<PAGE> 1
FORM 10-K/A NO. 2
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 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED MAY 31, 1992
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission File No. 0-8947
JONES SPACELINK, LTD.
(Exact name of registrant as specified in its charter)
Colorado 84-0835095
(State of Organization) (IRS Employer Identification No.)
P.O. Box 3309, Englewood, Colorado 80155-3309
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 792-9191
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.01 par value
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
---- ----
Aggregate Market Value as of August 20, 1992 of voting stock held by
non-affiliates:
Class A Common Stock $8,243,614
Shares outstanding of each of the registrant's classes of common stock,
as of August 20, 1992:
Class A Common Stock: 76,546,586 shares
Class B Common Stock: 415,000 shares
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405) 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 amendment to this Form 10-K. --X--
-----
<PAGE> 2
1991 Stock Option Plan of Spacelink was approved by the shareholders by the
following vote:
<TABLE>
<CAPTION>
For Against Abstain
---------- ------- -------
<S> <C> <C> <C>
Class A Common Stock
and Class B Common Stock 3,866,175* 31,055* 4,088*
</TABLE>
* The holders of Class A Common Stock and Class B Common Stock voted as
a single class. The holders of Class A Common Stock were entitled to
1/20th of a vote for each share held and the holder of Class B Common
Stock was entitled to one vote for each share held.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Spacelink's Class A Common Stock, par value $.01 per share, is traded
in the over-the-counter market and is quoted on the NASDAQ National Market
System under the symbol SPLKA.
The following table shows the high and low prices of Spacelink's Class
A Common Stock as reported on NASDAQ for each of the quarters in Spacelink's
fiscal years 1992 and 1991. There is no established market for Spacelink's
Class B Common Stock, which is 100% owned by International.
<TABLE>
<CAPTION>
Quarter Ended
High Low
---- -------
<S> <C> <C> <C>
1992 First Quarter 1 5/8 1 1/16
Second Quarter 1 3/8 1
Third Quarter 1 1/8 13/16
Fourth Quarter 1 3/16 13/16
1991 First Quarter 1 3/4 1
Second Quarter 1 9/16
Third Quarter 1 5/8 5/8
Fourth Quarter 1 3/4 1 1/8
</TABLE>
At May 31, 1992, the Class A Common Stock of Spacelink was held by
approximately 719 shareholders of record. All of Spacelink's Class B Common
Stock, which is entitled to elect 75% of the Board of Directors, is held by
International, whose sole shareholder is Glenn R. Jones, Chief Executive
Officer and Chairman of the Board of Directors of Spacelink.
Spacelink has never paid a cash dividend, and it has no present
intention to pay cash dividends in the foreseeable future. The current policy
of Spacelink is to retain earnings to
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<PAGE> 3
provide working capital for the operation, expansion and development of its
business. Future dividends, if any, will be determined by the Board of
Directors in light of the circumstances then existing, including Spacelink's
earnings and financial requirements and general business conditions.
Spacelink's credit agreements restrict the right of Spacelink to declare and
pay cash dividends without the consent of the lenders.
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<PAGE> 4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Jones Spacelink, Ltd.:
We have audited the accompanying consolidated balance sheets of JONES
SPACELINK, LTD. (a Colorado corporation and a majority-owned subsidiary of
Jones International, Ltd.) and subsidiaries as of May 31, 1992 and 1991, and
the related consolidated statements of operations, shareholders' investment and
cash flows for each of the three years in the period ended May 31, 1992. 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 Spacelink,
Ltd. and subsidiaries as of May 31, 1992 and 1991, and the results of their
operations and their cash flows for each of the three years in the period ended
May 31, 1992, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Denver, Colorado,
August 25, 1992
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<PAGE> 5
CONSOLIDATED BALANCE SHEETS Jones Spacelink, Ltd.
As of May 31, 1992 and 1991 and Subsidiaries
<TABLE>
<CAPTION>
ASSETS 1992 1991
- - ------ -------- --------
(In Thousands)
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 2,954 $ 4,101
RECEIVABLES:
Trade receivables, net of allowance for doubtful accounts of $535,000
in 1992 and $511,000 in 1991 5,958 3,982
Affiliated entities, net of allowance for doubtful accounts of
$1,171,000 in 1992 and $814,000 in 1991 16,307 12,093
Other 1,288 2,084
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost, net of accumulated
depreciation of $88,658,000 in 1992 and $65,717,000 in 1991 189,484 200,662
Franchise costs, net of accumulated amortization of $64,741,000 in
1992 and $53,984,000 in 1991 81,288 98,538
Subscriber lists, net of accumulated amortization of $21,927,000 in
1992 and $17,035,000 in 1991 21,451 27,627
Costs in excess of interests in net assets purchased, net of
accumulated amortization of $4,213,000 in 1992 and $3,076,000 in
1991 42,807 44,888
Noncompete agreements, net of accumulated amortization of $1,385,000
in 1992 and $971,000 in 1991 1,179 1,248
Investments in cable television managed partnerships and corporate
stock 48,708 61,109
-------- --------
Total Investment in Cable Television Properties 384,917 434,072
-------- --------
DEPOSITS, PREPAID EXPENSES AND OTHER ASSETS:
Investment in cable television systems held for resale to managed
limited partnerships -- 1,544
Deposits, prepaid expenses and other 15,419 16,737
-------- --------
Total Assets $426,843 $474,613
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
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<PAGE> 6
CONSOLIDATED BALANCE SHEETS Jones Spacelink, Ltd.
As of May 31, 1992 and 1991 and Subsidiaries
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' INVESTMENT 1992 1991
- - ---------------------------------------- -------- --------
(In Thousands)
<S> <C> <C>
LIABILITIES:
Accounts payable and accrued liabilities $ 28,835 $ 32,493
Subscriber prepayments and deposits 5,306 4,596
Credit facility of Jones Intercable, Inc. 66,000 82,300
Subordinated debentures and other debt of Jones Intercable, Inc. 233,300 263,378
Credit facility and other debt of Jones Spacelink, Ltd. 64,997 69,307
-------- --------
Total Liabilities 398,438 452,074
DEFERRED REVENUE AND INCOME 3,567 24,370
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 15,840 188
COMMITMENTS AND CONTINGENCIES (Note 13)
SHAREHOLDERS' INVESTMENT (DEFICIT):
Class A Common Stock, $.01 par value and a $1.00 liquidation
preference, 220,000,000 and 110,000,000 shares authorized at
May 31, 1992 and 1991, respectively; 75,939,689
and 75,889,689 shares issued and outstanding at
May 31, 1992 and 1991, respectively 759 759
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 37,882 36,513
Accumulated deficit (26,473) (35,853)
Less: Treasury stock of Jones Intercable, Inc. at cost,
net of minority interests (3,174) (3,442)
-------- --------
Total Shareholders' Investment (Deficit) 8,998 (2,019)
-------- --------
Total Liabilities and Shareholders' Investment (Deficit) $426,843 $474,613
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
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<PAGE> 7
CONSOLIDATED STATEMENTS OF OPERATIONS Jones Spacelink, Ltd.
For the years ended May 31, 1992, 1991 and 1990 and Subsidiaries
<TABLE>
<CAPTION>
1992 1991 1990
-------- -------- --------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
REVENUES:
Subscriber service fees $106,274 $ 96,511 $ 80,710
Management fees 17,814 16,153 14,895
Encryption sales and manufacturing services 3,680 1,997 910
Audio programming services 2,156 1,190 --
Brokerage fees 1,693 2,486 10,362
Partnership fees, distributions and other 27,076 284 9,009
-------- -------- --------
Total Revenues 158,693 118,621 115,886
COSTS AND EXPENSES:
Operating, general and administrative expenses, including
amounts allocated from Jones International, Ltd. of
$2,414,000, $3,177,000 and $3,876,000 in 1992, 1991
and 1990, respectively (74,395) (66,517) (55,145)
Depreciation and amortization (47,789) (47,341) (42,043)
-------- -------- --------
Operating Income 36,509 4,763 18,698
OTHER INCOME (EXPENSE):
Interest expense (44,099) (51,393) (59,661)
Interest charged to cable television systems held for
resale to managed limited partnerships 1,171 4,598 13,897
Equity in losses of partnerships and affiliated companies (8,111) (12,002) (4,572)
Interest income 4,791 2,331 2,453
Litigation settlement -- (3,413) --
Gain on sale of assets 29,933 -- --
Other, net 607 (937) (311)
-------- -------- --------
Income (Loss) Before Income Tax Benefit (Provision),
Minority Interests and Extraordinary Items 20,801 (56,053) (29,496)
INCOME TAX BENEFIT (PROVISION) (7,554) 1,112 8,506
-------- -------- --------
Income (Loss) Before Minority Interests and
Extraordinary Items 13,247 (54,941) (20,990)
MINORITY INTERESTS IN NET (INCOME) LOSS OF CONSOLIDATED
SUBSIDIARIES (5,119) 30,376 15,695
-------- -------- --------
Income (Loss) Before Extraordinary Items 8,128 (24,565) (5,295)
EXTRAORDINARY ITEMS:
Gain (Loss) on early extinguishment of debt by Jones
Intercable, Inc., net of related minority interests
and income taxes (568) 2,789 (457)
Tax benefit from loss carryforward utilization by Jones
Intercable, Inc., net of minority interests 1,380 -- --
-------- -------- --------
Net Income (Loss) $ 8,940 $(21,776) $ (5,752)
======== ======== ========
PER SHARE DATA:
Income (Loss) before extraordinary items $ .11 $ (.32) $ (.07)
Effect of extraordinary items .01 .03 (.01)
-------- -------- --------
Net Income (Loss) Per Common Share $ .12 $ (.29) $ (.08)
======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 76,346 76,305 76,262
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
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<PAGE> 8
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT Jones Spacelink, Ltd.
For the years ended May 31, 1990, 1991 and 1992 and Subsidiaries
<TABLE>
<CAPTION>
Total
Class A Class B Additional Shareholders'
Common Stock Common Stock Paid-In Accumulated Treasury Investment
($.01 Par Value) ($.01 Par Value) Capital Deficit Stock (Deficit)
---------------- ---------------- ---------- ----------- -------- -------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, May 31, 1989 $623 $ 4 $ 35,668 $ (5,640) $(2,525) $ 28,130
Issuance of common stock by Jones
Intercable, Inc., net of minority
interests -- -- 185 -- -- 185
Effects of the change in minority
interests -- -- (78) (11) -- (89)
Issuance of Jones Spacelink, Ltd.
Class A Common Stock to officers,
employees and others -- -- 50 -- -- 50
Treasury stock transactions of
Jones Intercable, Inc., net of
minority interests -- -- -- (32) 49 17
Dividends paid to Jones
International, Ltd. by The Jones
Group, Ltd. -- -- -- (612) -- (612)
Net loss -- -- -- (5,752) -- (5,752)
---- ---- -------- --------- ------- ---------
BALANCE, May 31, 1990 623 4 35,825 (12,047) (2,476) 21,929
---- ---- -------- --------- ------- ---------
Issuance of common stock by Jones
Intercable, Inc., net of minority
interests -- -- 16 -- -- 16
Effects of the change in minority
interests -- -- 421 (252) -- 169
Issuance of Jones Spacelink, Ltd.
Class A Common Stock for Jones
Galactic Radio, Inc. acquisition 136 -- 251 41 -- 428
Investment in Jones Galactic Radio,
Inc. by Jones Intercable, Inc.,
net of minority interests -- -- -- (1,052) -- (1,052)
Investment in International
Aviation, Inc. by Jones
Intercable, Inc., net of minority
interest -- -- -- (423) -- (423)
Treasury stock transactions of
Jones Intercable, Inc., net of
minority interests -- -- -- -- (966) (966)
Dividends paid to Jones
International, Ltd. by The Jones
Group, Ltd. -- -- -- (344) -- (344)
Net loss -- -- -- (21,776) -- (21,776)
---- ---- -------- --------- ------- ---------
BALANCE, May 31, 1991 759 4 36,513 (35,853) (3,442) (2,019)
---- ---- -------- --------- ------- ---------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
-68-
<PAGE> 9
<TABLE>
<S> <C>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT Jones Spacelink, Ltd.
