<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
{X} Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended November 30, 1993
{ } 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 0-10040
Jones Spacelink, Ltd.
----------------------------------------------------
Exact name of registrant as specified in its charter
Colorado #84-0835095
- ------------------------------ ---------------------
State or other jurisdiction of I.R.S. employer I.D.#
incorporation or organization
P.O. Box 3309, Englewood, Colorado 80155-3309
---------------------------------------------
Address of principal executive offices
(303) 792-9191
-----------------------------
Registrant's telephone number
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
--- ---
Number of shares outstanding of each of the issuers' classes of common stock,
as of January 11, 1994:
77,572,700 Class A Common Stock, par value $.01 per share
415,000 Class B Common Stock, par value $.01 per share
<PAGE> 2
JONES SPACELINK, LTD. AND SUBSIDIARIES
I N D E X
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Unaudited Consolidated Balance Sheets
November 30, 1993 and May 31, 1993 3-4
Unaudited Consolidated Statements of Operations
Three and Six Months Ended November 30, 1993 and 1992 5
Unaudited Consolidated Statements of Cash Flows
Six Months Ended November 30, 1993 and 1992 6
Notes to Unaudited Consolidated Financial Statements
November 30, 1993 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 18
</TABLE>
2
<PAGE> 3
JONES SPACELINK, LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30, May 31,
ASSETS 1993 1993
- ------ ------------ ------------
(In Thousands)
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 2,451 $ 1,348
RECEIVABLES:
Trade receivables, net of allowance for doubtful
accounts of $791,000 and $577,000 8,575 6,687
Affiliated entities, net of allowance for doubtful
accounts of $1,459,000 and $1,351,000 21,676 19,510
Other 685 517
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost, net of
accumulated depreciation of $124,987,000
and $111,155,000 191,335 194,942
Franchise costs, net of accumulated amortization
of $84,113,000 and $76,148,000 86,949 94,912
Subscriber lists, net of accumulated
amortization of $31,206,000 and $27,780,000 20,522 23,948
Costs in excess of interests in net assets
purchased, net of accumulated amortization
of $5,880,000 and $5,287,000 40,658 41,251
Noncompete agreements, net of accumulated
amortization of $954,000 and $1,722,000 591 792
Investments in cable television managed
partnerships and affiliates 73,221 59,061
-------- --------
Total Investment in Cable
Television Properties 413,276 414,906
-------- --------
DEFERRED TAX ASSET, net of valuation allowance
of $32,858,000 and $26,161,000 7,731 6,667
DEPOSITS, PREPAID EXPENSES AND OTHER 26,817 24,334
-------- --------
Total Assets $481,211 $473,969
======== ========
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these consolidated balance sheets.
3
<PAGE> 4
JONES SPACELINK, LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30, May 31,
LIABILITIES AND SHAREHOLDERS' INVESTMENT 1993 1993
- ---------------------------------------- ------------ ------------
(In Thousands)
<S> <C> <C>
LIABILITIES:
Accounts payable and accrued liabilities $ 42,568 $ 40,722
Subscriber prepayments and deposits 5,466 5,582
Credit facility and other debt of
Jones Spacelink, Ltd. 71,228 69,265
Credit facility of Jones Intercable, Inc. 63,000 46,000
Subordinated debentures and other debt of
Jones Intercable, Inc. 280,951 281,214
-------- --------
Total Liabilities 463,213 442,783
DEFERRED REVENUE AND INCOME 2,563 2,718
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 12,137 21,480
SHAREHOLDERS' INVESTMENT:
Class A Common Stock, $.01 par value and a
$1.00 liquidation preference, 220,000,000
shares authorized; 77,572,700 shares
issued and outstanding at November 30, 1993
and May 31, 1993 776 776
Class B Common Stock, $.01 par value, and a
$1.00 liquidation preference after liquidation
preference to Class A Common Stock, 415,000
shares authorized, issued and outstanding 4 4
Additional paid-in capital 47,140 47,126
Accumulated deficit (42,230) (38,520)
Less: Treasury stock of Jones Intercable, Inc.
at cost, net of minority interests (2,392) (2,398)
-------- --------
Total Shareholders' Investment 3,298 6,988
-------- --------
Total Liabilities and Shareholders'
Investment $481,211 $473,969
======== ========
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these consolidated balance sheets.
