<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, 1993
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, $.0l 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, 1993 of voting stock held by
non-affiliates:
Class A Common Stock $8,673,065
Shares outstanding of each of the registrant's classes of common stock, as of
August 20, 1993:
Class A Common Stock: 77,572,700 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
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Spacelink's Class A Common Stock, par value $.0l per share, is traded in
the over-the-counter market and authorized for quotation by the National
Association of Securities Dealers, Inc. (NASDAQ), 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 quarterly period of fiscal 1993 and
1992. 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>
1993 First Quarter 1 1/8 3/4
Second Quarter 15/16 19/32
Third Quarter 1 3/8 3/4
Fourth Quarter 1 5/16 5/8
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
</TABLE>
At May 31, 1993, the Class A Common Stock of Spacelink was held by
approximately 699 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 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 lenders.
-42-
<PAGE> 3
ARTHUR
ANDERSEN
ARTHUR ANDERSEN & CO. SC
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,
1993 and 1992, and the related consolidated statements of operations,
shareholders' investment and cash flows for each of the three years in the
period ended May 31, 1993. 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, 1993 and 1992, and the
results of their operations and their cash flows for each of the three
years in the period ended May 31, 1993, in conformity with generally
accepted accounting principles.
As explained in Note I of Notes to Consolidated Financial
Statements, effective June 1, 1992, Jones Spacelink, Ltd. changed its
method of accounting for income taxes.
/s/ ARTHUR ANDERSON & CO.
ARTHUR ANDERSEN & CO.
Denver, Colorado,
August 16, 1993
-59-
<PAGE> 4
CONSOLIDATED BALANCE SHEETS Jones Spacelink, Ltd.
As of May 31, 1993 and 1992 and Subsidiaries
<TABLE>
<CAPTION>
ASSETS 1993 1992
- - - ------ -------- --------
(In Thousands)
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 1,348 $ 2,954
RECEIVABLES:
Trade receivables, net of allowance for doubtful accounts of $577,000
in 1993 and $535,000 in 1992 6,687 5,958
Affiliated entities, net of allowance for doubtful accounts of
$1,351,000 in 1993 and $1,171,000 in 1992 19,510 16,307
Other 517 1,288
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost, net of accumulated
depreciation of $111,155,000 in 1993 and $88,658,000 in 1992 194,942 189,484
Franchise costs, net of accumulated amortization of $76,148,000 in
1993 and $64,741,000 in 1992 94,912 81,288
Subscriber lists, net of accumulated amortization of $27,780,000 in
1993 and $21,927,000 in 1992 23,948 21,451
Costs in excess of interests in net assets purchased, net of
accumulated amortization of $5,287,000 in 1993 and $4,213,000 in
1992 41,251 42,807
Noncompete agreements, net of accumulated amortization of $1,722,000
in 1993 and $1,385,000 in 1992 792 1,179
Investments in cable television managed partnerships and corporate
stock 59,061 48,708
-------- --------
Total Investment in Cable Television Properties 414,906 384,917
-------- --------
DEFERRED TAX ASSET, net of valuation allowance of $26,161,000 6,667 --
DEPOSITS, PREPAID EXPENSES AND OTHER 24,334 15,419
-------- --------
Total Assets $473,969 $426,843
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
-60-
<PAGE> 5
CONSOLIDATED BALANCE SHEETS Jones Spacelink, Ltd.
As of May 31, 1993 and 1992 and Subsidiaries
<TABLE>
<CAPTION>
1993 1992
-------- --------
(In Thousands)
<S> <C> <C>
LIABILITIES:
Accounts Payable and Accrued Liabilities $ 40,722 $ 28,835
Subscriber Prepayments and Deposits 5,582 5,306
Credit Facility and other Debt of Jones Spacelink, Ltd. 69,265 64,997
Credit facility of Jones Intercable, Inc. 46,000 66,000
Subordinated debentures and other debt of Jones Intercable, Inc. 281,214 233,300
-------- --------
Total Liabilities 442,783 398,438
DEFERRED REVENUE AND INCOME 2,718 3,567
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 21,480 15,840
COMMITMENTS AND CONTINGENCIES (Note 13)
SHAREHOLDERS' INVESTMENT:
Class A Common Stock, $.01 par value and a $1.00 liquidation
preference, 220,000,000 shares authorized at May 31, 1993 and
1992, respectively; 77,572,700 and 75,939,689 shares issued and
outstanding at May 31, 1993 and 1992, respectively 776 759
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 47,126 37,882
Accumulated deficit (38,520) (26,473)
Less: Treasury stock of Jones Intercable, Inc. at cost, net of
minority interests (2,398) (3,174)
-------- --------
Total Shareholders' Investment 6,988 8,998
-------- --------
Total Liabilities and Shareholders' Investment $473,969 $426,843
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
-61-
<PAGE> 6
CONSOLIDATED STATEMENTS OF OPERATIONS Jones Spacelink, Ltd.
For the years ended May 31, 1993, 1992 and 1991 and Subsidiaries
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
(In Thousands, Except
Per Share Data)
<S> <C> <C> <C>
REVENUES:
Subscriber service fees $125,761 $106,274 $ 96,511
Management fees 19,140 17,814 16,153
Encryption sales and manufacturing services 4,048 3,680 1,997
Audio programming services 2,917 2,156 1,190
Brokerage fees 1,754 1,693 2,486
Partnership fees, distributions and other 954 27,076 284
-------- -------- --------
Total Revenues 154,574 158,693 118,621
COSTS AND EXPENSES:
Operating, general and administrative expenses, including
amounts allocated from Jones International, Ltd. of
$1,851,000, $2,455,000 and $3,177,000 in 1993, 1992 and
1991, respectively (93,316) (74,395) (66,517)
Depreciation and amortization (51,504) (47,789) (47,341)
-------- -------- --------
Operating Income 9,754 36,509 4,763
OTHER INCOME (EXPENSE):
Interest expense (47,177) (44,099) (51,393)
Interest charged to cable television systems held for resale
to managed limited partnerships -- 1,171 4,598
Equity in losses of partnerships and affiliated companies (4,209) (8,111) (12,002)
Interest income 4,346 4,791 2,331
Litigation settlement -- -- (3,413)
Gain (loss) on sale of assets (5,466) 29,933 --
Other, net (2,258) 607 (937)
-------- -------- --------
Income (Loss) Before Income Tax Benefit (Provision),
Minority Interests and Extraordinary Items (45,010) 20,801 (56,053)
INCOME TAX BENEFIT (PROVISION) 2,842 (7,554) 1,112
-------- -------- --------
Income (Loss) Before Minority Interests and Extraordinary
Items (42,168) 13,247 (54,941)
MINORITY INTERESTS IN NET (INCOME) LOSS OF CONSOLIDATED
SUBSIDIARIES 31,826 (5,119) 30,376
-------- -------- --------
Income (Loss) Before Extraordinary Items (10,342) 8,128 (24,565)
EXTRAORDINARY ITEMS:
Gain (Loss) on early extinguishment of debt by Jones
Intercable, Inc., net of related minority interests and
income taxes (3,399) (568) 2,789
Tax benefit from loss carryforward utilization by Jones
Intercable, Inc., net of minority interests -- 1,380 --
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING METHOD:
Change in method of accounting for income taxes, net of
minority interests 329 -- --
-------- -------- --------
Net Income (Loss) $(13,412) $ 8,940 $(21,776)
======== ======== ========
PER SHARE DATA:
Income (Loss) before extraordinary items $ (.13) $ .11 $ (.32)
Effect of extraordinary items (.04) .01 .03
Accounting change -- -- --
-------- -------- --------
Net Income (Loss) Per Common Share $ (.17) $ .12 $ (.29)
======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 76,793 76,346 76,305
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
-62-
<PAGE> 7
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT Jones Spacelink, Ltd.
