
operations.
In addition to the severance expense described above, during the year ended
December 31, 1999, the Company incurred an additional $16.3 million of
restructuring costs related to the change in control including an
employment contract termination, costs associated with the termination of
an information technology services agreement with a former affiliated
entity and lease termination costs. Of this total, $9.5 million had been
paid and $6.8 million was accrued at December 31, 1999. Such costs were
included in restructuring charges in the Company's consolidated statement
of operations.
In December 1999, the Company entered into a definitive merger agreement
with Comcast whereby all of the Company's stockholders will receive 1.4
shares of Comcast's Class A Special Common Stock for each share of the
Company's Class A Common Stock and Common Stock. The transaction will
result in the Company being a 100% owned subsidiary of Comcast. A special
meeting of the stockholders of the Company is scheduled for March 2, 2000
to vote on the merger agreement. The Company expects that the merger, which
is subject to shareholder approval, will close in the first quarter of
2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and all wholly owned subsidiaries. All significant intercompany accounts
and transactions among consolidated entities have been eliminated.
24
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Values
The estimated fair value amounts presented in these notes to consolidated
financial statements have been determined by the Company using available
market information and appropriate methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates
of fair value. The estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts. Such fair value estimates are based on pertinent information
available to management as of December 31, 1999 and 1998, and have not been
comprehensively revalued for purposes of these consolidated financial
statements since such dates.
Cash Equivalents
Cash equivalents consist principally of US Government obligations,
commercial paper, repurchase agreements and certificates of deposit with
maturities of three months or less when purchased. The carrying amounts of
the Company's cash equivalents approximate their fair values.
Investments
Investments in entities in which the Company has the ability to exercise
significant influence over the operating and financial policies of the
investee are accounted for under the equity method. Equity method
investments are recorded at original cost and adjusted periodically to
recognize the Company's proportionate share of the investees' net income or
losses after the date of investment, additional contributions made and
dividends received. Unrestricted publicly traded investments are 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. Restricted
publicly traded investments and investments in privately held companies are
stated at cost, adjusted for any known diminution in value.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided by the
straight-line method over estimated useful lives as follows:
Buildings and improvements.................... 10-30 years
Operating facilities.......................... 5-15 years
Other equipment............................... 3-5 years
Improvements that extend asset lives are capitalized; other repairs and
maintenance charges are expensed as incurred. The cost and related
accumulated depreciation applicable to assets sold or retired are removed
from the accounts and the gain or loss on disposition is recognized as a
component of depreciation expense.
Capitalized Costs
The costs associated with the construction of cable transmission and
distribution facilities and new cable service installations are
capitalized. Costs include all direct labor and materials as well as
certain indirect costs.
Deferred Charges
Franchise and license acquisition costs are amortized on a straight-line
basis over their legal or estimated useful lives of 1 to 14 years. The
excess of cost over the fair value of net assets acquired is being
amortized on a straight-line basis over an estimated useful life of 40
years.
Valuation of Long-Lived Assets
The Company periodically evaluates the recoverability of its long-lived
assets, including property and equipment and deferred charges, using
objective methodologies whenever events or changes in circumstances
indicate that the carrying amounts may not be recoverable. Such
methodologies include evaluations based on
25
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
the cash flows generated by the underlying assets, profitability
information, including estimated future operating results, trends or other
determinants of fair value. If the total of the expected future
undiscounted cash flows is less than the carrying amount of the asset, a
loss is recognized for the difference between the fair value and the
carrying value of the asset. The Company incurred a charge of $14.2 million
in the fourth quarter of 1997 related to the write-off of a subscriber
billing and management system that was to have been implemented in
Company-owned cable systems. Such write-off was included in depreciation
and amortization expense.
Revenue Recognition
Subscriber service fees are recognized as service is provided. Credit risk
is managed by disconnecting services to cable customers who are delinquent.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations, as permitted by Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation".
Compensation expense for stock options is measured as the excess, if any,
of the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock (see Note 6).
Investment Income
Investment income includes interest income and gains, net of losses, on the
sales of marketable securities and long-term investments. Gross realized
gains are recognized using the specific identification method (see Note 4).
Investment income also includes impairment losses resulting from
adjustments to the net realizable value of certain of the Company's
long-term investments.
Income Taxes
The Company recognizes deferred tax assets and liabilities for temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities and expected benefits of utilizing net
operating loss carryforwards. The impact on deferred taxes of changes in
tax rates and laws, if any, applied to the years during which temporary
differences are expected to be settled, are reflected in the consolidated
financial statements in the period of enactment.
Derivative Financial Instruments
The Company uses derivative financial instruments, including interest rate
exchange agreements ("Swaps"), to manage its exposure to fluctuations in
interest rates. Swaps are matched with either fixed or variable rate debt
and periodic cash payments are accrued on a settlement basis as an
adjustment to interest expense. Any premiums associated with these
instruments are amortized over their term and realized gains or losses as a
result of the termination of the instruments are deferred and amortized
over the remaining term of the underlying debt. Unrealized gains and losses
as a result of these instruments are recognized when the underlying hedged
item is extinguished or otherwise terminated.
Those instruments that have been entered into by the Company to hedge
exposure to interest rate risks are periodically examined by the Company to
ensure that the instruments are matched with underlying liabilities, reduce
the Company's risks relating to interest rates and, through market value
and sensitivity analysis, maintain a high correlation to the interest
expense of the hedged item. For those instruments that do not meet the
above criteria, variations in their fair value are marked-to-market on a
current basis in the Company's consolidated statement of operations.
The Company does not hold or issue any derivative financial instruments for
trading purposes and is not a party to leveraged instruments (see Note 5).
The credit risks associated with the Company's derivative financial
instruments are controlled through the evaluation and monitoring of the
creditworthiness of the counterparties. Although the Company may be exposed
to losses in the event of nonperformance by the counterparties, the Company
does not expect such losses, if any, to be significant.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement establishes the accounting and reporting
26
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
standards for derivatives and hedging activities. 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. In July 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133 - an amendment of FASB Statement No. 133"
deferring the effective date for implementation of SFAS No. 133 to fiscal
years beginning after June 15, 2000. 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 on a basic and diluted basis.
For the years ended December 31, 1999, 1998 and 1997, the Company's
potential common shares of 16,000 shares, 400,000 shares and 71,000 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.
Distributions from Managed Partnerships
Distributions earned by the Company as general partner of its managed
partnerships from cable communications properties sold by such partnerships
to unaffiliated parties are recorded as revenue when received.
Distributions earned by the Company as general partner of its managed
partnerships from cable communications properties sold by such partnerships
to the Company are treated as a reduction of the basis in the assets
acquired. Distributions earned by the Company as general partner of its
managed partnerships from cable communications properties sold by such
partnerships to entities in which the Company has a continuing equity
interest are treated as a reduction in the basis of the investment in the
cable communications system.
Treasury Stock
Shares held in treasury have been retired and classified as authorized but
unissued shares in accordance with the Colorado Business Corporation Act.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to those classifications used in 1999.
27
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
3. ACQUISITIONS, EXCHANGES AND SALES
Acquisitions of Cable Communications Systems
During the years ended December 31, 1999, 1998 and 1997, the Company
acquired cable communications systems as summarized below. All of the
acquisitions were acquired from affiliates of the Company (see Note 4) with
the exception of the Hinesville, Georgia and North Prince Georges County,
Maryland acquisitions. The acquisitions were accounted for under the
purchase method of accounting. As such, the operating results of the
acquired systems have been included in the Company's consolidated statement
of operations from the dates of acquisition. In general, the acquisitions
were funded with borrowings under the Company's existing credit facilities.
<TABLE>
<CAPTION>
Month Purchase
Acquired Price
--------------- ---------------
(in millions)
<S> <C> <C>
1999
Calvert County, Maryland....................... July $39.5
Littlerock, California......................... January 10.7
1998
Palmdale, California........................... December $138.2
Hinesville, Georgia............................ December 48.0
Socorro and Grants, New Mexico................. December 10.1
Albuquerque, New Mexico........................ June 223.0
1997
Independence, Missouri......................... August $171.2
Manitowoc, Wisconsin........................... June 16.1
North Prince Georges County, Maryland.......... January 231.4
</TABLE>
Exchanges of Cable Communications Systems
In May 1999, the Company entered into an agreement to exchange certain
cable communications systems with Adelphia Communications ("Adelphia").
Under the terms of the agreement, the Company will receive cable
communications systems serving approximately 103,000 subscribers in
Michigan from Adelphia. In exchange, Adelphia will receive cable
communications systems in California currently owned by the Company serving
approximately 108,000 subscribers. All of the systems involved in the
systems exchanges will be valued based upon independent appraisals with any
difference in relative value to be funded with cash or additional cable
communications systems. The transaction is subject to customary closing
conditions and regulatory approvals and is expected to close in the third
quarter of 2000.