4
<PAGE> 5
JONES SPACELINK, LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended November 30, Ended November 30,
--------------------------- --------------------------
1993 1992 1993 1992
---------- ---------- -------- --------
(In Thousands, except Per Share Data)
<S> <C> <C> <C> <C>
REVENUES:
Subscriber service fees $ 33,327 $ 30,599 $ 66,571 $ 58,508
Management fees 4,784 4,844 9,672 9,601
Encryption sales and manufacturing services 1,603 896 2,958 2,129
Audio programming services 881 729 1,717 1,406
Brokerage fees 77 149 155 595
Partnership fees, distributions and other 484 251 912 403
-------- -------- -------- --------
Total Revenues 41,156 37,468 81,985 72,642
COSTS AND EXPENSES:
Operating, general and administrative expenses,
including amounts allocated from Jones
International, Ltd. of $511,000 and $454,000
for the three months ended 1993 and 1992,
respectively, and $997,000 and $968,000
for the six months ended 1993 and 1992,
respectively (25,424) (21,583) (49,940) (41,522)
Depreciation and amortization (12,751) (12,678) (25,674) (24,699)
-------- -------- -------- --------
Operating Income 2,981 3,207 6,371 6,421
OTHER INCOME (EXPENSE):
Interest expense (9,889) (11,122) (19,579) (21,585)
Equity in losses of partnerships and
affiliated companies (1,444) (1,326) (2,631) (2,111)
Interest income 1,027 1,028 1,844 2,205
Loss on sale of assets - (1,753) - (1,753)
Other, net 245 (1,066) (400) (659)
-------- -------- -------- --------
Loss Before Income Taxes, Minority Interests
Extraordinary Item and Accounting Change (7,080) (11,032) (14,395) (17,482)
INCOME TAX BENEFIT 561 676 1,046 979
-------- -------- -------- --------
Loss Before Minority Interests, Extraordinary
Item and Accounting Change (6,519) (10,356) (13,349) (16,503)
MINORITY INTERESTS IN NET LOSSES (INCOME) OF
CONSOLIDATED SUBSIDIARIES 4,778 7,443 9,605 11,919
-------- -------- -------- --------
Loss Before Extraordinary Item and Accounting Change (1,741) (2,913) (3,744) (4,584)
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt by
Jones Intercable, Inc., net of related
minority interests and income taxes - (126) - (1,668)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING METHOD:
Change in method of accounting for income taxes,
net of minority interests - - - 560
-------- -------- -------- --------
NET LOSS $ (1,741) $ (3,039) $ (3,744) $ (5,692)
======== ======== ======== ========
PER SHARE DATA:
Net loss before extraordinary item $ (.02) $ (.04) $ (.05) $ (.06)
Effect of extraordinary item - - - (.02)
Accounting Change - - - .01
-------- -------- -------- --------
NET LOSS PER COMMON SHARE $ (.02) $ (.04) $ (.05) $ (.07)
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 77,988 76,547 77,988 76,533
======== ======== ======== ========
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these consolidated statements.
5
<PAGE> 6
JONES SPACELINK, LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months
Ended November 30,
----------------------------
1993 1992
-------- --------
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,744) $ (5,692)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Minority interests in net losses of
consolidated subsidiaries (9,605) (11,919)
Extraordinary loss on early extinguishment
of debt by Jones Intercable, Inc., net of taxes and
minority interests - 1,668
Cumulative effect of change in method
of accounting for income taxes, net of minority interests - (560)
Loss on sale of assets - 1,753
Depreciation and amortization 25,674 24,699
Deferred distribution revenue - 4,778
Recognition of deferred revenue and income (155) (166)
Equity in losses of limited partnerships and
affiliated companies 2,631 2,111
Increase in trade accounts receivable (1,888) (689)
Increase in other receivables, deposits,
prepaid expenses and other assets (3,990) (1,558)
Increase in accounts payable and accrued
liabilities and subscriber prepayments
and deposits 960 5,378
-------- --------
Net cash provided by operating activities 9,883 19,803
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net (10,826) (12,453)
Purchase of cable television system by Jones Intercable, Inc. - (71,403)
Investments in cable television partnerships and affiliates (8,219) (2,256)
Investment in Mind Extension University, Inc.
by Jones Intercable, Inc. (8,451) (8,349)
Sale of cable television system - 1,377
Other, net 1,909 3,387
-------- --------
Net cash used in investing activities (25,587) (89,697)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings by Jones Spacelink, Ltd. 2,019 670
Repayment of borrowings by Jones Spacelink, Ltd. (56) (226)
Proceeds from borrowings by Jones Intercable, Inc. 17,000 60,000
Repayment of borrowings by Jones Intercable, Inc. - (66,000)
Proceeds from debenture offering by Jones Intercable, Inc. - 155,735
Redemption of debentures by Jones Intercable, Inc. - (78,910)
Increase in advances to affiliated entities (2,166) (252)
Decrease in minority interests in consolidated subsidiaries 262 3,439
Other, net (252) (1,015)
-------- --------
Net cash provided by financing activities 16,807 73,441
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 1,103 3,547
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD 1,348 2,954
-------- --------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 2,451 $ 6,501
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest Paid $ 18,960 $ 21,830
======== ========
Income Taxes Received $ 90 $ -
======== ========
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these consolidated statements.
6
<PAGE> 7
JONES SPACELINK, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1993
(1) Basis of Presentation:
This Form 10-Q is being filed in conformity with the Securities and
Exchange Commission's requirements for unaudited financial statements
and does not contain all of the necessary footnote disclosures
required for a fair presentation of Jones Spacelink, Ltd.
("Spacelink") and subsidiaries' financial position, results of
operations and cash flows in conformity with generally accepted
accounting principles. In the opinion of management, this data does
include all adjustments, consisting of normal recurring accruals,
necessary to present fairly the financial position of Spacelink and
its subsidiaries at November 30, 1993 and May 31, 1993, and the
results of their operations and their cash flows for the three and
six months ended November 30, 1993 and 1992. Results of operations
for these periods are not necessarily indicative of results to be
expected for the full year.