For the years ended May 31, 1990, 1991 and 1992 and Subsidiaries
</TABLE>
<TABLE>
<CAPTION>
TOTAL
CLASS A CLASS B ADDITIONAL SHAREHOLDERS'
COMMON STOCK COMMON STOCK PAID-IN ACCUMULATED TREASURY INVESTMENT
($.01 PAR VALUE) ($.01 PAR VALUE) CAPITAL DEFICIT STOCK (DEFICIT)
---------------- ---------------- ---------- ----------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, May 31, 1991 $759 $4 $ 36,513 $ (35,853) $(3,442) $ (2,019)
Issuance of common stock by Jones
Intercable, Inc., net of minority
interests -- -- 2,255 -- -- 2,255
Effects of the change in minority
interests -- -- (950) 614 -- (336)
Issuance of Jones Spacelink, Ltd.
Class A Common Stock to employees -- -- 64 -- -- --
Treasury stock transactions of
Jones Intercable, Inc., net of
minority interests -- -- -- -- 268
Dividends paid to Jones
International, Ltd. by The Jones
Group, Ltd. -- -- -- (174) -- (174)
Net income -- -- -- 8,940 -- 8,940
--
----- --- --------- ----------- -------- ------------
BALANCE, May 31, 1992 $759 $4 $ 37,882 $ (26,473) $(3,174) $ 8,998
============== ============== ========= =========== ======== ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
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<PAGE> 10
CONSOLIDATED STATEMENTS OF CASH FLOWS Jones Spacelink, Ltd.
For the years ended May 1, 1992, 1991 and 1990 and Subsidiaries
<TABLE>
<CAPTION>
1992 1991 1990
--------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 8,940 $ (21,776) $ (5,752)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Extraordinary tax benefit from loss carryforward utilization
net of loss on early extinguishment of debt by Jones
Intercable, Inc., and net of minority interests (812) (2,789) 457
Minority interests in net income (loss) of consolidated
subsidiaries 5,119 (30,376) (15,695)
Gain on sale of assets (29,933) -- --
Depreciation and amortization 47,789 47,341 42,043
Deferred income tax benefit (provision) 7,554 (1,206) (2,405)
Deferral (recognition) of distribution revenue (20,373) 20,373 --
Recognition of deferred revenue and income (431) (370) (353)
Equity in losses of limited partnerships and affiliated
companies 8,111 12,002 4,572
Amortization of discounts on debentures 808 860 251
Increase in trade accounts receivable (1,976) (609) (1,172)
Decrease in other receivables, deposits, prepaid expenses and
other assets 1,893 7,312 2,207
Increase (decrease) in accounts payable and accrued liabilities
and subscriber prepayments and deposits (3,807) 581 7,363
--------- --------- ---------
Net cash provided by operating activities 22,882 31,343 32,216
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of cable television systems by Jones Intercable, Inc. -- -- (4,139)
Purchase of cable television systems by Jones Spacelink, Ltd. -- -- (37,945)
Purchase of property, plant and equipment, net (19,295) (30,737) (32,429)
Sale of cable television system by Jones Intercable, Inc. 15,000 -- --
Liquidation of partnership interest by Jones Intercable, Inc. 40,000 -- --
Reimbursement of partnership investment 7,256 -- --
Sales of cable television systems held for resale to managed
partnerships and other affiliated entities 28,467 96,950 164,919
Investment in cable television systems held for resale to limited
partnerships (26,923) (6,249) (257,164)
Investments in cable television partnerships and corporate stock (19,534) (44,760) (13,806)
Investment in The Mind Extension University, Inc. by Jones
Intercable, Inc. (1,651) -- --
Investment in International Aviation, Ltd. and Jones Galactic
Radio, Inc. by Jones Intercable, Inc. -- (5,241) --
Other, net 3,128 5,985 918
--------- --------- ---------
Net cash provided by (used in) investing activities 26,448 15,948 (179,646)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale and issuance of Class A Common Stock of
Jones Intercable, Inc., net of minority interests 2,255 16 185
Effects on shareholders' investment of changes in minority
interests (336) 169 693
Payment of dividends to Jones International, Ltd. by The Jones
Group, Ltd. (174) (344) (612)
Proceeds from borrowings, primarily by Jones Intercable, Inc. 140,530 89,035 307,822
Repayment of borrowings, primarily by Jones Intercable, Inc. (161,139) (115,371) (153,972)
Redemption of debentures by Jones Intercable, Inc. including loss
on early extinguishment (33,180) (20,749) (33,000)
Decrease (increase) in advances to affiliated entities (4,571) 2,627 (11,644)
Decrease (increase) in minority interests in consolidated
subsidiaries 7,759 (3,793) (121)
Sale (purchase) of treasury stock by Jones Intercable, Inc., net
of minority interests 268 (966) 49
Other, net (1,889) (1,513) 525
--------- --------- ---------
Net cash provided by (used in) financing activities (50,477) (50,889) 109,925
--------- --------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (1,147) (3,598) (37,505)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 4,101 7,699 45,204
--------- --------- ---------
CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 2,954 $ 4,101 $ 7,699
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
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<PAGE> 11
JONES SPACELINK, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1992, 1991 AND 1990
(1) ORGANIZATION AND BASIS OF PRESENTATION, BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES:
Organization and Basis of Presentation
Jones Spacelink, Ltd. ("Spacelink") was incorporated on March 24,
1980, and since its inception has been majority-owned by Jones
International, Ltd. ("International"), whose sole shareholder is Glenn
R. Jones, Chief Executive Officer and Chairman of the Board of
Directors of Spacelink. As of May 31, 1992, International, Glenn R.
Jones and certain of their affiliates owned 66,140,834 shares, or
approximately 87 percent of Spacelink's outstanding Class A Common
Stock and 415,000 shares, or 100 percent, of Spacelink's outstanding
Class B Common Stock.
As of May 31, 1992, Spacelink had authorized 220,000,000 shares of
Class A Common Stock and 415,000 shares of Class B Common Stock.
Neither class has a preference with respect to dividends or upon
liquidation. At May 31, 1992, certain provisions of Spacelink's credit
agreements restrict it from paying cash dividends. With respect to
voting matters not requiring a class vote, the holders of the Class A
Common Stock and the holders of the Class B Common Stock vote as a
single class provided, however, that holders of Class B Common Stock
have one vote for each share and holders of Class A Common Stock have
one-twentieth of one vote for each share. In addition, 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 percent of the total membership of the Board of
Directors.
Spacelink's 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") and Jones Intercable, Inc. ("Intercable"). At May
31, 1992, Spacelink owned directly 80.1 percent and indirectly an
additional 4.5 percent of the Common Stock of Jones Group, 81 percent
directly and indirectly 4.3 percent of Galactic Radio and
approximately 58 percent of the outstanding Common Stock (23 percent
of both classes of outstanding shares) of Intercable.
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<PAGE> 12
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
loan agreements of Intercable generally restrict it from transferring
funds to Spacelink in the form of cash dividends, loans, advances or
in any other form. Therefore, as a result of these restrictions, the
net assets of Intercable 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 restrictions 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 Chief Executive Officer and
Chairman of the Board, Glenn R. Jones, or his personal representative.
Spacelink's share of the net restricted assets of Intercable, defined
as Intercable's total shareholder's investment less related minority
interests, was approximately $4,547,000 at May 31, 1992.
During fiscal 1991, Intercable recognized net losses, in part because
of depreciation and amortization expenses and from the deferral of
certain partnership fees and distributions, which at May 31, 1991
caused the minority interests in the net losses of Intercable to
exceed the minority interests in the equity capital of Intercable. As
required by generally accepted accounting principles, the minority
interest in the net losses of Intercable in excess of the minority
interest in the equity capital of Intercable must be charged to
Spacelink. As a result, during fiscal 1991, Spacelink recorded losses
of $7,170,000 in excess of its then 24 percent interest in
Intercable's fiscal 1991 net loss. During fiscal 1992, Intercable
recognized net income which created positive shareholders equity and
as a result, all of the $7,170,000 of excess losses recorded by
Spacelink in fiscal 1991 were charged to the minority interests in
Intercable during fiscal 1992.
Business
Spacelink, Intercable and certain of their wholly owned subsidiaries
own and operate cable television systems. These entities also manage
cable television systems owned by private and public limited
partnerships for which they are general partner.
Jones Group is a cable television system brokerage company which
performs brokerage services primarily for Spacelink, Intercable and
their managed limited partnerships. For acting as the broker in
acquisitions for these entities, Jones Group generally earns fees
which range from 1.5 percent to 4 percent of the lower of the purchase
price or appraised value of the properties acquired from unaffiliated
entities. In addition, Jones Group generally earns brokerage fees
which range from 1.25 percent to 2.5 percent of the sales price as
compensation for brokering the sale of cable television systems to
unrelated parties for these entities.
Futurex is engaged in the business of developing and manufacturing
security products which provide encrypt/decrypt and message
authentication capabilities for remote-site personal computers. The
security products are sold primarily to the financial community. In
addition, Futurex provides high technology contract manufacturing
services to the electronics industry.
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<PAGE> 13
Galactic Radio, through a subsidiary, is in partnership with an
unaffiliated company in the joint venture known as "Superaudio."
Superaudio is in the audio programming business and provides
satellite-delivered audio services to cable television system
operators, which in turn provide the audio services to their cable
system subscribers. Superaudio's accounts are reflected using the
equity method of accounting. Galactic Radio is also in the business,
through Jones Satellite Audio, Inc. ("Satellite Audio"), a wholly
owned subsidiary, of delivering programming to radio stations
throughout the United States via satellite. Satellite Audio's accounts
are consolidated with Galactic Radio.
Summary of Significant Accounting Policies
Statements of Cash Flows - For purposes of reporting cash flows, cash
and cash equivalents, which principally relate to Intercable, include
cash on hand, amounts due from banks and all highly liquid investments
purchased with a maturity of three months or less, when acquired.
Supplemental disclosures of amounts paid for consolidated income taxes
and interest during the years ended May 31, 1992, 1991 and 1990 are as
follows:
<TABLE>
<CAPTION>
1992 1991 1990
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Income taxes paid (received) $(2,226) $132 $ 2,062
======= ======= =======
Interest, net of amounts charged to cable
television systems held for resale $44,730 $48,214 $43,683
======= ======= =======
</TABLE>
Supplemental disclosures of noncash investing and financing activities
for the years ended May 31, 1992, 1991 and 1990 are as follows:
No material non-cash investing or financing transactions occurred
during fiscal 1992 and 1990. In July 1990, as described in Note 4,
Spacelink acquired 81 percent of the Class A and Class B Common Stock
of Galactic Radio by issuing 13,581,229 shares of its Class A Common
Stock. As a result of the acquisition, Spacelink acquired assets of
$1,019,000, assumed liabilities totalling $599,000 and acquired equity
totalling $428,000.
Investments in Cable Television Managed Partnerships and Corporate
Stock - Investments in managed partnerships and corporate stock are
carried at cost plus equity in profits and losses.
Acquisition Accounting - Spacelink, Intercable and certain of their
wholly owned subsidiaries record the acquisitions of cable television
systems for their own accounts using the purchase method of
accounting.
Property, Plant and Equipment - Prior to receiving the first revenues
from subscribers of a cable television system, all construction costs,
operating expenses and interest related to the system are capitalized.
From the time of such receipt until completion of construction, but no
longer than two years (defined as the "prematurity period"), portions
of certain fixed operating expenses and interest are capitalized in
addition to direct construction costs. The portions capitalized are
decreased as progress is made toward obtaining the subscriber level
expected at the end of the prematurity period, after which no further
expenses are capitalized. No such amounts were capitalized during
the years ended May 31, 1992, 1991 and 1990. In addition, costs
(including labor, overhead and other costs of completion)
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<PAGE> 14
associated with installation in homes not previously served by cable
television are capitalized and included as "distribution systems".
Replacements, renewals and improvements are capitalized and
maintenance and repairs are charged to expense as incurred.