For the years ended May 31, 1991, 1992 and 1993 and Subsidiaries
<TABLE>
<CAPTION>
Class A Class B Additional Accumu- Total Share-
Common Stock Common Stock Paid-in lated Treasury holders' Invest-
($.01 Par Value) ($.01 Par Value) Capital Deficit Stock ment (Deficit)
---------------- ---------------- ---------- -------- -------- ----------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
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.
-63-
<PAGE> 8
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT Jones Spacelink, Ltd.
For the years ended May 31, 1991, 1992 and 1993 and Subsidiaries
<TABLE>
<CAPTION>
Class A Class B Additional Accumu- Total Share-
Common Stock Common Stock Paid-in Lated Treasury Holders' Invest-
($.01 Par Value) ($.01 Par Value) Capital Deficit Stock ment (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 -- -- 64
Treasury stock transactions
of Jones Intercable,
Inc., net of minority
interests -- -- -- -- 268 268
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
--
------ -------- -------- -------- ------------
Issuance of common stock by
Jones Intercable, Inc.,
net of minority interests -- -- 10,390 -- -- 10,390
Effects of change in
minority interests -- -- (3,077) 2,991 -- (86)
Treasury stock transactions
of Jones Intercable,
Inc., net of minority
interests -- -- -- -- 776 776
Issuance of Jones Spacelink,
Ltd. Class A Common Stock
for Jones Futura
Foundation, Ltd. 11 -- 1,282 (1,293) -- --
Issuance of Jones Spacelink,
Ltd. Class A Common Stock
to purchase fax
encryption assets 6 -- 649 -- -- 655
Purchase of Jones Earth
Segment, Inc. -- -- -- (333) -- (333)
Net loss -- -- -- (13,412) -- (13,412)
--
------ -------- -------- -------- ------------
BALANCE, May 31, 1993 $776 $4 $ 47,126 $(38,520) $ (2,398) $ 6,988
====== == ======== ======== ======== ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
-64-
<PAGE> 9
CONSOLIDATED STATEMENTS OF CASH FLOWS Jones Spacelink, Ltd.
For the years ended May 31, 1993, 1992 and 1991 and Subsidiaries
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (13,412) $ 8,940 $ (21,776)
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 3,399 (812) (2,789)
Minority interests in net income (loss) of consolidated subsidiaries (31,826) 5,119 (30,376)
Cumulative effect of change in method of accounting for income taxes, net of
minority interests (329) -- --
Loss (gain) on sale of assets 5,466 (29,933) --
Depreciation and amortization 51,504 47,789 47,341
Deferred income tax benefit (provision) (2,553) 7,554 (1,206)
Deferral (recognition) of distribution revenue 4,778 (20,373) 20,373
Recognition of deferred revenue and income (849) (431) (370)
Equity in losses of limited partnerships and affiliated companies 4,209 8,111 12,002
Amortization of discounts on debentures 348 808 860
Write-off of plant 1,388 -- --
Increase in trade accounts receivable (729) (1,976) (609)
Decrease in other receivables, deposits, prepaid expenses and other assets (2,276) 1,893 7,312
Increase (decrease) in accounts payable and accrued liabilities and
subscriber prepayments and deposits 10,181 (3,807) 581
--------- --------- ---------
Net cash provided by operating activities 29,299 22,882 31,343
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of cable television systems by Jones Intercable, Inc. (72,486) -- --
Purchase of property, plant and equipment, net (29,979) (19,295) (30,737)
Sale of cable television system by Jones Intercable, Inc. 18,170 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
Investment in cable television systems held for resale to limited partnerships -- (26,923) (6,249)
Investments in cable television partnerships and corporate stock (5,812) (19,534) (44,760)
Investment in The Mind Extension University, Inc. by Jones Intercable, Inc. (8,349) (1,651) --
Investment in International Aviation, Ltd. and Jones Galactic Radio, Inc. by
Jones Intercable, Inc. -- -- (5,241)
Purchase of fax encryption assets (393) -- --
Other, net 3,229 3,128 5,985
--------- --------- ---------
Net cash provided by (used in) investing activities (95,620) 26,448 15,948
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Effects on shareholders' investment of changes in minority interests (86) (336) 169
Payment of dividends to Jones International, Ltd. by The Jones Group, Ltd. -- (174) (344)
Proceeds from borrowings, primarily by Jones Intercable, Inc. 211,472 140,530 89,035
Repayment of borrowings, primarily by Jones Intercable, Inc. (227,288) (161,139) (115,371)
Redemption of debentures by Jones Intercable, Inc. (225,557) (33,180) (20,749)
Proceeds from debenture offering by Jones Intercable, Inc. 253,839 -- --
Proceeds from issuance of Jones Intercable, Inc. Class A Common Stock and Class
A Common Stock Options 58,234 9,949 (66)
Decrease (increase) in advances to affiliated entities (3,822) (4,571) 2,627
Decrease (increase) in minority interests in consolidated subsidiaries 4,093 (2,190) (3,727)
Sale (purchase) of treasury stock by Jones Intercable, Inc., net of minority
interests 776 268 (966)
Other, net (6,946) 366 (1,497)
--------- --------- ---------
Net cash provided by (used in) financing activities 64,715 (50,477) (50,889)
--------- --------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (1,606) (1,147) (3,598)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 2,954 4,101 7,699
--------- --------- ---------
CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 1,348 $ 2,954 $ 4,101
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
-65-
<PAGE> 10
JONES SPACELINK, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1993, 1992 AND 1991
(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, 1993, International, Glenn R.