Spacelink's unaudited consolidated financial statements include the
accounts of Jones Futurex, Inc. ("Futurex"), and Spacelink's other
wholly owned subsidiaries, as well as the accounts of its other
subsidiaries: The Jones Group, Ltd. ("Jones Group"), Jones Galactic
Radio, Inc. ("Galactic Radio"), Jones Earth Segment, Inc. ("Earth
Segment") and Jones Intercable, Inc. ("Intercable"). At November 30,
1993, Spacelink owned directly 80.1 percent and indirectly an
additional 3.3 percent of the Common Stock of Jones Group, 81 percent
directly and indirectly 3.2 percent of Galactic Radio, 81 percent of
Earth Segment and approximately 58 percent of the outstanding Common
Stock (17 percent of both classes of outstanding shares) of
Intercable.
Because Intercable's Common Stock has a voting preference over
Intercable's Class A Common Stock, Spacelink's majority ownership of
Intercable's Common Stock enables it to elect approximately 75
percent of Intercable's Board of Directors. Although Spacelink
effectively controls Intercable through its ability to control the
election of 75 percent of Intercable's Board of Directors, certain
provisions of Intercable's loan agreements limit the amount of funds
it may loan or advance to its affiliates, including Spacelink. As a
result of these limitations, the net assets of Intercable generally
are not available to Spacelink to fund its operating or capital
needs. In addition, Spacelink bears no responsibility for the
outstanding obligations, commitments or contingencies of Intercable.
However, these limitations will not impair the ability of Spacelink
to pledge its equity holdings in Intercable, although any such pledge
is subject to the express approval of Spacelink's and Intercable's
Chairman of the Board and Chief Executive Officer, Glenn R. Jones, or
his personal representative. Spacelink's share of the net restricted
assets of Intercable, defined as Intercable's total shareholders'
investment less related minority interests, included in the
accompanying balance sheet was $2,347,000 at November 30, 1993.
(2) Possible Sale of Spacelink's Assets to Intercable:
On November 12, 1993, Spacelink and Intercable announced that they
have commenced negotiations regarding the possible sale of
substantially all of the assets of Spacelink to Intercable in
exchange for Class A Common Stock of Intercable to Spacelink. No
formal agreement has yet been reached and the final terms and
conditions of such a transaction have not yet been decided. In
December 1993, Spacelink's Board of Directors formed a special
committee of outside directors to negotiate the terms and conditions
of the proposed transaction on behalf of Spacelink.
7
<PAGE> 8
(3) Equity Investment in Intercable:
On December 2, 1993, Intercable and BCE Telecom International, Inc.
("BCETI") signed a letter of intent to enter into a strategic
relationship whereby BCETI would acquire an approximate 30 percent
equity interest in Intercable through the purchase of Class A Common
Stock of Intercable. Under the terms of the letter of intent, BCETI
would invest approximately $275,000,000 at closing at a purchase
price of $27.50 per share of Class A Common Stock of Intercable to
acquire its 30 percent interest. BCETI is committed to invest up to
an additional $125,000,000 to maintain its 30 percent interest in the
event Intercable offers additional Class A Common Stock in the public
marketplace. BCETI will have the right to maintain or increase its
ownership by investing amounts beyond the initial $400,000,000
commitment.
In addition, Jones International, Ltd. which is wholly-owned by Glenn
R. Jones, Chairman and Chief Executive Officer of Spacelink and
Intercable, would grant BCETI an option to acquire certain shares of
the Common Stock of Intercable. Except in limited circumstances, the
option would only be exercisable during the eighth year after
closing. Its exercise would result in BCETI holding a sufficient
number of shares of the Common Stock of Intercable to enable it to
elect 75 percent of the Board of Directors of Intercable. BCETI
would also invest in a number of affiliates of Jones International,
Ltd. which are engaged in the telecommunications and programming
businesses, including an investment in Mind Extension University,
Inc.
Closing on the transaction, which is subject to certain conditions,
including the execution of definitive agreements and the acquisition
by Intercable of substantially all of the assets of Spacelink, is
expected to occur in the first quarter of fiscal 1995.
(4) Acquisition of Cable System by Intercable:
On January 28, 1993, Intercable entered into an agreement with
American Cable TV Investors 2 ("Act 2") (the "Agreement") to acquire
for its own account the cable television systems serving North
Augusta, South Carolina and surrounding areas (the "North Augusta
System") for $28,500,000 subject to normal closing adjustments. The
North Augusta System is contiguous to the Augusta, Georgia cable
system managed by Intercable on behalf of one of its partnerships.
As a result of a renegotiation of the Agreement between Intercable
and ACT 2, the purchase price was reduced to $27,200,000, subject to
normal closing adjustments. In addition, Jones Group received a
brokerage fee of $680,000 or 2-1/2 percent of the purchase price.
The closing of the transaction occurred on December 15, 1993.
(5) Reclassifications:
Certain prior year amounts have been reclassified to conform with the
fiscal year 1994 presentation.
8
<PAGE> 9
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition -
Spacelink has historically expanded its operations by acquiring and developing
cable television systems and other related businesses for its own account and
for the account of managed limited partnerships. The development and expansion
of cable television systems is highly capital intensive and, in recognition of
this fact, Spacelink has utilized public and private offerings of interests in
limited partnerships to raise capital to fund these activities. In addition to
acquisitions of cable television systems for managed limited partnerships,
Spacelink has acquired cable television systems for its own account, primarily
with borrowed funds. Spacelink has also expanded by acquiring companies, or
certain assets of companies, with shares of its Class A Common Stock. Spacelink
is not presently sponsoring any new managed limited partnerships nor is it in
the process of acquiring any cable television systems for its own account.