In April 1997, the Company, through a wholly owned subsidiary, acquired the
cable communications system serving areas in and around Annapolis, Maryland
and received cash of $2.5 million, from an unaffiliated party, in exchange
for the cable communications systems serving areas in and around Evergreen,
Idaho Springs and portions of Jefferson County, Colorado. This transaction
was accounted for as a non-monetary exchange of similar productive assets.
The Annapolis system was recorded at the historical cost of the assets
exchanged, net of cash received.
Sales of Cable Communications Systems
In October 1997, the Company sold the cable communications system serving
areas in and around Walnut Valley, California for $32.5 million to an
unaffiliated party and recognized a pre-tax gain of $20.8 million. Proceeds
from the sale were used to reduce outstanding indebtedness under the
Company's credit facilities. Such gain is included in other income in the
Company's consolidated statement of operations.
28
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
4. INVESTMENTS
Knowledge TV, Inc.
In November 1999, the Company sold its 32% interest in Knowledge TV, Inc.
("Knowledge TV") to its former affiliate Jones International, Ltd.
("International") (see Note 7) for $6.2 million and recognized a pre-tax
gain of $1.0 million. Such gain is included in investment income in the
Company's consolidated statement of operations.
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 in 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 4,092,200 shares
of @Home Series A Common Stock at $5.25 per share (as adjusted for @Home's
2-for-1 stock split in June 1999). 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 584,172 shares of @Home Series A Common Stock were
exercisable. No additional warrants became exercisable in 1999.
Accordingly, the Company recorded an investment in @Home warrants of $44.2
million and deferred revenue of an equal amount. During 1999, the Company
recognized $6.3 million as a reduction of operating expenses. Due to
restrictions on the stock underlying the warrants, the Company's investment
is not adjusted to fair value. As of December 31, 1999, the fair value of
the investment was $23.3 million.
Cable & Wireless Communications plc
In April 1997, the Company tendered all of its shares of Bell Cablemedia
plc to Cable & Wireless Communications plc ("CWC") in exchange for
approximately 25.0 million shares of CWC. During April and May 1997, the
Company sold all of its shares of CWC for $109.3 million and recognized a
pre-tax gain of $44.6 million. Such gain is included in investment income
in the Company's consolidated statement of operations. Proceeds from the
sale were used to reduce outstanding indebtedness under the Company's
credit facilities.
Managed Partnerships
The Company is general partner for 13 Colorado limited partnerships formed
to acquire, construct, develop and operate cable communications systems.
Partnership capital was raised principally through a series of public
offerings of limited partnership interests. The Company generally made a
capital contribution of $1,000 to each partnership and is allocated 1% of
all partnership profits and losses. The Company also purchased limited
partner interests in certain of the partnerships and generally participates
with respect to such interests on the same basis as other limited partners.
The sales of all remaining partnership-owned cable communications systems
were completed in July 1999 and the Company is in the final stages of
liquidating its managed partnerships. The Company is a 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
10). The managed partnerships that are involved in this litigation will not
be dissolved until such litigation is finally resolved and terminated.
As general partner, the Company manages the managed partnerships and
received a fee for its services generally equal to 5% of the gross revenues
of the managed partnerships, excluding proceeds from the sale of cable
communications systems or franchises. Upon the completion of the sale of
the remaining cable communications systems owned by managed partnerships,
in July 1999, management fees ceased to be a source of revenue.
For the managed partnerships formed by the Company, any partnership
distributions made from cash flow, as defined, are generally allocated 99%
to the limited partners and 1% to the general partner. The general partner
is also entitled to partnership distributions other than from cash flow,
such as from the sale or refinancing of cable communications systems or
upon dissolution of the partnership, generally equal to 25% of the net
remaining assets of the partnership after payment of the partnership's
debts and after investors have received an amount
29
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
equal to their original capital contributions plus, in many cases, a
preferential return on their investments. Upon the completion of the sale
of the remaining cable communications systems owned by managed partnerships
in July 1999, such distributions ceased to be a source of revenue.
The Company received distributions from managed partnerships totaling $64.7
million and $4.6 million for the years ended December 31, 1998 and 1997,
respectively. Distributions totaling $32.1 million received during 1998
were recorded as reductions in the Company's cost basis of cable systems
acquired from managed partnerships. The $4.6 million distribution received
during 1997 was recorded as a reduction in the Company's cost basis in the
assets of the Manitowoc, Wisconsin system.
The Company's managed limited partnerships reimburse the Company for
certain allocated overhead and administrative expenses. These expenses
generally consist of salaries and related benefits paid to corporate
personnel. The Company provides engineering, marketing, administrative,
accounting, information management, legal, investor relations and other
services to the partnerships. Amounts charged to managed partnerships and
other affiliated companies have directly offset the Company's general and
administrative expenses by $1.6 million, $15.2 million and $21.1 million
for the years ended December 31, 1999, 1998 and 1997, respectively.
The Company has made advances to certain of the managed partnerships
primarily to accommodate expansion and other financing needs of the
partnerships. Such advances bear interest at rates equal to the Company's
weighted average cost of borrowing which, for the year ended December 31,
1999 was 7.18%. Interest charged to the limited partnerships for the years
ended December 31, 1999, 1998 and 1997 was $615,000, $212,000 and $363,000,
respectively.
Certain condensed financial information regarding managed partnerships, on
a combined basis, is as follows:
<TABLE>
<CAPTION>
December 31,
1999 1998
------------- -----------
(Dollars in thousands)
<S> <C> <C>
Total assets.................................................. $42,687 $250,211
Debt.......................................................... 172,126
Amounts due general partner................................... 12,616 5,568
Partners' capital (net of accumulated deficit)............... 21,082 72,426
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31,
1999 1998 1997
------------- ----------- ----------
<S> <C> <C> <C>
Revenues...................................................... $21,412 $244,357 $343,655
Depreciation and amortization................................. 7,037 70,532 106,130
Operating (loss) income....................................... (2,873) 4,447 7,261
Net income.................................................... 245,063 666,897 190,227
</TABLE>
The amount reported as combined net income for all managed partnerships for
the years ended December 31, 1999, 1998 and 1997 included gains on sales
and liquidations recognized by certain partnerships which totaled $253.6
million, $689.5 million and $228.9 million, respectively.
30
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31,
1999 1998
------------ ------------
(Dollars in thousands)
<S> <C> <C>
JCH Revolving Credit Facility..................................... $388,000 $340,000
JCH II Credit Facility ........................................... 534,000 370,000
Senior Notes due April 15, 2008, interest payable
semi-annually at 7 5/8%......................................... 196,787 196,533
Senior Notes due April 1, 2007, interest payable
semi-annually at 8 7/8%......................................... 248,873 248,766
Senior Notes due March 15, 2002, interest payable
semi-annually at 9 5/8%......................................... 200,000 200,000
Senior Subordinated Debentures due March 1, 2008, interest payable
semi-annually at 10.5%, redeemable at the Company's option on or
after March 1, 2000 at 105.25% of par, declining to par by
March 1, 2005................................................... 100,000 100,000
Other debt due in installments through 2002....................... 7,516 7,408
----------- -----------
1,675,176 1,462,707
Less current portion.............................................. 2,460 2,237
----------- -----------
$1,672,716 $1,460,470
=========== ===========
</TABLE>
Maturities of long-term debt outstanding as of December 31, 1999 for the
four years after 2000 are as follows (dollars in thousands):
2001.......................................... $93,056
2002.......................................... 404,000
2003.......................................... 240,000
2004.......................................... 240,000
Credit Facilities
The Company, through Jones Cable Holdings, Inc. ("JCH"), a wholly owned
subsidiary, has a $600.0 million reducing revolving credit facility with a
group of commercial banks (the "JCH Credit Facility"). As of December 31,
1999, the total amount available was $551.1 million. Interest on
outstanding obligations range from Base Rate (which generally approximates
the prime rate) or London Interbank Offered Rate ("LIBOR") plus 1/2% to
LIBOR plus 1% based on certain financial covenants. In addition, a
commitment fee of 3/16% to 3/8% on the unused commitment is also required.
The effective interest rate on amounts outstanding at December 31, 1999 was
6.83%.
The Company, through Jones Cable Holdings II, Inc. ("JCH II"), a wholly
owned subsidiary, has an additional $600.0 million credit facility with a
group of commercial banks. The credit facility consists of a $300.0 million
reducing revolving credit facility and a $300.0 million term loan
(together, the "JCH II Credit Facility"). The reducing revolving credit
facility allows for borrowing 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 term
loan is payable in semi-annual installments commencing June 30, 2001 with a
final maturity date of December 31, 2005. The total amount available as of
December 31, 1999 was $599.5 million. Interest on amounts outstanding
varies from the Base Rate (which generally approximates the prime rate) to
Base Rate plus 1/4% or LIBOR plus 1/2% to 1 1/4%, depending on certain
financial covenants. A commitment fee of 1/8% to 3/8% per year on the
unused commitment is also required. The effective interest rate on amounts
outstanding at December 31, 1999 was 6.57%.