Jones and certain of their affiliates owned 65,981,148 shares, or
approximately 85 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, 1993, 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, 1993, 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"), Jones Earth Segment, Inc. ("Earth Segment") and
Jones Intercable, Inc. ("Intercable"). At May 31, 1993, Spacelink
owned directly 80.1 percent and indirectly an additional 3.3 percent
of the Common Stock of Jones Group, 81 percent directly and indirectly
3.2 percent of Galactic Radio, 81 percent of Earth Segment and
approximately 58 percent of the outstanding Common Stock (17 percent
of both classes of outstanding shares) of Intercable.
-66-
<PAGE> 11
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 are generally 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 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
shareholder's investment less related minority interests, included in
the accompanying balance sheet was $4,199,000 at May 31, 1993.
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. The security products are sold primarily
to the financial community. In addition, Futurex provides contract
manufacturing services to the electronics industry.
-67-
<PAGE> 12
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 Networks, Inc. ("Satellite Networks"), a
wholly owned subsidiary, of delivering programming to radio stations
throughout the United States via satellite. Satellite Network's
accounts are consolidated with Galactic Radio.
Earth Segment owns and operates a ground-to-satellite transmission
("Uplink") facility, which currently uplinks programming originated by
The Mind Extension University, Inc. ("ME/U"), Satellite Networks and
Superaudio.
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, 1993, 1992 and 1991 are as
follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Income taxes paid (received) $ - $ (2,226) $ 132
=========== ============= =============
Interest, net of amounts charged to cable
television systems held for resale $ 42,702 $ 44,730 $ 48,214
=========== ============= =============
</TABLE>
Supplemental disclosures of noncash investing and financing activities
for the years ended May 31, 1993, 1992 and 1991 are as follows:
As described in Note 5, in June 1992, Futurex purchased substantially
all of the assets of a fax encryption business using $393,000 in cash
and by issuing to the sellers 606,897 shares of Spacelink's Class A
Common Stock. As a result of this acquisition, Futurex acquired
$984,000 of assets, assumed $68,000 of liabilities and acquired
$654,000 of equity. In July 1992, as described in Note 5, Spacelink
acquired 81 percent of the Class A and Class B Common Stock of Earth
Segment by issuing one share of its Class A Common Stock. As a result
of the Earth Segment acquisition, Spacelink acquired $527,000 of
assets and assumed $860,000 of liabilities and acquired $333,000 of
equity. In March 1993, as described in Note 5, Spacelink acquired
Futura by issuing 1,026,113 shares of its Class A Common Stock to
International. As a result of this acquisition, Spacelink acquired
equity totalling $11,000. During fiscal 1993, Intercable recorded
$4,080,000 of additional paid-in capital related to the Class A Common
Stock options granted December 6, 1992.
No material non-cash investing or financing transactions occurred
during fiscal 1992. In July 1990, as described in Note 3, 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.
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<PAGE> 13
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, 1993, 1992 and 1991. In addition, costs (including
labor, overhead and other costs of completion) 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 over the following estimated service
lives:
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
Franchise Costs - 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 Assets - Costs assigned to other 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
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<PAGE> 14
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. Costs
incurred in connection with the execution of commercial bank credit
agreements are deferred and amortized using the straight-line method
over the lives of such agreements.
Investment in Cable Television Systems Held for Resale to 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.
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 deferred brokerage
fees at May 31, 1993 and 1992 were approximately $2,548,000 and
$3,396,000, 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.
Income Taxes - Spacelink and its consolidated subsidiaries excluding
Intercable are members of a tax allocation agreement with
International and 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. Effective June 1, 1993, International's
investment in Spacelink fell below the 80 percent ownership
requirement for inclusion in the sharing agreement. Therefore,
effective June 1, 1993, Spacelink will file separate Federal and state
income tax returns.
Effective June 1, 1992, Spacelink and Intercable adopted Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes". Under the liability method specified by SFAS No. 109, a
deferred tax liability or asset is determined based on the temporary
differences between the financial reporting and tax bases of assets
and liabilities as measured by the enacted tax rates which are
expected to be in effect when these differences reverse.
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<PAGE> 15
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 Income (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 1993 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.
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 ME/U, which is 62 percent owned by a subsidiary of
International, 25 percent by Intercable and 13 percent by Spacelink.
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.
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<PAGE> 16
Jones Earth Segment, Inc. a wholly owned subsidiary of Spacelink has
purchased four acres of land in the Inverness Business Park area of
Englewood, Colorado for the purpose of constructing a
ground-to-satellite transmission ( "uplink") facility to permit
satellite transmission of programming originated by ME/U and
Spacelink's affiliated audio programming companies. Earth Segment
owns an FCC license for the operation of an uplink facility. The
design of the uplink facility has been phased to allow expansion from
time to time according to Spacelink's needs. The first phase was
completed in June 1993 at a cost of approximately $5,000,000.
Jones Futura Foundation, Ltd., a wholly owned subsidiary of
International, until March 3, 1993 when it was acquired by Spacelink
(See Note 5), 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.
Intercable has entered into a license agreement with Jones Space
Segment, Inc. ("Space Segment") , a subsidiary of International, to
use a non-preemptible transponder on a domestic communications
satellite which Space Segment currently leases. Intercable agreed to
pay Space Segment $2,400,000 over a twelve-month period beginning on
or about December 15, 1992, the delivery date of the transponder.
Space Segment has the right to terminate the license at any time upon
30 days written notice to Intercable, and Intercable has the right to
extend the license for an additional one year period. Intercable
recognized $700,000 of rental expense related to this lease in fiscal
1993.
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 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 31,
--------------------------------
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Jones Information Management, Inc. $ 910 $ 807 $ 873
International Aviation, Ltd. - - 101
Jones Properties, Inc., net of
subleasing reimbursements 416 511 471
Superaudio 176 157 153
The Mind Extension University, Inc. 103 87 88
Jones Futura Foundation, Ltd. 100 178 163
Jones International Securities, Ltd. 72 645 1,082
Other operating, general and
administrative expenses 74 70 246
------ ------ ------
Total allocated expenses net of
reimbursements $1,851 $2,455 $3,177
====== ====== ======
</TABLE>
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<PAGE> 17
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 year ended May 31, 1991
of $826,000.
For the fiscal years ended May 31, 1993 and 1992, the tax benefits due
Spacelink from International totalled $289,000 and $355,000,
respectively.
Spacelink, International and Intercable currently own 13 percent, 62
percent and 25 percent, respectively, of the outstanding stock of
ME/U, 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 ME/U. These
amounts accrued interest at Spacelink's weighted average cost of
borrowing plus 2 percent, and were due 180 days after demand by
Spacelink. These advances to International were repaid in April 1993.