Although Spacelink consolidates the accounts of Intercable, certain provisions
of Intercable's loan agreements limit the amount of funds it may loan or
advance to its affiliates, including Spacelink. As a result of these
limitations, the assets and operating income of Intercable are generally not
available to Spacelink to provide liquidity or capital and, as such, a
discussion of Intercable's financial condition is not included below. In
addition, Spacelink bears no responsibility for the outstanding obligations,
commitments or contingencies of Intercable. Spacelink will, however,
participate in any growth of Intercable's asset and market value through its
economic ownership interest in Intercable.
On November 12, 1993, Spacelink and Intercable announced that they have
commenced negotiations regarding the possible sale of substantially all of the
assets of Spacelink to Intercable in exchange for Class A Common Stock of
Intercable to Spacelink. No formal agreement has yet been reached and the
final terms and conditions of such a transaction have not yet been decided. In
December 1993, Spacelink's Board of Directors formed a special committee of
outside directors to negotiate the terms and conditions of the proposed
transaction on behalf of Spacelink.
On April 13, 1993, Spacelink entered into new credit agreements, which
agreements include a $65,000,000 Revolving Credit Facility (the "Revolving
Facility") and a $10,000,000 Term Loan (the "Term Loan"). Upon closing,
proceeds from borrowings under the Revolving Facility and the Term Loan were
used to repay the outstanding balances under Spacelink's then existing credit
facility. The Revolving Facility begins to reduce on August 31, 1994, with a
final maturity date of February 28, 2001. The Revolving Facility bears
interest, at Spacelink's option, at the Prime Rate plus 3/4 to 1-3/8 percent,
LIBOR plus 1-3/4 to 2-3/8 percent or the Certificate of Deposit rate plus 2 to
2-5/8 percent. The Term Loan matures May 31, 2001 and requires principal
payments beginning May 31, 1995. Borrowings under the Term Loan bears interest
at rates consistent with the rates of the Revolving Facility. Both the
Revolving Facility and the Term Loan are secured by substantially all of
Spacelink's assets with the exception of Spacelink's investment in Intercable.
Effective November 30, 1993, Spacelink amended its Revolving Facility to
increase the allowable ratio of debt to management fees and cable operating
income before depreciation and amortization from 6.5 to 1.0 to 6.75 to 1.0 in
order to make available to it a majority of its Revolving Facility and to
mitigate some of the impact of the recent cable reregulation on its liquidity.
The balances outstanding under the Revolving Facility and Term Loan at November
30, 1993 were $61,000,000 and $10,000,000, respectively.
In June 1993, Spacelink provided a guarantee up to $2,500,000 to Jones
Entertainment Group, Ltd., an affiliate of Spacelink, in order to assist Jones
Entertainment Group, Ltd. in securing a loan to provide funding for the
production of a theatrical film. This guarantee may, depending on the cash
balances of Jones Entertainment Group, Ltd. and its affiliates, reduce the
available borrowings under Spacelink's $65,000,000 Revolving Facility. Such
reductions in borrowing capacity are not expected to exceed $750,000, which
should not materially impact Spacelink's liquidity.
9
<PAGE> 10
Spacelink has been negatively impacted by the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"), and the rules
and regulations of the Federal Communications Commission (the "FCC")
promulgated thereunder. Most of Spacelink's owned and managed systems were
required to reduce their service rates for basic and tier services on September
1, 1993, which resulted in a decrease in revenues and operating cash flow in
those systems. In Spacelink's managed systems, the management fees earned by
Spacelink, which are a function of the operating revenues of a managed cable
system, were decreased, as well as actual operating income before depreciation
and amortization from Spacelink-owned systems. Spacelink's ability to borrow
under its Revolving Facility is in part a function of a certain ratio of
Spacelink's debt to cable operating cash flow and management fees at the time
it wants to borrow. Because of the anticipated impact of the 1992 Cable Act on
management fees and cable television system operating income before
depreciation and amortization, Spacelink believes that over the short-term the
additional amounts it will be able to borrow under its Revolving Facility will
be approximately $3,000,000.
Spacelink's liquidity may be reduced further by an overbuild of its Panama City
Beach, Florida cable television system. The City Council of Panama City Beach
and the County Commissioners of Bay County have granted cable television
franchises to an unaffiliated company that has recently commenced construction
of a competing cable television system in Panama City Beach. Spacelink intends
to vigorously defend its subscriber base through aggressive marketing and
enhanced customer service. Spacelink completed a rebuild of its Panama City
Beach system's cable plant and headend in May 1993 to provide improved picture
quality, greater reliability and expanded channel capacity.
Spacelink currently anticipates funding its capital expenditures for the second
half of fiscal 1994 of approximately $3,663,000, its working capital needs and
other commitments from cash flows from cable television system operations,
management fees from its managed limited partnerships, brokerage fees from
Jones Group and borrowings, if any, available under its Revolving Facility.
Other than the above, Spacelink has no other sources to create near-term
liquidity. With respect to the long-term, Spacelink is currently reviewing a
possible sale of substantially all of its assets to Intercable, and until that
time Spacelink believes it will meet capital needs and service its obligations
using the sources noted above. To provide Spacelink with additional liquidity
to further expand, in the event a sale of substantially all of its assets to
Intercable is not consumated, Spacelink may sell certain assets, attempt to
sell equity securities or attempt to sell equity securities of certain of its
subsidiaries in public or private transactions.
