<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, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____ to _____
Commission File No. 0-8947
JONES SPACELINK, LTD.
---------------------
(Exact name of registrant as specified in its charter)
Colorado 84-0835095
-------- --------------
(State of Organization) (IRS Employer
Identification No.)
P.O. Box 3309, Englewood, Colorado 80155-3309
- - ---------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 792-9191
--------------
Securities registered pursuant to Section 12(g) of the Act:
-----------------------------------------------------------
Class A Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or l5(d) of the Securities Exchange Act of
l934 during the preceding l2 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 15, 1994 of voting stock held by
non-affiliates:
Class A Common Stock $12,805,855
Shares outstanding of each of the registrant's classes of common stock, as of
August 15, 1994:
Class A Common Stock: 77,665,200 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
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, 1994 and 1993, and
the related consolidated statements of operations, shareholders' investment and
cash flows for each of the three years in the period ended May 31, 1994. 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, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
May 31, 1994, in conformity with generally accepted accounting principles.
As explained in Note 1 of Notes to Consolidated Financial
Statements, effective June 1, 1992, Jones Spacelink, Ltd. changed its method
of accounting for income taxes.
ARTHUR ANDERSEN & CO.
Denver, Colorado,
August 29, 1994
-57-
<PAGE> 3
JONES SPACELINK, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of May 31, 1994 and 1993
<TABLE>
<CAPTION>
May 31,
-------------------------
ASSETS 1994 1993
---------- ----------
(In Thousands)
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 4,892 $ 1,348
RECEIVABLES:
Trade receivables, net of allowance for doubtful accounts
of $694,000 in 1994 and $577,000 in 1993 8,837 6,687
Affiliated entities, net of allowance for doubtful accounts
of $1,580,000 in 1994 and $1,351,000 in 1993 20,936 19,510
Other 715 517
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost, net of accumulated
depreciation of $138,908,000 in 1994 and $111,155,000 in 1993 201,735 194,942
Franchise costs, net of accumulated amortization of $93,466,000
in 1994 and $76,148,000 in 1993 91,802 94,912
Subscriber lists, net of accumulated amortization of $34,922,000
in 1994 and $27,780,000 in 1993 21,531 23,948
Costs in excess of interests in net assets purchased, net of
accumulated amortization of $6,511,000 in 1994 and $5,287,000
in 1993 43,525 41,251
Noncompete agreements, net of accumulated amortization of
$1,079,000 in 1994 and $1,722,000 in 1993 566 792
Investments in domestic cable television managed partnerships and
corporate stock 38,717 25,501
Investment in foreign cable television properties 57,752 33,560
---------- ----------
Total Investment in Cable Television Properties 455,628 414,906
---------- ----------
DEFERRED TAX ASSET, net of valuation allowance
of $37,785,000 in 1994 and $26,161,000 in 1993 7,948 6,667
DEPOSITS, PREPAID EXPENSES AND OTHER 27,671 24,334
---------- ----------
Total Assets $ 526,627 $ 473,969
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
-58-
<PAGE> 4
JONES SPACELINK, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of May 31, 1994 and 1993
<TABLE>
<CAPTION>
May 31,
--------------------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT 1994 1993
---------- ----------
(In Thousands)
<S> <C> <C>
LIABILITIES:
Accounts payable and accrued liabilities $ 46,334 $ 40,722
Subscriber prepayments and deposits 5,709 5,582
Credit facility and other debt of Jones Spacelink, Ltd. 74,886 69,265
Credit facility of Jones Intercable, Inc. 63,000 46,000
Subordinated debentures and other debt of Jones Intercable, Inc. 280,907 281,214
---------- ----------
Total Liabilities 470,836 442,783
DEFERRED REVENUE AND INCOME 3,053 2,718
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 48,106 21,480
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS' INVESTMENT:
Class A Common Stock, $.01 par value, 220,000,000 shares authorized;
77,632,700 and 77,572,700 shares issued and outstanding at May 31, 1994
and 1993, respectively 776 776
Class B Common Stock, $.01 par value, 415,000 shares authorized,
issued and outstanding 4 4
Additional paid-in capital 52,653 47,126
Accumulated deficit (46,717) (38,520)
Less: Treasury stock of Jones Intercable, Inc. at cost, net of minority interests (2,084) (2,398)
----------- ----------
Total Shareholders' Investment 4,632 6,988
---------- ----------
Total Liabilities and Shareholders' Investment $ 526,627 $ 473,969
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
-59-
<PAGE> 5
JONES SPACELINK, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended May 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
May 31,
-------------------------------------------
1994 1993 1992
--------- -------- --------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
REVENUES:
Subscriber service fees 135,997 125,761 106,274
Management fees 19,435 19,140 17,814
Encryption sales and manufacturing services 6,430 4,048 3,680
Radio programming services 2,726 2,917 2,156
Brokerage fees 345 1,754 1,693
Uplinking fees, partnership fees, distributions and other 1,967 954 27,076
--------- -------- --------
Total Revenues 166,900 154,574 158,693
COSTS AND EXPENSES:
Operating expenses
Selling, general and administrative expenses (including amounts allocated (88,790) (81,559) (65,843)
from Jones International, Ltd. of $4,421,000, $2,551,000, and $2,455,000 (14,208) (11,757) (8,552)
in 1994, 1993 and 1992, respectively)
Depreciation and amortization (53,397) (51,504) (47,789)
--------- -------- --------
Operating Income 10,505 9,754 36,509
OTHER INCOME (EXPENSE):
Interest expense (40,454) (47,177) (44,099)
Interest charged to cable television systems
held for resale to managed limited partnerships - - 1,171
Equity in losses of partnerships and affiliated companies (6,482) (4,209) (8,111)
Interest income 4,863 4,346 4,791
Gain (loss) on sale of assets - (5,466) 29,933
Other, net (1,508) (2,258) 607
--------- -------- --------
Income (Loss) Before Income Tax Benefit
(Provision), Minority Interests and
Extraordinary Items (33,076) (45,010) 20,801
INCOME TAX BENEFIT (PROVISION) 1,281 2,842 (7,554)
--------- -------- --------
Income (Loss) Before Minority Interests
and Extraordinary Items (31,795) (42,168) 13,247
MINORITY INTERESTS IN NET (INCOME) LOSS OF
CONSOLIDATED SUBSIDIARIES 21,386 31,826 (5,119)
--------- -------- --------
Income (Loss) Before Extraordinary Items (10,409) (10,342) 8,128
EXTRAORDINARY ITEMS:
Loss on early extinguishment of debt by
Jones Intercable, Inc., net of related minority interests
and income taxes - (3,399) (568)
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) $ (10,409) $(13,412) $ 8,940
========= ======== ========
PER SHARE DATA:
Income (Loss) before extraordinary items $ (.13) $ (.13) $.11
Effect of extraordinary items - (.04) .01
Accounting change - - -
--------- -------- --------
Net Income (Loss) Per Common Share $ (.13) $ (.17) $ .12
========= ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 78,001 76,793 76,346
========= ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
-60-
<PAGE> 6
JONES SPACELINK, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
For the years ended May 31, 1994, 1993 and 1992
<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 Class A 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.
