<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended August 31, 1994 Commission File Number 0-10040
Jones Spacelink, Ltd.
---------------------
(Exact name of registrant as specified in its charter)
Colorado #84-0835095
- - ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. Box 3309, Englewood, Colorado 80155-3309
---------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (303) 792-9191
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
Number of shares outstanding of each of the issuers' classes of common stock,
as of October 11, 1993:
Class A Common Stock, par value $.01 per share: 77,646,461
Class B Common Stock, par value $.01 per share: 415,000
<PAGE> 2
JONES SPACELINK, LTD. AND SUBSIDIARIES
I N D E X
<TABLE>
<CAPTION>
Page
Number
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Unaudited Consolidated Balance Sheets
August 31, 1994 and May 31, 1994 3-4
Unaudited Consolidated Statements of Operations
Three Months Ended August 31, 1994 and 1993 5
Unaudited Consolidated Statements of Cash Flows
Three Months Ended August 31, 1994 and 1993 6
Notes to Unaudited Consolidated Financial Statements
August 31, 1994 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 20
</TABLE>
2
<PAGE> 3
JONES SPACELINK, LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
As of August 31, 1994 and May 31, 1994
<TABLE>
<CAPTION>
August 31, May 31,
ASSETS 1994 1994
---------- -------
(In Thousands)
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 7,035 $ 4,892
RECEIVABLES:
Trade receivables, net of allowance for doubtful
accounts of $741,000 and $694,000 8,063 8,837
Affiliated entities, net of allowance for doubtful
accounts of $1,653,000 and $1,580,000 21,661 20,936
Other 783 715
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost, net of
accumulated depreciation of $136,536,000
and $138,908,000 189,124 201,735
Franchise costs, net of accumulated amortization
of $93,708,000 and $93,466,000 86,456 91,802
Subscriber lists, net of accumulated
amortization of $34,429,000 and $34,922,000 18,852 21,531
Costs in excess of interests in net assets
purchased, net of accumulated amortization
of $5,848,000 and $6,511,000 37,774 43,525
Noncompete agreements, net of accumulated
amortization of $1,145,000 and $1,079,000 500 566
Investments in domestic cable television managed
partnerships and corporate stock 42,425 38,717
Investment in foreign cable/telephony properties 62,143 57,752
------------- ------------
Total Investment in Cable
Television Properties 437,274 455,628
------------- ------------
DEFERRED TAX ASSET, net of valuation allowance
of $33,692,000 and $37,785,000 8,908 7,948
DEPOSITS, PREPAID EXPENSES AND OTHER 28,414 27,671
------------- ------------
Total Assets $ 512,138 $ 526,627
============= ============
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these consolidated balance sheets.
3
<PAGE> 4
JONES SPACELINK, LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
As of August 31, 1994 and May 31, 1994
<TABLE>
<CAPTION>
August 31, May 31,
LIABILITES AND SHAREHOLDERS' INVESTMENT 1994 1994
---------- ---------
(In Thousands)
<S> <C> <C>
LIABILITIES:
Accounts payable and accrued liabilities $ 42,125 $ 46,334
Subscriber prepayments and deposits 6,028 5,709
Credit facility and other debt of
Jones Spacelink, Ltd. 75,848 74,886
Credit facility of Jones Intercable, Inc. 42,000 63,000
Subordinated debentures and other debt of
Jones Intercable, Inc. 280,718 280,907
----------- --------
Total Liabilities 446,719 470,836
DEFERRED REVENUE AND INCOME 2,940 3,053
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 57,173 48,106
SHAREHOLDERS' INVESTMENT:
Class A Common Stock, $.01 par value, 220,000,000
shares authorized; 77,646,461 and 77,632,700 shares
issued and outstanding at August 31, 1994
and May 31, 1994, respectively 777 776
Class B Common Stock, $.01 par value, 415,000
shares authorized, issued and outstanding 4 4
Additional paid-in capital 52,732 52,653
Accumulated deficit (46,123) (46,717)
Less: Treasury stock of Jones Intercable, Inc.
at cost, net of minority interests (2,084) (2,084)
----------- --------
Total Shareholders' Investment 5,306 4,632
----------- --------
Total Liabilities and Shareholders'
Investment $ 512,138 $526,627
=========== ========
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these consolidated balance sheets.
4
<PAGE> 5
JONES SPACELINK, LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
As of August 31, 1994 and 1993
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------------
August 31, August 31,
---------- ----------
1994 1993
----------- -----------
(In Thousands, except Per Share Data)
<S> <C> <C>
REVENUES:
Subscriber service fees $ 35,013 $ 33,244
Management fees 5,034 4,888
Encryption sales and manufacturing services 1,955 1,355
Radio programming services 715 836
Brokerage fees 1,026 78
Uplinking fees, partnership fees, distributions and other 600 428
----------- ------------
Total Revenues 44,343 40,829
COSTS AND EXPENSES:
Operating expenses (24,873) (21,291)
General and administrative expenses (including
amounts allocated from Jones International, Ltd. of $913,000
and $486,000, respectively) (2,966) (3,225)
Depreciation and amortization (13,456) (12,923)
----------- ------------
Operating Income 3,048 3,390
OTHER INCOME (EXPENSE):
Interest expense (10,758) (9,690)
Equity in losses of partnerships and
affiliated companies (810) (1,187)
Interest income 1,173 817
Gain on sale of assets 15,496 -
Other, net 549 (645)
----------- ------------
Income (Loss) Before Income Taxes and Minority Interests 8,698 (7,315)
INCOME TAX BENEFIT 923 485
----------- ------------
Income (Loss) Before Minority Interests 9,621 (6,830)
MINORITY INTERESTS IN NET (INCOME) LOSS OF
CONSOLIDATED SUBSIDIARIES (9,014) 4,827
----------- ------------
NET INCOME (LOSS) $ 607 $ (2,003)
=========== ============
NET INCOME (LOSS) PER COMMON SHARE $ .01 $ (.03)
=========== ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 78,061 77,573
=========== ============
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these consolidated statements.