During the first six months of fiscal 1994, Spacelink purchased property, plant
and equipment totalling $2,237,000. The following table details Spacelink's
capital expenditures by significant category for the six months ended November
30, 1993 and its currently anticipated capital expenditures for the remainder
of fiscal 1994.
<TABLE>
<CAPTION>
Estimated
Six Months Ended Remainder of Total
November 30, 1993 Fiscal 1994 Fiscal 1994
------------------- -------------------- -----------------
Amount % of Total Amount % of Total Amount % of Total
------ ---------- ------ ---------- ------ ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Cable System Extensions
and Improvements $1,252 56% $2,152 59% $3,404 58%
Uplink Facility Construction
and Equipment 577 26% 523 14% 1,100 19%
Manufacturing and Other
Equipment for Futurex 276 12% 505 14% 781 13%
Computer Equipment for
Jones Satellite Networks
and Other 132 6% 483 13% 615 10%
------ --- ------ --- ------ ---
Total Capital Expenditures $2,237 100% $3,663 100% $5,900 100%
====== === ====== === ====== ===
</TABLE>
10
<PAGE> 11
Spacelink has made advances to, and deferred collection of management fees and
expense allocations from, certain Spacelink-managed limited partnerships. A
significant portion of these advances and deferrals represents funds necessary
for capital expansion of, and improvements to, properties owned by
Spacelink-managed limited partnerships and operating and interest expenses paid
on behalf of such partnerships. These advances reduce Spacelink's available
cash and its liquidity. Amounts due from various Spacelink-managed limited
partnerships totalled approximately $3,227,000 at November 30, 1993. Of such
amount, approximately $380,000 represented advances to various
Spacelink-managed limited partnerships that will generally repay these advances
in the quarter after such advances are made. The remaining amount of
$2,847,000 is owed by Jones Spacelink Fund 4, Ltd. ("Fund 4"), and represents
funds primarily for Fund 4's operating, capital and debt service needs.
Repayment of these advances will most likely occur, if at all, only when Fund
4's cable television system is sold and the partnership is liquidated.
Spacelink anticipates, however, that based on its present assessment of asset
value, the proceeds from the sale of Fund 4's cable television system will not
be sufficient to repay all of Fund 4's obligations. Spacelink estimates that
only approximately $1,388,000 of its advances to Fund 4 will ultimately be
repaid and, therefore, at November 30, 1993, Spacelink has reserved $1,459,000
of the total amount due from Fund 4.
During the first six months of fiscal 1994, the cash position of Spacelink and
its consolidated subsidiaries excluding Intercable was impacted from operating,
investing and financing activities as follows:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
Cash Flows from Operating Activities:
Cable television system operations $ 3,657
Management fees from managed limited partnerships 1,036
Other corporate operations, net (2,241)
Interest payments (1,917)
-------
Net cash provided by operating activities 535
-------
Cash Flows from Investing Activities:
Purchases of property, plant and equipment (2,237)
Other, net 457
-------
Net cash used in investing activities (1,780)
-------
Cash Flows from Financing Activities:
Proceeds from borrowings 2,019
Repayment of borrowings (56)
Increase in advances to affiliates (455)
Other (43)
-------
Net cash provided by financing activities 1,465
-------
Increase in cash and cash equivalents 220
Cash and cash equivalents, at beginning of period 217
-------
Cash and cash equivalents, at end of period $ 437
=======
</TABLE>
11
<PAGE> 12
Regulatory Matters
Congress enacted the Cable Television Consumer Protection and Competition Act
of 1992 (the "1992 Cable Act"), which became effective on December 4, 1992.
This legislation has effected significant changes to the legislative and
regulatory environment in which the cable television industry operates. The
1992 Cable Act generally allows for a greater degree of regulation of the cable
television industry. Under the 1992 Cable Act's definition of effective
competition, nearly all cable systems in the United States, including those
owned and managed by Spacelink, are subject to rate regulation of basic cable
services. In addition, the 1992 Cable Act allows the FCC to regulate rates for
non-basic service tiers other than premium services in response to complaints
filed by franchising authorities and/or cable subscribers. In April 1993, the
FCC adopted regulations governing rates for basic and non-basic services. The
FCC's rules became effective on September 1, 1993.
Based on Spacelink's assessment of the FCC's rulemakings concerning rate
regulation under the 1992 Cable Act, Spacelink reduced rates charged for
certain regulated services. On an annualized basis, such regulation will cause
subscriber service fees to decline by $1,100,000, or approximately five percent
and will result in a decrease in operating income before depreciation and
amortization of $900,000, or approximately 11 percent. Based on the foregoing,
Spacelink believes that the new rate regulations will have an adverse affect on
its operating cash flow. Spacelink has undertaken actions to mitigate a
portion of these reductions through (a) new service offerings, (b) product
re-marketing and re-packaging and (c) marketing services to non-subscribers.
The 1992 Cable Act also contains new broadcast signal carriage requirements,
and the FCC has adopted regulations implementing the statutory requirements.
These new rules allow a local commercial broadcast television station to elect
whether to demand that a cable system carry its signal, or to require the cable
system to negotiate with the station for "retransmission consent." A cable
system is generally required to devote up to one-third of its activated channel
capacity for the mandatory carriage of local commercial broadcast television
stations, and non-commercial television stations are also given mandatory
carriage rights, although such stations are not given the option to negotiate
retransmission consent for the carriage of their signals by cable systems.