-61-
<PAGE> 7
JONES SPACELINK, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
For the years ended May 31, 1994, 1993 and 1992
<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, 1993 $776 $4 $47,126 $(38,520) $(2,398) $ 6,988
Issuance of Class A Common Stock by Jones
Intercable, Inc., net of minority interests - - 8,068 - - 8,068
Effects of change in minority interests - - (2,753) 2,212 314 (227)
Proceeds from stock options exercised - - 63 - - 63
Class A stock option grants - - 149 - - 149
Net loss - - - (10,409) - (10,409)
---- -- ------- -------- ------- --------
BALANCE, May 31, 1994 $776 $4 $52,653 $(46,717) $(2,084) $ 4,632
==== == ======= ======== ======= ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
-62-
<PAGE> 8
JONES SPACELINK, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended May 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
May 31,
------------------------------------------
1994 1993 1992
-------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(10,409) (13,412) $ 8,940
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)
Minority interests in net income (loss) of consolidated subsidiaries (21,386) (31,826) 5,119
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)
Class A Common Stock Option expense 171 680 -
Depreciation and amortization 53,397 51,504 47,789
Deferred income tax benefit (provision) (1,281) (2,553) 7,554
Deferral (recognition) of distribution revenue - 4,778 (20,373)
Deferral (recognition) of deferred revenue and income 335 (849) (431)
Equity in losses of limited partnerships and affiliated companies 6,482 4,209 8,111
Amortization of discounts on debentures - 348 808
Write-off of plant - 1,388 -
Increase in trade accounts receivable (2,150) (729) (1,976)
Decrease (increase) in other receivables, deposits, prepaid expenses
and other assets (1,750) (2,276) 1,893
Increase (decrease) in accounts payable and accrued liabilities and
subscriber prepayments and deposits 2,885 10,181 (3,807)
-------- --------- ---------
Net cash provided by operating activities 26,294 29,979 22,882
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of cable television systems by Jones Intercable, Inc. (27,880) (72,486) -
Purchase of property, plant and equipment (29,150) (29,979) (19,295)
Sale of cable television systems 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
Investment in cable television systems held for resale to limited
partnerships - - (26,923)
Investments in cable television partnerships and corporate stock (28,585) (5,812) (19,534)
Investment in Mind Extension University, Inc. by Jones Intercable, Inc. (15,758) (8,349) (1,651)
Purchase of fax encryption assets - (393) -
Other, net 3,947 3,229 3,128
-------- --------- ---------
Net cash provided by (used in) investing activities (97,426) (95,620) 26,448
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Effects on shareholders' investment of changes in minority interests 7,505 (86) (336)
Payment of dividends to Jones International, Ltd. by The Jones Group, Ltd. - - (174)
Proceeds from borrowings, primarily by Jones Intercable, Inc. 89,531 211,472 140,530
Repayment of borrowings, primarily by Jones Intercable, Inc. (67,625) (227,288) (161,139)
Redemption of debentures by Jones Intercable, Inc. - (225,557) (33,180)
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 55,519 58,234 9,949
Increase in advances to affiliated entities (1,426) (3,822) (4,571)
Decrease (increase) in minority interests in consolidated subsidiaries (7,688) 4,093 (2,190)
Changes in treasury stock of Jones Intercable, Inc., net of minority interests 314 776 268
Other, net (1,454) (7,626) 366
-------- --------- ---------
Net cash provided by (used in) financing activities 74,676 64,035 (50,477)
-------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,544 (1,606) (1,147)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 1,348 2,954 4,101
-------- --------- ---------
CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 4,892 $ 1,348 $ 2,954
======== ========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
-63-
<PAGE> 9
JONES SPACELINK, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1994, 1993 AND 1992
(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, 1994, International, Glenn R.
Jones and certain of their affiliates owned 65,976,148 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, 1994, Spacelink had authorized 220,000,000 shares of
Class A Common Stock and 415,000 shares of Class B Common Stock. Each
share of Spacelink's Class A Common Stock and Spacelink's Class B
Common Stock shall have the same rights to dividends and
distributions, when and as declared by the board of directors, whether
paid in cash, property or stock. At May 31, 1994, 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, 1994, Spacelink
owned directly 80.1 percent and indirectly an additional 2.8 percent
of the Common Stock of Jones Group, 81 percent directly and indirectly
2.8 percent of Galactic Radio, 81 percent of Earth Segment and
approximately 58 percent of the outstanding Common Stock (14 percent
of the outstanding shares of both the Common Stock and Class A Common
Stock combined) of Intercable.
Because Intercable's Common Stock has a voting preference over
Intercable's Class A Common Stock, Spacelink's majority ownership of
Intercable's Common Stock enables it to elect approximately 75 percent
of Intercable's Board of Directors. Although Spacelink effectively
controls Intercable through its ability to control the election of 75
percent of Intercable's Board of Directors, certain provisions of
Intercable's loan agreements limit the amount of funds it may loan or
advance to its affiliates, including Spacelink. As a result of these
limitations, the net assets of Intercable 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 Chairman of the
Board and Chief Executive Officer, Glenn R. Jones, or his personal
representative. Spacelink's share of the net restricted assets of
Intercable, defined as Intercable's total shareholders' investment
less related minority interests, included in the accompanying balance
sheet was approximately $8,116,000 at May 31, 1994.
-64-
<PAGE> 10
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
data security products which provide encrypt/decrypt and message
authentication capabilities. The security products are sold primarily
to the financial community. In addition, Futurex provides high
technology contract manufacturing services to the electronics
industry.
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
Mind Extension University, Inc. ("ME/U"), Jones Infomercial Network,
Inc. ("PIN"), Satellite Networks and Superaudio.
Summary of Significant Accounting Policies
Consolidated 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, 1994, 1993 and 1992 are as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- -------- -------
(In Thousands)
<S> <C> <C> <C>
Income taxes received $ - $ - $(2,226)
======= ======== =======
Interest, net of amounts charged to cable
television systems held for resale $39,686 $ 42,702 $44,730
======= ======== =======
</TABLE>
Supplemental disclosures of noncash investing and financing activities
for the years ended May 31, 1994, 1993 and 1992 are as follows:
-65-
<PAGE> 11
During fiscal 1994, Spacelink recorded $149,000 of additional paid-in
capital related to the Class A Common Stock options granted November
10, 1993. As described in Note 6, Futurex purchased substantially all
of the tangible and intangible assets of an encrypted bank credit card
draw authorization business for a net purchase price of $843,000 to be
paid in quarterly installments beginning August 31, 1994. As a result
of this acquisition, during fiscal 1994, Futurex acquired $877,000 of
assets and assumed $877,000 of liabilities. As described in Note 6,
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, during fiscal 1993, Futurex acquired
$984,000 of assets, assumed $68,000 of liabilities and acquired
$654,000 of equity. In July 1992, as described in Note 6, 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 6, 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 1994 and 1993, Intercable recorded $152,000 and
$4,080,000, respectively, of additional paid-in capital related to the
Class A Common Stock options granted November 9, 1993 and December 6,
1992, respectively. No material non- cash investing or financing
transactions occurred during fiscal 1992.