5
<PAGE> 6
JONES SPACELINK, LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
As of August 31, 1994 and 1993
<TABLE>
<CAPTION>
For the Three Months Ended
------------------------------
August 31, August 31,
---------- ----------
1994 1993
----------- -----------
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 607 $ (2,003)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Minority interests in net income (loss) of
consolidated subsidiaries 9,014 (4,827)
Gain on sale of assets (15,496) -
Depreciation and amortization 13,456 12,923
Deferred income tax benefit (923) (485)
Recognition of deferred revenue and income (113) (78)
Equity in losses of limited partnerships and
affiliated companies 810 1,187
Decrease (increase) in trade accounts receivable 774 (246)
Decrease (increase) in other receivables, deposits,
prepaid expenses and other assets 1,195 (1,623)
Decrease in accounts payable and accrued
liabilities and subscriber prepayments
and deposits (4,585) (2,742)
------------ ----------
Net cash provided by operating activities 4,739 2,106
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of cable television system
by Jones Intercable, Inc. 35,587 -
Purchases of property, plant and equipment, net (7,049) (4,164)
Investments in cable television partnerships and affiliates (4,515) (2,359)
Investment in Mind Extension University, Inc.
by Jones Intercable, Inc. (4,242) (3,708)
Deferred acquisition costs (2,185) -
Other, net 709 903
------------ ----------
Net cash provided by (used in) investing activities 18,305 (9,328)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of borrowings by Jones Spacelink, Ltd. 1,016 719
Repayment of borrowings by Jones Spacelink, Ltd. (54) (26)
Proceeds from borrowings by Jones Intercable, Inc. 16,500 9,000
Repayment of borrowings by Jones Intercable, Inc. (37,500) -
Decrease (increase) in advances to affiliated entities (725) (2,979)
Decrease in minority interests in consolidated subsidiaries 53 19
Other, net (191) (73)
------------ ----------
Net cash provided by (used in) financing activities (20,901) 6,660
------------ ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,143 (562)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD 4,892 1,348
------------ ----------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 7,035 $ 786
============ ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest Paid $ 13,359 $ 11,552
============ ==========
Income Taxes Paid $ - $ -
============ ==========
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these consolidated statements.
6
<PAGE> 7
JONES SPACELINK, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
August 31, 1994
(1) Basis of Presentation:
This Form 10-Q is being filed in conformity with the Securities and
Exchange Commission's requirements for unaudited financial statements
and does not contain all of the necessary footnote disclosures
required for a fair presentation of Jones Spacelink, Ltd.
("Spacelink") and subsidiaries' financial position, results of
operations and cash flows in conformity with generally accepted
accounting principles. In the opinion of management, this data does
include all adjustments, consisting of normal recurring accruals,
necessary to present fairly the financial position of Spacelink and
its subsidiaries at August 31, 1994 and May 31, 1994, and the results
of their operations and their cash flows for the three months ended
August 31, 1994 and 1993. Results of operations for these periods are
not necessarily indicative of results to be expected for the full
year.
Spacelink's unaudited consolidated financial statements include the
accounts of Jones Futurex, Inc. ("Futurex"), and Spacelink's other
wholly owned subsidiaries, as well as the accounts of its other
subsidiaries: The Jones Group, Ltd. ("Jones Group"), Jones Galactic
Radio, Inc. ("Galactic Radio"), Jones Earth Segment, Inc. ("Earth
Segment") and Jones Intercable, Inc. ("Intercable"). At August 31,
1994, Spacelink owned directly 80.1 percent and indirectly an
additional 2.8 percent of the Common Stock of Jones Group, 81 percent
directly and indirectly 2.8 percent of Galactic Radio, 81 percent of
Earth Segment and approximately 58 percent of the outstanding Common
Stock (14 percent of both classes of outstanding shares) of
Intercable.
Because Intercable's Common Stock has a voting preference over
Intercable's Class A Common Stock, Spacelink's majority ownership of
Intercable's Common Stock enables it to elect approximately 75 percent
of Intercable's Board of Directors. Although Spacelink effectively
controls Intercable through its ability to control the election of 75
percent of Intercable's Board of Directors, certain provisions of
Intercable's loan agreements limit the amount of funds it may loan or
advance to its affiliates, including Spacelink. As a result of these
limitations, the net assets of Intercable generally are not available
to Spacelink to fund its operating or capital needs. In addition,
Spacelink bears no responsibility for the outstanding obligations,
commitments or contingencies of Intercable. However, these
limitations will not impair the ability of Spacelink to pledge its
equity holdings in Intercable, although any such pledge is subject to
the express approval of Spacelink's and Intercable's Chairman of the
Board and Chief Executive Officer, Glenn R. Jones, or his personal
representative. Spacelink's share of the net restricted assets of
Intercable, defined as Intercable's total shareholders' investment
less related minority interests, included in the accompanying balance
sheet was $9,627,000 at August 31, 1994.
(2) Proposed Sale of Spacelink's Assets and Liquidation:
On May 31, 1994, Intercable and Spacelink entered into a definitive
agreement with respect to the reorganization of such companies.
Pursuant to that agreement, Intercable will issue 4,100,000 shares of
Class A Common Stock to Spacelink in exchange for substantially all of
the assets of Spacelink and the assumption of Spacelink's liabilities.
Spacelink would then dissolve and distribute to its shareholders such
shares of Class A Common Stock, as well as the Common Stock of
Intercable currently held by it. A portion of the Class A Common
Stock of Intercable otherwise allocable to International (the
controlling shareholder of Spacelink) upon the liquidation of
Spacelink will instead be allocated to the minority shareholders of
Spacelink. After giving effect to this allocation, and assuming the
exercise of all outstanding Class A Common Stock options, each
non-dissenting minority shareholder of Spacelink would receive .09629
shares of Intercable Class A Common Stock and .03567 shares of
Intercable Common Stock for each share of Spacelink stock held on the
closing date.
7
<PAGE> 8
Also on May 31, 1994, Intercable entered into a definitive agreement
with Bell Canada International Inc. ("BCI") whereby BCI is expected to
acquire an approximate 30 percent equity interest in Intercable
through the purchase of Class A Common Stock of Intercable. Under the
terms of the agreement, BCI is expected to invest $400,000,000 over
time. The original investment is expected to be in two installments:
the purchase by BCI of 2,500,000 newly issued shares of Class A Common
Stock of Intercable at $22 per share for $55,000,000, and the purchase
by BCI at closing of 7,500,000 newly issued shares of Class A Common
Stock of Intercable at $27.50 per share for approximately
$206,000,000, resulting in a 30 percent equity interest in Intercable
for a total consideration of approximately $261,000,000. Intercable
received the $55,000,000 initial investment, representing an
approximate 13 percent interest in Intercable, in the fourth quarter
of fiscal 1994. The $55,000,000 was used to reduce amounts
outstanding under Intercable's revolving credit facility. BCI also
has committed to invest up to an additional $139,000,000 to maintain
its 30 percent interest in the event Intercable offers additional
Class A Common Stock. BCI has the right to maintain or increase its
ownership by investing amounts beyond the initial $400,000,000
commitment.
Further, on May 31, 1994, definitive agreements were entered into
between BCI and International and Glenn R. Jones, Chairman and Chief
Executive Officer of International, pursuant to which BCI will acquire
an option to acquire in the future certain shares of Common Stock of
Intercable which represent the controlling interest in Intercable.
The option will be acquired for a payment of $19 per share. Except in
limited circumstances, the option will only be exercisable during the
eighth year after closing. If exercised, BCI would then hold a
sufficient number of shares of Common Stock of Intercable to enable it
to elect 75 percent of the Board of Directors of Intercable.