31
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
Senior Notes
In April 1998, the Company sold $200.0 million principal amount of its 7
5/8% Senior Notes. Interest is payable on April 15 and October 15 of each
year. The notes mature on April 15, 2008 and are not redeemable prior to
maturity.
In March 1997, the Company sold $250.0 million principal amount of its 8
7/8% Senior Notes. Interest is payable on April 1 and October 1 of each
year. The notes mature on April 1, 2007 and are redeemable on or after
April 1, 2004 at the option of the Company.
Extraordinary Item
In July 1997, the Company redeemed its $160.0 million 11.5% Subordinated
Debentures due 2004 at 106.75% of par value, plus accrued interest. The
Company recognized an extraordinary loss, net of tax, of $13.5 million
related to this redemption.
Debt Covenants
The Company's subsidiaries' loan agreements contain restrictive covenants
which limit the subsidiaries' ability to enter into arrangements for the
acquisition of property and equipment, investments, mergers and the
incurrence of additional debt. These agreements require that certain ratios
and cash flow levels be maintained and contain certain restrictions on
dividend payments and advances of funds to the Company. The Company and its
subsidiaries were in compliance with such restrictive covenants for all
periods presented. In addition, the stock of certain subsidiary companies
is pledged as collateral for the notes payable to banks.
Interest Rate Risk Management
The Company has entered into various Swaps in order to manage interest
costs on its outstanding debt. The Company has entered into such Swaps in
order to fix the interest rate for the duration of the contract as a hedge
against volatility in interest rates. Any amounts paid or received due to
the Swaps are recorded as an adjustment to interest expense. As of December
31, 1999, the Company had entered into Swaps with notional principal
totaling $300.0 million that fixed the interest rate in a range of 5.3% to
6.5% and mature between July 2000 and January 2003. The estimated fair
value approximates the proceeds (costs) to settle the Swaps. While Swaps
represent an integral part of the Company's interest rate and risk
management program, their incremental effect on interest expense for the
years ended December 31, 1999, 1998 and 1997 was not significant.
Estimated Fair Value
The Company's long-term debt had estimated fair values of $1.691 billion
and $1.518 billion as of December 31, 1999 and 1998, respectively. The
estimated fair value of the Company's publicly traded debt is based on the
quoted market prices for that debt. Interest rates that are currently
available to the Company for issuance of debt with similar terms and
remaining maturities are used to estimate fair value for debt issues for
which quoted market prices are not available.
6. STOCKHOLDERS' EQUITY (DEFICIENCY)
In general, with respect to the election of directors, the holders of Class
A Common Stock, voting as a separate class, are entitled to elect that
number of directors which constitutes 25% of the total membership of the
board of directors. Holders of Common Stock, voting as a separate class,
are entitled to elect the remaining directors. In all other matters not
requiring a class vote, the holders of Common Stock and the holders of
Class A Common Stock vote as a single class provided that holders of Class
A Common Stock have one-tenth of a vote for each share held and the holders
of Common Stock have one vote for each share held.
The Class A Common Stock has certain preferential rights with respect to
cash dividends and upon liquidation of the Company. In the case of cash
dividends, the holders of the Class A Common Stock will be paid one-half
cent per share per quarter in addition to any amount payable per share for
each share of Common Stock. In the event of liquidation, holders of the
Class A Common Stock are entitled to a preference of $1 per share. After
such amount is paid, holders of the Common Stock are entitled to receive $1
per share for each share of Common Stock outstanding. Any remaining amount
would be distributed to the holders of the Class A Common Stock and the
Common Stock on a pro rata basis.
32
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
The Company has a stock option plan, the 1992 Stock Option Plan (the "1992
Plan"). In accordance with SFAS 123, the fair value of each option grant
has been estimated as of the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions for
the year ended December 31, 1997: risk-free interest rate of 5.68%;
expected dividend yield of 0%; expected option lives of 7 years; and
expected volatility of 45%. There were no stock options granted during the
years ended December 31, 1999 and 1998. As discussed below, the vesting of
all options was accelerated to September 1998. Accordingly, the remaining
expense related to the options issued in 1997 and prior was included in the
pro forma net loss for 1998. Had compensation expense for this plan been
determined consistent with SFAS 123, the Company's net loss and net loss
per share would have changed to the following pro forma amounts:
<TABLE>
<CAPTION>
For the Year Ended December 31,
1999 1998 1997
----------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net loss: As Reported ($248,304) ($80,418) ($51,948)
Pro Forma ($248,304) ($83,908) ($53,820)
Basic and diluted loss
for common
stockholders per
common share As Reported ($5.93) ($1.96) ($1.50)
Pro Forma ($5.93) ($2.05) ($1.57)
</TABLE>
The pro forma effect on net loss and net loss for common stockholders per
common share for the years ended December 31, 1999, 1998 and 1997 by
applying SFAS 123 may not be indicative of the pro forma effect on net loss
in future years since SFAS 123 does not take into consideration pro forma
compensation expense related to awards made prior to January 1, 1995.
The 1992 Plan was approved by the Company's shareholders in August 1992.
Under the terms of the 1992 Plan, as amended in 1997, a maximum of
2,583,455 shares of Class A Common Stock and 200,000 shares of Common Stock
are available for grant. All employees of the Company, its parent or any
participating subsidiary, including directors of the Company who are also
employees, are eligible to participate in the 1992 Plan. Options generally
become exercisable in equal installments over a four-year period commencing
on the first anniversary of the date of grant. In August 1998, the board of
directors, in conjunction with the anticipated change in control of the
Company to Comcast and consistent with the terms of the 1992 Plan, voted to
accelerate the vesting of all options granted under the 1992 Plan to
September 1998. The options expire, to the extent not exercised, on the
tenth anniversary of the date of grant, or upon the recipient's earlier
termination of employment with the Company. Options may be incentive stock
options or non-qualified stock options. The exercise price may not be less
than 100% of the fair market value for incentive stock options, but may be
less than fair market value for non-qualified options. Stock appreciation
rights may be granted in tandem with the grant of stock options. The board
of directors may, in its discretion, establish provisions for the exercise
of options different from those described above. In 1998 and 1997, the
Company recognized $217,000 and $261,000, respectively, of non-cash
compensation expense related to stock options granted in November 1993
under the 1992 Plan.
33
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
Information concerning Class A Common Stock options is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
1999 1998 1997
------------------------- -------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------- ---------- ------------ -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year........ 801,541 $11.99 1,449,848 $12.08 1,329,162 $12.19
Granted...................... 365,433 9.27
Exercised.................... (780,316) 12.00 (602,881) 12.30 (89,700) 6.34
Canceled..................... (45,426) 10.79 (155,047) 11.88
------------ ------------ ------------
Outstanding at end of year... 21,225 $11.39 801,541 $11.99 1,449,848 $12.08
============ ============ ============
Exercisable at end of year... 21,225 801,541 820,290
Range of exercise prices..... $9.25-$13.81 $9.00-$13.81 $9.25-$13.81
Weighted-average fair
value of options granted
during the year.......... $5.26
</TABLE>
7. RELATED PARTY TRANSACTIONS
Management Agreement
Effective April 7, 1999, the Company and Comcast entered into a management
agreement pursuant to which Comcast manages the operations of the Company
and its subsidiaries, subject to such direction and control of the Company
as the Company may reasonably determine from time to time. The terms of the
management agreement were approved by the independent members of the
Company's Board of Directors. The management agreement generally provides
that Comcast will supervise the management and operations of the Company's
cable systems and arrange for and supervise certain administrative
functions. As compensation for such services the management agreement
provides for Comcast to charge management fees of 4.5% of gross cable
communications revenues (as defined). During the year ended December 31,
1999, Comcast charged the Company management fees of $18.1 million.
On behalf of the Company, Comcast seeks and secures long-term programming
contracts that generally provide for payment based on either a monthly fee
per subscriber per channel or a percentage of certain subscriber revenues.
Amounts charged to the Company by Comcast for programming (the "Programming
Charges") are in an amount equal to the sum of (i) the actual cost incurred
by Comcast plus (ii) one-half of the difference between the cost the
Company would pay in an arms-length transaction if the Company were a
stand-alone multiple cable communications systems operator with a
subscriber base equal to that of the Company's cable systems, and the
actual cost incurred by Comcast. The Programming Charges are included in
operating expenses in the Company's consolidated statement of operations.
The Company purchases certain other services, including insurance, from
Comcast under cost-sharing arrangements on terms that reflect Comcast's
actual cost. The Company reimburses Comcast for certain other costs
(primarily salaries) under cost-reimbursement arrangements. Under all of
these arrangements, the Company incurred total expenses of $112.8 million,
including $110.1 million of Programming Charges, during the year ended
December 31, 1999.