Additionally, cable systems also are required to obtain retransmission consent
from all commercial television stations (except for commercial
satellite-delivered independent "superstations"), commercial, radio stations
and, in some instances, low-power television stations carried by such system.
The retransmission consent rules went into effect on October 6, 1993.
Throughout all cable television systems owned or managed by Spacelink, only one
broadcast station withheld its consent to retransmission of its signal, and was
no longer carried on October 6, 1993. As of October 11, 1993, however, the
broadcast station had given its consent, and its signal was restored to that
cable system. Certain other broadcast signals were carried on October 6, 1993
pursuant to extensions offered to Spacelink by broadcasters, including a one
year extension for carriage of all CBS stations owned and operated by the CBS
network (Los Angeles, Chicago, Philadelphia, Green Bay and Minneapolis), and a
six month extension for carriage of all FOX affiliates. Other extensions for
approximately 10 to 15 broadcast stations were obtained ranging in time from
two weeks to ninety days. Spacelink expects to finally conclude retransmission
consent negotiations with those stations whose signals are being carried
pursuant to extensions without having to terminate the distribution of any of
those signals. However, there can be no assurance that such will occur. If
any broadcast station currently being carried pursuant to an extension is
dropped, there could be a material adverse effect on the system in which it is
dropped if a significant number of subscribers in such system were to
disconnect their service. However, in most cases, only one broadcaster in any
market is being carried pursuant to an extension arrangement, and the dropping
of such broadcaster, were that to occur, is not expected to have a material
adverse effect on the system.
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There have been several lawsuits filed by cable operators and programmers in
Federal court challenging various aspects of the 1992 Cable Act, including
provisions relating to mandatory broadcast signal carriage, retransmission
consent, access to cable programming, rate regulation, commercial leased
channels and public access channels. On April 8, 1993, a three-judge Federal
district court panel issued a decision upholding the constitutional validity of
the mandatory signal carriage requirements of the 1992 Cable Act. That
decision has been appealed directly to the United States Supreme Court.
Appeals have been filed in a Federal appellate court challenging the validity
of the FCC's retransmission consent rules.
Results of Operations-
Revenues excluding Intercable
Spacelink and its consolidated subsidiaries excluding Intercable derive their
revenues from five primary sources: subscriber service fees from
Spacelink-owned cable television systems, management fees from
Spacelink-managed limited partnerships, sales of encryption products, systems
integration services and electronics manufacturing services of Futurex, sales
by Jones Satellite Networks ("Satellite Networks"), a consolidated subsidiary
of Galactic Radio that provides audio programming to radio stations, and
brokerage fees earned by Jones Group on the acquisition and sale of cable
television properties. Total revenues for Spacelink and its consolidated
subsidiaries excluding Intercable for the three months ended November 30, 1993
were $8,592,000, a decrease of $753,000, or approximately eight percent, from
the amount reported for the three months ended November 30, 1992. Such
revenues for the six months ended November 30, 1993 totalled approximately
$16,962,000, a decrease of $194,000, or approximately one percent, from the
same period a year ago. The principal activities giving rise to the changes in
revenues are described below.
Subscriber Service Fees
Subscriber service fees from Spacelink-owned systems totalled $5,124,000 and
$10,355,000, respectively, for the three and six months ended November 30,
1993, which amounts are approximately one percent and four percent,
respectively, over the amounts reported in the comparable prior year periods.
These increases were the result of increases in basic service revenues and
premium service fees due to increases in the number of basic and premium
subscribers, respectively. These increases were partially offset by decreases
in advertising sales, equipment rental revenue and the effect of the reduction
in basic service rates required under the regulations issued by the FCC in May
1993 which took effect September 1, 1993. The effect of these regulations
issued by the FCC will cause subscriber service fees to decline in fiscal 1994
from the prior fiscal year by approximately one percent.
Management Fees
Spacelink and certain of its wholly owned subsidiaries receive management fees
generally of five percent of partnership gross revenues, excluding revenues
from the sale of cable television properties, for the management of cable
television systems owned by partnerships for which they are general partner.
For the second quarter of fiscal 1994, Spacelink's management fees totalled
approximately $508,000, compared to $506,000 for the same period one year ago.
Spacelink's management fees for the six month periods ended November 30, 1993
and 1992 were $1,036,000 and $1,004,000. The small increases in management
fees for the three and six month periods ended November 30, 1993 as compared to
the similar prior year periods are the result of the reduction in basic service
rates in Spacelink's managed partnerships resulting from the new basic rate
regulations issued by the FCC which took effect September 1, 1993.
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Futurex Sales
Revenues of Futurex for the three and six months ended November 30, 1993 were
$1,603,000 and $2,958,000, respectively. The $707,000 and $829,000 increases
in revenues are the result of increases in systems integration services and
electronics manufacturing services of $365,000 and $331,000, respectively, for
the three months ended November 30, 1993 and $617,000 and $215,000,
respectively, for the six months ended November 30, 1993 as compared to the
similar periods one year ago. These increases for the three and six months
ended November 30, 1993 were partially offset by decreases in sales of fax
encryption products and data encryption hardware sales.