Depreciation of property, plant and equipment is provided using the
straight-line method primarily ever the following estimated service
lives:
<TABLE>
<S> <C>
Distribution systems, including capitalized
interest and operating expenses 5-15 years
Buildings 10-20 years
Equipment and tools 3-5 years
Premium service equipment 5 years
Earth receive stations 5-15 years
Vehicles 3-5 years
Leasehold improvements Lesser of term
of lease or 10 years
Other property, plant and equipment 3-15 years
</TABLE>
Franchise Cost - Costs incurred in obtaining cable television
franchises and other operating authorities are initially deferred and
amortized using the straight-line method over the life of the
franchises beginning with the dates the related systems become
operational. Franchise rights acquired through purchase of cable
television systems are recorded at estimated fair market value at the
date of the acquisition and are amortized over the remaining terms of
the franchises. Amortization is determined using the straight-line
method over lives of seven to twenty years.
Other Intangible Asset
Costs assigned to intangible assets are being amortized using the
straight-line method over the following estimated useful lives:
Subscriber lists 5-7 years
Costs in excess of interests in
net assets purchased 40 years
Noncompete agreements 3-5 years
Deferred Financing Costs- Costs incurred in connection with the
issuance of subordinated debentures are deferred and amortized using
the effective interest method over the life of such issues.
Investment in Cable Television Systems Held for Resale Managed Limited
Partnerships - Revenues and expenses attributable to cable television
systems held on behalf of managed partnerships are not reflected in
the consolidated statements of operations. Any net cash deficiency
generated by systems held for resale, which is defined as the excess
of operating expenses and interest expense over operating receipts, is
capitalized as carrying costs and included in the amounts shown as
investments in cable television systems held for resale to managed
limited partnerships in the accompanying consolidated balance sheets.
Recognition of Brokerage Fees- Recognition of brokerage fees earned
upon the acquisition of cable television systems by Spacelink or
Intercable is initially deferred and such fees are recognized as
revenue as the related assets are amortized by Spacelink or
Intercable, or at such time as the cable television systems are
transferred to a non-consolidated entity. Total
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<PAGE> 15
deferred brokerage fees at May 31, 1992 and 1991 were approximately
$3,396,000 and $3,827,000, respectively, and are included in deferred
revenue and income in the accompanying consolidated balance sheets.
See Note 3 for further information with respect to brokerage fees
earned by Jones Group.
Recognition of Partnership Fees and Distributions - Partnership fees
and distributions earned by Spacelink or Intercable related to cable
television properties sold to unaffiliated parties are recorded as
revenues when received. Partnership fees and distributions earned by
Spacelink or Intercable as general partner of Spacelink or
Intercable-managed limited partnerships related to cable television
properties purchased by Spacelink or Intercable are treated as a
reduction of the purchase prices of the cable television systems
purchased. Fees and distributions earned by Spacelink or Intercable as
general partner of managed limited partnerships related to cable
television properties sold to entities in which Spacelink or
Intercable have a continuing equity interest are deferred and
recognized as revenue in future periods based on the operating
performance of the acquiring entity.
Income Taxes - Spacelink and its consolidated subsidiaries excluding
Intercable are members of a tax allocation agreement with
International arid International's other subsidiaries. Pursuant to the
terms of the agreement, tax (provisions) benefits are provided to the
members of the tax sharing group based on their respective pro rata
contribution of taxable (income) loss to International's consolidated
taxable (income) loss.
Intercable files separate Federal and state income tax returns and, as
a result, provides for taxes on a separate-company basis using the
deferred tax method.
Net Loss Per Common Share- Net income (loss) per share is computed
based on the weighted average number of Spacelink's shares of Class A
Common Stock and Class B Common Stock outstanding. Options to purchase
shares of Class A Common Stock have not been included in the
computation as the effect would be either insignificant or
anti-dilutive.
Reclassifications - Certain prior year amounts have been reclassified
to conform to fiscal year 1992 presentation.
(2) TRANSACTIONS WITH AFFILIATED ENTITIES:
International controls various subsidiaries that provide services to
Spacelink and its consolidated subsidiaries and the limited
partnerships for which Spacelink, certain of its wholly owned
subsidiaries and Intercable are general partners (see Note 8). These
entities have had, and will continue to have, certain transactions
with International and its other subsidiaries. Principal recurring
transactions are described below.
Jones Information Management, Inc., a wholly owned subsidiary of
International, provides information management and data
processing services to all entities affiliated with International,
including the entities described above. Charges to the various
entities are based on computer usage by each entity.
International Aviation, Ltd., a wholly owned subsidiary of Intercable,
which was acquired from International in July 1990, owns and operates
the corporate aircraft for all the entities described above and for
International and certain of its subsidiaries. Charges to the various
entities are based on usage of the aircraft by corporate personnel.
-75-
<PAGE> 16
Spacelink and certain of its consolidated subsidiaries including
Intercable, are parties to a lease with Jones Properties, Inc., a
wholly owned subsidiary of International, under which they have leased
a 101,500 square foot office building in Englewood, Colorado. The
lease agreement, as amended, has a 15-year term, with three 5-year
renewal options. THE annual rent is not to exceed $24.00 per square
foot, plus operating expenses. Spacelink and certain of its
consolidated subsidiaries including Intercable, have subleased
approximately 26 percent of the leased space to International and
certain affiliates of International on the same terms and conditions
as the above-mentioned lease.
The cable television systems owned by Spacelink and Intercable receive
programming from Superaudio (an interest in which was acquired from
International as a part of Spacelink's acquisition of an interest in
Galactic Radio in July 1990, see Note 13) and from The Mind Extension
University, Inc., which is 67 percent owned by a subsidiary of
International. In addition, Spacelink owns 18 percent of The Mind
Extension University, Inc.
Jones Futura Foundation, Ltd., a wholly owned subsidiary of
International, has licensed to Futurex exclusive rights to
manufacture, market and sell certain data encryption hardware and
software products. The license fee is equal to 10 percent of
Futurex's revenues from the sale of certain encryption hardware and
software products.
Jones International Securities, Ltd., a wholly owned subsidiary of
International ("Jones Securities"), acts as dealer-manager of
substantially all of Spacelink's and Intercable's managed limited
partnership offerings. Generally, the dealer-manager receives fees
which total up to 10 percent of the capital contributed by the limited
partners, from which all sales commissions of participating
unaffiliated broker-dealers are paid. In addition, Spacelink and its
consolidated subsidiaries including Intercable reimburse Jones
Securities for certain expenses associated with the marketing of
limited partnership interests.
Certain additional operating, general and administrative expenses
incurred by International and its various subsidiaries, including the
costs of the services described above, are allocated to Spacelink and
its consolidated subsidiaries. A portion of certain of these EXPENSES
are reallocated to managed limited partnerships and the net amounts
are included in operating, general and administrative expenses in the
accompanying consolidated statements of operations. Spacelink believes
that the methodology used in
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<PAGE> 17
the allocation of expenses for services rendered to it by
International are reasonable. Such allocated expenses net of
reimbursements on a consolidated basis were as follows:
<TABLE>
<CAPTION>
For the Year Ended May 3,
-------------------------
1992 1991 1990
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Jones Information Management, Inc. $ 807 $ 873 $ 679
International Aviation, Ltd. - 101 180
Jones Properties, Inc., net of
subleasing reimbursements 511 471 533
Superaudio 157 153 213
The Mind Extension University, Inc. 87 88 80
Jones Futura Foundation, Ltd. 178 163 101
Jones International Securities, Ltd. 645 1,082 2,013
Other operating, general and
administrative expenses 70 246 77
------ ------ ------
Total allocated expenses net of
reimbursements $2,455 $3,177 $3,876
====== ====== ======
</TABLE>
Spacelink and its consolidated subsidiaries including Intercable
reimburse International for certain allocated costs as described
above. In addition, Spacelink and its consolidated subsidiaries
excluding Intercable are allocated tax provisions (benefits) from
International pursuant to a tax allocation agreement with
International. In August 1992, the tax allocation agreement with
International was amended (the "Tax Sharing Agreement") giving
International the option to either make a payment of the tax benefits
due the subsidiary members of the Tax Sharing Agreement or to defer
such payments until a subsequent taxable period in which the
subsidiary member generates taxable income and has a tax payment due
either to International or to a Federal or state taxing authority. Any
deferred amounts will be due and payable no later than five years from
the date the deferred amount originates and such deferred amounts will
accrue interest at the prime rate in effect at the time the deferred
amount originates. These deferral provisions of the Tax Sharing
Agreement also apply to the outstanding amounts due Spacelink from
International for tax benefits for the fiscal years ended May 31, 1991
and 1990 of $826,000 and $378,000, respectively.
For the fiscal year ended May 31, 1992, the tax benefits due Spacelink
from International totalled $355,000. Because payment of this amount
will be deferred for up to five years as provided under the Tax
Sharing Agreement, no income tax benefit has been recognized in the
Consolidated Statements of Operations.
Spacelink and International currently own 18 percent and 67 percent,
respectively, of the outstanding stock of The Mind Extension
University, Inc., a company engaged in the provision of educational
programming to cable operators and others. In September 1991,
Spacelink's Board of Directors authorized Spacelink to make advances
of up to $2,000,000 to International and/or certain of its affiliates,
including The Mind Extension University, Inc. These amounts will
accrue interest at Spacelink's weighted average cost of borrowing plus
2 percent, and will be due 180 days after demand by Spacelink. Any
advances to International will be subject to available demand by
Spacelink.
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<PAGE> 18
At May 31, 1992 and 1991 amounts due from International to Spacelink
and its consolidated subsidiaries including Intercable were as
follows:
<TABLE>
<CAPTION>
May 31, May 31,
1992 1991
------- -------
(In Thousands)
<S> <C> <C>
Spacelink:
Amounts due for tax benefits and related
interest $1,602 $1,641
Advances to The Mind Extension University,
Inc. and accrued interest 2,024 -
Other advances 66 30
------ ------
Total due Spacelink 3,692 1,671
------ ------
Intercable:
Advances to The Mind Extension University,
Inc. and accrued interest 2,000 -
Other advances - 91
------ ------
Total due Intercable 2,000 91
------ ------
Total due from International $5,692 $1,762
====== ======
</TABLE>
In connection with the above advances due Spacelink and its consolidated
subsidiaries including Intercable, interest was charged to International
on these advances at rates which approximated International's average
borrowing rates during the respective periods. For the years ended May 31,
1992, 1991 and 1990 Spacelink and its consolidated subsidiaries recorded
interest income (expense) totalling $374,000, ($3,000) and ($159,000),
respectively. While at May 31, 1991 and 1990 amounts were due to Spacelink
from International, generally during fiscal 1991 and 1990 International
had made advances to Spacelink and its consolidated subsidiaries including
Intercable, resulting in interest expense for the year.
Also, see Note 8 for other information with respect to transactions
between Spacelink, Intercable and their managed limited partnerships
and see Note 10 for information with respect to income tax provisions
(benefits) between Spacelink and International.
(3) JONES GROUP BROKERAGE FEES AND DIVIDENDS:
As described in Note 1, Jones Group performs brokerage services for
Spacelink, Intercable and their managed limited partnerships. Brokerage
fees earned by Jones Group from these entities are as follows:
<TABLE>
<CAPTION>
May 31,
-----------------------------------
1992 1991 1990
------ ------- -------
(In Thousands)
<S> <C> <C> <C>
Earned from Spacelink and Intercable $ 65 $ 8 $ 541
Earned from third parties 62 - -
Earned from Managed Limited Partnerships 1,135 2,108 10,001
------ ------ -------
Total Brokerage Fees 1,262 2,116 10,542
Recognition (Deferral) of Brokerage Fees 431 370 (180)
------ ------ -------
Brokerage Fees, net $1,693 $2,486 $10,362
====== ====== =======
</TABLE>
-78-
<PAGE> 19
During the years ended May 31, 1992, 1991 and 1990, Jones Group paid
dividends to International in the amount of $174,000, $344,000 and
$612,000, respectively.
Jones Group dividends relating to earnings from brokerage fees in
connection with certain purchase and sale transactions which were
pending when Spacelink acquired International's remaining 20.1 percent
interest in the Jones Group in January 1989, accrued to the benefit of
Spacelink, Intercable and International based on their respective
ownership percentages immediately preceding the January 1989 exchange.