The management agreement also provides that Comcast will not enter into any
agreements or transactions or obtain any services on behalf of the Company
or its cable systems with or from any affiliate of Comcast other
34
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
than those specifically provided for in the management agreement without
the prior written consent of the Company, except for agreements or
transactions on terms that are no less favorable to the Company than those
that might be obtained at the time from a person or entity that is not an
affiliate of Comcast in an arms-length transaction. Further, the management
agreement provides that without the prior written consent of the Company,
Comcast will not change the independent auditor of the Company or change
Comcast's independent auditor such that Comcast and the Company have the
same independent auditor.
The Company will have the right to terminate the management agreement
effective as of April 7, 2004 by written notice to Comcast no later than
January 7, 2004, and if no such notice is given, the management agreement
shall automatically terminate on April 7, 2009.
Due to affiliates in the Company's consolidated balance sheet primarily
consists of amounts due to Comcast and its affiliates under the
cost-sharing arrangements described above and amounts payable to Comcast
and its affiliates as reimbursement for payments made, in the ordinary
course of business, by such affiliates on behalf of the Company.
E! Entertainment Television, Inc.
E! Entertainment Television, Inc. ("E! Entertainment") is an affiliate of
Comcast that provides cable television programming. During the year ended
December 31, 1999, the Company made payments to E! Entertainment totaling
$0.6 million for programming provided to cable systems owned by the
Company.
QVC, Inc.
Comcast, on behalf of the Company, has an affiliation agreement with QVC,
Inc. ("QVC"), an electronic retailer and a majority-owned and controlled
subsidiary of Comcast, to carry its programming. In return for carrying QVC
programming, the Company receives an allocated portion, based upon market
share, of a percentage of net sales of merchandise sold to QVC customers
located in the Company's service area. For the year ended December 31,
1999, the Company's subscriber service fees revenue includes $1.2 million
relating to QVC.
Transactions with International and BTH
The Company and the managed partnerships for which the Company is general
partner (see Note 4) had certain transactions with International and its
subsidiaries through April 7, 1999. Principal transactions were as follows:
In April 1999, the Company paid Glenn R. Jones, the former Chief Executive
Officer of the Company, and International $25.0 million to relinquish their
rights to place new programming channels on the Company's cable
communications systems. Such payment is being amortized over the period of
approximately 10 1/2 years, which is consistent with the term under which
such programming could have been launched under the original agreement. In
addition, the Company paid Mr. Jones $8.0 million in April 1999 to
terminate Mr. Jones' employment contract with the Company (see Note 1).
Jones Interactive, Inc., a wholly owned subsidiary of International,
provided information management and data processing services for operating
companies affiliated with International. Charges to the various operating
companies are based on usage of computer time by each entity. Amounts
charged to the Company and its managed partnerships for the period from
January 1, 1999 through April 7, 1999 and for the years ended December 31,
1998 and 1997 totaled $1.2 million, $6.1 million and $5.5 million,
respectively.
The Company was party to a lease with Jones Properties, Inc., a wholly
owned subsidiary of International, under which the Company had leased a
101,500 square foot office building in Englewood, Colorado. The lease
agreement was terminated in July 1999 (see Note 1). The Company subleased
approximately 44% of the building to International and certain affiliates
of International on the same terms and conditions as the above described
lease. Rent payments to Jones Properties, Inc., net of subleasing
reimbursements, for the period from January 1, 1999 to April 7, 1999 and
for the years ended December 31, 1998 and 1997 were $0.5 million, $1.4
million and $1.3 million, respectively.
35
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
The Company entered into a Secondment Agreement with BCI Telecom Holding,
Inc. ("BTH") in December 1994. Pursuant to the Secondment Agreement, BTH
provided secondees who worked for the Company and its managed partnerships.
The Company reimbursed BTH for the full employment costs of such
individuals. The Company reimbursed BTH $0.2 million, $0.7 million and $1.2
million during the period from January 1, 1999 to April 7, 1999 and for the
years ended December 31, 1998 and 1997, respectively.
The Company paid approximately 84%, 63% and 47% of the above-described data
processing, rental and secondment expenses during the period from January
1, 1999 to April 7, 1999, and for the years ended December 31, 1998 and
1997, respectively. The remainder of the expenses were allocated to and
paid by the managed partnerships (see Note 4).
The Company received satellite programming from Knowledge TV (see Note 4).
Payments made to Knowledge TV for programming provided to the Company's
owned cable communications systems for the period from January 1, 1999
through April 7, 1999 and for the years ended December 31, 1998 and 1997
totaled approximately $0.2 million, $0.6 million and $0.4 million,
respectively.
The Company received satellite programming from Jones Computer Network,
Ltd., an affiliate of International, through April 1997. Payments made to
Jones Computer Network, Ltd. for programming provided to the Company's
owned cable communications systems for the year ended December 31, 1997
totaled approximately $0.2 million.
The Company received satellite programming from Great American Country,
Inc., an affiliate of International. Payments made to Great American
Country, Inc. for programming provided to the Company's owned cable
communications systems for the period from January 1, 1999 through April 7,
1999 and for the years ended December 31, 1998 and 1997 totaled
approximately $0.2 million, $0.5 million and $0.3 million, respectively.
The Company received satellite programming from Superaudio, an affiliate of
Galactic Radio. The Company sold Galactic Radio to an affiliate of
International in June 1996. Payments made to Galactic Radio for programming
provided to the Company's owned cable communications systems for the period
from January 1, 1999 through April 7, 1999 and for the years ended December
31, 1998 and 1997 totaled approximately $0.1 million, $0.3 million and $0.2
million, respectively.
The Product Information Network Venture ("PIN") is an affiliate of
International that provides a satellite programming service. PIN airs
product infomercials 24 hours a day, seven days a week. A portion of the
revenues generated by PIN are paid to the cable communications systems that
carry PIN's programming. Most of the Company's owned cable communications
systems carry PIN for all or part of each day. Aggregate payments received
by the Company from PIN relating to the Company's owned cable
communications systems totaled approximately $0.5 million, $1.0 million and
$0.7 million for the period from January 1, 1999 through April 7, 1999 and
for the years ended December 31, 1998 and 1997, respectively.
Effective upon the closing of BTH's investment in the Company in December
1994, the Company entered into a Supply and Services Agreement with BTH.
Pursuant to the Supply and Services Agreement, BTH provided the Company
with access to the expert advice of personnel from BTH and its affiliates
for the equivalent of three man-years on an annual basis. The Company paid
an annual fee of $2.0 million to BTH during the term of the agreement.
Payments to BTH under the Supply and Services Agreement during the period
from January 1, 1999 through April 7, 1999 and the years ended December 31,
1998 and 1997 totaled $0.5 million, $2.0 million and $2.0 million,
respectively.
Jones Financial Group. Ltd., a subsidiary of International, performed
services for the Company as its agent in connection with negotiations
regarding various financial arrangements of the Company. The Company paid
fees totaling $0.8 million in 1998 relating to the purchase of the
Hinesville, Georgia system. The Company paid fees totaling $3.5 million in
1997 related to the acquisition of the North Prince Georges County,
Maryland system, the acquisition of the Annapolis, Maryland system and the
sale of the Walnut Valley, California system.
36
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
8. INCOME TAXES
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. Deferred tax expense
or benefit is the result of changes in the liability or asset recorded for
deferred tax purposes.
During 1999, 1998 and 1997, changes in the Company's temporary differences
and losses from operations, which result primarily from depreciation and
amortization, resulted in deferred tax benefits which were offset, in part,
by a valuation allowance. A deferred income tax benefit of $3.3 million was
recognized for the year ended December 31, 1997. No current or deferred
federal income tax expense or benefit was recorded from continuing
operations during the year ended December 31, 1999 and 1998.
The effective income tax expense of the Company differs from the statutory
amount because of the effect of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Federal tax benefit at statutory rate............................. ($86,906) ($28,146) ($13,471)
State and local taxes, net of federal income
tax benefit.................................................... (3,396) (2,614) (1,688)
Dividends excluded for income tax purposes........................ (138) (102)
Stock option exercises deductible for tax purposes................ (11,333)
Amortization not deductible for tax purposes...................... 512 942 876
Adjustment to book/tax difference of intangible assets............ 25,836
Other............................................................. 115 157 116
--------- --------- ---------
Total income tax benefit from operations.......................... (101,008) (3,963) (14,269)
Tax effect of extraordinary operations............................ (4,711)
Valuation allowance............................................... 101,008 3,963 15,705
--------- --------- ---------
Total income tax benefit.......................................... $ $ ($3,275)
========= ========= =========
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
December 31,
1999 1998
----------- ---------
(Dollars in thousands)
<S> <C> <C>
Deferred Tax Assets
Net operating loss carryforwards............................................. $183,160 $96,522
Investment tax credit carryforwards.......................................... 461 1,013
Alternative minimum tax credit carryforwards................................. 2,517 1,116
Investment in affiliates and partnerships.................................... 31,574 11,464
Future deductible amounts associated with other assets and liabilities....... 6,237 5,027
--------- --------
Total gross deferred tax assets................................................. 223,949 115,142
Valuation allowance on deferred tax assets...................................... (189,444) (88,436)
Deferred Tax Liabilities
Property and equipment, due to differences in depreciation
methods for financial statement and tax purposes........................... (27,368) (19,569)
--------- --------
Net deferred tax asset.......................................................... $7,137 $7,137
========= ========
</TABLE>
37
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
At December 31, 1999, the Company has net operating loss carryforwards
("NOLs") for income tax purposes aggregating approximately $257.0 million
for alternative minimum tax and $478.9 million for regular tax which expire
$21.3 million in 2005, $25.5 million in 2007, $40.8 million in 2008, $30.2
million in 2009, $15.0 million in 2010, $12.6 million in 2011, $25.5
million in 2012, $1.1 million in 2013 and $306.9 million in 2014. The
Company also had investment tax credit carryforwards of $3.0 million.