At May 31, 1993 and 1992 amounts due from International to Spacelink
and its consolidated subsidiaries including Intercable were as
follows:
<TABLE>
<CAPTION>
May 31, May 31,
1993 1992
------- -------
(In Thousands)
<S> <C> <C>
Spacelink:
Amounts due for tax benefits and related
interest $1,481 $1,602
Advances to The Mind Extension University,
Inc. and accrued interest - 2,024
Other advances to (from) International (89) 66
------ ------
Total due Spacelink 1,392 3,692
------ ------
Intercable:
Advances to The Mind Extension University,
Inc. and accrued interest 2,000 2,000
------ ------
Total due Intercable 2,000 2,000
------ ------
Total due from International $3,392 $5,692
====== ======
</TABLE>
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<PAGE> 18
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, 1993, 1992 and 1991 Spacelink and its
consolidated subsidiaries recorded interest income (expense) totalling
$462,000, $374,000 and ($3,000), respectively.
Spacelink has guaranteed $2,500,000 of indebtedness of an affiliate
and to the extent that the affiliate is not in a position to pay back
the money on November 30, 1993, Spacelink's guarantee may be called.
At this point Spacelink does not anticipate having to perfect the
guarantee.
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) INVESTMENTS IN AFFILIATES 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 ME/U, a majority owned subsidiary of International
engaged in the business of providing educational programming to cable
television operators, including Spacelink and its affiliates. 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. Spacelink's investment in ME/U has
been reduced to 13 percent of the issued and outstanding common stock
of ME/U at May 31, 1993 due to the investment in ME/U by Intercable as
described below. Spacelink's investment in ME/U is accounted for using
the equity method.
On April 17, 1992, the Board of Directors of Intercable approved a
$5,000,000 equity investment in ME/U. In October 1992, Intercable made
an additional $5,000,000 equity investment in ME/U on the same terms
and conditions as its previous $5,000,000 investment. In return for
its $10,000,000 investment and the provision to ME/U of certain
advertising avails and other administrative and marketing
considerations, Intercable received 54,751 shares of Class A Common
Stock of ME/U, which represents a 25 percent interest in ME/U. In May
1993, the Board of Directors of Intercable approved a $10,000,000
advance to ME/U on an as needed basis. Of this advance, $5,000,000
will be converted into shares of Class A Common Stock of ME/U at a
price per share equal to the value of such shares as established by
the next equity investment in ME/U by an unaffiliated party. Any
amount not converted into equity will earn interest at Intercable's
weighted average cost of borrowing plus two percent.
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 on 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.
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<PAGE> 19
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 51,000 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 19 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 on
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.
Investment in Encom Cable TV Telecommunications, Ltd. 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 provided 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 now known as Encom Cable T.V.
Telecommunications, Ltd. ("Encom"), along with management
responsibilities for the cable operations. Intercable has placed
10,000,000 pounds received
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<PAGE> 20
pursuant to this transaction in escrow in the United Kingdom to
satisfy a portion of its future equity requirements in Encom. As a
result, Intercable does not anticipate that it will be required to
fund any additional capital contributions to Encom to maintain its 15
percent interest for approximately the next year. 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 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. In November 1989, Jones Cable Group of South
Hertfordshire 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. Such amounts
have been reimbursed through Jones Global Funds to Intercable.
Subsequent to Jones UK Fund's investment in Jones South Hertfordshire,
cost reimbursements have been and will continue to be made to Jones
Global Funds and its affiliates for construction and operating costs
of the South Herts System.
During its initial public offering from August 15, 1990 through August
15, 1992, Jones UK fund raised approximately $16,531,000 in gross
offering proceeds, or $14,258,000 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 UK Fund is selling additional interests pursuant to a two-year
offering that commenced in September 1992. From September 14, 1992,
through August 20, 1993, Jones UK Fund had raised an additional
$13,994,000 in gross offering proceeds relating to this second
offering which, combined with the initial offering, totalled
approximately $30,521,000 in gross offering proceeds, or $26,324,000
net of sales commissions and other organization and offering costs.
Intercable has committed to invest $5,000,000 in the South Herts
System. The investment will be in the form of a purchase of capital
stock of Jones South
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<PAGE> 21
Hertfordshire. In addition, Intercable has agreed to loan up to
$10,000,000, on a non-permanent basis, to Jones South Hertfordshire on
an as needed basis. Intercable made advances from inception to Jones
South Hertfordshire to fund the development and construction of the
South Herts System totalling approximately $23,378,000. As of May 31,
1993, approximately $20,648,000 had been reimbursed by Jones UK Fund.
These advances have been reflected as investments in cable television
partnerships and affiliates on Intercable's consolidated balance
sheets due to their expected long-term nature, with interest charged
at Intercable's weighted average cost of borrowing.
Jones Global 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 Global Group. Jones Cable Group of Leeds Holdings plc ("Jones of
Leeds") has obtained commitments from equity investors and banks to
provide 152,500,000 pounds for the construction and operation of the
cable television and telecommunications system for Leeds. A group of
investors subscribed for 77,500,000 pounds of equity and the banks
have agreed to lend 75,000,000 pounds on a non-recourse basis. The
commitments of the equity investors and the banks are interconditional
and are subject to certain UK regulatory approvals and other closing
conditions which are expected to occur no later than September 30,
1993. As one of the equity investors, Intercable has committed to
invest 11,625,000 pounds over the next 2-1/2 years, of which
approximately 3,000,000 pounds is required during fiscal 1994. Jones
Cable Group will manage the Leeds project pursuant to a management
agreement. Jones Global Group has incurred certain costs in connection
with obtaining and maintaining the franchises and licenses in both
Aylesbury-Chiltern and Leeds. Intercable has advanced funds to Jones
Global Group for these purposes. As of May 31, 1993, Intercable's
advances totalled approximately $2,920,000. Intercable will be
reimbursed for developmental costs incurred relating to the Leeds
franchise. These advances have been reflected as investments in cable
television partnerships and affiliates on Intercable's consolidated
balance sheets due to their long-term nature, with interest charged at
Intercable's weighted average cost of borrowing.
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 $1,251,000 as of May
31, 1993 and has advanced $6,995,000 as of May 31, 1993 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 and affiliates 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 $6,775,000 at May 31, 1993.
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<PAGE> 22
(4) 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,
------------------------------
1993 1992 1991
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Earned from Spacelink and Intercable $ 523 $ 65 $ 8
Earned from third parties - 62 -
Earned from Managed Limited Partnerships 2,214 1,135 2,108
------ ------ ------
Total Brokerage Fees 2,737 1,262 2,116
Recognition (Deferral) of Brokerage Fees (983) 431 370
------ ------ ------
Brokerage Fees, net $1,754 $1,693 $2,486
====== ====== ======
</TABLE>
During the years ended May 31, 1993, 1992 and 1991, Jones Group paid
dividends to International in the amount of $-0-, $174,000 and
$344,000, 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 accrued to the benefit of Spacelink
and Intercable based on their direct equity ownership of 80.1 and 19.9
percent, respectively.