Audio Programming Services
Sales of satellite delivered formatted music programming to radio stations
totalled $881,000 and $1,717,000, respectively, for the three and six months
ended November 30, 1993. Such sales increased by $152,000 and $311,000, or
approximately 21 percent and 22 percent, respectively, for the three and six
month periods ended November 30, 1993 as compared to the same periods one year
ago. These increases are the result of an increase in the number of radio
stations receiving audio programming services by approximately 38 percent and
39 percent, respectively, which were partially offset by decreases in the rates
charged the affiliates. The rates charged the affiliates were reduced in order
to accelerate the acquisition of new affiliates.
In January 1994, Satellite Networks began selling and inserting advertising on
all its music formats. In exchange for allowing Satellite Networks to air the
advertising, the radio station affiliates will, in most cases, be charged no
monthly fee, or a significantly reduced fee for the service. Beginning in
January 1994 and continuing for a period of several months, Spacelink expects a
significant decrease in affiliate fees, which will only be partially replaced
by advertising revenues. Over the longer term, however, Spacelink believes the
advertising revenues will significantly exceed the affiliate fees it was
receiving from the radio station affiliates.
Brokerage Fees
There were no brokerage fees recognized by Jones Group for the three and six
month periods ended November 30, 1993, as compared to $1,898,000 and
$2,261,000, respectively, for the three and six month periods in the prior
fiscal year. The differences in brokerage fees recognized by Jones Group was
the result of differences in the number of transactions brokered by the Jones
Group during these periods.
The net recognition of brokerage fees for the three and six months ended
November 30, 1993 of $77,000 and $155,000, respectively, which were previously
deferred for financial reporting purposes, resulted in brokerage fee revenue on
a consolidated basis of $77,000 and $155,000 for the three and six month
periods ended November 30, 1993, respectively. The net recognition of
brokerage fees for the three and six months ended November 30, 1992, of $82,000
and $165,000, respectively, which were previously deferred for financial
reporting purposes, resulted in brokerage fee revenue on a consolidated basis
of $149,000 and $595,000 for the three and six month periods ended November 30,
1992.
Revenues including Intercable
Consolidated revenues for the three and six months ended November 30, 1993
totalled $41,156,000 and $81,985,000, respectively, increases of $3,688,000 and
$9,343,000, or approximately 10 percent and 13 percent, respectively, over the
amounts reported for the similar periods one year ago. Of the increases in
consolidated revenues for the three and six month periods ended November 30,
1993, over the amount reported during the similar periods one year ago,
Intercable accounted for $4,441,000 and $9,537,000, or approximately 120
percent and 102 percent, respectively. The increases in Intercable's revenues
on a consolidated basis for the three and six month periods ended November 30,
1993 as compared
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to the similar periods one year ago are primarily the result of an increase in
subscriber service fees of $2,661,000 and $7,669,000, respectively, which
increases are reflective of Intercable's purchase in November 1992 of the cable
television system serving the areas in and around Alexandria, Virginia (the
"Alexandria System") from one of its managed partnerships and Intercable's sale
in May 1993 of the cable television system serving a portion of San Diego and
Riverside County, California (the "San Diego System"). Disregarding the effect
of these transactions, total revenues would have increased $291,000 and
$2,812,000, respectively, or approximately one percent and four percent,
respectively, for the three and six month periods ended November 30, 1993.
Costs and Expenses excluding Intercable
Operating, general and administrative expense consists primarily of costs
associated with the operation of company-owned cable television systems and the
administration of managed limited partnerships, costs of sales of encryption
products and costs of systems integration services and electronics
manufacturing services provided by Futurex, sales, programming and
administrative costs of Satellite Networks and administrative costs of Jones
Group. Spacelink and Intercable are reimbursed by their managed limited
partnerships for costs associated with the operation of their partnerships. Of
the expenses borne by Spacelink and Intercable, the principal components are
compensation paid to corporate and company-owned system personnel, programming
expenses, professional fees, subscriber billing costs, data processing costs,
rent for leased facilities, cable system maintenance expenses and consumer
marketing expenses.
In the second quarter of fiscal 1994, operating, general and administrative
expenses of Spacelink and its consolidated subsidiaries excluding Intercable,
totalled $6,424,000, an increase of $961,000, or approximately 18 percent, from
the similar period in the previous year. Operating, general and administrative
expenses relating to the operation of cable television systems owned by
Spacelink increased by $248,000, or approximately eight percent, and are
primarily the result of increased programming related costs, advertising
related costs and marketing related costs of $83,000, $51,000 and $38,000,
respectively. Costs of sales and services, marketing, technical customer
support and administrative expenses of Futurex increased $531,000, or
approximately 55 percent, in the second quarter of fiscal 1994 as compared to
the similar period one year ago. Total operating costs of Satellite Networks
increased by $402,000, or approximately 42 percent in the second quarter of
fiscal 1994 as compared to the similar period one year ago, and are primarily
the result of increased sales, programming and administrative costs.
Operating, general and administrative expense for the six month period ended
November 30, 1993 totalled $12,667,000, an increase of $1,990,000, or
approximately 19 percent from the similar period in fiscal 1993. For the six
months ended November 30, 1993, operating, general and administrative expenses
relating to the operation of cable television systems owned by Spacelink
increased by $659,000, or approximately 11 percent, and are primarily the
result of increased programming costs, marketing related costs and advertising
related costs of $158,000, $84,000, and $72,000, respectively. Costs of sales
and services, marketing, technical customer support and administrative expenses
of Futurex increased $762,000, or approximately 38 percent, for the six months
ended November 30, 1993 as compared to the similar period one year ago. Total
operating costs of Satellite Networks increased by $695,000, or approximately
35 percent, for the six month period ended November 30, 1993 as compared to the
similar period in fiscal 1993, and are primarily the result of increased sales,
programming and administrative costs.