The closings of the foregoing transactions are expected to occur
simultaneously in December 1994. Closing of the BCI investment in
Intercable and closing of the reorganization of Intercable and
Spacelink are subject to a number of conditions, including the
approval of the shareholders of Intercable, and with respect to the
reorganization between Spacelink and Intercable, the approval of the
shareholders of Spacelink and the receipt of a favorable tax ruling
from the Internal Revenue Service. If such conditions to the closing
of the Intercable-Spacelink transaction are not met or waived, the
reorganization between Intercable and Spacelink may not occur, and
Spacelink would continue to exist as a separate entity. If the BCI
investment in Intercable is made, Spacelink would grant an option to
BCI on the 2,859,240 shares of Common Stock of Intercable owned by it,
in return for an option payment of $19 per share of Intercable Common
Stock or $54,326,000.
(3) Sale of Cable System by Intercable:
On January 7, 1994, Intercable entered into an agreement with Bresnan
Communications Company ("Bresnan") to sell Intercable's Gaston County,
North Carolina cable television system (the "Gaston System") to
Bresnan for $36,500,000, subject to normal closing adjustments.
Closing on this transaction occurred July 22, 1994. Jones Group
received $912,500 for brokerage services related to this acquisition.
Proceeds from the sale of the Gaston System were used to repay amounts
outstanding on Intercable's credit facility. Intercable recognized a
gain before income taxes of $15,496,000 related to this transaction.
(4) Investment in Jones Global 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. On July 25, 1994, Jones Global Group and
certain of Jones Global Group's wholly- owned subsidiaries transferred
all of their interests in their cable/telephony properties in the
United Kingdom to Bell Cablemedia plc, a public limited company
incorporated under the laws of England and Wales, in exchange for
3,663,584 American Depository Shares ("ADSs") representing 18,317,920
Ordinary Shares of Bell Cablemedia. Also on July 22, 1994, Intercable
and certain of its wholly-owned subsidiaries transferred all of their
interests in their cable/telephony properties in the United Kingdom to
Bell Cablemedia in exchange for 6,035,648 ADSs representing 30,178,240
Ordinary Shares of Bell
8
<PAGE> 9
Cablemedia. As a result of these transactions, Intercable and Jones
Global Group no longer own any direct interest in cable/telephony
properties in the United Kingdom.
Prior to the closing of these transactions, Bell Cablemedia was
indirectly owned 80 percent by BCI and 20 percent by Cable and
Wireless plc ("C&W"). Intercable's and Jones Global Group's
agreement to contribute their United Kingdom holdings to Bell
Cablemedia was contingent upon the successful completion of Bell
Cablemedia's initial public offering, which closed on July 22, 1994.
The initial offering price for the ADSs was $17.00 per ADS. As part
of the initial offering, Jones Global Group sold 1,100,000 ADSs
providing net cash proceeds of $17,547,888.
The ADSs received by Intercable are "restricted securities" within the
meaning of Rule 144 promulgated under the Securities Act of 1933 (the
"Securities Act"), and Intercable will not be able to sell its ADSs
unless an exemption from registration under the Securities Act is
available or unless its ADSs are registered by a subsequent
registration statement. Bell Cablemedia, BCI, C&W, Intercable and
Jones Global Group have agreed that, until after January 10, 1995,
they will not sell or otherwise dispose of any ADSs or Ordinary Shares
of Bell Cablemedia (except for those ADSs received by Jones Global
Group that were sold as part of the ADS Offerings) without prior
written consent of the lead U.S. underwriters of the ADS Offerings.
After giving effect to Bell Cablemedia's acquisition of the United
Kingdom holdings of Intercable and Jones Global Group and the closings
of the ADSs Offerings on July 22, 1994, BCI indirectly owns
approximately 42.2 percent, C&W indirectly owns approximately 12.8
percent, Intercable owns approximately 9.7 percent and Jones Global
Group owns approximately 4.2 percent of the issued and outstanding
shares of Bell Cablemedia. Based upon the quoted market price of
$25.50 per ADS at September 30, 1994, the quoted market value of
Intercable's direct investment totaled approximately $153,909,000.
Intercable's indirect investment, through its 38 percent ownership of
Jones Global Group, totaled $24,841,000. Due to the affiliated nature
of the transaction and Intercable's indirect continuing interest in
the UK properties, the investment in Bell Cablemedia is reflected at
Intercable's cost. At August 31, 1994, Intercable's net investment in
Bell Cablemedia totalled approximately $52,945,500.
Intercable paid an advisory fee of L.414,854 (approximately $632,600)
to Jones Financial Group in fiscal 1995 for its services to Intercable
in connection with the aforementioned United Kingdom transactions.
Jones Global Group paid an advisory fee of L.251,812 (approximately
$384,000) to Jones Financial Group for its services to Jones Global
Group in connection with the aforementioned United Kingdom
transactions. Jones Financial Group is owned by International and
Glenn R. Jones.
Jones Spanish Holdings, Inc. ("Spanish Holdings") is an affiliate
indirectly owned 38 percent by Intercable and 62 percent by
International. Intercable has made advances totaling $164,200 during
the first quarter of fiscal 1995, and has advanced a total of
$7,928,200 as of August 31, 1994 to fund Spanish Holdings' activities
to date. These advances have been reflected as investments in foreign
cable television properties 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
$7,852,400 at August 31, 1994. In June 1994, Spanish Holdings agreed
to transfer all of its interests in its cable/telephony properties in
Spain to Bell Cablemedia in exchange for 190,148 ADSs representing
950,740 Ordinary Shares of Bell Cablemedia. The closing of this
transaction occurred October 13, 1994. The ADSs to be received by
Spanish Holdings will be restricted securities within the meaning of
Rule 144 under the Securities Act, and Spanish Holdings will agree not
to sell or otherwise dispose of any ADSs or Ordinary Shares of Bell
Cablemedia until after January 10, 1995.
9
<PAGE> 10
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition -
Spacelink has historically expanded its operations by acquiring and developing
cable television systems and other related businesses for its own account and
for the account of managed limited partnerships. The development and expansion
of cable television systems is highly capital intensive and, in recognition of
this fact, Spacelink has utilized public and private offerings of interests in
limited partnerships to raise capital to fund these activities. In addition to
acquisitions of cable television systems for managed limited partnerships,
Spacelink has acquired cable television systems for its own account, primarily
with borrowed funds. Spacelink has also expanded by acquiring companies, or
certain assets of companies, with shares of its Class A Common Stock.
Spacelink is not presently sponsoring any new managed limited partnerships nor
is it in the process of acquiring any cable television systems for its own
account.