(5) ACQUISITIONS BY SPACELINK:
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 $1,046,000
purchase price for the Assets and the covenant not to compete was paid
using $393,000 in cash and by issuing to the sellers 606,897 shares of
Spacelink's Class A Common Stock. The acquisition of the Assets was
accounted for as a purchase. In addition, Futurex agreed to pay to TRW
a royalty for a period of ten years equal to five percent of certain
revenues received by Futurex from the sale of fax encryptors.
On July 29, 1992, Spacelink purchased an 81 percent interest in 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 replacement cost, net of
depreciation, of Earth Segment's assets totalling $1,247,000, which is
comprised primarily of studio equipment and the costs incurred through
July 29, 1992 to license and design an uplink facility, is
approximately equal to the total liabilities of Earth
-78-
<PAGE> 23
Segment assumed by Spacelink. The acquisition of 81 percent of Earth
Segment 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 Earth Segment are included in Spacelink's
Consolidated Statements of Operations, beginning on July 29, 1992.
Earth Segment has purchased four acres of land in the Inverness
Business Park area of Englewood, Colorado for the purpose of
constructing a ground-to-satellite transmission ("uplink") facility to
permit satellite transmission of programming originated by ME/U and
Spacelink's affiliated audio programming companies. Earth Segment owns
an FCC license for the operation of an uplink facility. The design of
the uplink facility has been phased to allow expansion from time to
time according to Spacelink's needs. The first phase was completed in
June 1993 at a cost of approximately $5,022,000.
On March 3, 1993, Spacelink issued 1,026,113 shares of its Class A
Common Stock to International for all of the outstanding shares of
Jones Futura Foundation, Ltd., ("Futura") who's sole asset is a
royalty agreement which requires Futurex to pay to Futura a royalty of
10 percent on certain data encryption hardware and software products.
The acquisition of Futura will enable Spacelink to extinguish the
license agreement and to end any further royalty payments. For the
purposes of this transaction, Futura was valued at $844,000, which was
based on the discounted value of the estimated future revenue stream.
In addition, for purposes of determining the number of shares issued,
Spacelink's Class A Stock was valued at $.82 per share, which
represented the average trading price of the Class A Stock for the
preceding three month period. However, as required by generally
accepted accounting principles the transaction was recorded using the
price of Spacelink's Class A Common Stock as of the date the
transaction closed. The price of Spacelink's Class A Common Stock on
March 3, 1993 was $1.25 resulting in a valuation of $1,282,641.
(6) 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
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<PAGE> 24
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 Niguel 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.
(7) SALES AND ACQUISITIONS BY INTERCABLE:
Sales of Cable Television Systems by Intercable -
On August 13, 1991, Intercable entered into an agreement with Crown
Cable Wisconsin, Inc. ("Crown"), a subsidiary of Hallmark Cards, Inc.,
to sell its Onalaska, Wisconsin cable television system (the "Onalaska
System") for approximately $15,000,000. Closing on this transaction
occurred on December 19, 1991. Intercable recognized a gain on the
sale of the Onalaska System before income taxes of approximately
$6,400,000.
On January 15, 1993, Intercable entered into an agreement with Alert
Cable T.V. of North Carolina, Inc. ("Alert") , an affiliate of
Cablevision Industries, Inc., to sell its Gaston County, North
Carolina system (the "Gaston System") to Alert for $40,000,000,
subject to normal closing adjustments. Intercable was informed on
June 4, 1993 that Alert did not intend to consummate the transactions
and that it was terminating the agreement on the grounds that there
had been a material adverse change in the business of the Gaston
System as a result of the FCC's recent rate regulation rulings.
Intercable has accepted Alert's termination of the agreement and has
returned any funds put into escrow by Alert.
During fiscal 1993, Intercable sold the cable television systems
serving a portion of San Diego, California and Riverside, California
for $18,170,000. Intercable recognized a loss relating to these
transactions of $5,466,000. Jones Group received a brokerage fee
totalling $454,000 or 2-1/2 percent of the purchase prices.
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<PAGE> 25
Acquisition of Cable Television Systems by Intercable -
On September 29, 1992, Intercable entered into an agreement with Jones
Intercable Investors, L.P. (the "Partnership"), a publicly traded
master limited partnership for which Intercable is general partner, to
acquire from the Partnership the cable television system serving the
areas in and around Alexandria, Virginia (the "Alexandria System") for
$73,200,000. The purchase price was determined based on the average of
three separate, independent appraisals of the Alexandria System. In
addition, Jones Group received a brokerage fee of approximately
$1,831,000 or 2 1/2 percent of the purchase price. Closing on this
transaction occurred on November 2, 1992. Intercable funded this
acquisition with $60,000,000 drawn on its revolving credit facility,
the $4,778,000 distribution Intercable received from the Partnership's
sale proceeds as a Class A unit holder in the Partnership, the
$2,832,000 distribution paid to Intercable which represented the
accrued but unpaid distributions on Class B units held by Intercable
during the first three years of the Partnership's operations, and cash
on hand. In addition, Intercable, through its 19 percent ownership
interest in the Partnership, realized a $9,018,000 gain upon the sale
of the Alexandria System which was recorded as a reduction in the
basis of the assets purchased as a result of Intercable's continuing
equity interest in the Alexandria System. The system served
approximately 35,000 basic subscribers at November 30, 1992.