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, 1994, 1993 and 1992. 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:
<TABLE>
<S> <C>
Distribution systems, including capitalized
interest and operating expenses 5-15 years
Buildings 10-20 years
Equipment and tools 3-5 years
Premium service equipment 5 years
Earth receive stations 5-15 years
Vehicles 3-5 years
Leasehold improvements Lesser of term of
lease or 10 years
Other property, plant and equipment 3-15 years
</TABLE>
Franchise Costs - Costs incurred in obtaining cable television
franchises and other operating authorities are initially deferred and
amortized over the lives of the franchises. Franchise rights acquired
through purchase of cable television systems are stated 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 one to
nineteen years.
Cost in Excess of Interests in Net Assets Purchased - The cost of
acquisitions in excess of fair values of net assets acquired is being
amortized using the straight-line method over a 40-year life.
Spacelink assesses the realizability of these assets through periodic
independent appraisals and other review processes. Any impairments
are recognized as expense in the consolidated statements of operations.
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<PAGE> 12
Other Intangible Assets
Costs assigned to subscriber lists and noncompete agreements are being
amortized using the straight-line method over the following estimated
useful lives:
<TABLE>
<S> <C>
Subscriber lists 5-7 years
Costs in excess of interests in
net assets purchased 40 years
Noncompete agreements 3-5 years
</TABLE>
Deferred Financing Costs - Costs incurred in connection with the
issuance of subordinated debentures and the execution of commercial
bank credit agreements are deferred and amortized using the effective
interest method over the life of such issues and agreements.
Investment in Cable Television Systems Held for Resale to Managed
Limited Partnerships - Revenues and expenses attributable to cable
television systems held by Spacelink or Intercable on behalf of
managed limited partnerships are not reflected in the consolidated
statements of operations. Only the net cash deficiency generated
during the first year of the holding period by systems held for
resale, is capitalized as carrying costs and included in 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, 1994 and 1993 were approximately $2,883,000 and
$2,548,000, respectively, and are included in deferred revenue and
income in the accompanying consolidated balance sheets. See Note 5
for further information with respect to brokerage fees earned by Jones
Group.
Recognition of Partnership Fees and Distributions - 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 - 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.
Prior to June 1, 1993, Spacelink and its consolidated subsidiaries
excluding Intercable were members of a tax allocation agreement with
International and International's other subsidiaries. Pursuant to the
terms of the agreement, tax (provisions) benefits were 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.
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 1994 presentation.
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<PAGE> 13
(2) PROPOSED SALE OF SPACELINK'S ASSETS AND LIQUIDATION:
On May 31, 1994, Intercable and Spacelink entered into a definitive
agreement with respect to the reorganization of such companies.
Pursuant to that agreement, Intercable will issue 4,100,000 shares of
Class A Common Stock to Spacelink in exchange for substantially all of
the assets of Spacelink and the assumption of Spacelink's liabilities.
Spacelink would then dissolve and distribute to its shareholders such
shares of Class A Common Stock, as well as the Common Stock of
Intercable currently held by it. International, the controlling
shareholder of Spacelink, has agreed to allocate a portion of the
Class A Common Stock of Intercable otherwise allocable to it upon the
liquidation of Spacelink to the minority shareholders of Spacelink.
After giving effect to this allocation, and assuming the exercise of
all outstanding options, each non-dissenting minority shareholder of
Spacelink would receive .09629 shares of Intercable Class A Common
Stock and .03567 shares of Intercable Common Stock for each share of
Spacelink stock held on the closing date.
Also on May 31, 1994, Intercable entered into definitive agreements
with Bell Canada International Inc. ("BCI") which provide for BCI to
invest $206,250,000 in Intercable in return for 7,500,000 shares of
Class A Common Stock of Intercable, at a price of $27.50 per share.
This is in addition to the $55,000,000 already invested in Intercable
by BCI in March 1994 at $22.00 per share which resulted in BCI
acquiring an approximate 13 percent interest in Intercable. In
addition, BCI has agreed to purchase for cash 30 percent of the Class
A Common stock sold by Intercable to third parties in the future at a
price per share equal to the price received by Intercable from such
third parties until such time as BCI has invested an aggregate of $400
million in Intercable.
Further, on May 31, 1994, definitive agreements were entered into
between BCI and International and Glenn R. Jones, Chairman and Chief
Executive Officer of International, pursuant to which BCI will acquire
an option to acquire in the future the shares of Common Stock of
Intercable which represent the controlling interest in Intercable.
The option will be acquired for a payment of $19 per share. Except in
limited circumstances, the option will only be exercisable during the
eighth year after closing. If exercised, BCI would then hold a
sufficient number of shares of Common Stock of Intercable to enable it
to elect seventy-five percent of the Board of Directors of Intercable.
The closings of the foregoing transactions are expected to occur
simultaneously in late 1994. Closing of the BCI investment in
Intercable and closing of the reorganization of Intercable and
Spacelink are subject to a number of conditions, including the
approval of the shareholders of Intercable, and with respect to the
reorganization between Spacelink and Intercable, the approval of the
shareholders of Spacelink and the receipt of a favorable tax ruling
from the Internal Revenue Service. If such conditions are not waived,
the reorganization between Intercable and Spacelink may not occur, and
Spacelink would continue to exist as a separate entity and would grant
the option to BCI on the 2,859,240 shares of Common Stock of
Intercable owned by it, in return for an option payment of $19 per
share of Intercable Common Stock or $54,326,000.
(3) 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 Interactive, 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.
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.
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<PAGE> 14
The cable television systems owned by Spacelink and Intercable receive
programming from ME/U, which is 51 percent owned by a subsidiary of
International, 25 percent by Intercable, 11 percent by Glenn R. Jones
and 13 percent by Spacelink, and from Superaudio, which is owned 50
percent by Galactic Radio and 50 percent by an unaffiliated party.
Historically, Jones International Securities, Ltd., a wholly owned
subsidiary of International ("Jones Securities"), acted 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.
Jones Futura Foundation, Ltd., which was a wholly owned subsidiary of
International until March 3, 1993 when it was acquired by Spacelink
(See Note 6), has licensed to Futurex exclusive rights to manufacture,
market and sell certain data encryption hardware and software
products. The license fee was equal to 10 percent of Futurex's
revenues from the sale of certain encryption hardware and software
products.