As the cable television industry redefines its products and services to include
more than the traditional television entertainment services, and as competition
in the cable television industry from telephone companies and others begins to
appear more immediate, it became apparent to the management of Spacelink that
Spacelink would be facing several difficult issues, including (i) its ability
to raise the necessary equity and/or debt financing that would enable it to
build the complex digital networks that would be necessary to compete in the
future; (ii) marketplace confusion concerning the business of Spacelink versus
the business of Intercable, and (iii) its relatively small overall size and its
generally small market share in the marketplaces where it operated cable
television systems at a time when, due to the effects of new federal
regulations on cable television system operations and increased competition,
having large numbers of cable television subscribers and concentrations of such
subscribers in particular marketplaces appeared to be a significant advantage.
Prompted by the changes taking place in the cable television industry as
described above, the changes which appear likely to happen in the future and
the liquidity challenges brought on by these changes, on May 31, 1994,
Intercable and Spacelink entered into a definitive agreement with respect to
the reorganization of such companies. Pursuant to that agreement, Intercable
would issue 4,100,000 shares of Class A Common Stock to Spacelink in exchange
for substantially all of the assets of Spacelink and the assumption of
Spacelink's liabilities. Spacelink would then dissolve and distribute to its
shareholders such shares of Class A Common Stock, as well as the Common Stock
of Intercable currently held by it. A portion of the Class A Common Stock of
Intercable otherwise allocable to International upon the liquidation of
Spacelink would instead be allocated to the minority Class A Common Stock
shareholders of Spacelink. After giving effect to this allocation, and
assuming the exercise of all outstanding Class A Common Stock options, each
non-dissenting minority shareholder of Spacelink would receive .09629 shares of
Intercable Class A Common Stock and .03567 shares of Intercable Common Stock
for each share of Spacelink stock held on the closing date.
Also on May 31, 1994, Intercable entered into definitive agreements with Bell
Canada International Inc. ("BCI") which provide for BCI to invest $206,250,000
in Intercable in return for 7,500,000 shares of Class A Common Stock of
Intercable, a price per share of $27.50. This is in addition to the
$55,000,000 already invested in Intercable by BCI in March 1994 at $22.00 per
share, which resulted in BCI acquiring an approximate 13 percent interest in
Intercable. In addition, BCI has agreed to purchase for cash 30 percent of the
Class A Common Stock sold by Intercable to third parties in the future at a
price per share equal to the price received by Intercable from such third
parties until such time as BCI has invested an aggregate of $400 million in
Intercable.
Further, on May 31, 1994 definitive agreements were entered into between BCI
and International and Glenn R. Jones, Chairman and Chief Executive Officer of
International, pursuant to which BCI will acquire an option to acquire in the
future the shares of Common Stock of Intercable which represent the controlling
interest in Intercable. The option will be acquired for a payment of $19 per
share. Except in limited circumstances, the option will only be exercisable
10
<PAGE> 11
during the eighth year after closing. If exercised, BCI would then hold a
sufficient number of shares of Common Stock of Intercable to enable it to elect
seventy-five percent of the Board of Directors of Intercable.
The closings of the foregoing transactions are expected to occur simultaneously
in December 1994. Closing of the BCI investment in Intercable and closing of
the reorganization of Intercable and Spacelink are subject to a number of
conditions, including the approval of the shareholders of Intercable, and with
respect to the reorganization between Spacelink and Intercable, the approval of
the shareholders of Spacelink and the receipt of a favorable tax ruling from
the Internal Revenue Service. If such conditions to the closing of the
Intercable-Spacelink transaction are not met or waived, the reorganization
between Intercable and Spacelink may not occur, and Spacelink would continue to
exist as a separate entity. If the BCI investment in Intercable is made,
Spacelink would grant an option to BCI on the 2,859,240 shares of Common Stock
of Intercable owned by it, in return for an option payment of $19 per share, or
$54,326,000.
Although Spacelink consolidates the accounts of Intercable, certain provisions
of Intercable's loan agreements limit the amount of funds it may loan or
advance to its affiliates, including Spacelink. As a result of these
limitations, the assets and operating income of Intercable are generally not
available to Spacelink to provide liquidity or capital and, as such, a
discussion of Intercable's financial condition is not included below. In
addition, Spacelink bears no responsibility for the outstanding obligations,
commitments or contingencies of Intercable. Spacelink will, however,
participate in any growth of Intercable's asset and market value through its
economic ownership interest in Intercable.
During the first quarter of fiscal 1995, the cash position of Spacelink and its
consolidated subsidiaries excluding Intercable was impacted from operating,
investing and financing activities as follows:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
Cash Flows from Operating Activities:
Cable television system operations $ 1,544
Management fees from managed limited partnerships 530
Radio programming operations (471)
Jones Futurex operations (139)
Other operations, net 925
Interest payments (1,731)
--------
Net cash provided by operating activities 658
--------
Cash Flows from Investing Activities:
Purchases of property, plant and equipment (1,429)
--------
Net cash used in investing activities (1,429)
--------
Cash Flows from Financing Activities:
Proceeds from borrowings 1,016
Repayment of borrowings (54)
Advances from Jones International, Ltd. 851
Increase in advances to affiliates (488)
Payment of dividends by Jones Group to Jones Intercable, Inc. (56)
Other 37
--------
Net cash provided by financing activities 1,306
--------
Increase in cash and cash equivalents 535
Cash and cash equivalents, at beginning of period 653
--------
Cash and cash equivalents, at end of period $ 1,188
========
</TABLE>
11
<PAGE> 12
During the first quarter of fiscal 1995, Spacelink purchased property, plant
and equipment totalling approximately $1,429,000. The following table details
Spacelink's capital expenditures by significant category for the three months
ended August 31, 1994 and its currently anticipated capital expenditures for
the remainder of fiscal 1995.
<TABLE>
<CAPTION>
Three Months Ended Remainder Total Anticipated
August 31, 1994 Fiscal 1995 Fiscal 1995
------------------------ ------------------------- -----------------------
Amount % of Total Amount % of Total Amount % of Total
---------- ---------- ---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Cable System Extensions
and Improvements $ 474 33% $ 4,150 54% $ 4,624 51%
Land and Equipment for
Earth Segment 827 58% 2,748 36% 3,575 39%
Manufacturing and Other
Equipment for Futurex 103 7% 602 8% 705 8%
Other 25 2% 145 2% 170 2%
------- --- ------- --- ------- ---
Total Capital Expenditures $ 1,429 100% $ 7,645 100% $ 9,074 100%
======= === ======= === ======= ===
</TABLE>
On April 13, 1993, Spacelink entered into credit agreements, which agreements
include a $65,000,000 Revolving Credit Facility (the "Revolving Facility") and
a $10,000,000 Term Loan (the "Term Loan"). The Revolving Facility was
originally scheduled to begin reducing on August 31, 1994, with a final
maturity date of February 28, 2001. The Revolving Facility bears interest, at
Spacelink's option, at the Base Rate plus 3/4 to 1-3/8 percent, LIBOR plus
1-3/4 to 2-3/8 percent or the Certificate of Deposit rate plus 2 to 2-5/8
percent. The Term Loan matures May 31, 2001 and requires principal payments
beginning May 31, 1995. Borrowings under the Term Loan bear interest at rates
consistent with the rates of the Revolving Facility. Both the Revolving
Facility and the Term Loan are secured by substantially all of Spacelink's
assets with the exception of Spacelink's investment in Intercable. Effective
November 30, 1993, Spacelink amended its Revolving Facility to increase the
allowable ratio of debt to management fees and cable operating income before
depreciation and amortization (the "Debt Ratio") from 6.5 to 1.0 to 6.75 to 1.0
in order to make available to it a majority of its Revolving Facility and to
mitigate some of the impact of the recent cable reregulation on its liquidity.