All other Jones Group dividends will accrue to the benefit of
Spacelink and Intercable based on their direct equity ownership of
80.1 and 19.9 percent, respectively.
(4) ACQUISITION BY SPACELINK:
Acquisition of Kenosha, Wisconsin Cable Television System by Spacelink -
In July 1989, Spacelink entered into an agreement with Total TV of
Kenosha, an affiliated partnership managed by Intercable, to acquire
for Spacelink's own account the cable television system serving the
area in and around the municipalities of Kenosha, Pleasant Prairie and
Somers, all in the State of Wisconsin (the "Kenosha System") for
approximately $37,945,000, which price represents the contract
purchase price, the reimbursement of capital expenditures totalling
approximately $74,000 from the contract date to the closing date, a
brokerage fee and certain other acquisition costs. The purchase price
was determined on the basis of the average of three separate
independent appraisals of the fair market value of the Kenosha System
and was the highest bid received in a public bidding process.
Closing of the Kenosha System occurred in September 1989. Jones Group
received a fee from Spacelink of approximately $374,000 for brokering
the acquisition. Spacelink financed the acquisition from the proceeds
of borrowings under its credit facility.
The following reflects the pro forma effect of the acquisition by
Spacelink of the Kenosha System on the consolidated results of
operations of Spacelink and its subsidiaries for the year ended May
31, 1990, assuming the acquisition had occurred as of the beginning of
the period.
<TABLE>
<CAPTION>
For the year ended May 31, 1990
-----------------------------------------
As Pro Forma Pro Forma
Reported Adjustments Balance
-------- ----------- ----------
(In Thousands, except Per Share Data)
<S> <C> <C> <C>
Revenues $115,886 $ 2,076 $117,962
======== ======= ========
Depreciation and Amortization $(42,043) $(1,376) $(43,419)
======== ======= ========
Operating Income (Loss) $ 18,372 $ (735) $ 17,637
======== ======= ========
Net Loss $ (5,752) $(1,856) $ (7,608)
======== ======= ========
Net Loss per Common Share $ (.08) $ (.02) $ (.10)
======== ======= ========
</TABLE>
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<PAGE> 20
(5) ACQUISITIONS BY SPACELINK ON BEHALF OF SPACELINK-MANAGED PARTNERSHIPS:
Acquisition of Cable Television Systems -
In August 1990, Spacelink entered into an agreement with
unaffiliated parties to acquire, for the account of Jones Growth
Partners II L.P. ("Jones Growth II") a Spacelink-managed limited
partnership, the cable television systems serving the areas in and
around the communities of Yorba Linda, certain portions of Anaheim
Hills and Laguna Niguel, and, certain portions of unincorporated
Orange County, all in the State of California (the "Orange County
Cluster"). Upon execution of the agreement, Spacelink deposited
$1,400,000 in escrow. Because Jones Growth II did not have sufficient
funds to acquire the Orange County Cluster by the closing date, on
September 6, 1991, Spacelink acquired the Orange County Cluster, on
behalf of Jones Growth II, through its wholly owned subsidiary Jones
Spacelink Acquisition Corporation ("Acquisition Corp."), for a
purchase price of $29,012,000.
Acquisition Corp. acquired the Orange County Cluster with $29,780,000
of borrowed funds provided under Spacelink's acquisition facility for
the purpose of temporarily holding it until Jones Growth II had
sufficient funds and could otherwise acquire the Orange County
Cluster. Under the terms of the acquisition facility, Acquisition
Corp. borrowed $29,780,000 to finance the $29,012,000 purchase price
of the Orange County Cluster, as well as for its capital expenditures,
financing fees, acquisition and other costs. In addition, borrowings
were used to fund operating costs and interest expense in excess of
operating receipts incurred by Acquisition Corp. from the acquisition
date (September 6, 1991) through the date the Orange County Cluster
was transferred to Jones Growth II (April 17, 1992).
In January 1992, Acquisition Corp. entered into a letter of intent to
sell to an unaffiliated party, the portion of the Orange County
Cluster that serves cable television subscribers in Laguna Niguel,
California. On April 28, 1992, the Laguna Niquel system was sold for a
price of $2,100,000. Jones Group received a brokerage fee of $52,500
from the purchaser of the Laguna Niguel system in connection with the
brokerage firm's efforts to arrange the sale of the Laguna Niguel
system.
The $29,012,000 purchase price that was to be reimbursed to
Acquisition Corp. by Jones Growth II for the Orange County Cluster
accordingly was reduced by the amount of the Laguna Niguel system's
sales price, bringing the purchase price paid by Jones Growth II for
the remaining portions of the Orange County Cluster to approximately
$26,912,000. The brokerage fee paid by Jones Growth II to Jones Group,
which is 1.5 percent of the purchase price, was reduced to $403,681
because of this reduction in the purchase price.
On April 17, 1992, Jones Growth II acquired the remainder of the
Orange County Cluster, for approximately $28,467,000, which includes
$26,912,000 for the original purchase price of the Orange County
Cluster (without the Laguna Niguel system), brokerage fees paid to
Jones Group of $403,681 and other acquisition and financing costs of
$663,478.
-80-
<PAGE> 21
(6) SALES BY INTERCABLE:
Sale of Cable Television System and Partnership Interest by Intercable -
Jones Crown Partners, a general partnership in which Intercable owned
a 20 percent interest, was formed in November 1989 between a
subsidiary of Intercable and Crown Cable Wisconsin, Inc. ("Crown"), a
subsidiary of Hallmark Cards, Inc. In June 1990, Jones Crown Partners
purchased ten cable television systems in the state of Wisconsin (the
"Crown Systems") from certain of Intercable's managed limited
partnerships. On August 13, 1991, Intercable entered into an agreement
with Crown to liquidate Intercable's 20 percent interest in Jones
Crown Partners for $40,000,000 and to sell Intercable's Onalaska,
Wisconsin cable television system ("Onalaska System") to Crown for
approximately $15,000,000. Closing on this transaction occurred on
December 19, 1991. Intercable recognized a gain on the sale of its
Onalaska System, before income taxes, of approximately $6,400,000 and
a gain on the liquidation of its Jones Crown Partners investment,
before income taxes, of approximately $23,500,000. In addition,
partnership distribution revenues totalling approximately $20,736,000,
which were previously deferred by Intercable when Jones Crown Partners
acquired the Crown Systems in fiscal 1991, were recognized upon
closing. Jones Capital Markets, Inc., a subsidiary of International,
received a fee totalling $800,000 upon closing in connection with its
efforts to arrange this transaction. Of the total fee, $500,000 was
paid by Intercable and $300,000 was paid by Crown. Net proceeds from
this transaction totalling $54,500,000, representing the total
proceeds of $55,000,000 less the fee paid to Jones Capital Markets,
Inc. of $500,000, were used to repay amounts outstanding on
Intercable's then-existing credit facility. As of December 19, 1991,
the Crown Systems served approximately 145,100 basic subscribers and
the Onalaska System served approximately 9,300 basic subscribers.
The pro forma effect of this transaction on the results of operations
for the years ended May 31, 1992 and 1991, assuming this transaction
had occurred at June 1, 1990, is presented in the following unaudited
tabulation:
<TABLE>
<CAPTION>
Onalaska
As System and
Reported Jones Crown Pro Forma
May 31, 1992 Interest May 31, 1992
------------ ----------- ------------
(In Thousands, except Per Share Data)
<S> <C> <C> <C>
Revenues $158,693 $(22,540) $136,153
======== ======== ========
Operating income (loss) $ 36,509 $(20,466) $ 16,043
======== ======== ========
Net income (loss) $ 8,940 $(10,035) $ (1,095)
======== ======== ========
Net income (loss) per
Common Share $ .12 $ (.13) $ (.01)
======== ======== ========
</TABLE>
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<PAGE> 22
<TABLE>
<CAPTION>
Onalaska
As System and
Reported Jones Crown Pro Forma
May 31, 1991 Interest May 31, 1991
------------ ----------- ------------
(In Thousands, except Per Share Data)
<S> <C> <C> <C>
Revenues $ 118,621 $ (2,994) $ 115,627
========= ======== =========
Operating income (loss) $ 4,763 $ 567 $ 5,330
========= ======== =========
Net income (loss) $ (21,776) $ 2,812 $ (18,964)
========= ======== =========
Net income (loss) per
Common Share $ (.29) $ .04 $ (.25)
========= ======== =========
</TABLE>
(7) ACQUISITIONS BY INTERCABLE ON BEHALF OF INTERCABLE-MANAGED
PARTNERSHIPS:
In March 1989, Intercable, on its own behalf and/or on behalf of one
or more of its affiliates, entered into an agreement with unaffiliated
third parties to purchase certain cable television systems serving
portions of suburban Chicago, Illinois including the communities of
Addison, Glen Ellyn, Wheaton, St. Charles, Geneva, Winfield and West
Chicago ("Wheaton System Cluster"), Barrington, Elgin, South Elgin,
Hawthorne Woods, Kildeer, Indian Creek, Vernon Hills and Lake Zurich
("Barrington System Cluster"), Flossmoor, Riverside, Indianhead Park,
Hazel Crest, Thornton, Lansing, Matteson, Richton Park, University
Park, Crete, LaGrange Park, LaGrange, Olympia Fields and Western
Springs ("South Suburban System Cluster") and Aurora, North Aurora,
Montgomery, Plano, Oswego, Sandwich and Yorkville ("Aurora System
Cluster"), as well as the cluster of cable television systems serving
Cerro Gordo, Clinton, Gibson City, Chatsworth, Tolono, Leroy, Farmer
City, Monticello and Rantoul in central Illinois ("Central Illinois
System Cluster") (collectively, the "Centel Systems"), for a purchase
price of $340,000,000.
Included in the purchase price were $1,466,000 of assets relating to a
customer service center supporting the Centel Systems. Closing on
this acquisition occurred on October 4, 1989.
Intercable contracted for an independent allocation of the
$340,000,000 aggregate purchase price among the five clusters of
systems by an unaffiliated qualified appraiser, and then allocated the
clusters to various affiliated entities. Prior to closing, Intercable
transferred its rights under the purchase agreement for the Wheaton
System Cluster to Jones Growth Partners L.P., a public limited
partnership sponsored by a wholly owned subsidiary of Spacelink. Jones
Growth Partners L.P. purchased the Wheaton System Cluster directly for
the allocated purchase price of $97,100,000, plus closing adjustments
and brokerage fees. Intercable acquired the other four clusters of
cable systems for its own account or for the account of its managed
limited partnerships for the allocated purchase price of $242,900,000,
plus closing adjustments.
On December 21, 1989, Intercable transferred the Barrington System
Cluster to Cable TV Fund 15-A, Ltd., a public limited partnership
sponsored by Intercable. The sales price for the Barrington System
Cluster was
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<PAGE> 23
$75,500,000, which represented that portion of the aggregate purchase
price paid by Intercable for the Barrington System Cluster when
Intercable acquired the Centel Systems in October 1989. Upon the
transfer, Intercable was also reimbursed a total of $2,073,200,
which represented net closing adjustments, the costs incurred by
Intercable for capital expenditures during the holding period and the
amount of operating and interest expenses in excess of operating
receipts incurred by Intercable from the date of its acquisition of
the Barrington System Cluster (October 4, 1989) through December 21,
1989, the date the Barrington Systems were transferred to Cable TV
Fund 15-A, Ltd. Cable TV Fund 15-A, Ltd. also paid a brokerage fee of
$3,020,000 to Jones Group as compensation for brokering the purchase.
The Aurora System Cluster was transferred in May 1990 to IDS/Jones
Joint Venture Partners (the "Joint Venture"), a Colorado joint
venture between IDS/Jones Growth Partners 89-B, Ltd. and IDS/Jones
Growth Partners II, L.P. ("Partners II") both Intercable-sponsored
Colorado limited partnerships. Intercable transferred the Aurora
System Cluster to the Joint Venture for a sales price of $88,486,000,
which represented the allocated purchase price paid by Intercable for
the Aurora System Cluster, plus reimbursement to Intercable of
$7,386,000 for the net closing adjustments, the costs incurred by
Intercable during the holding period (October 4, 1989 through May 31,
1990), and the amount of operating and interest expenses in excess of
operating receipts incurred by Intercable during the holding period.