Jones Infomercial Networks, Inc., ("PIN") provides advertising
time for third parties on certain Spacelink, Intercable and their
managed partnership cable television systems, using those systems' ad
sales slots. In consideration, the revenues generated from the third
parties are shared two-thirds and one-third between PIN and the
entities owning the cable television systems. Payments made to
Intercable by PIN relating to Intercable's owned cable television
systems totalled approximately $18,000 for the year ended May 31,
1994. No such payments were made to Spacelink during fiscal 1994 and
to Spacelink and Intercable during fiscal 1993 and fiscal 1992.
In fiscal 1993, Intercable 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. On November 9, 1993, Intercable
extended the term of the license agreement through December 31, 1994
on the same terms and conditions as the previous agreement.
Intercable subsequently terminated the 1993 license agreement and
entered into a new license agreement with Space Segment. Under the
new license agreement, Intercable, Jones Infomercial Networks, Inc.
("PIN") and Jones Computer Network, Ltd. ("JCN"), affiliates of
International, have a license to use the transponder for their
respective purposes. Under the terms of the new agreement, Intercable
agreed to pay Space Segment $200,000 per month from January 1994
through March 1994 and Intercable and PIN each agreed to pay $100,000
per month beginning April 1994 and until the launch of JCN.
Thereafter Intercable, PIN and JCN will each pay $66,667 per month.
Intercable recognized $2,300,000 and $700,000 of rental expense
related to these lease agreements during the fiscal years ended May
31, 1994 and 1993.
Jones Financial Group, Ltd. ("Jones Financial Group") performs
services for Intercable as its agent in connection with joint venture
and other financial arrangements. Intercable paid an advisory fee of
L.414,854 (approximately $632,600) to Jones Financial Group in fiscal
1995 for its services to Intercable in connection with Intercable's
transfer of all of its interests in its cable/telephony properties in
the United Kingdom to Bell Cablemedia plc (See Note 3).
Jones Earth Segment, Inc. ("Earth Segment") provides playback and
uplinking services primarily to its programming affiliates. Earth
Segment charges these affiliates for its services using rates which are
calculated to achieve a specified rate of return on investment. For
the fiscal year ending May 31, 1994, Earth Segment charged ME/U and
PIN $521,000 and $35,000, respectively. For the fiscal year
ended May 31, 1993, Earth Segment charged ME/U $233,000.
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<PAGE> 15
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 from managed limited
partnerships and other affiliates, on a consolidated basis, were as
follows:
<TABLE>
<CAPTION>
For the Year Ended May 31,
----------------------------------
1994 1993 1992
------- ------- ------
(In Thousands)
<S> <C> <C> <C>
Jones Interactive, Inc. $1,240 $ 910 $ 807
Jones Properties, Inc., net of
subleasing reimbursements 494 416 511
Superaudio 183 176 157
Mind Extension University, Inc. 125 103 87
Jones Space Segment, Inc. 2,300 700 -
Jones Futura Foundation, Ltd. - 100 178
Jones International Securities, Ltd. - 72 645
Other operating, general and
administrative expenses 79 74 70
------ ------- ------
Total allocated expenses, net of
reimbursements $4,421 $2,551 $2,455
====== ====== ======
</TABLE>
Spacelink and its consolidated subsidiaries including Intercable
reimburse International for certain allocated costs as described
above. Through fiscal 1992, Spacelink and its consolidated
subsidiaries excluding Intercable were allocated tax provisions
(benefits) from International pursuant to a tax allocation agreement
with International. Because International's investment in Spacelink
fell below the 80 percent ownership requirement for inclusion in the
sharing agreement, effective June 1, 1993, Spacelink will file
separate Federal and state income tax returns. 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, Glenn R. Jones and Intercable currently own
13 percent, 51 percent, 11 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.
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<PAGE> 16
At May 31, 1994 and 1993, amounts due from International to Spacelink
and its consolidated subsidiaries including Intercable were as
follows:
<TABLE>
<CAPTION>
May 31, May 31,
1994 1993
------- -------
(In Thousands)
<S> <C> <C>
Spacelink:
Amounts due for tax benefits and related interest $2,089 $ 1,481
Other advances 117 (89)
------ -------
Total due Spacelink 2,206 1,392
------ ------
Intercable:
Advances to Mind Extension University,
Inc. and accrued interest 2,000 2,000
------ ------
Total due Intercable 2,000 2,000
------ ------
Total due from International $4,206 $3,392
====== ======
</TABLE>
In connection with the above advances due Spacelink and its
consolidated subsidiaries including Intercable, interest was charged
to International on these advances at rates which approximated
International's average borrowing rates during the respective periods.
For the years ended May 31, 1994, 1993 and 1992 Spacelink and its
consolidated subsidiaries recorded interest income totalling $410,000,
$462,000, and $374,000, respectively.
Also, see Note 8 for other information with respect to transactions
between Spacelink, Intercable and their managed limited partnerships.
See Note 10 for information with respect to income tax provisions
(benefits) between Spacelink and International.
(4) INVESTMENTS IN AFFILIATES BY INTERCABLE:
Investments in Mind Extension University, Inc. by Intercable -
During fiscal 1992 and 1993, Intercable invested $10,000,000 in Mind
Extension University, Inc., ("ME/U"), an affiliated company that
provides educational programming through affiliated and unaffiliated
cable television systems, for 25 percent of the stock of ME/U, which
also received certain advertising avails and administrative and
marketing considerations from Intercable. The number of shares of
Class A Common Stock of ME/U issued to Intercable was based on the
average of two separate independent appraisals of ME/U. In May 1993
and December 1993, the Board of Directors of Intercable also approved
a $10,000,000 advance and a $5,000,000 advance, respectively, to ME/U
on an as-needed basis. Of these advances, one-half 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. As of May 31, 1994, all of the total
$15,000,000 had been advanced. On May 3, 1994, the Board of Directors
of Intercable approved an additional $5,000,000 advance to ME/U on an
as needed basis, interest accrued at Intercable's weighted average
cost of borrowing plus two percent. As of May 31, 1994, $758,000 of
the $5,000,000 had been advanced. These advances have been reflected
as investment in cable television partnerships and corporate stock in
the accompanying consolidated balance sheets due to their expected
long-term nature.
Jones Intercable Investors, L.P. -
Intercable is the general partner of this partnership, which was
formed on September 18, 1986 and Intercable owns a one percent general
partner interest. In a series of transactions, Intercable purchased
an approximate 19 percent
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<PAGE> 17
ownership interest. Intercable has a gross investment of
approximately $18,090,000 in this partnership at May 31, 1994.
Intercable's net investment in this partnership totalled approximately
$5,130,000 at May 31, 1994.
Investment in Jones Global Group by Intercable -
Intercable owns a 38 percent interest in Jones Global Group, Ltd.