The balances outstanding under the Revolving Facility and Term Loan at August
31, 1994 were $65,000,000 and $10,000,000, respectively.
The Revolving Facility was originally structured to begin reducing at the rate
of $1,787,500 per quarter for fiscal 1995, beginning with the quarter ending
August 31, 1994. The scheduled reductions will reduce the Revolving Facility
commitment from $65,000,000 at May 31, 1994 to $57,850,000 at May 31, 1995. In
addition, the term loan also requires a principal payment of $1,000,000 on May
31, 1995. In August 1994, Spacelink received from its banks a waiver for the
scheduled Revolving Facility reductions for August 31 and November 30, 1994,
which payments will now be due on February 28, 1995. In addition, Spacelink
also received from its banks a waiver of certain financial covenants for the
quarters ending August 31 and November 30, 1994, provided that its Debt Ratio
not exceed 8.0 to 1.0 at the end of such fiscal quarters and a waiver of a
financial covenant requiring a certain level of dividends from Jones Group for
the year ended May 31, 1994.
In consideration for the waivers, Spacelink agreed to pay the banks' fees
totalling $375,000 payable on the earlier of (a) the date the Revolving
Facility and Term Loan are paid in full, (b) the date (if applicable) when
Spacelink receives the option payment from BCI, or (c) February 28, 1995. In
addition, Spacelink agreed to pay fees of $40,000 per month beginning September
30, 1994 and continuing until one of the following events occurs: (a) the
Revolving Facility and Term Loan are paid in full, (b) Spacelink in fact
receives the option payment from BCI, or (c) certain interest rate terms of the
Revolving Facility and Term Loan are amended.
12
<PAGE> 13
Spacelink has been negatively impacted by the rate reductions resulting from
the rules and regulations of the FCC under the 1992 Cable Act. Most of
Spacelink's owned and managed systems were required to reduce their service
rates for basic and tier services on September 1, 1993, which resulted in a
decrease in revenues and operating cash flow in those systems, which was
somewhat mitigated by increases in revenues from premium services, pay-per-view
and advertising sales. In Spacelink's managed systems, the management fees
earned by Spacelink, which are a function of the operating revenues of a
managed cable system, have also decreased, as has operating income before
depreciation and amortization from Spacelink-owned systems. In February, the
FCC announced a further rulemaking, which caused Spacelink to make additional
rate reductions on July 14, 1994. The new rate regulations will have a
negative effect in the future on revenues and operating cash flows from its
owned and managed cable television systems.
Spacelink's liquidity will be reduced further by the impact of an overbuild of
its Panama City Beach, Florida cable television system. The City Council of
Panama City Beach and the County Commissioners of Bay County have granted cable
television franchises to an unaffiliated company that has recently completed
construction of a competing cable television system in Panama City Beach and
began offering service on June 15, 1994. Spacelink intends to vigorously
defend its subscriber base through additional programming offerings, aggressive
marketing and enhanced customer service. Through October 7, 1994, Spacelink
had a net loss of 825 subscribers to the competing cable televison company, or
approximately ten percent of its residential customers in the Panama City Beach
system.
Spacelink has made advances to, and deferred collection of, management fees and
expense allocations from certain Spacelink-managed limited partnerships. A
significant portion of these advances and deferrals represents funds necessary
for capital expansion of, and improvements to, properties owned by
Spacelink-managed limited partnerships and operating and interest expenses paid
on behalf of such partnerships. These advances reduce Spacelink's available
cash and its liquidity. Amounts due from various Spacelink- managed limited
partnerships totalled approximately $4,198,000 at August 31, 1994. Of such
amount, approximately $434,000 represented advances to various
Spacelink-managed limited partnerships that will generally repay these advances
in the quarter after such advances are made. The remaining amount of
$3,534,000 is owed by Jones Spacelink Fund 4, Ltd. ("Fund 4"), and represents
funds primarily for operating Fund 4's operating capital and debt service
needs. Repayment of these advances will most likely occur, if at all, only
when Fund 4's cable television system is sold and the partnership is
liquidated. Spacelink anticipates, however, that based on its present
assessment of asset value, the proceeds from the sale of Fund 4's cable
television system will not be sufficient to repay all of Fund 4's obligations.
Spacelink estimates that only approximately $1,881,000 of its advances to Fund
4 will ultimately be repaid and, therefore, at August 31, 1994, Spacelink has
reserved $1,653,000 of the total amount due from Fund 4.
Subject to closing conditions, Spacelink currently anticipates that its pending
transaction with Intercable will be consummated in December of 1994. During
the period prior to the consummation of the transaction with Intercable,
Spacelink anticipates that its operating revenues will only be sufficient to
fund operating expenses and interest expense. In August 1994, Spacelink
borrowed an additional $1,000,000 on its Revolving Facility and International
advanced Spacelink $851,000 to fund certain capital expenditures and other
working capital needs, leaving Spacelink with no additional borrowing capacity
under the Revolving Facility and $1,188,000 of cash blances at August 31, 1994.
As a result, Spacelink will postpone the bulk of its planned capital
expenditures pending the transaction with Intercable or in the alternative, the
option grant with BCI, and will commit to capital expenditures only after it
has the liquidity to fund such expenditures. International may make additional
advances to Spacelink to fund certain capital expenditures and for other
working capital needs, however, International has no obligation to provide
liquidity to Spacelink and, therefore, no assurance can be given as to if
International will make any additional advances.
In the event the reorganization between Intercable and Spacelink does not
occur, Spacelink would continue to exist as a separate entity and if the
Intercable-BCI Agreement is closed, Spacelink would grant an option to BCI on
the 2,859,240 shares of Common Stock of Intercable owned by Spacelink, in
return for an option payment of $19 per share of Intercable Common Stock, or
$54,326,000. The $54,326,000 of proceeds would be used to substantially reduce
Spacelink's debt, fund its capital expenditures and its other working capital
needs.
13
<PAGE> 14
Regulatory Matters
Congress enacted the Cable Television Consumer Protection and Competition Act
of 1992 (the "1992 Cable Act"), which became effective on December 4, 1992.
This legislation has caused significant changes to the regulatory environment
in which the cable television industry operates. The 1992 Cable Act generally
allows for a greater degree of regulation of the cable television industry.