In connection with the purchase, the Joint Venture obtained a
$25,000,000 bridge loan with an original maturity date of May 31,
1991. The maturity date of the loan was extended to October 31, 1991.
Equity contributions made to the Joint Venture by Partners II were
used to pay down the bridge loan to $2,500,000. Due to the necessity
for additional funding for the Joint Venture, Intercable has made an
equity investment in the Joint Venture in the amount of $2,872,000 and
a loan to the Joint Venture of $1,800,000. IDS Management
Corporation, an affiliate of the co-general partner of Partners II,
has also made an equity investment of $2,872,000 in the Joint Venture,
and a loan to the Joint Venture of $1,800,000. The equity investments
were used to repay the balance outstanding on the bridge loan and to
pay acquisition fees of $3,244,000 to affiliates of the general
partners of Partners II. The loan proceeds were used for Joint Venture
working capital needs. Intercable's loan is for a term of two years,
with interest calculated at its weighted average cost of borrowing.
If the loan is unpaid at maturity, Intercable will have the right,
among other rights, to convert the loan to equity in the Joint
Venture. As a result of the equity contribution in the Joint Venture,
Intercable has an approximate five percent equity interest in the
Joint Venture.
On September 28, 1990, Intercable transferred the South Suburban
System Cluster to Cable TV Fund 15-A, Ltd. The sales price for the
South Suburban System Cluster was $59,960,000, which represented that
portion of the aggregate purchase price paid for the South Suburban
System Cluster by Intercable when Intercable acquired the Centel
Systems in October 1989. Upon the transfer, Intercable was also
reimbursed a total of $8,190,000, which represented net closing
adjustments, the costs incurred by Intercable for capital expenditures
during the holding period and the amount of operating and interest
expenses in excess of operating receipts incurred by Intercable from
the date of its acquisition of the South Suburban System Cluster
(October 4, 1989) through September 28, 1990, the date the South
Suburban System Cluster was transferred to Cable TV Fund 15-A, Ltd.
Cable TV Fund 15-A, Ltd. also paid a brokerage fee of $2,398,000 to
Jones Group as compensation for brokering the purchase.
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<PAGE> 24
On May 30, 1991, Intercable transferred the Central Illinois System
Cluster to Cable TV Fund 14-A, Ltd. The sales price for the Central
Illinois System Cluster was $24,974,000, which represented that
portion of the aggregate purchase price paid for the Central Illinois
System Cluster by Intercable when Intercable acquired the Centel
Systems in October 1989. Upon the transfer, Intercable was also
reimbursed a total of $3,826,000, which represented net closing
adjustments, the cost incurred by Intercable for capital expenditures
during the holding period and the amount of operating and interest
expenses in excess of operating receipts incurred by Intercable from
the date of its acquisition of the Centra1 Illinois System
Cluster (October 4, 1989) through May 30, 1991, the date the Central
Illinois System Cluster was transferred to Cable TV Fund 14-A, Ltd.
Cable TV Fund 14-A, Ltd. also paid a brokerage fee of $999,000 to
Jones Group as compensation for brokering the purchase. Upon the
transfer of the Central Illinois System Cluster, all of the Centel
Systems which were held for resale to managed partnerships had been
transferred.
Funds necessary for Intercable to complete the acquisition of the
Centel Systems were provided by a $240,000,000 acquisition note
maturing October 1, 1990 and $5,788,000 from Intercable's revolving
credit facility.
(8) MANAGED LIMITED PARTNERSHIPS:
Spacelink, certain of its wholly owned subsidiaries and Intercable are
the general partners for a number of limited partnerships formed to
acquire, construct, develop and operate cable television systems.
Partnership capital has been raised through a series of public and
private offerings of limited partnership interests. As general
partner, capital contributions ranging from $500 to $1,000 are made to
each partnership and the general partner is allocated one percent of
all partnership profits and losses.
These entities may also purchase limited partner interests in the
partnerships and, if they do so, participate with respect to such
interests on the same basis as other limited partners. Subject to
certain limitations, the sponsor is also reimbursed for offering costs
incurred in connection with each partnership offering. To the extent
offering costs are incurred that are in excess of the specified
limits, the excess offering costs are borne by the sponsor and are
generally expensed. In addition, the sponsor is allocated expenses
associated with the marketing of limited partnership interests. For
the fiscal years ended May 31, 1992, 1991 and 1990, the sponsors
recognized as "other expense" offering costs in excess of amounts
reimbursable by limited partnerships totalling $2,046,000, $-O- and
$326,000, respectively.
As general partner, Jones Spacelink Funds, Inc., a wholly owned
subsidiary of Spacelink, is contingently liable for recourse debt of a
certain managed limited partnership, which totalled $2,400,000 and
$2,625,000 at May 31, 1992 and 1991, respectively. Spacelink believes
such debt is secured by partnership assets and other collateral with
fair market values in excess of the related obligation.
As general partner, Spacelink, certain of its wholly owned
subsidiaries and Intercable manage the partnerships and receive a fee
for their services generally of five percent of the gross revenues of
the partnerships, excluding revenues from the sale of cable television
systems or franchises. Any partnership distributions made from cash
flow, as defined, are generally allocated 99 percent to the limited
partners and one percent to the general
-84-
<PAGE> 25
partner. For certain of the managed limited partnerships,
distributions other than from cash flow, such as from the sale or
refinancing of systems or upon dissolution of the partnerships, are
generally made as follows: first, to the limited partners in an
amount which, together with all prior distributions, ranges from 100
to 125 percent of the amount contributed to the partnership capital by
the limited partners; and the balance, in an amount which ranges from
70 percent to 75 percent to the limited partners and from 25 to 30
percent to the general partner.
Regarding Jones Growth Partners L.P., for which a wholly owned
subsidiary of Spacelink is managing general partner, any partnership
distributions made from cash flow, as defined, are generally allocated
99 percent to the limited partners and one percent to the managing
general partner. Any distributions other than from cash flow are
generally made as follows: first, to the limited partners in an
amount which, together with all prior distributions made from sources
other than cash flow, will equal the amount initially contributed to
partnership capital by the limited partners; second, to the limited
partners an amount equal to eight percent per annum, cumulative and
non-compounded, on an amount equal to their initial capital
contributions (less any portion of such initial capital contributions
returned by the distribution to limited partners from prior sale or
refinancing proceeds) provided, however, that the eight percent return
will be reduced by all prior distributions of cash flow from the
partnership and prior distributions of proceeds of sales or
refinancings that exceed an amount equal to the limited partner's
initial capital contributions; and the balance, in an amount of 75
percent to the limited partners, 15 percent to the managing general
partner and 10 percent to the associate general partner, which
associate general partner is not affiliated with Spacelink or its
subsidiaries.
Regarding Jones Growth II, for which a wholly owned subsidiary of
Spacelink is general partner, any partnership distributions made from
cash flow, as defined, are generally allocated 99 percent to the
limited partners and one percent to the general partner. Any
distributions other than from cash flow are generally made as follows:
first, to the limited partners in an amount which, together with all
prior distributions made from sources other than cash flow, will equal
the amount initially contributed to partnership capital by the limited
partners; second, to the limited partners an amount equal to eight
percent per annum, cumulative and noncompounded, on an amount equal to
their initial capital contributions (less any portion of such initial
capital contributions returned by the distribution to limited partners
from prior sale or refinancing proceeds) provided, however, that the
eight percent return will be reduced by all prior distributions of
cash flow from the partnership and prior distributions of proceeds of
sales or refinancings that exceed an amount equal to the limited
partner's initial capital contributions; third, any remaining income
or gain shall be allocated 80 percent to the limited partners and 20
percent to the General Partner until the limited partners have
received 250 percent of their initial capital contribution, after
which any remaining income or gain shall be allocated 75 percent to
the limited partners and 25 percent to the general partner.
Regarding Jones Spacelink Income Partners 87-1, L.P. and Jones
Spacelink Income/Growth Fund 1, for which Spacelink and one of its
wholly owned subsidiaries are general partners, and Jones Cable Income
Funds and Cable TV Fund 15, for which Intercable is general partner,
any distributions other than from cash flow are generally made as
follows: first, to the limited partners in an amount which, together
with all prior distributions made from
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<PAGE> 26
sources other than cash flow, will equal the amount initially
contributed to partnership capital by the limited partners; second, to
the limited partners in an amount which, together with all prior
distributions from cash flow, will equal a preferred return ranging
from 6 percent to 12 percent per annum, cumulative and noncompounded,
on their adjusted capital contributions; and the balance, in an
amount which ranges from 60 percent to 75 percent to the limited
partners and 25 percent to 40 percent to the general partner.
Any distributions other than from cash flow made by Jones Intercable
Investors, L.P. (see Note 13), for which Intercable is General
Partner, are generally disbursed as follows: first, to the holders
of all Class A Units in an amount which, together with all prior
distributions of cash flow from operations, will equal a preferred
return equal to 10 percent per annum, cumulative and noncompounded
on an amount equal to $16.00 per Class A Unit, less any portion of
such amount which may have been returned to the unitholders from
prior sale or refinancing proceeds; second, to the holders of Class A
Units, an amount which, together with all prior distributions other
than distributions of cash flow from operations, will equal $16.00 per
Class A Unit; and the remainder, 60 percent to the holders of all
Class A Units and 40 percent to Intercable.
During fiscal years ended May 31, 1992, 1991 and 1990, Intercable
recognized fees and distributions totalling $26,790,000, $4,283,000
and $8,736,000, respectively. Approximately $20,373,000 of the
distributions recognized during fiscal 1992 were deferred in fiscal
1991 as a result of Intercable's continuing equity interest in Jones
Crown Partners. An additional $363,000 of such distributions, relating
to the Jones Crown Partners transaction, was received and deferred
during fiscal 1992. The total of these two distributions,
$20,736,000, were recognized upon the liquidation of Intercable's
interest in Jones Crown Partners. The remaining amount recognized in
fiscal 1992 represents a distribution received upon the sale of the
remaining cable television system owned by Cable TV Fund 11-E/F Joint
Venture to an unaffiliated third party. All of the amounts received
in fiscal 1991 and 1990 were either deferred or treated as a reduction
of the purchase prices of the cable television systems purchased by
Spacelink and Intercable from Intercable-managed partnerships and
therefore are not reflected as revenue in the consolidated statements
of operations.
Spacelink's and Intercable's managed limited partnerships reimburse
Spacelink and Intercable for certain allocated overhead and
administrative expenses. These expenses generally consist of salaries
and related benefits, rent, information management services and other
corporate facilities costs. Spacelink and Intercable provide
engineering, marketing, administrative, accounting, information
management and other services to the partnerships. Allocations of
personnel costs are based on total revenues and actual time spent by
Spacelink and Intercable employees with respect to each partnership.
Remaining overhead costs are allocated based on total revenues, total
assets and the relative costs of partnership assets managed. Cable
television systems owned by Spacelink and Intercable are also
allocated a proportionate share of these expenses under the allocation
formulas described above. Amounts charged partnerships and other
affiliated companies have reduced operating, general and
administrative expenses by approximately $25,167,000, $23,723,000 and
$21,282,000 for the years ended May 31, 1992, 1991 and 1990,
respectively.
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<PAGE> 27
Spacelink and Intercable have made advances to, and have deferred the
collection of management fees and expense reimbursements from, certain
managed limited partnerships, primarily to provide funds necessary for the
capital expansion of and improvements to properties owned by such
partnerships and operating and interest expenses paid on behalf of such
partnerships. In addition, Jones Group has deferred the collection of a
portion of one of its brokerage fees from an Intercable-managed
partnership. Such advances and unpaid brokerage fees, which totalled
$10,668,000 and $10,205,000 at May 31, 1992 and 1991, respectively, bear
interest at rates equal to the lending entity's weighted average cost of
borrowing. Interest charged to limited partnerships for the fiscal years
ended May 31, 1992, 1991 and 1990 was $1,826,000, $1,462,000 and
$1,184,000, respectively.