("Jones Global Group"), a Colorado corporation of which 62 percent is
owned by International. On July 22, 1994, Jones Global Group and
certain of Jones Global Group's wholly- owned subsidiaries transferred
all of their interests in their cable/telephony properties in the
United Kingdom to Bell Cablemedia plc, a public limited company
incorporated under the laws of England and Wales, in exchange for
3,663,584 American Depository Shares ("ADSs") representing 18,317,920
Ordinary Shares of Bell Cablemedia. At the closing, Jones Global
Group transferred its equity interest in the companies that own the
Leeds and Aylesbury-Chiltern franchises, its general partner interest
in Jones United Kingdom Fund, Ltd. and the assets of its United
Kingdom management subsidiary to Bell Cablemedia. Also on July 22,
1994, Intercable and certain of its wholly-owned subsidiaries
transferred all of their interests in their cable/telephony properties
in the United Kingdom to Bell Cablemedia in exchange for 6,035,648
ADSs representing 30,178,240 Ordinary Shares of Bell Cablemedia. At
the closing, Intercable transferred its equity interest in the
companies that own the Leeds and South Hertfordshire franchises and
Intercable's equity interest in the shareholder loans to ELT
Acquisition Company Limited to Bell Cablemedia. In addition, the
Norwich, Peterborough Broadland and Fenland franchises, which were
acquired by Intercable for $15,500,000 during fiscal 1994, were also
transferred. As a result of these transactions, Intercable and Jones
Global Group no longer own any direct interest in cable/telephony
properties in the United Kingdom.
Prior to the closing of these transactions, Bell Cablemedia was
indirectly owned 80 percent by Bell Canada International Inc. ("BCI")
and 20 percent by Cable and Wireless plc ("C&W"). Intercable and
Jones Global Group's agreement to contribute their United Kingdom
holdings to Bell Cablemedia was contingent upon the successful
completion of Bell Cablemedia's initial public offering, which closed
on July 22, 1994. The initial offering price for the ADSs was $17.00
per ADS. As part of the initial offering, Jones Global Group sold
1,100,000 ADSs providing net cash proceeds of $17,547,888. The
proceeds from the sale of the ADSs by Jones Global Group are intended
to allow it to satisfy expected U. S. Tax liabilities in connection
with the transactions.
The ADSs received by Intercable are "restricted securities" within the
meaning of Rule 144 promulgated under the Securities Act of 1993 (the
"Securities Act"), and Intercable will not be able to sell its ADSs
unless an exemption from registration under the Securities Act is
available or unless its ADSs are registered by a subsequent
registration statement. Bell Cablemedia, BCI, C&W, Intercable and
Jones Global Group have agreed that, for a period of 180 days after
July 15, 1994 (the date of the definitive prospectuses used in Bell
Cablemedia's ADS Offerings), they will not sell or otherwise dispose
of any ADSs or Ordinary Shares of Bell Cablemedia (except for those
ADSs received by Jones Global Group that were sold as part of the ADS
Offerings) without prior written consent of the lead U.S. underwriters
of the ADS Offerings.
After giving effect to Bell Cablemedia's acquisition of the United
Kingdom holdings of Intercable and Jones Global Group and the
closings of the ADSs Offerings on July 22, 1994, BCI indirectly owns
approximately 42.2 percent, C&W indirectly owns approximately 12.8
percent, Intercable owns approximately 9.7 percent and Jones Global
Group owns approximately 4.4 percent of the issued and outstanding
shares of Bell Cablemedia. Based upon the quoted market price of
$21.50 per ADS at August 18, 1994, the quoted market value of
Intercable's direct investment totalled approximately $129,766,000.
Intercable's indirect investment through its 38 percent ownership of
Jones Global Group totalled $20,945,000. Due to the affiliated nature
of the transaction and Intercable's indirect continuing interest in
the UK properties, the investment in Bell Cablemedia is not reflected
at fair market value in accordance with the SFAS #115 "Accounting for
Certain Investments in Debt and Equity Securities." At May 31, 1994,
Intercable's net investment in these UK properties totalled
$50,067,800.
Intercable paid an advisory fee of L.414,854 (approximately $632,600)
to Jones Financial Group in fiscal 1995 for its services to Intercable
in connection with the aforementioned transactions. Jones Global
Group paid an advisory fee of L.251,812 (approximately $384,000) to
Jones Financial Group for its services to Jones Global Group in
connection with the aforementioned transactions. Jones Financial
Group is owned by International and Glenn R. Jones.
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, Spain but has
discontinued its operations in Jerez de la Frontera/Puerto Santa
Maria, Spain. This affiliate currently is seeking to acquire the
rights to develop cable television operations in Spain. Intercable
has
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<PAGE> 18
made advances totalling $7,764,000 and $769,000, respectively, at May
31, 1994 and 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 in the
accompanying consolidated balance sheets due to their long-term
nature, with interest charged at Intercable's weighted average cost of
borrowing. Intercable's net investment in all of its Spanish
activities was approximately $7,684,000 at May 31, 1994. Intercable
is seeking to sell its Spanish system to Bell Cablemedia in fiscal
1995.
(5) 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>
For the Year Ended May 31,
----------------------------------
1994 1993 1992
------- ------- ------
(In Thousands)
<S> <C> <C> <C>
Earned from Spacelink and Intercable $ 680 $ 523 $ 65
Earned from third parties - - 62
Earned from Managed Limited Partnerships - 2,214 1,135
------ ------ ------
Total Brokerage Fees 680 2,737 1,262
Recognition (Deferral) of Brokerage Fees (335) (983) 431
------- ------- ------
Brokerage Fees, net $ 345 $1,754 $1,693
====== ====== ======
</TABLE>
(6) ACQUISITIONS BY SPACELINK:
On March 11, 1994, Futurex purchased substantially all of the tangible
and intangible assets comprising the Excrypt product lines for a net
purchase price of $843,000. Futurex shall pay the purchase price in
quarterly installments beginning August 31, 1994, which amounts will
be based on certain fees generated by the business and collected by
Futurex during the preceding quarter subject to certain minimums and
maximums. The acquisition was accounted for as a purchase. The
Excrypt product line serves the encrypted bank credit card draw
authorization market.
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. EPI and TRW also entered
into a covenant not to compete. The $1,046,000 purchase price 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 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 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.
During fiscal 1993, Earth Segment purchased four acres of land in the
Inverness Business Park area of Englewood, Colorado and constructed a
ground-to-satellite transmission ("uplink") facility to permit
satellite transmission of programming originated by ME/U, PIN 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.
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<PAGE> 19
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") which is the owner of all
rights in and to certain data encryption products (the "Products"),
including hardware specifications and designs and software source
code. The Products exist in several versions, each version intended
to be compatible with a different brand of microcomputer, that
encrypt, decrypt and authenticate data stored in and communicated
between microcomputers. Historically, Futurex licensed the rights
from Futura to manufacture, use, market, sell and otherwise exploit
the Products in exchange for the payment of a license fee to Futura
of 10 percent of sales from the Products. For the purposes of this
transaction, Futura was valued at $844,000, which was based on the
discounted value of the estimated future revenues from the sale of
the Products. 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. The acquisition of
Futura 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 costs. However,
as required by generally accepted accounting principles, the excess
of fair market value over Futura's historical cost 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 $1,293,000 charge to
accumulated deficit in the accompanying consolidated financial
statements.