Under the 1992 Cable Act's definition of effective competition, nearly all
cable systems in the United States, including those owned and managed by
Spacelink, are subject to rate regulation of basic cable services. In
addition, the 1992 Cable Act allows the FCC to regulate rates for non-basic
service tiers other than premium services in response to complaints filed by
franchising authorities and/or cable subscribers. In April 1993, the FCC
adopted regulations governing rates for basic and non-basic services. The
FCC's rules became effective on September 1, 1993.
In compliance with these rules, Spacelink reduced rates charged for certain
regulated services effective September 1, 1993. These reductions resulted in
some decrease in revenues and operating income before depreciation and
amortization; however the decrease was not as severe as originally anticipated.
Spacelink has undertaken actions to mitigate a portion of these reductions
primarily through (a) new service offerings in some systems, (b) product
re-marketing and re-packaging and (c) marketing efforts directed at
non-subscribers.
On February 22, 1994, the FCC adopted several additional rate orders including
an order which revised its earlier-announced regulatory scheme with respect to
rates. The FCC's new regulations will generally require rate reductions,
absent a successful cost-of-service showing, of 17 percent of September 30,
1992 rates, adjusted for inflation, channel modifications, equipment costs, and
increases in programming costs. However, the FCC held rate reductions in
abeyance in certain systems. The new regulations became effective on May 15,
1994, but operators could elect to defer rate reductions to July 14, 1994, so
long as they made no changes in their rates and did not restructure service
offerings between May 15 and July 14.
On February 22, 1994, the FCC also adopted interim cost-of-service regulations.
Rate reductions will not be required where it is successfully demonstrated that
rates for basic and other regulated programming services are justified and
reasonable using cost-of- service standards. The FCC established an interim
industry-wide 11.25 percent permitted rate of return, and requested comments on
whether this standard and other interim cost-of-service standards should be
made permanent. The FCC also established a presumption that acquisition costs
above a system's book value should be excluded from the rate base, but the FCC
will consider individual showings to rebut this presumption. The need for
special rate relief will also be considered by the FCC if an operator
demonstrates that the rates set by a cost-of-service proceeding would
constitute confiscation of investment, and that, absent a higher rate, the
credit necessary to operate and to attract investment could not be maintained.
The FCC will establish a uniform system of accounts for operators that elect
cost-of-service rate regulation, and the FCC has adopted affiliate transaction
regulations. After a rate has been set pursuant to a cost-of-service showing,
rate increases for regulated services will be indexed for inflation, and
operators will also be permitted to increase rates in response to increases in
costs beyond their control, such as taxes and increased programming costs.
Spacelink may elect to file a cost-of-service showing in its Clear Creek,
Colorado cable television system and does not anticipate reductions in revenues
or operating income before depreciation and amortization due to the new
regulations. Spacelink complied with the new benchmark regulations and reduced
rates in its Hilo, Hawaii, Panama City Beach, Florida and Kenosha, Wisconsin
cable television systems. The annualized reduction of revenues and operating
income before depreciation and amortization in these systems is approximately
$628,000, or 3 percent, and approximately $615,000, or 8 percent, respectively.
Spacelink will continue its efforts to mitigate the effect of such rate
reductions. In addition, as a result of Spacelink's managed partnerships'
compliance with the 1992 Cable Act and the corresponding reduction in
Partnership revenues, Spacelink anticipates a reduction in management fee
revenue of approximately $15,000, or 1 percent.
The 1992 Cable Act also contains new broadcast signal carriage requirements,
and the FCC has adopted regulations implementing the statutory requirements.
These new rules allow a local commercial broadcast television station to elect
14
<PAGE> 15
whether to demand that a cable system carry its signal or to require the cable
system to negotiate with the station for "retransmission consent." A cable
system is generally required to devote up to one-third of its activated channel
capacity for the mandatory carriage of local commercial broadcast stations, and
non-commercial television stations are also given mandatory carriage rights,
although such stations are not given the option to negotiate retransmission
consent for the carriage of their signals by cable systems. Additionally,
cable systems also are required to obtain retransmission consent from all
commercial television stations (except for commercial satellite-delivered
independent "superstations"), which do not elect mandatory carriage, commercial
radio stations and, in some instances, low-power television stations carried by
cable systems. The retransmission consent rules went into effect on October 6,
1993. Throughout all cable television systems owned or managed by Spacelink
and Intercable, only one broadcast station withheld its consent to
retransmission of its signal, and was no longer carried on October 6, 1993. As
of October 11, 1993, however, the broadcast station had given its consent, and
its signal was restored to that cable system.
There have been several lawsuits filed by cable operators and programmers in
Federal court challenging various aspects of the 1992 Cable Act, including
provisions relating to mandatory broadcast signal carriage, retransmission
consent, access to cable programming, rate regulations, commercial leased
channels and public access channels. On April 8, 1993, a three-judge Federal
district court panel issued a decision upholding the constitutionality of the
mandatory signal carriage requirements of the 1992 Cable Act. That decision
was appealed directly to the United States Supreme Court. The United States
Supreme Court vacated the lower court decision on June 27, 1994 and remanded
the case to the district court for further development of a factual record.
The Court's majority determined that the must-carry rules were content neutral,
but that it was not yet proven that the rules were needed to preserve the
economic health of the broadcasting industry. In the interim, the must-carry
rules will remain in place during the pendency of the proceedings in district
court. In 1993, a Federal district court for the District of Columbia upheld
provisions of the 1992 Cable Act concerning rate regulation, retransmission
consent, restrictions on vertically integrated cable television operators and
programmers, mandatory carriage of programming on commercial leased channels
and public, educational and governmental access channels and the exemption for
municipalities from civil damage liability arising out of local regulation of
cable services. The 1992 Cable Act's provisions providing for multiple
ownership limits for cable operators and advance notice of free previews for
certain programming services have been found unconstitutional, and these
decisions have been appealed. In November 1993, the United states Court of
Appeals for the District of Columbia held that the FCC's regulations
implemented pursuant to Section 10 of the 1992 Cable Act, which permit cable
operators to ban indecent programming on public, educational or governmental
access channels or leased access channels, were unconstitutional, but the court
has agreed to reconsider its decision. All of these decisions construing
provisions of the 1992 Cable Act and the FCC's implementing regulations have
been or are expected to be appealed.
15
<PAGE> 16
Results of Operations-
Revenues excluding Intercable
Spacelink and its consolidated subsidiaries excluding Intercable derive their
revenues from six primary sources: subscriber service fees from Spacelink-owned
cable television systems, management fees from Spacelink-managed limited
partnerships, sales of encryption hardware and software products and
electronics manufacturing services of Futurex, sales by Jones Satellite
Networks ("Satellite Networks"), a consolidated subsidiary of Galactic Radio
which provides radio programming to radio stations, uplinking and playback
services of Jones Earth Segment and brokerage fees earned by Jones Group on the
acquisition and sale of cable television properties. Total revenues for
Spacelink and its consolidated subsidiaries excluding Intercable for the three
months ended August 31, 1994 were $10,050,000, an increase of $1,680,000, or
approximately 20 percent, over the amount reported for the three months ended
August 31, 1993. The principal activities giving rise to the changes in
revenues are described below.