Certain condensed financial information regarding managed limited
partnerships of Spacelink and Intercable are as follows:
<TABLE>
<CAPTION>
Spacelink's Managed Intercable's Managed
Limited Partnerships Limited Partnerships
------------------------------ ---------------------------------
As of December 31, As of December 31,
------------------------------ ---------------------------------
1991 1990 1989 1991 1990 1989
-------- -------- -------- --------- --------- ---------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total assets $141,566 $137,291 $149,487 $1,017,560 $1,313,379 $1,048,809
Debt 63,035 50,536 56,719 629,194 791,153 515,317
Amounts due to general partner 2,201 2,715 1,545 8,762 9,921 6,392
Partners' capital (net of
accumulated deficit) 72,975 80,843 86,997 350,348 468,073 486,958
</TABLE>
<TABLE>
<CAPTION>
For The Year Ended For The Year Ended
December 31, December 31,
------------------------------ ---------------------------------
1991 1990 1989 1991 1990 1989
-------- -------- -------- --------- --------- ---------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 29,629 $ 24,827 $ 12,639 $ 361,431 $ 311,672 $ 263,619
Depreciation and amortization 17,430 15,675 7,125 187,607 156,487 121,223
Operating loss (8,498) (7,697) (2,501) (58,429) (40,604) (34,758)
Gain on sale of assets -- -- 200 -- 204,185 26,093
Net income (loss) (13,387) (12,699) (4,512) (126,584) 88,162 (61,694)
</TABLE>
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<PAGE> 28
(9) SUBORDINATED DEBENTURES AND OTHER DEBT:
At May 31, 1992 and 1991, Spacelink's and its consolidated subsidiaries'
debt consisted of the following:
<TABLE>
<CAPTION>
1992 1991
-------- --------
(In Thousands)
<S> <C> <C>
DEBT OF SPACELINK:
Credit facility $ 64,700 $ 68,650
Capitalized lease obligations and non-interest bearing notes 297 657
-------- --------
Total Debt of Spacelink 64,997 69,307
-------- --------
DEBT OF INTERCABLE:
Subordinated Debentures --
Debentures due August 1, 1997, interest payable
semi-annually at 12%, redeemable at Intercable's option
at 100% of principal, plus accrued interest, on or after
August 1, 1990 net of unamortized discount of $3,203,100 -- 29,977
Debentures due February 1, 1998, interest payable
semi-annually at 9.75%, redeemable at Intercable's option
at 100% of principal, plus accrued interest, on or after
February 1, 1991, net of unamortized discount of
$5,062,200 and $5,543,700, respectively 61,513 61,031
Debentures due May 1, 2000, interest payable semi-annually
at 13%, redeemable at Intercable's option on or after May
1, 1993 at 105.78% of par declining to par on May 1,
1997, net of unamortized discount of $1,653,500 and
$1,833,900, respectively 148,346 148,166
Convertible debentures due June 1, 2007, interest payable
semi-annually at 7.5%, redeemable at Intercable's option
on or after June 1, 1990 at 107.5% of par, declining to
par by 1997 19,468 19,468
Credit facility 66,000 82,300
Capitalized lease obligations, installment notes and
non-interest bearning notes 3,973 4,736
-------- --------
Total Debt of Intercable 299,300 345,678
-------- --------
Consolidated Debt $364,297 $414,985
======== ========
</TABLE>
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<PAGE> 29
In December 1990, Spacelink entered into new credit agreements, which
agreements include a $45,000,000 Revolving Credit Facility and a
$25,000,000 Term Loan. Upon entering into the new credit agreements,
Spacelink borrowed $42,650,000 under the $45,000,000 Revolving Credit
Facility and $25,000,000 under the $25,000,000 Term Loan to repay the
outstanding balances under Spacelink's previous credit agreement.
The $45,000,000 Revolving Credit Facility is secured by all of
Spacelink's cable television system assets, converts to a five and
one-half year term loan on November 30, 1992, and currently bears
interest, at Spacelink's option, at the prime rate plus 5/8 percent,
LIBOR plus 1-5/8 percent or the Certificate of Deposit rate plus 1-3/4
percent. The $25,000,000 Term Loan is secured by all of Spacelink's
assets, except its cable television system assets and its investment
in Intercable. The Term Loan requires principal payments beginning May
31, 1993, matures on May 31, 1999 and currently bears interest, at
Spacelink's option, at the prime rate plus 7/8 percent, LIBOR plus
1-7/8 percent or the Certificate of Deposit rate plus 2 percent.
Spacelink paid the commercial lenders an origination fee of $525,000
in connection with the $45,000,000 Revolving Credit Facility and
$25,000,000 Term Loan. In addition, Spacelink's credit agreements
restrict the right of Spacelink and its consolidated subsidiaries
except Jones Group and Intercable to declare and pay cash dividends.
In February 1991, Spacelink entered into a $50,000,000 Uncommitted
Acquisition Facility. The $50,000,000 Uncommitted Acquisition Facility
may be used for the purchase of cable television systems to be held by
Spacelink for resale to Spacelink-managed limited partnerships and,
when used, will be secured by such cable television system assets.
Spacelink's ability to utilize the Uncommitted Acquisition Facility
will be at the sole discretion of the commercial bank. In March 1991,
however, Spacelink received a commitment from the commercial bank to
loan Spacelink up to $30,000,000 under the Uncommitted Acquisition
Facility for the purchase of the Orange County Cluster for the account
of Jones Growth II. On April 17, 1992, the Orange County Cluster was
transferred to Jones Growth II and $29,780,000 balance outstanding on
the Acquisition Facility was repaid.
At May 31, 1992, borrowings outstanding under Spacelink's $45,000,000
Revolving Credit Facility and $25,000,000 Term Loan totalled
$39,700,000 and $25,000,000, respectively. Principal payments under
the terms of Spacelink's credit facility and other debt are due as
follows:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
1993 $ 4,874
1994 6,735
1995 8,709
1996 10,663
1997 12,663
Thereafter 21,353
-------
Total Spacelink Debt $64,997
=======
</TABLE>
In June 1992, Spacelink provided a $1,667,000 letter of credit to
Jones Entertainment Group, Ltd. an affiliate of International, in
order for Jones Entertainment Group, Ltd. to participate in the
production of a theatrical film. The film may be acquired by a
Spacelink-sponsored public program at March 31, 1993. If the
Spacelink-sponsored public program does not have sufficient funds,
Jones Entertainment Group, Ltd. may fund the film thereby
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<PAGE> 30
eliminating the obligation of Spacelink. If the film is not acquired
by this program, Jones Entertainment Group, Ltd. will pay Spacelink a
fee of $25,000 for providing the letter of credit. The letter of
credit will reduce the available borrowings under Spacelink's
$45,000,000 revolting credit facility by $1,667,000 until the letter
of credit expires on March 31, 1993.
The following is a description of Intercable's debt which, while
included all the consolidated financial statements, is non-recourse to
Spacelink.
In addition to the terms described in the above table, Intercable's
Convertible Subordinated Debentures may be converted into its Class A
Common Stock at $15.10 per share, subject to adjustment under certain
conditions. Also, each of the Subordinated Debenture issues described
above provides for annual sinking fund payments which are calculated
to retire 66 2/3 percent to 80 percent of the issues prior to maturity
after consideration of the debt redemptions discussed below, as
follows:
<TABLE>
<CAPTION>
Annual Sinking Commencement
Debenture Issue Fund Payment Date
- - --------------- -------------- ------------
<S> <C> <C>
Debentures due May 2000 $30,000,000 May 1, 1996
Convertible Debentures 3,000,000 June 1, 1998
</TABLE>
During the year ended May 31, 1991, Intercable redeemed $23,732,000 of
its 7.5 percent Convertible Subordinated Debentures due 2007,
$6,820,000 of its 12 percent Subordinated Debentures due 1997 and
$3,425,000 of its 9.75 percent Subordinated Debentures due 1998. The
bonds were redeemed at various amounts less than 100 percent of their
principal amount. Intercable recognized an extraordinary gain of
$11,419,000 related to these transactions. As a result of these
redemptions, and in accordance with the bond indentures, the bonds
redeemed will be used as a credit against future sinking fund
payments. On April 13, 1992, Intercable redeemed all of the remaining
$33,180,000 principal amount of its 12 percent Subordinated Debentures
due 1997. The redemption of the debentures was at 100 percent of their
principal amount, plus accrued interest. Intercable recognized an
extraordinary loss, net of related income taxes, of $2,504,000 related
to this transaction.
On April 8, 1992, Intercable filed a registration statement that
allows Intercable, from time to time, to offer up to $400,000,000 of
senior debt securities, senior subordinated debt securities and
subordinated debt securities. In July 1992, Intercable sold
$160,000,000 of 11.5 percent Senior Subordinated Debentures as part of
this offering. A portion of the proceeds were used to redeem all of
the remaining $66,575,000 principal amount of Intercable's 9.75
percent Subordinated Debentures due 1998 on August 24, 1992. The
bonds were redeemed at 100 percent of their principal amount, plus
accrued interest and an extraordinary loss of $6,288,000 was
recognized in fiscal 1993 as a result of this transaction. The
remaining proceeds are to be used to finance the acquisition of one or
more cable television systems either from among those currently owned
by Intercable's managed partnerships or from an unrelated party.
Intercable has not designated a system for acquisition at the present
time. The remaining proceeds have been used to repay the $66,000,000
outstanding on Intercable's credit facility.
As a result of the redemption of the $33,180,000 of 12 percent
Subordinated Debentures due 1997 and the $66,575,000 of 9.75 percent
Subordinated
-90-
<PAGE> 31
Debentures due 1998, there are no cash requirements for sinking fund
payments until fiscal 1996.
On December 19, 1991, Intercable completed negotiations for a $75,000,000
revolving credit facility. Of this facility, $50,000,000 is a revolving
credit due August 31, 1995 and $25,000,000 is a reducing revolving credit,
which will be due in three equall installments on August 31, 1993, August
31, 1994 and August 31, 1995. During the fourth quarter of fiscal 1992, in
anticipation of the redemption of Intercable's 12 percent Subordinated
Debentures, Intercable amended its credit facility increasing the amount
available under the revolving credit facility to $80,000,000, and the total
amount available to $105,000,000. Interest on amounts outstanding under
Intercable's facility is computed at Intercable's option at varying rates
based upon Intercable's ratio of total debt to annualized adjusted cash
flow (Prime plus 1/2 percent to 1 3/8 percent or the London Interbank
Offered Rate plus 1 1/2 to 2 3/8 percent). A fee of 1/2 percent per annum
on the unused portion of the commitment is also required. Substantially all
of Intercable's assets are pledged to secure this credit facility. In
addition, Intercable's credit agreements restrict the right of Intercable
to declare and pay cash dividends without the consent of its lenders. At
May 31, 1992, $66,000,000 was outstanding under Intercable's new credit
facility.
(10) INCOME TAXES:
Pursuant to the Tax Sharing Agreement with International, Spacelink and its
consolidated subsidiaries excluding Intercable were allocated tax benefits
(provisions) based on their pro rata contribution of taxable loss (income)
of the consolidated group. For Spacelink and its consolidated subsidiaries
excluding Intercable the tax allocation resulted in fiscal 1992, 1991 and
1990 tax provisions (benefits) of $-0-, $(1,252,000) and $1,304,000,
respectively.