(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 its Onalaska System before income taxes of approximately
$6,400,000 in fiscal 1992.
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.
On January 7, 1994, Intercable entered into an agreement with Bresnan
Communications Company ("Bresnan"), to sell its Gaston County, North
Carolina cable television system (the "Gaston System") to Bresnan for
$36,500,000, subject to normal closing adjustments. Bresnan and Time
Warner Cable, a division of Time Warner Entertainment, L.P. ("TWC"),
agreed to a like-kind exchange of assets whereby TWC would acquire the
Gaston System from Bresnan and Bresnan would acquire from TWC the
assets of cable television systems owned by TWC. Closing on this
transaction occurred in the first quarter of fiscal 1995. Jones Group
received a brokerage fee of $912,500 or 2 - 1/2 percent of the sales
price. Proceeds from this sale were used to repay amounts outstanding
on Intercable's credit facility. Intercable will recognize a gain
before income taxes of $15,433,000 during the first quarter of fiscal
1995.
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
acquisition was accounted for using the purchase method of accounting.
The results of operations of the Alexandria System are included in the
accompanying consolidated statements of operations beginning in
November 1992.
On January 28, 1993, Intercable entered into an agreement with
American Cable TV Investors 2 ("ACT 2") (the "Agreement") to acquire
for its own account the cable television systems serving North
Augusta, South Carolina, and surrounding areas (the "North Augusta
System") for $28,500,000 subject to normal closing adjustments. The
North Augusta System is contiguous to the Augusta, Georgia cable
system managed by Intercable on behalf of one of its
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<PAGE> 20
partnerships. As a result of renegotiation of the Agreement between
Intercable and ACT 2, the purchase price was reduced to $27,200,000,
subject to normal closing adjustments. Jones Group received a
brokerage fee totalling $680,000 or 2 - 1/2 percent of the purchase
price. The transaction closed on December 15, 1993 and was accounted
for using the purchase method of accounting.
(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 generally 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, 1994, 1993 and 1992, the sponsors
recognized as "other expense" offering costs in excess of amounts
reimbursable by limited partnerships totalling $494,000, $500,000, and
$2,046,000, respectively.
As general partner, Jones Spacelink Funds, Inc., a wholly owned
subsidiary of Spacelink, is contingently liable for recourse debt of a
certain managed limited partnership, which totalled $1,500,000 and
$2,050,000 at May 31, 1994 and 1993, respectively. Spacelink believes
such debt is secured by partnership assets and other collateral with
fair market values in excess of the related obligation.
As general partner, Spacelink, certain of its wholly owned
subsidiaries and Intercable manage the partnerships and receive a fee
for their services generally of five percent of the gross revenues of
the partnerships, excluding revenues from the sale of cable television
systems or franchises.
Any partnership distributions made from cash flow, as defined, are
generally allocated 99 percent to the limited partners and one percent
to the general 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.
-75-
<PAGE> 21
Intercable recognized fees and distributions totalling $4,778,000 and
$26,790,000, for the years ended May 31, 1993 and 1992, respectively.
No such fees and distributions were recognized during fiscal 1994.
The $4,778,000 distribution received during fiscal 1993 from Jones
Intercable Investors L.P., in which Intercable has a 19 percent
limited partner interest, upon the sale to Intercable of the
Alexandria System, was recorded as a reduction in Intercable's
investment in Jones Intercable Investors, L.P. 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, was
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 party.
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 paid to corporate personnel, rent, data
processing 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 have been based
primarily on total revenues, total assets and actual time spent by
Spacelink and Intercable employees with respect to each partnership
managed. Remaining overhead costs have been allocated based on
revenues and/or the relative costs of partnership assets managed.
As of December 1993, remaining overhead costs have been allocated
based solely on revenues. Cable television systems owned by Spacelink
and Intercable are also allocated a proportionate share of these
expenses under the allocation formulas described above.
Amounts charged partnerships and other affiliated companies have
directly offset operating, general and administrative expenses by
approximately $28,620,000, $27,371,000, and $25,167,000 for the years
ended May 31, 1994, 1993 and 1992, 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 totalled $18,559,000 and $16,604,000 at May 31, 1994 and 1993,
respectively. The advances, excluding the unpaid brokerage fees, 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, 1994, 1993 and 1992 was $1,641,000, $1,513,000 and
$1,826,000, 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,
----------------------------------- ------------------------------------
1993 1992 1991 1993 1992 1991
-------- -------- --------- ---------- -------- ----------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total assets $133,956 $147,478 $ 141,566 $ 852,604 $921,664 $1,017,560
Debt 77,475 74,840 63,035 590,540 590,698 629,194
Amounts due to general
partner 4,164 3,319 2,201 16,467 12,690 8,762
Partners' capital
(net of accumulated
deficit) 48,174 64,847 72,975 214,056 284,058 350,348
</TABLE>
-76-
<PAGE> 22
<TABLE>
<CAPTION>
Spacelink's Managed Limited Intercable's Managed Limited
Partnerships Partnerships
----------------------------------- ------------------------------------
As of December 31, As of December 31,
----------------------------------- ------------------------------------
1993 1992 1991 1993 1992 1991
-------- -------- --------- ---------- -------- ----------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 41,617 $ 37,770 $ 29,629 $ 344,373 $334,948 $ 361,431
Depreciation and
amortization 21,907 20,463 17,430 135,736 151,879 187,607
Operating loss (8,529) (8,175) (8,498) (24,458) (29,503) (58,429)
Gain on sale of assets - - - 59,939 -
Net loss (13,328) (13,108) (13,387) (60,327) (15,945) (126,584)
</TABLE>
(9) SUBORDINATED DEBENTURES AND OTHER DEBT:
At May 31, 1994 and 1993, Spacelink's and its consolidated
subsidiaries' debt consisted of the following:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(In Thousands)
<S> <C> <C>
DEBT OF SPACELINK:
Revolving credit facility and term loan $ 74,000 $ 69,000
Capitalized lease obligations and non-interest bearing notes 886 265
-------- --------
Total Debt of Spacelink 74,886 69,265
-------- --------
DEBT OF INTERCABLE:
Subordinated Debentures-
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 160,000 160,000
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 100,000 100,000
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 19,368 19,468
Credit facility 63,000 46,000
3.9% to 17% capitalized equipment lease obligations due in installments
through 1998 1,136 1,228
Non-interest bearing notes due 1995 through 1999 403 518
-------- --------
Total Debt of Intercable 343,907 327,214
-------- --------
Consolidated Debt $418,793 $396,479
======== ========
</TABLE>
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").
The Revolving Facility commitment begins to reduce on August 31, 1994,
with a final maturity date of February 28, 2001. The Revolving
Facility bears interest, at Spacelink's option, at the 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. For the year
ended May 31, 1994, Spacelink's effective interest rate on the
Revolving Facility was 6.64 percent. The Term Loan matures May 31,
2001 and requires principal payments beginning May 31, 1995.