Transactions by Company shareholders occurred during 1999, which resulted
in greater than a 50% change of the ownership interest of the Company
shares. Tax statutes limit the utilization of existing tax NOLs when this
occurs to a specified amount each year plus the amount of existing built-in
gain in corporate assets at the ownership change. Management believes that
the application of the limitation will not likely cause taxable income to
occur in a future period due to unavailability of limited NOLs.
Management has established a valuation allowance for all net operating
losses and for all investment tax credits and alternative minimum tax
credit carryforwards.
9. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made cash payments for interest of $116.0 million, $90.0
million and $86.5 million during the years ended December 31, 1999, 1998
and 1997, respectively.
10. COMMITMENTS AND CONTINGENCIES
Minimum annual rental commitments for office space and equipment under
noncancelable operating leases as of December 31, 1999 are as follows
(dollars in thousands):
2000............................................... $4,147
2001............................................... 3,570
2002............................................... 2,537
2003............................................... 2,222
2004............................................... 2,002
Thereafter......................................... 4,292
Rent, net of sublease reimbursements, paid during the years ended December
31, 1999, 1998 and 1997, totaled $6.4 million, $5.6 million and $4.5
million, respectively.
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.
A consolidated case representing seven lawsuits filed by limited partners
of five of the Company's managed partnerships is pending in federal court
against the Company relating to the sales of the Palmdale, Albuquerque,
Littlerock and Calvert County cable communications systems by
Company-managed partnerships to the Company or one of its subsidiaries. The
complaints generally allege that the Company acquired those systems at a
price that did not reflect their fair value and that the proxy statements
mailed to the limited partners of the partnerships that owned these systems
were false, misleading and failed to disclose material facts about the
cable communications system marketplace. The Company has filed motions to
dismiss this case and discovery is stayed pending the Court's decision on
these motions. The Company intends to continue to vigorously defend this
case.
The Company and certain of its subsidiaries and managed partnerships are
defendants in a lawsuit that alleges that they withheld information,
including lists of the names and addresses of limited partners, from the
plaintiffs. The plaintiffs allege that they were injured by not receiving
the information and by not being able to conduct tender offers for the
limited partnership interests. The Company intends to defend this lawsuit
vigorously on its own behalf and on behalf of its subsidiaries and managed
partnerships.
38
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Concluded)
In July 1999, the Court of Appeals of Maryland issued a decision in United
Cable Television of Baltimore, Ltd. Partnership v. Burch holding that to
the extent that a charge assessed customers who were delinquent in payment
of their cable bills exceeded the 6% maximum interest rate prescribed by
the Constitution of the State of Maryland, such charge was not enforceable.
The Court ordered the cable company to make appropriate refunds to
subscribers. While the Company was not a party to that litigation and
believes that it has meritorious defenses to similar actions filed on
behalf of Company subscribers in Maryland, nevertheless a decision by a
court in these actions based solely upon the premise set forth in Burch
could have an adverse effect on the Company.
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
----------- ----------- ----------- ----------- -----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
1999 (3)
Revenues................................. $132,519 $132,704 $136,085 $139,685 $540,993
Operating income before depreciation
and amortization (1)(2)................ 57,527 36,112 52,918 50,331 196,888
Operating loss........................... (1,098) (85,067) (22,346) (14,997) (123,508)
Loss before extraordinary item........... (30,912) (120,712) (49,486) (47,194) (248,304)
Basic and diluted loss for common
stockholders........................... ($.75) ($2.88) ($1.18) ($1.12) ($5.93)
1998 (3)
Revenues................................. $103,536 $101,222 $132,963 $134,614 $472,335
Operating income before depreciation
and amortization (1)................... 46,160 44,076 68,384 69,518 228,138
Operating income (loss).................. 1,405 (3,009) 15,616 7,924 21,936
Loss before extraordinary item........... (20,747) (32,644) (14,404) (12,623) (80,418)
Basic and diluted loss for common
stockholders........................... ($.51) ($.80) ($.35) ($.31) ($1.96)
<FN>
- ------------
(1) Operating income before depreciation and amortization is commonly referred
to in the Company's 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 our businesses 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 Company's industries, although the Company's measure
of operating cash flow may not be comparable to similarly titled measures of
other companies. Operating cash flow is the primary basis used by the Company's
management to measure the operating performance of our businesses. 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 the Company's performance.
(2) Excludes $55.4 million of restructuring charges recorded in the second
quarter (see Note 1).
(3) See Note 3 for a summary of acquisitions, exchanges and sales of cable
communications systems.
</FN>
</TABLE>
39
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information called for by Item 10, Directors and Executive Officers of the
Registrant, Item 11, Executive Compensation, Item 12, Security Ownership of
Certain Beneficial Owners and Management, and Item 13, Certain Relationships and
Related Transactions, is omitted pursuant to SEC General Instruction I of Form
10-K.
40
<PAGE>
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following consolidated financial statements of Jones Intercable, Inc.
are included in Part II, Item 8:
Independent Auditors' Report........................................19
Consolidated Balance Sheet - December 31, 1999 and 1998.............20
Consolidated Statement of Operations - Years Ended
December 31, 1999, 1998 and 1997.................................21
Consolidated Statement of Cash Flows - Years Ended
December 31, 1999, 1998 and 1997.................................22
Consolidated Statement of Stockholders' Equity (Deficiency) -
Years Ended December 31, 1999, 1998 and 1997.....................23
Notes to Consolidated Financial Statements..........................24
(b) All schedules are omitted because they are not applicable, not required or
the required information is included in the consolidated financial
statements or notes thereto.
(c) Reports on Form 8-K:
(i) Jones Intercable filed a Current Report on Form 8-K under Item 5 on
December 23, 1999 relating to the definitive merger agreement among
Comcast, Jones Intercable and Comcast JOIN Holdings, Inc.
(d) Exhibits required to be filed by Item 601 of Regulation S-K:
2.1 Agreement and Plan of Merger among Jones Intercable, Comcast and the
Company dated December 22, 1999 (incorporated by reference to Exhibit
2.1 to Comcast's Form S-4 Registration Statement No. 333-85745).
3.1 Articles of Incorporation of the Company.
3.2 Bylaws of the Company.
4.1 Indenture, dated as of July 15, 1992, between the Company and First
Trust National Association (incorporated by reference to Jones
Intercable's Form S-3 Registration Statement No. 33-47030).
4.2 Second Supplemental Indenture, dated as of March 1, 1993, between the
Company and First Trust National Association (incorporated by
reference to Jones Intercable's Current Report on Form 8-K filed on
March 1, 1993).
4.3 Indenture dated March 23, 1995 with respect to the Senior Notes,
between the Company and U.S. Trust Company of California, N.A.
(incorporated by reference to Jones Intercable's Current Report on
Form 8-K dated March 23, 1995).
4.4 First Supplemental Indenture dated as of March 23, 1995 with respect
to $200,000,000 aggregate principal amount of the Company's 9 5/8%
Senior Notes due 2002, between the Company and U.S. Trust Company of
California, N.A. (incorporated by reference to Jones Intercable's
Current Report on Form 8-K dated March 23, 1995).
4.5 Second Supplemental Indenture dated as of March 21, 1997 with respect
to $250,000,000 aggregate principal amount of the Company's 8 7/8%
Senior Notes due 2007, between the Company and U.S. Trust Company of
California, N.A. (incorporated by reference to Jones Intercable's
Current Report on Form 8-K dated March 21, 1997).
41
<PAGE>
4.6 Third Supplemental Indenture dated as of April 6, 1998 with respect to
$200,000,000 aggregate principal amount of the Company's 7 5/8% Senior
Notes due 2008, between the Company and U.S. Trust Company of
California, N.A. (incorporated by reference to Jones Intercable's
Current Report on Form 8-K dated April 6, 1998).
10.1 Credit Agreement dated October 31, 1995 among Jones Cable Holdings,
Inc. and NationsBank of Texas, N.A. and The Bank of Nova Scotia, as
lenders and as managing agents and various other lenders (incorporated
by reference to Jones Intercable's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.2 First Amendment dated as of September 17, 1996 to Credit Agreement
dated October 31, 1995 among Jones Cable Holdings, Inc. and
NationsBank of Texas, N.A., individually and as agent for various
other lenders (incorporated by reference to Jones Intercable's Annual
Report on Form 10-K for year ended December 31, 1996).