Components of income tax expense (benefit) principally associated with
Intercable for Federal and state income tax purposes are as follows:
<TABLE>
<CAPTION>
Year Ended May 31,
---------------------------
1992 1991 1990
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Current (benefit) provision-
Federal $(1,185) $ 262 $(5,326)
State 1,185 (168) (775)
------- ------- -------
Total current tax (benefit) provision -- 94 (6,101)
------- ------- -------
Deferred (benefit) provision-
Federal 7,554 (1,206) (2,405)
State -- -- --
------- ------- -------
Total deferred tax (benefit) provison 7,554 (1,206) (2,405)
------- ------- -------
Total income tax (benefit) provision on income from operations 7,554 (1,112) (8,506)
Total income tax (benefit) provison on extraorindary items (7,389) -- (1,027)
------- ------- -------
Total income tax (benefit) provision $ 165 $(1,112) $(9,533)
======= ======= =======
</TABLE>
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<PAGE> 32
The (benefit) provision for deferred income taxes is the result of the following
timing differences:
<TABLE>
<CAPTION>
Year Ended May 31,
---------------------------------
1992 1991 1990
-------- ------- --------
(In Thousands)
<S> <C> <C> <C>
Additional tax depreciation $ 4,362 $ 5,511 $ 8,309
Fund fees and distributions 17,184 (6,927) 2,970
Recognition (deferral of recognition) of Jones Group
brokerage fees 155 130 92
Recognition (deferral) of dividends and fund fees received
by Intercable 10 10 (175)
Timing of partnership income (6,309) (5,425) (2,211)
Difference in recognition of net operating losses for tax
and financial statement purposes (15,056) 10,001 (15,354)
Tax expenses (income) from properties held for resale (590) (4,370) 4,370
Other, net 409 (136) (406)
-------- ------- --------
Total deferred tax (benefit) provision $ 165 $(1,206) $ (2,405)
======== ======= ========
</TABLE>
The following table reconciles the statutory Federal income tax rate to the
effective tax rate:
<TABLE>
<CAPTION>
Year Ended May 31,
---------------------------------
1992 1991 1990
------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Income tax provision (benefit) for Spacelink and Jones Group
from the tax sharing agreement $ 155 $ (1,122) $ 1,396
Computed "normally expected" income tax benefit at statutory
rates on losses not subject to the tax sharing agreement,
primarily Intercable 7,967 (11,418) (10,580)
------- -------- --------
Total "normally expected" income tax (benefit) provision 8,122 (12,540) (10,211)
Increase (decrease) in taxes resulting from --
Dividend received deduction (78) (90) (216)
Alternative minimum taxes (1,183) 957 --
Non-deductible depreciation -- 29 71
Amortization of costs in excess of interest in net assets
purchased 355 360 339
State income taxes, net of Federal income tax benefit 643 136 323
Difference in recognition of net operating losses for tax
and financial statement purposes -- 10,045 --
Other, net (305) (9) 161
------- -------- --------
Total income tax (benefit) provision on income from
operations $ 7,554 $ (1,112) $ (8,506)
======= ======== ========
</TABLE>
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<PAGE> 33
At May 31, 1992, Intercable had a net operating loss carryforward for
regular income tax purposes aggregating approximately $69 million,
which if not utilized to reduce taxable income in future periods,
begin to expire May 31, 2006. To the extent that the net operating
loss carryforward is utilized for income tax purposes, deferred tax
credits will be restored at the then current rates.
At May 31, 1992, Intercable had remaining available investment tax
credits of approximately $638,000, which if not utilized to reduce
taxable income in future periods, will expire at various dates through
May 31, 2001. Substantially all investment tax credits have been
recognized for financial statement purposes as a reduction of
deferred income taxes. To the extent the investment tax credit
carryforwards are utilized for income tax purposes, deferred tax
credits will be restored at the then current rates. The benefits
from investment credits are recorded when such credits are used to
reduce current to deferred income taxes payable.
In February 1992, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 109 -
"Accounting for Income Taxes" ("SFAS 109"). SFAS 109 must be adopted
in fiscal years beginning after December 15, 1992. SFAS 109
establishes new financial accounting and reporting standards to
recognize tax liabilities and assets that result from an enterprise's
activities during the current and preceding years. Spacelink believes
application of the new standard will not significantly impact
financial statements in the year it is adopted.
(11) STOCK OPTIONS:
Incentive Stock Options of Spacelink-
In 1982 the Board of Directors and shareholders of Spacelink adopted
an Incentive Stock Option Plan (the "1982 Option Plan") to provide for
the grant of stock options to key employees. A maximum of 773,500
shares of Spacelink's Class A Common Stock were available for grant
at an option price not less than the fair market value of the stock
at the date of grant. On February 10, 1992, the 1982 Option Plan
expired according to its terms, and no further options can be granted
under the 1982 Option Plan. (See Note 16 regarding the approval of
the 1992 Stock Option Plan.) Options generally became exercisable in
cumulative increments over a four year period from the date of grant
or the first anniversary of the grant date. The stock options expire,
to the extent not exercised, on the fifth anniversary of the date of
grant or upon the earlier termination of the employment of the
recipient.
On February 4, 1991, the Spacelink's Board of Directors determined
that the exercise price of certain options granted under the 1982
Option Plan, representing 4,000 shares of Spacelink's Class A Common
Stock, was above the market price of the shares. Accordingly, the
Board of Directors amended the exercise price of those options to
$1.125 per share, which represented the average of the closing bid and
asked prices, as quoted by the National Association of Securities
Dealers through NASDAQ, for Spacelink's Class A Common Stock, as of
the close of business on February 4, 1991. In all other respects,
including the vesting schedules, the provisions governing the
options granted under the Plan remain the same.
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<PAGE> 34
The following table summarizes data concerning options to purchase
shares of Spacelink's Class A Common Stock issued under the 1982
Option Plan:
<TABLE>
<CAPTION>
1992 1991 1990
------ ------ ------
<S> <C> <C> <C>
Available for grant - 472,000 462,000
Granted during the period - - -
Exercised during the period - - -
Price range, per share $ - $ - $ -
Terminated during the period - 10,000 -
Total outstanding 4,000 4,000 14,000
Price range, per share $1,125 $ 1,125 $1,094-3,188
Exercisable at year-end 4,000 3,000 9,500
Price range, per share $1,125 $ 1,125 $1,094-3,188
</TABLE>
Other Class A Common Stock Options of Spacelink -
On December 2, 1986, an option to purchase 500,000 shares of
Spacelink's Class A Common Stock was granted by action of the Board of
Directors, independent of the 1982 Option Plan, to Glenn R. Jones,
Chairman of the Board of Directors and Chief Executive Officer of
Spacelink, for a purchase price of $.8438 per share, the fair market
value as of the date of grant. The option was granted in
consideration of Mr. Jones' personal guarantee of a portion of a
promissory note issued in connection with Spacelink's acquisition from
an unaffiliated party of certain cable television systems located in
the State of Ohio. The option will continue until fully exercised, or
unless sooner terminated or modified under the provisions of the
agreement between Spacelink and Mr. Jones.
In addition, Spacelink's Board of Directors has issued options,
independent of the 1982 Option Plan, to certain directors, officers
and employees of Spacelink and its affiliates.The following table
summarizes data concerning options, independent of the 1982 Option
plan, to purchase shares of Spacelink's Class A Common Stock. All
options were granted at the fair market value as of the date of the
grant.
<TABLE>
<CAPTION>
Number of Purchase Date
Date of Options Price per Option
Grant Granted Share Lapses
- - -------- --------- --------- ------
<S> <C> <C> <C>
April 1992 50,000 $ .813 April 1997
August 1991 80,000 $ 1.090 August 1998
December 1990 35,000 $ .719 December 1995
February 1990 80,000 $ 1.125 February 1997
December 1988 50,000 $ 1.125 December 1993
December 1987 250,000 $ 1.125 December 1992
</TABLE>
On February 4, 1991, Spacelink's Board of Directors determined that
the exercise prices of all of the foregoing options, except the
options granted to Mr. Jones and the options granted prior to February
4, 1991, were above the market price of the shares. Accordingly,
Spacelink's Board of Directors amended the exercise price of those
options to $1.125 per share, which represented the average of the
closing bid and asked prices, as quoted by the National Association
of Securities Dealers through NASDAQ, for Spacelink's Class A Common
Stock, as of the close of business on February 4, 1991. In all other
respects, including the vesting schedules, the provisions governing
the options granted remain the same.
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<PAGE> 35
(12) COMMITMENTS AND CONTINGENCIES:
Spacelink and its consolidated subsidiaries including Intercable rent
office facilities and certain equipment under various operating lease
arrangements. Future minimum lease payments as of May 31, 1992, under
noncancelable operating leases, net of amounts received under related
sub-leases, are as follows:
<TABLE>
<CAPTION>
Building Facilities Equipment
Fiscal Year Leases Leases Leases Total
----------- -------- ---------- --------- -----
(In Thousands)
<S> <C> <C> <C> <C>
1993 $ 1,683 $ 1,155 $1,087 $ 3,925
1994 1,683 1,061 852 3,596
1995 1,683 924 188 2,795
1996 1,683 877 - 2,560
1997 1,683 730 2,413
Thereafter 5,190 4,299 9,489
------- ------ ------ -------
Total future minimum
lease payments $13,605 $9,046 $2,127 $24,778
======= ====== ====== =======
</TABLE>
Certain amounts included in lease commitments will be reallocated to
managed limited partnerships using the method described in Note 8.
(13) INVESTMENTS BY SPACELINK AND INTERCABLE:
Investments in The Mind Extension University, Inc. by Spacelink and
Intercable
In June 1990, Spacelink's Board of Directors authorized the investment
by Spacelink of up to $3,135,000, which at that time represented a 19
percent interest, in The Mind Extension University, Inc. ("ME/U"), a
majority owned subsidiary of International. The cost of Spacelink's
investment in ME/U was based on an independent third party appraisal
of ME/U. During fiscal 1991, Spacelink invested $3,135,000 in ME/U and
received 19 percent of the issued and outstanding common stock of
ME/U. THE funds necessary for Spacelink to acquire its 19 percent
interest in ME/U were provided from borrowings under Spacelink's
$45,000,000 Revolving Credit Facility. Spacelink's investment in ME/U
is accounted for using the equity method.
The Board of Directors of Intercable has approved a $5,000,000 equity
investment in ME/U, an affiliated entity engaged in the business of
providing educational programming to cable television operators,
including Intercable, and others, and the provision to ME/U of certain
advertising available and other administrative and marketing
considerations. The number of shares of Class A Common Stock of ME/U
to be issued to Intercable in return for such investment and
considerations will be based on THE average of two separate
independent appraisals of ME/U. The appraisals have not yet been
finalized. As of May 31, 1992, Intercable had provided approximately
$1,651,000 of the committed $5,000,000 to ME/U.
ME/U is a basic cable television network providing educational
programming to cable television systems in the United States.
Approximately 6 percent of the basic subscribers receiving ME/U are
served by cable television systems owned by Spacelink and its
affiliates.
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<PAGE> 36
Purchase of 19 Percent Interest in Galactic Radio by Intercable -
On May 31, 1991, Intercable purchased from International its 19
percent interest in Galactic Radio for $4,305,000. The purchase price
was based an independent third party appraisal. Intercable has
accounted for this acquisition as a transfer between entities under
common control, with the excess consideration paid over the historical
cost of the assets acquired being charged to retained earnings.
Acquisition of an 81 Percent Interest in Galactic Radio by Spacelink -
In July 1990, Spacelink issued 13,581,229 shares of its Class A Common
Stock to International in exchange for 51,000 shares of Class A Common
Stock and 91,000 shares of Class B Common Stock of Galactic Radio (the
("Galactic Shares"). The Galactic Shares represent 81 percent of
the outstanding Class A Common Stock and Class B Common Stock of
Galactic Radio. The remaining percent of Galactic Radio was owned by
Glenn R. Jones, Chairman of the Board and Chief Executive Officer of
Spacelink and was transferred to International and then sold to
Intercable on May 31, 1991. The 81 percent ownership interest in
Galactic Radio was valued at approximately $16,026,000 by an
independent appraiser. For purposes of the exchange, the price of
Spacelink's Class A Common Stock was $1.18 per share, which price
represented the average trading price of Spacelink's Class A Common
Stock for the preceding three month period.
The acquisition of 81 percent of Galactic Radio by Spacelink was
accounted for as a transfer between entities under common control and,
accordingly, the assets transferred are recorded by Spacelink at
International's historical cost. The results of operations of Galactic
Radio are included in Spacelink's Consolidated Statements of
Operations beginning on the July 1, 1990 exchange date. For
comparative purposes, the per share data and weighted average number
of common shares outstanding have been restated to reflect the
additional shares outstanding.
Purchase of International Aviation, Ltd. by Intercable -
In July 1990, Intercable purchased an aircraft owned by International
Aviation, Ltd. ("Aviation") a subsidiary of International by acquiring
all of the common stock of Aviation for approximately $936,000 and
repaying the remaining approximately $564,000 of debt outstanding an
the aircraft. The purchase price was based on an independent
appraisal. The acquisition of Aviation by Intercable was accounted for
as a transfer between entities under common control and, accordingly,
the assets transferred were recorded by Intercable at historical cost
with a corresponding charge against retained earnings. The results of
operations of Aviation are included in the accompanying consolidated
statements of operations beginning on the July 1990 transfer date.