Borrowings under the Term Loan bear interest at rates consistent with
the rates of the Revolving Facility. Both the Revolving Facility and
the Term Loan are secured by substantially all of Spacelink's assets
with the exception of Spacelink's investment in Intercable. The
security is
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<PAGE> 23
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.
Effective November 30, 1993, Spacelink amended its Revolving Facility
to increase the allowable ratio of debt to management fees and cable
operating income before depreciation and amortization (the "Debt
Ratio") from 6.5 to 1.0 to 6.75 to 1.0 in order to make available to
it a majority of its Revolving Facility and to mitigate some of the
impact of the recent cable reregulation on its liquidity.
In August 1994, Spacelink received a waiver for the scheduled
Revolving Facility reductions for August 31 and November 30, 1994,
which payment will now be due on February 28, 1995. In addition,
Spacelink also received a waiver of certain financial covenants for
the quarters ending August 31 and November 30, 1994 provided that its
Debt Ratio not exceed 8.0 to 1.0 at the end of such fiscal quarters,
and a waiver of a financial covenant requiring a certain level of
dividends from Jones Group for the year ended May 31, 1994. In
consideration for the waivers, Spacelink agreed to pay the banks fees
totalling $375,000 payable on the earlier of: (a) the date the
Revolving Facility and Term Loan are paid in full, (b) the date
Spacelink receives the option payment from BCI, or (c) February 28,
1995. In addition, Spacelink agreed to pay fees of $40,000 per month
beginning September 30, 1994 and continuing until one of the following
events occurs: (a) the Revolving Facility and Term Loan are paid in
full, (b) Spacelink receives the option payment from BCI, or (c)
certain interest rate terms of the Revolving Facility and Term Loan
are amended.
In the event the reorganization between Intercable and Spacelink does
not occur, Spacelink would continue to exist as a separate entity and
if the Intercable-BCI Agreement is closed, Spacelink would grant an
option to BCI on the 2,859,240 shares of Common Stock of Intercable
owned by Spacelink, in return for an option payment of $19 per share
of Intercable Common Stock, or $54,326,000. The $54,326,000 of
proceeds would be used to substantially reduce Spacelink's debt, fund
its capital expenditures and its other working capital needs.
At May 31, 1994, borrowings outstanding under Spacelink's $65,000,000
Revolving Facility and $10,000,000 Term Loan totalled $64,000,000 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>
1995 $ 7,398
1996 9,047
1997 9,047
1998 8,944
1999 14,000
Thereafter 26,450
-------
Total $74,886
=======
</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 describing the
Subordinated Debentures and Other Debt of Intercable, 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 62 1/2 percent to 75 percent of the issues prior to maturity
after consideration of the debt redemptions discussed below, as
follows:
<TABLE>
<CAPTION>
Annual Sinking Fund Commencement
Debenture Issue Payment Date
------------------------ ------------------- -------------
<S> <C> <C>
Debentures due July 2004 $50,000,000 July 15, 2002
Convertible Debentures 3,000,000 June 1, 1998
</TABLE>
Other than the amounts listed above, Intercable has no other
significant debt maturities.
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. These
registration statements are effective, but no securities have been
sold except 2,500,000 shares of Class A Common
-78-
<PAGE> 24
Stock sold to BCI in the fourth quarter of fiscal 1994. 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, and for general corporate purposes.
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 borrowings available under this agreement remains at
$300,000,000 through May 31, 1995, after which the availability is
reduced quarterly until expiration on November 30, 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 year ended May 31, 1994,
Intercable's effective interest rate on the credit facility was 5.6
percent. A fee of 1/2 percent per annum on the unused portion of the
new commitment is also required. Substantially all of Intercable's
cable television related assets are pledged as security under the
agreement. In March 1994, Intercable used $55,000,000 of proceeds
received from the sale of 2,500,000 shares of Class A Common Stock to
BCI to repay amounts outstanding under the credit facility. At May
31, 1994, Intercable had $63,000,000 outstanding under the credit
facility, leaving $237,000,000 of potential availability on this
credit facility; however, due to covenant restraints, Intercable can
access only approximately $42,000,000 of this availability.
At May 31, 1994, the carrying amount of Intercable's long-term debt
was $343,907,000 and the estimated fair value was $354,707,000. The
fair value of Intercable's long-term debt is estimated based on the
quoted market prices for the same issues.
(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 fiscal 1993.
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 deferred tax benefits of
$45,733,000 and $32,828,000, respectively, which were offset by
valuation allowances of $37,785,000 and $26,161,000, respectively,
during fiscal 1994 and 1993.
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. Income
tax benefits of $2,042,000 and $2,842,000, respectively, were recorded
in fiscal 1994 and 1993.
-79-
<PAGE> 25
Components of income tax expense for Federal and state income tax
purposes are as follows:
<TABLE>
<CAPTION>
For the Year Ended May 31,
-----------------------------------
1994 1993 1992
------- ------- ------
(Stated In Thousands)
<S> <C> <C> <C>
Current (benefit) provision
Federal $ - $ (265) (1,185)
State - (24) 1,185
------- ------- ------
Current (benefit) provision - (289) -
------- ------- ------
Deferred (benefit) provision
Federal (1,172) (2,336) 7,554
State (109) (217) -
------- ------- ------
Deferred (benefit) provision (1,281) (2,553) 7,554
------- ------- ------
Total income tax (benefit) provision on income from operations (1,281) (2,842) 7,554
------- ------- ------
Total income tax benefit on extraordinary items - - (7,389)
------- ------- ------
Cumulative effect of change in method of accounting for income
taxes, net of minority interest - (329) -
------- ------- ------
Total income tax (benefit) provision $(1,281) $(3,171) $ 165
======= ======= ======
</TABLE>
The following table reconciles the statutory Federal income tax rate
to the effective tax rate:
<TABLE>
<CAPTION>
For the Year Ended May 31,
-----------------------------------
1994 1993 1992
-------- -------- --------
(Stated In Thousands)
<S> <C> <C> <C>
Income tax provision (benefit) for Spacelink and Jones Group
from the tax sharing agreement $ - $ (289) $ 155
Computed "normally expected" income tax (benefit) provision
at statutory rates on income from operations (11,128) (15,852) 7,967
Increase (reductions) in taxes resulting from -
Alternative minimum taxes - - (1,183)
Amortization of costs in excess of interest in net assets purchased 302 - 355
State income taxes, net of Federal income tax benefit (1,039) (1,512) 643
Change in status of foreign investments (2,505) - -
Foreign equity investments 412 - -
Tax credits - (591) -
Enacted future tax rate changes - (636) -
Other, net 1,053 (149) (383)
-------- -------- --------
Total income tax (benefit) provision from operations (12,905) (19,029) 7,554
-------- -------- --------
Tax effect of extraordinary items - (7,604) -
SFAS 109 valuation allowance - Intercable 11,624 23,791 -
Cumulative effect of change in method of accounting
for income taxes, net of minority interests - (329) -
-------- -------- --------
Total income tax (benefit) provision $ (1,281) $ (3,171) $ 7,554
======== ======== ========
</TABLE>
Deferred tax assets (liabilities) are comprised of the following
components at May 31, 1994 and 1993:
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<PAGE> 26
<TABLE>
<CAPTION>
May 31,
------------------------------------
(Stated in Thousands)
1994 1993
---------- ----------
<S> <C> <C>
Deferred Tax Liabilities:
Depreciation and Amortization $(26,682) $ (35,327)
Deferred Tax Assets:
Regular tax loss carryforwards 60,858 46,041
Investment tax credit carryforwards 1,076 1,076
AMT credit carryforwards 1,116 1,116
Recognition of Partnership items 5,218 15,602
Recognition Jones Group brokerage fees 917 1,539
Intercompany transactions and other 3,230 2,781
---------- ----------
Total Deferred Tax Assets 72,415 68,155
---------- ----------
Deferred Tax Asset Valuation Allowance - Intercable (37,785) (26,161)
---------- ----------
Net Deferred Tax Assets $ 7,948 $ 6,667
========== ==========
</TABLE>
As of May 31, 1994, Spacelink had net operating losses ("NOL's") of
approximately $7,279,000 for alternative minimum tax ("AMT") and
$17,170,000 for regular tax which expire $1,671,000 in 2005, $5,252,000
in 2006, $1,684,000 in 2007 and $2,081,000 in 2008 and $6,482,000 in
2009.