Subscriber Service Fees
Subscriber service fees from Spacelink-owned systems totalled $5,308,000 for
the three months ended August 31, 1994, an increase of $77,000, or
approximately one percent, over the amount reported in the comparable quarter
one year ago. This increase was primarily the result of increases in basic
service revenues and premium service fees due to increases in the number of
basic and premium subscribers, respectively. This increase was partially
offset by a decrease in equipment rental revenue and the effect of the
reduction in basic service rates required under the regulations issued by the
FCC in implementing the 1992 Cable Act.
Management Fees
Spacelink and certain of its wholly owned subsidiaries receive management fees
generally of five percent of partnership gross revenues, excluding revenues
from the sale of cable television properties, for the management of cable
television systems owned by partnerships for which they are general partner.
Spacelink's management fees increased slightly from $528,000 for the first
quarter of fiscal 1994 to $530,000 for first quarter of fiscal 1995.
Partnership revenues increased as a result of increases in the number of basic
subscribers as well as advertising sales, premium service, installation fees
and equipment rental fees. These increases were offset by the effect of the
reduction in basic service revenues due to the July 14, 1994 reduction in basic
rates as required under the regulations issued by the FCC.
Futurex Sales
Revenues of Futurex for the three months ended August 31, 1994 and 1993 were
$1,955,000 and $1,355,000, respectively. The $600,000 increase in revenues, or
approximately 44 percent, is the result of increases in electronics
manufacturing services of $709,000 and sales of data encryption products of
$162,000, which increases were offset by a decrease in systems integration
services of $271,000.
Radio Programming Services
In January 1994, Satellite Networks began selling and inserting advertising on
all of its radio formats. In exchange for allowing Satellite Networks to air
the advertising, the radio station affiliates are, in most cases, charged no
monthly fee, or a significantly reduced fee for the service. Prior to January
1994, these affiliate fees accounted for virtually all of Satellite Networks'
revenues. Since January 1994, Satellite Networks experienced a significant
decrease in affiliate fees as compared to the same periods one year ago. Over
the longer term, however, management believes the advertising revenues will
significantly exceed the affiliate fees it was receiving from the radio station
affiliates. However, there can be no assurance of this result. Affiliate fees
and advertising revenues generated from satellite delivered formatted music
programming to radio stations totalled $715,000 and $836,000, respectively, for
the three
16
<PAGE> 17
months ended August 31, 1994 and 1993, a decrease of $121,000, or approximately
14 percent, for the first quarter of fiscal 1995 as compared to the same period
one year ago. During the first quarter of fiscal 1995, the number of radio
stations receiving radio programming services increased by approximately 47
percent from the levels in the prior fiscal quarter.
Brokerage Fees
Brokerage fees recognized by Jones Group for the three month period ended
August 31, 1994, were $913,000 as compared to $-0- for the three month period
in the prior fiscal year. The difference in total brokerage fees recognized by
Jones Group was the result of differences in the number of transactions
brokered by Jones Group during these periods.
The net recognition of brokerage fees in the first quarter of fiscal 1995 and
1994 of $113,000 and $78,000, respectively, which were previously deferred for
financial reporting purposes, resulted in brokerage fee revenue on a
consolidated basis of $1,026,000 and $78,000 for the first quarter of fiscal
1995 and fiscal 1994, respectively.
Uplinking and Playback Services
Uplinking and playback services of Jones Earth Segment totalled $516,000 and
$279,000, respectively, for the three months ended August 31, 1994 and 1993.
Such services increased by $237,000, or approximately 85 percent for the first
quarter of fiscal 1995 as compared to the similar period one year ago. The
increase for the three months ended August 31, 1994 as compared to the three
months ended August 31, 1993 resulted from increased playback services of
$181,000 and increased uplinking services of $56,000.
Revenues including Intercable
Consolidated revenues for the three months ended August 31, 1994 totalled
$44,343,000, an increase of $3,514,000, or approximately nine percent over the
amount reported for the similar period one year ago. Of the increase in
consolidated revenues for the three month period ended August 31, 1994, over
the amount reported during the similar period one year ago, Intercable
accounted for $1,834,000, or approximately 52 percent. The increase in
Intercable's revenues on a consolidated basis is primarily the result of an
increase in subscriber service fees of $1,692,000, which increase is reflective
of Intercable's purchase in December 1993 of the cable television system
serving the areas in and around North Augusta, South Carolina (the "North
Augusta System"). The effect of this acquisition was somewhat mitigated by the
effect of Intercable's sale in July 1994 of the Gaston County, North Carolina
cable television system (the "Gaston System").
Costs and Expenses excluding Intercable
Operating expenses and general and administrative expenses consists primarily
of costs associated with the operation of company- owned cable television
systems and the administration of managed limited partnerships, costs of the
sales of data encryption products and costs of systems integration services and
electronics manufacturing services provided by Futurex, sales, programming and
administrative costs of Satellite Networks, uplinking and playback service
costs of Jones Earth Segment and administrative costs of Jones Group.
Spacelink and Intercable are reimbursed by their managed limited partnerships
for costs associated with the operation of their partnerships. Of the expenses
borne by Spacelink and Intercable, the principal components are compensation
paid to corporate and company-owned system personnel, programming expenses,
professional fees, subscriber billing costs, data processing costs, rent for
leased facilities, cable system maintenance expenses and consumer marketing
expenses.
In the first quarter of fiscal 1995, operating expenses of Spacelink and its
consolidated subsidiaries excluding Intercable, totalled $6,277,000, an
increase of $1,246,000, or approximately 25 percent, from the similar period in
the previous year. Operating expenses relating to the operation of cable
television systems owned by Spacelink increased by $357,000, or approximately
12 percent, and are primarily the result of increased personnel related costs,
premium
17
<PAGE> 18
service fees and advertising related costs of $162,000, $73,000 and $68,000,
respectively. Costs of sales and services, marketing and technical customer
support of Futurex increased $616,000, or approximately 52 percent, in the
first quarter of fiscal 1995 as compared to the similar period one year ago.
Total operating expenses of Satellite Networks increased by $273,000, or
approximately 44 percent in the first quarter of fiscal 1995 as compared to the
similar period one year ago, and are primarily the result of increased traffic
and clearance, sales and programming costs. Operating costs of uplinking and
playback services of Jones Earth Segment increased $63,000, or approximately 29
percent in the first quarter of fiscal 1995 as compared to the similar period
one year ago. General and administrative expenses increased $3,000 from
$1,217,000 for the three months ended August 31, 1994 to $1,220,000 for the
similar period in fiscal 1995.