The pro forma effect of the acquisition of the Alexandria System and
the sale of the California systems on the results of operations for
the year ended May 31, 1993 and 1992, assuming this transaction had
occurred at the beginning of fiscal year 1992, is presented in the
following unaudited tabulation:
<TABLE>
<CAPTION>
As Reported Pro Forma Pro Forma
May 31, 1993 Adjustments May 31, 1993
------------ ----------- ------------
(In Thousands, except Per Share Data)
<S> <C> <C> <C>
Revenues $ 154,574 $ 3,227 $ 157,801
========= ======= =========
Operating Income (Loss) $ 9,754 $ 1,298 $ 11,052
========= ======= =========
Net Loss $ (13,412) $ 918 $ (12,494)
========= ======= =========
Net Loss Per Common
Share $ (.17) $ .01 $ (.16)
========= ======= =========
</TABLE>
<TABLE>
<CAPTION>
As Reported Pro Forma Pro Forma
May 31, 1992 Adjustments May 31, 1992
------------ ----------- ------------
(In Thousands, except Per Share Data)
<S> <C> <C> <C>
Revenues $ 158,693 $ 11,070 $ 169,763
========= ======= =========
Operating Income (Loss) $ 36,509 $ (8) $ 36,501
========= ======= =========
Net Income (Loss) $ 8,940 $ (822) $ 8,118
========= ======= =========
Net Loss (Loss) Per
Common Share $ .12 $ (.01) $ .11
========= ======= =========
</TABLE>
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<PAGE> 26
On January 28, 1993, Intercable entered into an agreement with
American Cable TV Investors 2 ("ACT 2") to acquire for its own account
the cable television systems serving North Augusta, South Carolina,
and surrounding areas (the "North Augusta System") for $28,500,000
subject to normal closing adjustments. The North Augusta System is
contiguous to the Augusta, Georgia cable system managed by Intercable
on behalf of one of its partnerships. The agreement provides that
Intercable is not obligated to perform if, between the date of the
agreement and the closing, a material adverse change in the financial
condition of the North Augusta System occurs. Intercable believes that
a material adverse change within the meaning of the agreement has
occurred by virtue of the FCC's implementation of the rate regulations
contemplated by the 1992 Cable Act. ACT 2 does not agree with this
position, and Intercable and ACT 2 are currently discussing various
means of resolving this matter. Although the ultimate resolution of
this matter cannot be predicted at this time, any such resolution
could involve a renegotiation of the terms (including the purchase
price) of the agreement. There is no assurance that Intercable will be
able to achieve an acceptable resolution of this matter.
(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, 1993, 1992 and 1991, the sponsors
recognized as "other expense" offering costs in excess of amounts
reimbursable by limited partnerships totalling $500,000, $2,046,000
and $-0-, 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 $2,050,000 and
$2,400,000 at May 31, 1993 and 1992, 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.
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<PAGE> 27
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. The General Partner is also entitled to
partnership distributions other than from cash flow, such as from the
sale or refinancing of systems or upon dissolution of the
partnerships, which are a portion of the net remaining assets of such
partnership ranging from 15 percent to 40 percent after payment of
partnership debts and after investors have received an amount equal to
their capital contribution plus, in most cases, a preferential return
on their investment.
During fiscal years ended May 31, 1993, 1992 and 1991, Intercable
recognized fees and distributions totalling $4,778,000, $26,790,000
and $4,283,000, respectively. The $4,778,000 distribution received
during fiscal 1993 from Jones Intercable Investors L.P., in which
Intercable has a 19 percent interest, upon the sale to Intercable of
the Alexandria System was recorded as a reduction in the assets
purchased due to Intercable's continuing equity interest in the
system. 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
Intercable-managed partnership. 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 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, total assets and actual
time spent by Spacelink and Intercable employees with respect to each
partnership. Remaining overhead costs are allocated based on total
revenues 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.
-83-
<PAGE> 28
Amounts charged partnerships and other affiliated companies have
reduced operating, general and administrative expenses by
approximately $27,371,000, $25,167,000 and $23,723,000 for the years
ended May 31, 1993, 1992 and 1991, respectively.
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 $16,604,000 and $10,668,000 at May 31, 1993 and
1992, 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, 1993, 1992 and
1991 was $1,513,000, $1,826,000 and $1,462,000, respectively.
Certain condensed financial information regarding managed limited
partnerships of Spacelink and Intercable are as follows:
<TABLE>
<CAPTION>
Spacelink's Managed Limited Intercable's Managed Limited
Partnerships Partnerships
---------------------------------- --------------------------------------------
As of December 31, As of December 31,
---------------------------------- --------------------------------------------
1992 1991 1990 1992 1991 1990
-------- -------- -------- -------- ---------- ----------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total assets $147,478 $141,566 $137,291 $921,664 $1,017,560 $1,313,379
Debt 74,840 63,035 50,536 590,698 629,194 791,153
Amounts due
to general
partner 3,319 2,201 2,715 12,690 8,762 9,921
Partners'
capital
(net of
accumulated
deficit) 64,847 72,975 80,843 284,058 350,348 468,073
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, December 31,
---------------------------------- --------------------------------------------
1992 1991 1990 1992 1991 1990
-------- -------- -------- -------- ---------- ----------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 37,770 $ 29,629 $24,827 $334,948 $ 361,431 $ 311,672
Depreciation and
amortization 20,463 17,430 15,675 151,879 187,607 156,487
Operating loss (8,175) (8,498) (7,697) (29,503) (58,429) (40,604)
Gain on sale of
assets - - - 59,939 - 204,185
Net income
(loss) (13,108) (13,387) (12,699) (15,945) (126,584) 88,162
</TABLE>
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<PAGE> 29
(9) SUBORDINATED DEBENTURES AND OTHER DEBT:
At May 31, 1993 and 1992, Spacelink's and its consolidated
subsidiaries' debt consisted of the following:
<TABLE>
<CAPTION>
1993 1992
(In Thousands)
<S> <C> <C>
DEBT OF SPACELINK:
Revolving credit facility and term loan $ 69,000 $ 64,700
Capitalized lease obligations
and non-interest bearing notes 265 297
--------- --------
Total Debt of Spacelink 69,265 64,997
--------- --------
DEBT OF INTERCABLE:
Subordinated Debentures-
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 - 61,513
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 - 148,346
Debentures due -July 15, 2004, interest payable
semi-annually at 11.5%, redeemable at
Intercable's option on or after July 15,
1997 at 106.75% of par declining to
par by July 15, 2000 160,000 -
Debentures due March 1, 2008, interest
payable semi-annually at 10.5%, redeemable
at Intercable's option on or after
March 1, 2000 at 105.25% of par, declining
to par by March 1, 2005 100,000 -
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 46,000 66,000
Capitalized lease obligations, installment
notes and non-interest bearing notes 1,746 3,973
------ ------
Total Debt of Intercable 327,214 299,300
-------- -------
Consolidated Debt $396,479 $364,297
======== =======
</TABLE>
-85-
<PAGE> 30
On April 13, 1993, Spacelink entered into new credit agreements, which
agreements include a $65,000,000 Revolving Credit Facility (the
"Revolving Facility") and a $10,000,000 Term Loan (the "Term Loan"). Upon
entering into the new credit agreements, Spacelink borrowed $57,800,000
under the Revolving Facility and $10,000,000 under the Term Loan to repay
the outstanding balances under Spacelink's previous credit facility.
The Revolving Facility begins to reduce on August 31, 1994, with a final
maturity 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 bears
interest at rates consistent with the rates of the Revolving Facility.
Both the Revolving Facility and the Term Loan are secured by
substantially all of Spacelink's assets with the exception of Spacelink's
investment in Intercable. The security is administered pursuant to an
intercreditor agreement between the Revolving Facility banks and the Term
Loan banks, which agreement specifies the nature and priority of the
security interests. 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.