As of May 31, 1994, Intercable had net NOL's of approximately
$66,347,000 for AMT and $141,937,000 for regular tax which expire
$45,191,000 in 2005, $24,138,000 in 2007 and $40,809,000 in 2008 and
$31,799,000 in 2009. 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>
1992
----------
(Stated In Thousands)
<S> <C>
Additional tax depreciation $ 4,362
Fund fees and distributions 17,184
Recognition (deferral of recognition) of Jones Group brokerage fees 155
Recognition (deferral) of dividends and fund fees received by Intercable 10
Timing of partnership income (6,309)
Difference in recognition of net operating losses for tax and
financial statement purposes (15,056)
Tax expenses (income) from properties held for resale (590)
Other, net 409
--------
Total deferred tax (benefit) provision $ 165
========
</TABLE>
Pursuant to the Tax Sharing Agreement with International, Spacelink
and its consolidated subsidiaries 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 the tax allocation
resulted in fiscal 1993 and 1992 tax (benefits) provisions of
$(289,000) and $-0-, 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.
-81-
<PAGE> 27
(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
Spacelink. All of the employees of Spacelink, its parent or any
participating subsidiary, including directors of Spacelink who are
also employees, are eligible to participate in the 1992 Plan. Stock
options granted may be either Incentive Stock Options or Non-statutory
Stock Options. Stock Appreciation Rights may be granted in tandem
with the grant of stock options.
Except with respect to options granted to officers and directors who
are employees of Spacelink, the 1992 Plan is 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>
1994 1993
---------------- --------------
<S> <C> <C>
Available for grant 3,604,503 4,637,500
Granted during the period 1,032,997 362,500
Exercised during the period 50,000 -
Price range, per share $ 1.047 - $1.125 $ -
Terminated during the period 83,500 -
Total outstanding 1,261,997 362,500
Price range, per share $ .75 - $1.125 $ .75 - $1.047
Exercisable at year-end 179,167 229,167
Price range, per share $ .75 - $1.047 $ .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 options replace options granted outside the 1992 Plan,
which expired in December 1992.
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<PAGE> 28
Other Class A Common Stock Options of Spacelink Independent of the
1992 Plan -
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 to Glenn R. Jones, Chairman of the Board of Directors and
Chief Executive Officer of Spacelink, for a purchase price of $.8438
per share, the fair market value as of the date of grant. The option
was granted in consideration of Mr. Jones' personal guarantee of a
portion of a promissory note issued in connection with Spacelink's
acquisition from an unaffiliated party of certain cable television
systems located in the State of Ohio. The option will continue until
fully exercised, or unless sooner terminated or modified under the
provisions of the agreement between Spacelink and Mr. Jones.
In addition, Spacelink's Board of Directors from time to time has
issued options to certain directors, officers and employees of
Spacelink and its affiliates. The following table summarizes data
concerning options 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>
January 1994 40,000 1.125 August 1994
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
</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 rent office facilities
under various operating lease arrangements. Future minimum lease
payments as of May 31, 1994, 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>
1995 $ 1,903 $ 2,090 $ 593 $ 4,586
1996 1,903 1,893 254 4,050
1997 1,903 1,476 206 3,585
1998 1,903 1,262 142 3,307
1999 1,903 1,206 21 3,130
Thereafter 1,990 4,279 - 6,269
------ ------ ------ ------
Total future minimum
lease payments $11,505 $12,206 $1,216 $24,927
====== ====== ===== ======
</TABLE>
Rental expense under all noncancelable operating leases was $757,000
and $594,000, respectively, for fiscal 1994 and 1993.
On February 22, 1994, Intercable and Jones Group, were named as
defendants in a lawsuit brought by three individuals who are Class A
Unitholders in Jones Intercable Investors, L.P. (the "Partnership"), a
master limited partnership in which Intercable is general partner.
The litigation, entitled Luva Vaughan et al vs. Jones Intercable,
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<PAGE> 29
Inc. et al, Case No. CV 94-3652 was filed in the Circuit Court of
Jackson County, Missouri, and purports to be "for the use and benefit
of" the Partnership. The suit seeks rescission of the sale of the
Alexandria, Virginia cable television system (the "Alexandria System")
by the Partnership to Intercable, which sale was completed on November
2, 1992. It also seeks a constructive trust on the profits derived
from the operation of the Alexandria System since the date of the
sale, and seeks an accounting and other equitable relief. The
plaintiffs also allege that the $1,830,850 commission paid to Jones
Group by the Partnership in connection with such sale was improper,
and ask the Court to order that such commission be repaid to the
Partnership. Under the terms of the partnership agreement of the
Partnership, Intercable has the right to acquire cable television
systems from the Partnership at a purchase price equal to the average
of three independent appraisals of the cable television system to be
acquired. The plaintiffs claim that the appraisals obtained in
connection with the sale of the Alexandria System were improperly
obtained, were not made by qualified appraisers and were otherwise
improper. The purchase price paid by Intercable upon such sale was
approximately $73,200,000. Intercable believes both that the
appraisals were properly obtained and that the brokerage commission
was properly paid to Jones Group in accordance with the express terms
of the partnership agreement. Intercable further believes that its
defenses are meritorious and it intends to vigorously defend the
litigation. Intercable and Jones Group have filed motions to dismiss
this claim.
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<PAGE> 30
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: September 19, 1994