10.3 Credit Agreement dated as of October 29, 1996 among Jones Cable
Holdings II, Inc. and The Bank of Nova Scotia, NationsBank of Texas,
N.A. and Societe Generale, as managing agents for various lenders
(incorporated by reference to Jones Intercable's Annual Report on Form
10-K for year ended December 31, 1996).
10.4 Management Agreement dated as of April 7, 1999 between Jones
Intercable and Comcast (incorporated by reference to Exhibit 9 to
Comcast's Schedule 13D Amendment No. 4 filed on August 10, 1999).
27 Financial Data Schedule.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in Philadelphia,
Pennsylvania on March 14, 2000.
Comcast JOIN Holdings, Inc.
By: /s/ Brian L. Roberts
--------------------------------
Brian L. Roberts
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Ralph J. Roberts Chairman; Director March 14, 2000
- -----------------------
Ralph J. Roberts
/s/ Brian L. Roberts President; Director (Principal March 14, 2000
- ----------------------- Executive Officer)
Brian L. Roberts
/s/ Lawrence S. Smith Executive Vice President; Director March 14, 2000
- -----------------------
Lawrence S. Smith
/s/ Stanley L. Wang Executive Vice President; Secretary; March 14, 2000
- ----------------------- Director
Stanley L. Wang
/s/ John R. Alchin Executive Vice President; Treasurer March 14, 2000
- ----------------------- (Principal Financial Officer)
John R. Alchin
/s/ Lawrence J. Salva Senior Vice President March 14, 2000
- ----------------------- (Principal Accounting Officer)
Lawrence J. Salva
43
CERTIFICATE OF INCORPORATION
OF
COMCAST JOIN HOLDINGS, INC.
FIRST: The name of the corporation is:
Comcast JOIN Holdings, Inc.
SECOND: The address of its registered office in the State of
Delaware is: 1201 N. Market Street, Suite 2201, Wilmington, New Castle County,
Delaware., 19801. The name of its registered agent at such address is: COMCAST
CAPITAL CORPORATION.
THIRD: The nature of the business or purposes to be
conducted or promoted is:
To have unlimited power to engage in any lawful act or
activity for which corporations may be organized under the
General Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the
corporation shall have authority to issue is: 1,000 shares of common stock, par
value $.01 per share.
FIFTH: The name and mailing address of the incorporator is
as follows:
Name Address
---- -------
Brian J. Curtis 1201 Market Street
Wilmington DE 19801
SIXTH: In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to make,
alter or repeal the Bylaws of the corporation.
SEVENTH: Elections of directors need not be by written
ballot unless the Bylaws of the corporation shall so provide.
EIGHT: Whenever a compromise or arrangement is proposed
between this corporation and its creditors or any class of them and/or between
this corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for this corporation
under the provisions of Section 291 of Title 8 of the
<PAGE>
Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for this corporation under the provisions of
Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
NINTH: A director of this corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director; provided, however, that this shall
not exempt a director from liability (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which a director derived an improper
personal benefit. In the case of any change in Delaware law which expands the
liability of directors, the limited liability of directors shall continue as
theretofore to the extend permitted by law; in the case of any change in
Delaware law which permits the corporation, without the requirement of any
further action by the stockholders or directors of the corporation, to limit
further the liability of directors, then such liability thereupon shall be so
limited to the extend permitted by law.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th
day of December, 1999.
/s/ Brian J. Curtis
Brian J. Curtis, Sole Incorporator
1201 Market Street, 22nd Floor
Wilmington, DE. 19801
-2-
BY-LAWS OF
COMCAST JOIN HOLDINGS, INC.
(DELAWARE)
ARTICLE I - OFFICES
Section 1-1. Registered Office and Registered Agent. The Corporation
shall maintain a registered office and registered agent within the State of
Delaware, which may be changed by the Board of Directors from time to time.
Section 1-2. Other Offices. The Corporation may also have offices at
such other places, within or without the State of Delaware, as the Board of
Directors may from time to time determine.
ARTICLE II - STOCKHOLDERS' MEETINGS
Section 2-1. Place of Stockholders' Meetings. Meetings of stockholders
may be held at such place, either within or without the State of Delaware, as
may be designated by the Board of Directors from time to time. If no such place
is designated by the Board of Directors, meetings of the stockholders shall be
held at the registered office of the Corporation in the State of Delaware.
Section 2-2. Annual Meeting. A meeting of the stockholders of the
Corporation shall be held in each calendar year, commencing with the year 2000,
on the 2nd Thursday of June at 10 o'clock a.m. if not a legal holiday, and if
such day is a legal holiday, then such meeting shall be held on the next
business day.
At such annual meeting, there shall be held an election for a Board of
Directors to serve for the ensuing year and until their respective successors
are elected and qualified, or until their earlier resignation or removal.
1
<PAGE>
Unless the Board of Directors shall deem it advisable, financial
reports of the Corporation's business need not be sent to the stockholders and
need not be presented at the annual meeting. If any report is deemed advisable
by the Board of Directors, such report may contain such information as the Board
of Directors shall determine and need not be certified by a Certified Public
Accountant unless the Board of Directors shall so direct.
Section 2-3. Special Meetings. Except as otherwise specifically
provided by law, special meetings of the stockholders may be called at any time:
(a) By the Board of Directors; or
(b) By the President of the Corporation; or
(c) By the holders of record of not less than a majority
of all the shares outstanding and entitled to vote.
Upon the written request of any person entitled to call a special
meeting, which request shall set forth the purpose for which the meeting is
desired, it shall be the duty of the Secretary to give prompt written notice of
such meeting to be held at such time as the Secretary may fix, subject to the
provisions of Section 2-4 hereof. If the Secretary shall fail to fix such date
and give notice within ten (10) days after receipt of such request, the person
or persons making such request may do so.
Section 2-4. Notice of Meetings and Adjourned Meetings. Written notice
stating the place, date and hour of any meeting shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting. If mailed, notice is given when
deposited in the United States Mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation. Such
notice may be given by or at the direction of the person or persons authorized
to call the meeting.
2
<PAGE>
When a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. If the adjournment is for more
than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 2-5. Quorum. Unless otherwise provided in the Certificate of
Incorporation or in a By-law adopted by the stockholders or by the Board of
Directors (or the Incorporators if no first Directors were named in the
Certificate of Incorporation) at its organization meeting following the filing
of the Articles of Incorporation, the presence, in person or by proxy, of the
holders of a majority of the outstanding shares entitled to vote shall
constitute a quorum but in no event shall a quorum consist of less than
one-third (1/3) of the shares entitled to vote at a meeting. The stockholders
present at a duly organized meeting can continue to do business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum. If a meeting cannot be organized because of the absence of a
quorum, those present may, except as otherwise provided by law, adjourn the
meeting to such time and place as they may determine. In the case of any meeting
for the election of Directors, those stockholders who attend the second of such
adjourned meetings, although less than a quorum as fixed in this Section, shall
nevertheless constitute a quorum for the purpose of electing Directors.
Section 2-6. Voting List; Proxies. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten (10) days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares
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<PAGE>
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by proxy. All proxies shall
be executed in writing and shall be filed with the Secretary of the Corporation
not later than the day on which exercised. No proxy shall be voted or acted upon
after three (3) years from its date, unless the proxy provides for a longer
period.
Except as otherwise specifically provided by law, all matters coming
before the meeting shall be determined by a vote by shares. All elections of
Directors shall be by written ballot unless otherwise provided in the
Certificate of Incorporation. Except as otherwise specifically provided by law,
all other votes may be taken by voice unless a stockholder demands that it be
taken by ballot, in which latter event the vote shall be taken by written
ballot.
Section 2-7. Informal Action by Stockholders. Unless otherwise provided
by the Certificate of Incorporation, any action required to be taken at any
annual or special meeting of stockholders, or any action which may be taken at
any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of
4
<PAGE>
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
Prompt notice of the taking of corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders or
members, who have not consented in writing.
ARTICLE III - BOARD OF DIRECTORS
Section 3-1. Number. The Board of Directors shall consist of such
number of directors, not less than two (2) nor more than seven (7), as may be
determined from time to time by resolution of the Board of Directors.
Section 3-2. Place of Meeting. Meetings of the Board of Directors may
be held at such place either within or without the State of Delaware, as a
majority of the Directors may from time to time designate or as may be
designated in the notice calling the meeting.
Section 3-3. Regular Meetings. A regular meeting of the Board of
Directors shall be held annually, immediately following the annual meeting of
stockholders, at the place where such meeting of the stockholders is held or at
such other place, date and hour as a majority of the newly elected Directors may
designate. At such meeting the Board of Directors shall elect officers of the
Corporation. In addition to such regular meeting, the Board of Directors shall
have the power to fix, by resolution, the place, date and hour of other regular
meetings of the Board.