Spacelink is actively discussing with its lenders amendments to the
Revolving Facility to increase the allowable ratio of debt to operating
cable cash flow and management fees in order to provide the borrowings
necessary under the Revolving Facility.
At May 31, 1993, borrowings outstanding under Spacelink's $65,000,000
Revolving Credit Facility and $10,000,000 Term Loan totalled $59,000,000
and $10,000,000, respectively. Principal payments under the terms of
Spacelink's credit facility and other debt are due as follows:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C> <C>
1994 $ 80
1995 7,570
1996 8,159
1997 8,106
1998 8,080
Thereafter 37,270
Total Spacelink Debt $69,265
</TABLE>
The following is a description of Intercable's debt which, while
included in 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, the 11.5 percent Senior Subordinated Debentures due
2004 and the Convertible Subordinated Debentures described above
provide for annual sinking fund payments which are calculated to
retire 66 1/2 percent to 75 percent of the issues prior to maturity
after consideration of the debt redemptions discussed below, as
follows:
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<PAGE> 31
<TABLE>
<CAPTION>
Annual Sinking Commencement
Debenture Issue Fund Payment Date
--------------- ------------ ------------
<S> <C> <C>
Debentures due July 2004 $53,333,333 July 15, 2002
Convertible Debentures 3,000,000 June 1, 1998
</TABLE>
During fiscal 1993, Intercable redeemed $12,000,000 of its 13 percent
Subordinated Debentures due 2000, at amounts greater than their
principal amount. Intercable recognized extraordinary losses totalling
$1,369,000 related to these transactions.
Intercable has an effective 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 due 2004 as part of this shelf
offering. The net proceeds from this offering, approximately
$156,000,000, were used on August 24, 1992 to redeem all of the
remaining $66,575,000 principal amount of Intercable's 9.75 percent
Subordinated Debentures due 1998. Intercable recognized an
extraordinary loss of $6,288,000 in fiscal 1993. Pending use of the
remaining proceeds to purchase one or more cable television systems,
the proceeds were used to repay the $66,000,000 then outstanding under
Intercable's credit facility.
In March 1993, Intercable sold $100,000,000 of 10.5 percent Senior
Subordinated Debentures due 2008 as part of the $400,000,000 shelf
offering described above. A portion of the $98,115,000 net proceeds
from this offering was used in March 1993 to repay the $15,000,000
then outstanding under Intercable's credit facility. The amount
outstanding under the credit facility had been reduced from
$60,000,000 to $15,000,000 using proceeds from the Company's sale of
Class A Common Stock during the third quarter of fiscal 1993. The
remaining net proceeds, $83,125,000, together with $64,000,000
borrowed under Intercable's credit facility and cash on hand, was to
be used to retire the remaining $138,000,000 of Intercable's 13
percent Subordinated Debentures due 2000 at 105.78 percent of the
principal amount in May 1993. Intercable recognized an extraordinary
loss, before income taxes, related to this transaction of $12,729,000
in fiscal 1993. As a result of Intercable's various debenture
redemptions during fiscal 1992 and 1993, Intercable has eliminated any
cash requirements for sinking fund payments until fiscal 2003.
On December 8, 1992, Intercable entered into a new $300,000,000
reducing revolving credit agreement with a number of commercial banks.
The amount of revolving credit remains at $300,000,000 through May 31,
1995 after which availability is reduced quarterly until the final
expiration on November 30, 2000. Of the $300,000,000 revolving credit,
$150,000,000 was designated by the banks for the redemption of the
remaining amount outstanding on Intercable's 13 percent Subordinated
Debentures due 2000. Interest on amounts outstanding under the credit
facility range from LIBOR plus 1 3/8 percent to LIBOR plus 2 1/2
percent depending upon whether certain financial ratios have been
achieved. For the three months ended May 31, 1993, Intercable's
effective interest rate on the credit facility was 5.53 percent. A fee
ranging from 1/4 percent to 1/2 percent per annum on the unused
portion of the new commitment is also required. Substantially all of
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<PAGE> 32
Intercable's cable television related assets are pledged as security
under the agreement. Proceeds from the new credit facility were used
to repay the $60,000,000 that was outstanding on the previously
existing credit facility in December 1992. The outstanding balance on
Intercable's credit facility at May 31, 1993 was $46,000,000.
On June 18, 1993, Intercable filed two shelf registration statements
with the Securities and Exchange Commission relating to the offering
of $500,000,000 of Senior Debt Securities, Senior Subordinated Debt
Securities and Subordinated Debt Securities and the offering of
6,000,000 shares of Class A Common Stock of Intercable. The proceeds
from these offerings will be added to the general funds of Intercable,
and may be used to make acquisitions of domestic cable television
systems or interests therein, investments in cable
television/telephony systems in the United Kingdom or for general
corporate purposes.
(10) INCOME TAXES:
Change in Accounting Method
Effective June 1, 1992, Spacelink adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
Under the liability method specified by SFAS No. 109, a deferred tax
liability or asset is determined based on the temporary differences
between the financial reporting and tax bases of assets and
liabilities as measured by the enacted tax rates that are expected to
be in effect when these differences reverse. A valuation allowance
must be established for any portion of a deferred tax asset for which
it is more likely than not that a tax benefit will not be realized.
The financial effect of the adoption of SFAS No. 109 has been
reflected in Spacelink's financial statements in the current period.
The cumulative effect of the change in the method of accounting for
income taxes, attributable to fiscal years prior to 1993, was a
decrease in net losses of $329,000, or $-0- per share, which has been
reflected as a change in accounting method in the accompanying
financial statements, net of minority interests. Deferred tax expense
or benefit is the result of changes in the liability or asset recorded
for deferred taxes. Current period changes in Spacelink's temporary
differences and losses from operations, which result primarily from
depreciation and amortization, resulted in a deferred tax benefit of
$32,828,000, which was offset by a valuation allowance of $26,161,000.
Computation of the cumulative and current tax provision under SFAS No.
109 requires recognition of the deferred tax liabilities and assets
from the expected future tax consequences of temporary differences.
Additionally, recognition is given for the future tax benefits of
existing tax basis net operating loss and tax credit carryforwards,
after reduction by a valuation allowance determined after evaluation
of future factors affecting realization of the carryforwards. An
income tax benefit of $2,842,000 was recorded in fiscal 1993.