Acquisition of Futurex by Spacelink -
In July 1989, Spacelink issued 1,500,000 shares of Class A Common
Stock to International for all of the outstanding Class A and Class B
Common Stock of Futurex. In addition, the agreement between Spacelink
and International provided that an additional 500,000 shares of
Spacelink's Class A Common Stock will be issued to International on
the fifth anniversary of the date of the agreement if Futurex achieves
certain levels of cash flow. For purposes of the transaction, Futurex
was valued at $6,000,000, which amount was
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<PAGE> 37
negotiated between Spacelink's Board of Directors and International
and represented a discount of approximately 28 percent from the
estimated fair market valuation of Futurex's properties and business
made by an independent appraiser. In addition, Spacelink's Class A
Common Stock was valued at $3.00 per share, which represented the
approximate market price of Class A Common Stock prior to the
transaction.
The acquisition of Futurex by Spacelink was accounted for as a
transfer between entities under common control, and accordingly, the
assets and liabilities transferred have been recorded by Spacelink at
historical costs. If Futurex achieves the required levels of cash flow
and is issued the additional 500,000 shares of Spacelink's Class A
Common Stock, the fair market value of the shares on the date of
issuance would be charged retained earnings.
Investment in Jones Intercable Investors, L.P. by Intercable -
Intercable is the general partner of Jones Intercable Investors, L.P.,
which was formed in September 1986. Intercable has a gross investment
of approximately $22,868,000 in this partnership at May 31, 1992,
which represents an interest of approximately 19 percent. Intercable's
net investment is carried at cost plus equity in profits and losses
less any cash distributions, whether accrued or received, and totalled
$5,933,000 at May 31, 1992. Based upon the quoted market price of
$10.625 per unit at May 31, 1992, the market value of this investment
totalled approximately $16,922,000.
Investment in East London Telecommunications Joint Venture by
Intercable -
In December 1988, Intercable entered into a joint venture with an
unaffiliated party to acquire a principal interest in London-based
East London Telecommunications Limited ("ELT"), which provides cable
television and telephone service to an eastern section of London,
England, including the Docklands Development Zone. Intercable had a 50
percent interest in the joint venture. In April 1992, Intercable
entered into an agreement with a subsidiary of BCE Telecom
International ("BCE") to sell an approximate 35 percent interest in
ELT. Intercable's joint venture partner, PacTel Cable, also agreed to
sell its entire interest in ELT to BCE. These transactions, which
were closed on May 15, 1992, result in Intercable retaining an
approximate 15 percent interest in ELT, along with management
responsibilities for the cable operations. Intercable has placed
10,000,000 pounds received pursuant to this transaction in escrow in
the United Kingdom to satisfy a portion of its future equity
requirements in the ELT joint venture. As a result, Intercable does
not anticipate that it will be required to fund any additional
capital contributions to ELT to maintain its 15 percent interest for
approximately the next two years. Intercable's investment in this
joint venture is carried at cost plus its proportionate share of
profits and losses to date through May 15, 1992 which totalled
approximately $19,186,000. Subsequent to May 15, 1992, Intercable,
due to the dilution of its ownership interest in ELT to 15 percent,
is accounting for this investment at cost.
Investment in Jones Cable Group by Intercable -
Intercable owns a 38 percent interest in Jones Global Group, Ltd.
("Jones Global Group"), a Colorado corporation of which 62 percent is
owned by International. In November 1989, Jones Cable Group of South
Hertfordshire
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<PAGE> 38
Limited ("Jones South Hertfordshire") was awarded the franchise to
construct, develop and operate a cable television system in the South
Hertfordshire franchise area, which is located in the northwestern
suburbs of London, England (the "South Herts System"). Jones South
Hertfordshire is a United Kingdom corporation originally owned by
Jones Cable Group, Ltd. ("Jones Cable Group") and Jones Global Funds,
Inc. ("Jones Global Funds"), both wholly owned subsidiaries of Jones
Global Group.
In February 1992, upon receipt of approval from United Kingdom
regulatory authorities, Jones United Kingdom Fund, Ltd. ("Jones UK
Fund"), a Colorado limited partnership of which Jones Global Funds
serves as the general partner, acquired, through its nominees, Jones
Global Funds and Jones Cable Group, beneficial ownership of all of the
shares of Jones South Hertfordshire. Jones UK Fund reimbursed Jones
Global Funds and its affiliates a total of $4,997,000, representing,
at cost, their expenses in connection with obtaining, holding and
maintaining the franchise rights and licenses for the South Herts
System and their capital expenditures during the period before Jones
UK Fund acquired the beneficial ownership of Jones South
Hertfordshire, plus the amount of operating and interest expenses in
excess of operating receipts incurred during such period. Subsequent
to the acquisition by Jones UK Fund of Jones South Hertfordshire, cost
reimbursements have been and will continue to be made to Jones Global
Funds and its affiliates for construction costs of the South Herts
System. Through May 31, 1992, the total amount reimbursed to fund the
South Herts System's construction and development totalled $6,751,000.
During its initial public offering from August 15, 1990 through August
15, 1992 , Jones UK fund raised approximately $16,400,000 in gross
offering proceeds, or $14,145,000 net of sales commission and other
organization and offering costs. Because Jones UK Fund will require
funds beyond those raised by its initial public offering in order to
complete the construction and development of the South Herts System,
Jones Global Funds, on behalf of Jones UK Fund, intends to sell
additional interest in Jones UK Fund during a two-year offering period
that is expected to commence in September 1992.
Jones Cable Group, on behalf of other affiliated United Kingdom
corporations, also applied for cable television franchises in various
other unbuilt areas in the United Kingdom, and franchises in two other
areas - Aylesbury-Chiltern and Leeds - were awarded to affiliates of
Jones Cable Group. Neither of these other franchise areas have been
designated for acquisition by Jones UK Fund at this time, and Jones UK
Fund does not have a right of first refusal or priority to acquire the
franchise rights and licenses to build systems in these franchise
areas. Jones Cable Group has incurred certain costs in connection with
obtaining and maintaining the franchises and licenses to build cable
television systems in Aylesbury-Chiltern and Leeds. Intercable has
advanced funds to Jones Cable Group for these purposes.
During the fiscal year ended May 31, 1992, Intercable made advances to
Jones Global Group totalling approximately $7,386,000 for its United
Kingdom activities and as of May 31, 1992, Intercable had made
advances totalling approximately $13,578,000. Of this amount,
$6,751,000 was reimbursed by Jones UK Fund through May 31, 1992.
Intercable's net investment in these United Kingdom activities,
totalled approximately $6,500,000 as of May 31, 1992.
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<PAGE> 39
Jones Spanish Holdings -
Jones Spanish Holdings, Inc. ("Spanish Holdings") is an affiliate
indirectly owned 38 percent by Intercable and 62 percent by
International. Spanish Holdings has continued cable television system
acquisition, development and operations in Zaragoza and Jerez de la
Frontera/Puerto Santa Maria, Spain. These affiliates currently are
seeking to acquire the rights to develop cable television operations
in Spain. Intercable has made advances totalling $5,744,000 as of May,
31, 1992 to fund Spanish Holdings' activities to date. Additional
advances may be made in the future. These advances have been reflected
as investments in cable television partnerships on Intercable's
consolidated balance sheets due to their long-term nature, with
interest charged at Intercable's weighted average cost of borrowing.
Intercable's net investment in all of its Spanish activities was
approximately $5,388,000 at May 31, 1992.
(15) SUBSEQUENT EVENTS:
On June 5, 1992, Futurex purchased from TRW Electronic Products Inc.
("EPI") and TRW Inc. ("TRW"), substantially all of the assets,
properties and rights held by EPI or TRW that relate to the
manufacture of facsimile encryption devices ("fax encryptors") for the
commercial communications security business (the "Assets"). EPI and
TRW also entered into a covenant not to compete. The purchase price
paid for the Assets and the covenant not to compete was $393,000 in
cash and 606,897 shares of the Class A Common Stock of Spacelink.
In addition, Futurex agreed to pay to TRW a royalty equal to five
percent of certain revenues received by Futurex from the sale of fax
encryptors. The royalty will continue for ten years, unless terminated
by Futurex by paying to TRW an agreed upon lump-sum amount.
On July 29, 1992, Spacelink purchased an 81 percent interest in Jones
Earth Segment, Inc. ("Earth Segment") from International in exchange
for one share of Spacelink's Class A Common Stock. The remaining 19
percent of Earth Segment is owned by Glenn R. Jones. The estimated
depreciated replacement cost of Earth Segment's assets totalling
$1,247,000, which is comprised primarily of studio equipment and the
costs incurred to date, licensing and design of the uplink facility,
is approximately equal to the total liabilities of Earth Segment.
Earth Segment has purchased four acres of land in the Inverness
Business Park area of Englewood, Colorado and intends to construct a
ground-to-satellite transmission ("uplink") facility to permit the
satellite transmission of programming originated by ME/U and Jones
Satellite Audio, Inc., an affiliate of Spacelink, or unaffiliated
persons. Earth Segment owns an FCC license for the operation of an
uplink facility. The current design of the uplink facility has been
phased to allow expansion by the various groups who will utilize the
facility. Phase One will be 14,000 square feet and is designed to
accommodate the uplink control area and the ME/U studio. Phase One
is scheduled for completion in the spring of 1993. The anticipated
cost to purchase the land and construct and equip Phase One of the
uplink facility is approximately $5,000,000.
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<PAGE> 40
On August 20, 1992, Intercable's shareholders approved the adoption
of a stock option and stock appreciation rights plan which includes
incentive and nonqualified options. Options to purchase 1,800,000
shares of Intercable's Class A Common Stock may be granted to
officers, directors, employees, or independent consultants to
Intercable, or of any affiliate, whose judgment, initiative and
efforts are expected to contribute to the successful conduct of
Intercable. Options granted become exercisable in equal installments
over a five year period or in such installments as determined by the
committee administrating the plan.
On May 26, 1992, the Board of Directors of Spacelink, by unanimous
vote, adopted, subject to shareholder approval, Spacelink's 1992 Stock
Option Plan (the "1992 Plan"). The 1992 Plan was approved by
Spacelink's shareholders at a Special Meeting of Shareholders held on
August 20, 1992. Under the terms of the 1992 Plan, a maximum of
5,000,000 shares of Class A Common Stock is available for grant.
Options generally become exercisable in 25 percent annual cumulative
increments over a four-year period commencing from the date of grant
or on the first anniversary of the date of grant. The stock options
expire, to the extent not exercised, on the fifth anniversary of the
date of the grant, or upon the recipient's earlier termination of
employment with Spacelink. All of the employees of Spacelink, its
parent or any participating subsidiary, including directors of
Spacelink who are also employees, are eligible to participate in the
1992 Plan. Stock options granted may be either Incentive Stock Options
or Non-statutory Stock Options. Stock Appreciation Rights may be
granted in tandem with the grant of stock options.
Except with respect to options granted to officers and directors who
are employees of Spacelink, the 1992 Plan will be administered by the
Board of Directors of Spacelink. With respect to options granted to
officers and directors who are employees of Spacelink, the Plan shall
be administered by the Board of Directors, if each director is a
disinterested person, or by a committee of two or more directors who
are disinterested persons. The Board of Directors may, in its
discretion, establish provisions for the exercise of options different
from those described above, and has the power to grant options under
the 1992 Plan that may extend for a period of up to ten years. The
Board may from time to time alter, amend, suspend or discontinue the
1992 Plan. The Board of Directors may not, without approval of
shareholders, (i) increase the maximum number of shares of Class A
Common Stock that may be made subject to options, (ii) materially
increase the benefits accruing to participants, or (iii) materially
modify the requirements as to eligibility for participation.
As of the date of this Annual Report on Form 10-K, no options had been
granted under the 1992 Plan.
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<PAGE> 41
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 authorized.
JONES SPACELINK, LTD.
By /s/ ELIZABETH M. STEELE
Elizabeth M. Steele,
Vice President
Dated: July 7, 1994