Section 3-4. Special Meetings. Special meetings of the Board of
Directors shall be held whenever ordered by the President, by a majority of the
members of the executive committee, if any, or by a majority of the Directors in
office.
5
<PAGE>
Section 3-5. Notices of Meetings of Board of Directors.
(a) Regular Meetings. No notice shall be required to be given
of any regular meeting, unless the same be held at other than the time or place
for holding such meetings as fixed in accordance with Section 3-3 of these
by-laws, in which event one (1) day's notice shall be given of the time and
place of such meeting.
(b) Special Meetings. At least one (1) day's notice shall be
given of the time, place and purpose for which any special meeting of the Board
of Directors is to be held.
Section 3-6. Quorum. A majority of the total number of Directors shall
constitute a quorum for the transaction of business, and the vote of a majority
of the Directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors. If there be less than a quorum present, a
majority of those present may adjourn the meeting from time to time and place to
place and shall cause notice of each such adjourned meeting to be given to all
absent Directors.
Section 3-7. Informal Action by the Board of Directors. Any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board or
committee.
Section 3-8. Powers.
(a) General Powers. The Board of Directors shall have all
powers necessary or appropriate to the management of the business and affairs of
the Corporation, and, in addition to the power and authority conferred by these
by-laws, may exercise all powers of the Corporation and do all such lawful acts
and things as are not by statute, these by-laws or the Certificate of
Incorporation directed or required to be exercised or done by the stockholders.
6
<PAGE>
(b) Specific Powers. Without limiting the general powers
conferred by the last preceding clause and the powers conferred by the
Certificate of Incorporation and by-laws of the Corporation, it is hereby
expressly declared that the Board of Directors shall have the following powers:
(i) To confer upon any officer or officers of the Corporation
the power to choose, remove or suspend assistant officers, agents or servants.
(ii) To appoint any person, firm or corporation to accept and
hold in trust for the Corporation any property belonging to the Corporation or
in which it is interested, and to authorize any such person, firm or corporation
to execute any documents and perform any duties that may be requisite in
relation to any such trust.
(iii) To appoint a person or persons to vote shares of
another corporation held and owned by the Corporation.
(iv) By resolution adopted by a majority of the full Board
of Directors, to designate one (1) or more of its number to constitute an
executive committee which, to the extent provided in such resolution, shall have
and may exercise the power of the Board of Directors in the management of the
business and affairs of the Corporation and may authorize the seal of the
Corporation to be affixed.
(v) By resolution passed by a majority of the whole Board
of Directors, to designate one (1) or more additional committees, each to
consist of one (1) or more Directors, to have such duties, powers and authority
as the Board of Directors shall determine. All committees of the Board of
Directors, including the executive committee, shall have the authority to adopt
their own rules of procedure. Absent the adoption of
7
<PAGE>
specific procedures, the procedures applicable to the Board of Directors shall
also apply to committees thereof.
(vi) To fix the place, time and purpose of meetings of
stockholders.
(vii) To purchase or otherwise acquire for the Corporation
any property, rights or privileges which the Corporation is authorized to
acquire, at such prices, on such terms and conditions and for such consideration
as it shall from time to time see fit, and, at its discretion, to pay any
property or rights acquired by the Corporation, either wholly or partly in money
or in stocks, bonds, debentures or other securities of the Corporation.
(viii) To create, make and issue mortgages, bonds, deeds
of trust, trust agreements and negotiable or transferable instruments and
securities, secured by mortgage or otherwise, and to do every other act and
thing necessary to effectuate the same.
(ix) To appoint and remove or suspend such subordinate
officers, agents or servants, permanently or temporarily, as it may from time to
time think fit, and to determine their duties, and fix, and from time to time
change, their salaries or emoluments, and to require security in such instances
and in such amounts as it thinks fit.
(x) To determine who shall be authorized on the
Corporation's behalf to sign bills, notes, receipts, acceptances, endorsements,
checks, releases, contracts and documents.
8
<PAGE>
Section 3-9. Compensation of Directors. Compensation of Directors and
reimbursement of their expenses incurred in connection with the business of the
Corporation, if any, shall be as determined from time to time by resolution of
the Board of Directors.
Section 3-10. Removal of Directors by Stockholders. The entire Board of
Directors or any individual Director may be removed from office without
assigning any cause by a majority vote of the holders of the outstanding shares
entitled to vote. In case the Board of Directors or any one (1) or more
Directors be so removed, new Directors may be elected at the same time.
Section 3-11. Resignations. Any Director may resign at any time by
submitting his written resignation to the Corporation. Such resignation shall
take effect at the time of its receipt by the Corporation unless another time be
fixed in the resignation, in which case it shall become effective at the time so
fixed. The acceptance of a resignation shall not be required to make it
effective.
Section 3-12. Vacancies. Vacancies and new created directorships
resulting from any increase in the authorized number of Directors elected by all
of the stockholders having the right to vote as a single class may be filled by
a majority of the Directors then in office, although less than a quorum, or by a
sole remaining Director, and each person so elected shall be a Director until
his successor is elected and qualified or until his earlier resignation or
removal.
Section 3-13. Participation by Conference Telephone. Directors may
participate in regular or special meetings of the Board by telephone or similar
communications equipment by means of which all other persons participating in
the meeting can hear each other, and such participation shall constitute
presence at the meeting.
ARTICLE IV - OFFICERS
Section 4-1. Election and Office. The Corporation shall have a
President, a Secretary
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and a Treasurer who shall be elected by the Board of Directors. The Board of
Directors may elect such additional officers as it may deem proper, including a
Chairman and a Vice Chairman of the Board of Directors, one (1) or more Vice
Presidents, a Controller and one (1) or more assistant or honorary officers. Any
number of offices may be held by the same person.
Section 4-2. Term. The President, the Secretary and the Treasurer shall
each serve for a term of one (1) year and until their respective successors are
chosen and qualified, unless removed from office by the Board of Directors
during their respective tenures. The term of office of any other officer shall
be as specified by the Board of Directors.
Section 4-3. Powers and Duties of the President. Unless otherwise
determined by the Board of Directors, the President shall have the usual duties
of an executive officer with general supervision over and direction of the
affairs of the Corporation. In the exercise of these duties and subject to the
limitations of the laws of the State of Delaware, these by-laws, and the actions
of the Board of Directors, he may appoint, suspend and discharge employees and
agents, shall preside at all meetings of the stockholders at which he shall be
present, and, unless there is a Chairman of the Board of Directors, shall
preside at all meetings of the Board of Directors and, unless otherwise
specified by the Board of Directors, shall be a member of all committees. He
shall also do and perform such other duties as from time to time may be assigned
to him by the Board of Directors.
Unless otherwise determined by the Board of Directors, the President
shall have full power and authority on behalf of the Corporation to attend and
to act and to vote at any meeting of the stockholders of any corporation in
which the Corporation may hold stock, and, at any such meeting, shall possess
and may exercise any and all of the rights and powers incident to the ownership
of such stock and which, as the owner thereof, the Corporation might have
10
<PAGE>
possessed and exercised.
Section 4-4. Powers and Duties of the Secretary. Unless otherwise
determined by the Board of Directors, the Secretary shall record all proceedings
of the meetings of the Corporation, the Board of Directors and all committees,
in books to be kept for that purpose, and shall attend to the giving and serving
of all notices for the Corporation. He shall have charge of the corporate seal,
the certificate books, transfer books and stock ledgers, and such other books
and papers as the Board of Directors may direct. He shall perform all other
duties ordinarily incident to the office of Secretary and shall have such other
powers and perform such other duties as may be assigned to him by the Board of
Directors.
Section 4-5. Powers and Duties of the Treasurer. Unless otherwise
determined by the Board of Directors, the Treasurer shall have charge of all the
funds and securities of the Corporation which may come into his hands. When
necessary or proper, unless otherwise ordered by the Board of Directors, he
shall endorse for collection on behalf of the Corporation checks, notes and
other obligations, and shall deposit the same to the credit of the Corporation
in such banks or depositories as the Board of Directors may designate and shall
sign all receipts and vouchers for payments made to the Corporation. He shall
sign all checks made by the Corporation, except when the Board of Directors
shall otherwise direct. He shall enter regularly, in books of the Corporation to
be kept by him for that purpose, a full and accurate account of all moneys
received and paid by him on account of the Corporation. Whenever required by the
Board of Directors, he shall render a statement of the financial condition of
the Corporation. He shall at all reasonable times exhibit his books and accounts
to any Director of the Corporation, upon application at the office of the
Corporation during business hours. He shall have such other powers and shall
perform such other duties as may be assigned to him
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from time to time by the Board of Directors. He shall give such bond, if any,
for the faithful performance of his duties as shall be required by the Board of
Directors and any such bond shall remain in the custody of the President.
Section 4-6. Powers and Duties of the Chairman of the Board of
Directors. Unless otherwise determined by the Board of Directors, the Chairman
of the Board of Directors, if any, shall preside at all meetings of Directors.