Consolidated Costs and Expenses including Intercable
Consolidated operating, general and administrative expenses for the second
quarter of fiscal 1994 totalled $25,424,000, an increase of $3,841,000, or
approximately 18 percent from the amount in the similar period one year ago.
Operating, general and administrative expenses of Intercable on a consolidated
basis accounted for $2,880,000, or approximately 75 percent of the total
increase and were primarily the result of increased personnel costs, satellite
and premium service fees, and marketing related costs of $518,000, $564,000 and
$115,000, respectively. Consolidated operating, general and administrative
expenses for the six months ended November 30, 1993 totalled $49,940,000, an
increase of $8,418,000, or approximately 20 percent from the amount in the
similar period one year ago. Operating, general and administrative expenses of
Intercable on a consolidated basis accounted for $6,428,000, or approximately
76 percent, of the total increase and were
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primarily the result of increased personnel costs, satellite and premium
service fees, and marketing related costs of $1,353,000, $1,269,000 and
$233,000, respectively. In addition the net effect of the purchase of the
Alexandria System and the sale of the San Diego System was an increase in these
expenses of approximately $608,000 and $2,040,000 for the three and six months
ended November 30, 1993, respectively. Disregarding the effect of these
transactions, operating, general and administrative expenses would have
increased 15 percent for both the three and six month periods ended November
30, 1993.
Other Income and Expenses excluding Intercable
Interest Expense
Interest expense for Spacelink and its consolidated subsidiaries excluding
Intercable totalled approximately $1,007,000 and $2,038,000, respectively for
the three and six months ended November 30, 1993 compared to approximately
$964,000 and $1,818,000, respectively, in the comparable periods one year ago.
The increases in interest expense are primarily the result of an increase in
the average levels of outstanding debt during fiscal 1994, as compared to the
average levels outstanding one year ago.
Consolidated Other Income and Expense including Intercable
Interest Expense
For the three and six months ended November 30, 1993, consolidated interest
expense decreased by $1,233,000 and $2,006,000, or approximately 11 percent and
nine percent, respectively, from the similar periods one year ago. The
decreases in consolidated interest expense for the three and six month periods
ended November 30, 1993 from the amounts reported for the three and six month
periods ended November 30, 1992, were the result of decreased interest expense
of Intercable totalling $1,276,000 and $2,226,000, respectively, which was
partially offset by increases in Spacelink's interest expense of $43,000 and
$220,000. The decrease in Intercable's interest expense on a consolidated
basis was primarily due to the redemption of the remaining $66,575,000
principal amount of Intercable's 9.75 percent Subordinated Debentures due 1998
in August 1992 and the redemption of the remaining $138,000,000 principal
amount of Intercable's 13 percent Subordinated Debentures due 2000 in May 1993.
Equity in Losses
Consolidated equity in losses of limited partnerships and affiliated companies,
which partnership losses result principally from depreciation and amortization
expense, increased from $1,326,000 for the three month period ended November
30, 1992 to $1,444,000 for the three month period ended November 30, 1993 and
increased from $2,111,000 for the six months ended November 30, 1992 to
$2,631,000 for the similar period in fiscal 1994. These increases of $118,000
and $520,000, respectively in equity in losses of limited partnerships and
affiliated companies for the second quarter of fiscal 1994 and for the six
months ended November 30, 1993, as compared to the similar periods one year
ago, are primarily the result of losses recognized by Intercable related to its
25 percent investment in Mind Extension University.
Minority Interest in Net Losses
For the three and six months ended November 30, 1993, minority interests in the
net losses of consolidated subsidiaries of $4,778,000 and $9,605,000,
respectively, reflects primarily the elimination of the remaining shareholders'
83 percent interest in Intercable's net losses for the three and six months of
fiscal 1994. Minority interests in the net losses of consolidated subsidiaries
declined $2,665,000 and $2,314,000, respectively, for the three and six month
periods in fiscal 1994 as compared to the similar periods in fiscal 1993, and
are due to decreases in Intercable's operating losses before an extraordinary
item and an accounting change for the three and six months ended November 30,
1993 as compared to similar periods in fiscal 1993.
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Net Income (Loss)
While Spacelink anticipates the continued recognition of operating income
before depreciation and amortization expense, as Spacelink and Intercable's
cable television systems mature, net losses may be recognized in the future in
part from depreciation and amortization expense. To the extent Spacelink and
Intercable recognize partnership fees and distributions upon liquidation of
their managed limited partnerships and Spacelink recognizes brokerage fees from
Jones Group, losses may be reduced or eliminated; however, there can be no
assurance as to the timing or amount of income recognition resulting from these
fees and distributions or other transactions.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JONES SPACELINK, LTD.,
a Colorado corporation
By: /s/ GREGORY J. LIPTAK
-------------------------------
Gregory J. Liptak
President
By: /s/ JAY B. LEWIS
-------------------------------
Jay B. Lewis
Principal Accounting Officer
Date: January 13, 1994
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