Consolidated Costs and Expenses including Intercable
Consolidated operating expenses for the first quarter of fiscal 1995 totalled
$24,873,000, an increase of $3,582,000, or approximately 17 percent from the
amount in the similar period one year ago. Operating expenses of Intercable on
a consolidated basis accounted for $2,331,000, or approximately 65 percent of
the total increase and were primarily the result of increased satellite fees
and premium service fees of $899,000 and $584,000, respectively. The net
effect of the purchase of the North Augusta System and the sale of the Gaston
System was an increase in these expenses of approximately $590,000 for the
first quarter of fiscal 1995 as compared to the similar period one year ago.
Consolidated general and administrative expenses decreased $259,000, or
approximately eight percent from $3,225,000 in the first quarter of fiscal 1994
to $2,966,000 in the first quarter of fiscal 1995. This decrease is primarily
the result of a decrease in transponder fees Intercable paid to Jones Space
Segment, Inc. ("Space Segment"), an affiliate of International, during the
first quarter of fiscal 1995 as compared to the similar quarter one year ago.
Other Income and Expenses excluding Intercable
Interest Expense
Interest expense for Spacelink and its consolidated subsidiaries excluding
Intercable totalled approximately $1,488,000 in the first quarter of fiscal
1995 compared to approximately $1,031,000 in the comparable quarter one year
ago. The increase in interest expense is primarily the result of an increase
in the average levels of outstanding debt and higher effective interest rates
on such debt during the first quarter of fiscal 1995, as compared to the
similar period one year ago. Spacelink's effective interest rate on
outstanding debt during fiscal 1995 was 6.79 percent.
Equity in Losses
Equity in losses of limited partnerships and affiliated companies, excluding
Intercable, which partnership losses result principally from depreciation and
amortization expense, for the first quarter of fiscal 1995 and 1994 were
$263,000 and $278,000 respectively. The $15,000 decrease in equity losses of
limited partnerships and affiliated companies in fiscal 1995 from the amount
reported in fiscal 1994, was primarily the result of significantly reduced
losses of Mind Extension University in the first quarter of fiscal 1995 as
compared to the similar period in fiscal 1994. The decrease in equity losses
of limited partnerships and affiliated companies was partially offset by losses
of a Spacelink-managed Partnership, which are now being allocated 100 percent
to Spacelink because the limited partners capital accounts are in a deficit
position and the Partnership's liabilities exceed the estimated value of the
Partnership's assets.
Consolidated Other Income and Expense including Intercable
Interest Expense
For the three months ended August 31, 1994, consolidated interest expense
totalled approximately $10,758,000, an increase of $1,068,000, or approximately
11 percent, from the similar period one year ago. Of the total increase in
consolidated interest expense for the three
18
<PAGE> 19
month period ended August 31, 1994 from the amount reported for the three month
period ended August 31, 1993, Intercable accounted for $611,000 resulting from
higher average outstanding balances and higher effective interest rates on
Intercable's revolving credit facility.
Equity in Losses
Consolidated equity in losses of limited partnerships and affiliated companies,
which partnership losses result principally from depreciation and amortization
expense, decreased from $1,187,000 for the three month period ended August 31,
1993 to $810,000 for the three month period ended August 31, 1994. The
$377,000 decrease in equity in losses of limited partnerships and affiliated
companies for the first quarter of fiscal 1995, as compared to the similar
period one year ago, was primarily the result of a reduction in the losses
recognized by Intercable related to its 25 percent investment in Mind Extension
University and an increase in income recognized by Intercable related to its
investment in Jones Intercable Investors, L.P.
Interest Income
For the three months ended August 31, 1994, consolidated interest income
totalled $1,173,000, an increase of $356,000, or approximately 44 percent, from
the similar period one year ago. This increase is primarily the result of
interest income earned by Intercable on advances made to Mind Extension
University.
Gain on Sale of Assets
Intercable recognized a gain on the sale of the Gaston System of $15,496,000
during the first quarter of fiscal 1995. No similar transactions were recorded
in the first quarter of fiscal 1994.
Minority Interest in Net (Income) Losses
For the three months ended August 31, 1994, minority interests in the net
income of consolidated subsidiaries of $9,014,000 reflects primarily the
elimination of the remaining shareholders' 86 percent interest in Intercable's
net income in the first quarter of fiscal 1995. For the three months ended
August 31, 1993, minority interest in the net loss of consolidated subsidiaries
of $4,827,000 reflects primarily the elimination of the then remaining 83
percent interest in Intercable's net loss in the first quarter of fiscal 1994.
Net Income (Loss)
While Spacelink anticipates the continued recognition of operating income
before depreciation and amortization expense, as Spacelink and Intercable's
cable television systems mature, net losses may be recognized in the future, in
part from depreciation and amortization expense. To the extent Spacelink and
Intercable recognize partnership fees and distributions upon liquidation of
their managed limited partnerships and Spacelink recognizes brokerage fees from
Jones Group, losses may be reduced or eliminated; however, there can be no
assurance as to the timing or amount of income recognition resulting from these
fees and distributions or other transactions.
19
<PAGE> 20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27) Financial Data Schedule (Submitted to the SEC for its
information)
(b) Reports on Form 8-K.
Current Report of Form 8-K dated June 6, 1994 reporting (i)
the execution by Spacelink of an Exchange Agreement and Plan
of Reorganization and Liquidation with Jones Intercable, Inc.
providing for the issuance by Jones Intercable, Inc. of shares
of its Class A Common Stock for substantially all of the
assets of Spacelink and (ii) the execution by Jones
Intercable, Inc. of a Stock Purchase Agreement dated as of May
31, 1994 with Bell Canada International Inc. ("BCI") pursuant
to which BCI is to acquire an approximate 30 percent equity
interest in Jones Intercable, Inc.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JONES SPACELINK, LTD.,
a Colorado corporation
By: /s/ Gregory J. Liptak
Gregory J. Liptak
President
By: /s/ Jay B. Lewis
Jay B. Lewis, Treasurer
(Principal Accounting Officer)
Date: October 14, 1994
21
<PAGE> 22
EXHIBIT INDEX
27) Financial Data Schedule
(Submitted to the SEC for its information)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> AUG-31-1994
<EXCHANGE-RATE> 1
<CASH> 7,035
<SECURITIES> 0
<RECEIVABLES> 8,063
<ALLOWANCES> 2,394
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 325,660
<DEPRECIATION> (136,536)
<TOTAL-ASSETS> 512,138
<CURRENT-LIABILITIES> 0
<BONDS> 398,566
<COMMON> 781
0
0
<OTHER-SE> 4,525
<TOTAL-LIABILITY-AND-EQUITY> 512,138
<SALES> 0
<TOTAL-REVENUES> 44,343
<CGS> 0
<TOTAL-COSTS> 41,295
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,758
<INCOME-PRETAX> 0
<INCOME-TAX> (923)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 607
<EPS-PRIMARY> .01
<EPS-DILUTED> 0
</TABLE>