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<PAGE> 33
Components of income tax expense for Federal and state income tax
purposes are as follows:
<TABLE>
<CAPTION>
For the Year Ended May 31,
--------------------------
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Current (benefit) provision
Federal $ (265) $(1,185) $ 262
State (24) 1,185 (168)
------- ------- -------
Current (benefit) provision (289) 94
------- ------- -------
Deferred (benefit) provision
Federal (2,336) 7,554 (1,206)
State (217) -
------- ------- -------
Deferred (benefit) provision (2,553) 7,554 (1,206)
------- ------- -------
Total income tax (benefit) provision
on income from operations (2,842) 7,554 (1,112)
------- ------- -------
Total income tax benefit
on extraordinary items - (7,389) -
------- ------- -------
Cumulative effect of change in
method of accounting for income taxes,
net of minority interests (329) - -
------- ------- -------
Total income tax (benefit) provision $(3,171) $ 165 $(1,112)
======= ======= =======
</TABLE>
The following table reconciles the statutory Federal income tax rate to the
effective tax rate:
<TABLE>
<CAPTION>
Year Ended May 31,
------------------
1993 1992 1991
-------- ------- --------
(Stated in Thousands)
<S> <C> <C> <C>
Income tax provision (benefit) for $ (289) $ 155 $ (1,122)
Spacelink and Jones Group from the
the tax sharing agreement
Computed 'normally expected' income
tax (benefit) provision at statutory
rates on income from operations (15,852) 7,967 (11,418)
Increases (reductions) in taxes
resulting from -
Dividend received deduction - (78) (90)
Alternative minimum taxes - (1,183) 957
Non-deductible depreciation - - 29
Amortization of costs in excess of
interest in net assets purchased - 355 360
State income taxes, net of Federal
income tax benefit (1,512) 643 136
Difference in recognition of net
operating losses for tax and
financial statement purposes - - 10,045
Tax credits (591) - -
Enacted future tax rate changes (636) - -
Other (149) (305) (9)
-------- ------- --------
Total income tax (benefit) provision
from operations (19,029) 7,554 (1,112)
-------- ------- --------
Tax effect of extraordinary items (7,604) - -
SFAS 109 valuation allowance 23,791 - -
Cumulative effect of change in method
of accounting for income taxes,
net of minority interests (329) - -
-------- ------- --------
Total income tax (benefit) provision $ (3,171) $ 7,554 $ (1,112)
======== ======= ========
</TABLE>
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<PAGE> 34
Deferred tax (liabilities) assets are comprised of the following
components at May 31, 1993:
Deferred Tax Liabilities:
<TABLE>
<CAPTION>
May 31, 1993
---------------------
(Stated in Thousands)
<S> <C>
Depreciation and Amortization $(35,327)
Deferred Tax Assets:
Regular tax loss carryforwards 46,041
Investment tax credit carryforwards 1,076
AMT credit carryforwards 1,116
Recognition of Partnership items 15,602
Recognition of Jones Group brokerage fees 1,539
Intercompany Transactions and other 2,781
--------
Total Deferred Tax Assets 68,155
--------
Deferred Tax Asset Valuation Allowance (26,161)
--------
Net Deferred Tax Assets $ 6,667
========
</TABLE>
As of May 31, 1993, Spacelink excluding Intercable had net operating
losses ("NOL's") of approximately $9,516,000 for alternative minimum
tax ("AMT") and $2,943,000 for regular tax which expire $1,902,000 in
2005, $5,182,000 in 2006, $1,440,000 in 2007 and $992,000 in 2008.
As of May 31, 1993, Intercable had net NOL's of approximately
$46,012,000 for AMT and $110,853,000 for regular tax which expire
$43,854,000 in 2005, $25,738,000 in 2007 and $41,261,000 in 2008.
Intercable also had investment tax credit carryforwards of $1,076,000
expiring 1999 through 2005.
The (benefit) provision for deferred income taxes is the result of the
following timing differences:
<TABLE>
<CAPTION>
Year Ended May 31,
----------------------------
1992 1991
-------- -------
(In Thousands)
<S> <C> <C>
Additional tax depreciation $ 4,362 $ 5,511
Fund fees and distributions 17,184 (6,927)
Recognition (deferral of recognition)
of Jones Group brokerage fees 155 130
Recognition (deferral) of dividends and
fund fees received by Intercable 10 10
Timing of partnership income (6,309) (5,425)
Difference in recognition of net operating
losses for tax and financial statement
purposes (15,056) 10,001
Tax expenses (income) from properties
held for resale (590) (4,370)
Other, net 409 (136)
-------- -------
Total deferred tax (benefit) provision $ 165 $(1,206)
======== =======
</TABLE>
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) to the taxable loss (income) of the consolidated
group. For Spacelink and its consolidated subsidiaries excluding
Intercable the tax allocation resulted in fiscal 1993, 1992 and 1991
tax (benefits) provisions of $(289,000), $-0- and $1,252,000,
respectively. Effective June 1, 1993, International's ownership in
Spacelink fell below the 80 percent ownership requirement for
inclusion in the Tax Sharing Agreement. Therefore, effective June 1,
1993, Spacelink will file separate Federal and state income tax
returns.
(11) STOCK OPTIONS:
On May 26, 1992, the Board of Directors and shareholders of Spacelink,
adopted Spacelink's 1992 Stock Option Plan (the "1992 Plan"). 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
-90-
<PAGE> 35
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 Option. 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 is
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.
The following table summarizes data concerning options to purchase
shares of Spacelink's Class A Common Stock issued under the 1992 Plan:
<TABLE>
<CAPTION>
1993
-------------
<S> <C>
Available for grant 4,637,500
Granted during the period 362,500
Exercised during the period -
Price range, per share $ -
Terminated during the period -
Total outstanding 362,500
Price range, per share $.75 - $1.047
Exercisable at year-end 229,167
Price range, per share $.75 - $1.047
</TABLE>
On February 2, 1993, Spacelink issued 200,000 options under the 1992
Plan to certain directors, officers and employees of Spacelink and its
affiliates, five-year fully vested options to purchase Class A Common
Stock. These option replace options granted outside the 1992 Plan,
which expired in December 1992.
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. As of May 31, 1993, there were no options
outstanding under the 1982 Option Plan.
Other Class A Common Stock Option 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.
-91-
<PAGE> 36
In addition, Spacelink's Board of Directors has issued options,
independent of the 1992 Option Plan and 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 1992 Option plan and 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
</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.
(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, 1993, 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>
1994 $1,957 $ 1,836 $1,188 $4,981
1995 1,957 1,634 436 4,027
1996 1,957 1,504 165 3,626
1997 1,957 1,324 152 3,433
1998 1,957 1,120 112 3,189
Thereafter 4,078 4,430 -- 8,508
------- ------- ------ -------
Total future minimum
lease payments $13,863 $11,848 $2,053 $27,764
======= ======= ====== =======
</TABLE>
Certain amounts included in lease commitments will be reallocated to
managed limited partnerships using the method described in Note 2.
-92-
<PAGE> 37
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