He shall have such other powers and perform such further duties as may be
assigned to him by the Board of Directors, including, without limitation, acting
as Chief Executive Officer of the Corporation. To be eligible to serve, the
Chairman of the Board must be a Director of the Corporation.
Section 4-7. Powers and Duties of Vice Presidents and Assistant
Officers. Unless otherwise determined by the Board of Directors, each Vice
President and each assistant officer shall have the powers and perform the
duties of his respective superior officer. Vice Presidents and assistant
officers shall have such rank as shall be designated by the Board of Directors
and each, in the order of rank, shall act for such superior officer in his
absence, or upon his disability or when so directed by such superior officer or
by the Board of Directors. Vice Presidents may be designated as having
responsibility for a specific aspect of the Corporation's affairs, in which
event each such Vice President shall be superior to the other Vice Presidents in
relation to matters within his aspect. The President shall be the superior
officer of the Vice Presidents. The Treasurer and the Secretary shall be the
superior officers of the Assistant Treasurers and Assistant Secretaries,
respectively.
Section 4-8. Delegation of Office. The Board of Directors may delegate
the powers or duties of any officer of the Corporation to any other officer or
to any Director from time to time.
Section 4-9. Vacancies. The Board of Directors shall have the power to
12
<PAGE>
fill any vacancies in any office occurring from whatever reason.
Section 4-10. Resignations. Any officer may resign at any time by
submitting his written resignation to the Corporation. Such resignation shall
take effect at the time of its receipt by the Corporation, unless another time
be fixed in the resignation, in which case it shall become effective at the time
so fixed. The acceptance of a resignation shall not be required to make it
effective.
Section 4-11. Designation of Chief Financial Officer. The Board of
Directors shall have the power to designate from among the Chairman, any Vice
Chairman, President, any Vice President or the Treasurer of this Corporation a
Chief Financial Officer who shall be deemed the principal financial and
accounting officer and who shall have the ultimate responsibility to oversee the
financial operation and performance of the Corporation. In the event that the
Treasurer is not designated by the Board of Directors as the Chief Financial
Officer, the Treasurer shall report to the Chief Financial Officer from time to
time concerning all duties which the Treasurer is obligated to perform and the
Chief Financial Officer shall, at his election, assume such of the duties of the
Treasurer as are provided herein as he shall deem appropriate. The Chief
Financial Officer shall have the power to modify and/or amend any and all
actions taken by the Treasurer and shall have such other powers and perform such
other duties as may be assigned to him by the Board of Directors.
ARTICLE V - CAPITAL STOCK
Section 5-l. Stock Certificates. Shares of the Corporation shall be
represented by certificates signed by or in the name of the Corporation by (a)
the Chairman or Vice Chairman of the Board of Directors, or the President or a
Vice President, and (b) the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary, representing the number of
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<PAGE>
shares registered in certificate form. If such certificate is countersigned (i)
by a transfer agent other than the Corporation or its employee, or (ii) by a
registrar other than the Corporation or its employee, the signatures of the
officers of the Corporation may be facsimiles. In case any officer who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the Corporation with the same effect as if he were such officer at the
date of issue.
Section 5-2. Determination of Stockholders of Record. The Board of
Directors may fix, in advance, a record date to determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action. Such date shall be not more than sixty (60) nor less than
ten (10) days before the date of any such meeting, nor more than sixty (60) days
prior to any other action.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held.
The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
14
<PAGE>
Section 5-3. Transfer of Shares. Transfer of shares shall be made on
the books of the Corporation only upon surrender of the share certificate, duly
endorsed and otherwise in proper form for transfer, which certificate shall be
cancelled at the time of the transfer. No transfer of shares shall be made on
the books of this Corporation if such transfer is in violation of a lawful
restriction noted conspicuously on the certificate.
Section 5-4. Lost, Stolen or Destroyed Share Certificates. The
Corporation may issue a new certificate of stock, or uncertified shares in place
of any certificate therefore issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen, or
destroyed certificate, or his legal representative to give the Corporation a
bond sufficient to indemnify it against claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
ARTICLE VI - NOTICES
Section 6-l. Contents of Notice. Whenever any notice of a meeting is
required to be given pursuant to these by-laws or the Certificate of
Incorporation or otherwise, the notice shall specify the place, day and hour of
the meeting and, in the case of a special meeting or where otherwise required by
law, the general nature of the business to be transacted at such meeting.
15
<PAGE>
Section 6-2. Method of Notice. All notices shall be given to each
person entitled thereto, either personally or by sending a copy thereof through
the mail or by telegraph, charges prepaid, to his address as it appears on the
records of the Corporation, or supplied by him to the Corporation for the
purpose of notice. If notice is sent by mail or telegraph, it shall be deemed to
have been given to the person entitled thereto when deposited in the United
States Mail or with the telegraph office for transmission. If no address for a
stockholder appears on the books of the Corporation and such stockholder has not
supplied the Corporation with an address for the purpose of notice, notice
deposited in the United States Mail addressed to such stockholder care of
General Delivery in the city in which the principal office of the Corporation is
located shall be sufficient.
Section 6-3. Wavier of Notice. Whenever notice is required to be given
under any provision of law or of the Certificate of Incorporation or by-laws of
the Corporation, a written waiver, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders, Directors, or members of a committee of Directors need be
specified in any written waiver of notice unless so required by the Certificate
of Incorporation.
ARTICLE VII- INDEMNIFICATION OF DIRECTORS AND
OFFICERS AND OTHER PERSONS
Section 7-l. Indemnification. The Corporation shall indemnify any
16
<PAGE>
person who is a Director or officer of the Corporation or any Director or
officer who is or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise (any such person is hereinafter referred to in this
Article VII as a "Director or officer") against expenses (including, but not
limited to, attorneys' fees), judgments, fines and amounts paid in settlement,
actually and reasonably incurred by such Director or officer ("liabilities"), to
the fullest extent now or hereafter permitted by law in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (as used in this Article VII,
"Proceeding" or, in the plural, "Proceedings"), brought or threatened to be
brought against such Director or officer by reason of the fact that he or she is
or was serving in any such capacity or in any other capacity on behalf of the
Corporation, its parent or any of its subsidiaries.
The Board of Directors by resolution adopted in each specific instance
may similarly indemnify any person other than a Director or officer (any such
person is hereinafter referred to in this Article VII as an "Other Person") for
liabilities incurred by him or her in connection with services rendered by him
or her for or at the request of the Corporation, its parent or any of its
subsidiaries.
Section 7-2. Advances. Expenses (including, but not limited to,
attorneys' fees) incurred by any Director or officer in defending a Proceeding
shall be paid by the Corporation in advance of the final disposition of such
Proceeding as authorized by the Board of Directors in the specific case upon
receipt of an undertaking, by or on behalf of such Director or officer, to repay
such amount without interest if it shall ultimately be determined that he or she
is not entitled to be indemnified by the Corporation as authorized by law.
Advance expenses (including, but not limited to, attorneys' fees) incurred by
Other Persons may be paid if the
17
<PAGE>
Board of Directors deems appropriate and upon such terms and conditions,
including the giving of an undertaking, as the Board of Directors deems
appropriate.
Section 7-3. Applicability; Survival. The provisions of Sections 7-1
and 7-2 shall be applicable to all Proceedings commenced before or after the
adoption of this Article VII, whether such arise out of acts or omissions which
occurred prior or subsequent to such adoption and shall continue as to a person
who has ceased to be a Director or officer (or, where and so long as the Board
of Directors has authorized indemnification or advancement of expenses to an
Other Person in accordance with this Article VII, to an Other Person who has
ceased to render services for or at the request of the Corporation its parent or
subsidiaries) and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 7-4. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a Director, officer, or Other
Person of the Corporation, or is or was serving at the request of the
Corporation as a Director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity, or
arising out of his or her status as such, whether or not the Corporation would
have the power to indemnify him or her against such liability under law.
Section 7-5. Non-Exclusivity. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article VII, shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under these bylaws, agreement, vote of
stockholders or disinterested directors, or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding such
office.
18
<PAGE>
ARTICLE VIII - SEAL
The form of the seal of the Corporation,
called the corporate seal of the Corporation, [Form of Seal]
shall be as impressed adjacent hereto.
ARTICLE IX - FISCAL YEAR
The Board of Directors shall have the power by resolution to fix the
fiscal year of the Corporation. If the Board of Directors shall fail to do so,
the President shall fix the fiscal year.
ARTICLE X - AMENDMENTS
The original or other by-laws may be adopted, amended or repealed by
the stockholders entitled to vote thereon at any regular or special meeting or,
if the Certificate of Incorporation so provides, by the Board of Directors. The
fact that such power has been so conferred upon the Board of Directors shall not
divest the stockholders of the power nor limit their power to adopt, amend or
repeal by-laws.
ARTICLE XI - INTERPRETATION OF BY-LAWS
All words, terms and provisions of these by-laws shall be interpreted
and defined by and in accordance with the General Corporation Law of the State
of Delaware, as amended, and as amended from time to time hereafter.
19
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