-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AgMwiltTYOuV7qvsYrttBD5bLxdSq4nu5Q4NMkPwG8CzResGSmREj2/TY3okVWhs qyQl08ar0oGv1Fk4QZW6Tg== 0000927356-97-001266.txt : 19971107 0000927356-97-001266.hdr.sgml : 19971107 ACCESSION NUMBER: 0000927356-97-001266 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971106 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: JONES INTERCABLE INC CENTRAL INDEX KEY: 0000275605 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 840613514 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09953 FILM NUMBER: 97708620 BUSINESS ADDRESS: STREET 1: PO BOX 3309 CITY: ENGLEWOOD STATE: CO ZIP: 80155 BUSINESS PHONE: 3037923111 10-Q 1 FORM 10-Q - JONES INTERCABLE, INC. FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1997 ------------------ [_] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________ to ___________ Commission File Number 1-9953 JONES INTERCABLE, INC. - -------------------------------------------------------------------------------- Exact name of registrant as specified in charter Colorado #84-0613514 - -------------------------------------------------------------------------------- State of incorporation I.R.S. employer I.D.# 9697 East Mineral Avenue, Englewood, Colorado 80112 --------------------------------------------------- Address of principal executive office (303) 792-3111 ----------------------------- Registrant's telephone number Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section l3 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 _____ ----- Shares outstanding of each of the registrant's classes of Common Stock, as of October 31, 1997. 5,113,021 - Common Stock, $.01 par value per share 35,544,973 - Class A Common Stock, $.01 par value per share JONES INTERCABLE, INC. AND SUBSIDIARIES --------------------------------------- INDEX ----- Page Number ------ PART I. FINANCIAL INFORMATION. Item 1. Financial Statements Unaudited Consolidated Balance Sheets September 30, 1997 and December 31, 1996 3 Unaudited Consolidated Statements of Operations Three and Nine Months Ended September 30, 1997 and 1996 5 Unaudited Consolidated Statements of Cash Flows Nine Months Ended September 30, 1997 and 1996 6 Notes to Unaudited Consolidated Financial Statements September 30, 1997 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II. OTHER INFORMATION. Item 6. Exhibits and Reports on Form 8-K 18 -2- UNAUDITED CONSOLIDATED Jones Intercable, Inc. BALANCE SHEETS and Subsidiaries As of September 30, 1997 and December 31, 1996
- ----------------------------------------------------------------------------------------------- September 30, 1997 December 31, 1996 ASSETS (Stated in Thousands) - ----------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS $ 4,590 $ 1,671 RESTRICTED CASH - 1,016 RECEIVABLES: Trade receivables, net of allowance for doubtful accounts of $1,935,000 in September 1997 and $1,483,000 in December 1996 21,511 16,327 Affiliated entities 5,867 3,996 Other 1,403 962 INVESTMENT IN CABLE TELEVISION PROPERTIES: Property, plant and equipment, at cost 741,648 579,554 Less-accumulated depreciation (209,246) (184,738) ---------- ---------- 532,402 394,816 Franchise costs and other intangible assets, net of accumulated amortization of $275,190,000 in September 1997 and $219,783,000 in December 1996 732,419 492,219 Investments in cable television partnerships and affiliates 24,650 31,483 Investment in Bell Cablemedia plc - 111,767 ---------- ---------- TOTAL INVESTMENT IN CABLE TELEVISION PROPERTIES 1,289,471 1,030,285 DEFERRED TAX ASSET, net of valuation allowance of $53,485,000 in September 1997 and $53,006,000 in December 1996 3,862 3,862 DEPOSITS, PREPAID EXPENSES AND OTHER ASSETS 64,279 76,010 ---------- ---------- TOTAL ASSETS $1,390,983 $1,134,129 ========== ==========
The accompanying notes to unaudited consolidated financial statements are an integral part of these balance sheets. -3- UNAUDITED CONSOLIDATED Jones Intercable, Inc. BALANCE SHEETS and Subsidiaries As of September 30, 1997 and December 31, 1996
- -------------------------------------------------------------------------------------------------- September 30, 1997 December 31, 1996 LIABILITIES AND SHAREHOLDERS' INVESTMENT (Stated in Thousands) - -------------------------------------------------------------------------------------------------- LIABILITIES: Accounts payable and accrued liabilities $ 93,678 $ 89,563 Subscriber prepayments and deposits 2,955 3,112 Subordinated debentures and other debt 553,160 463,147 Credit facilities 485,000 343,000 ---------- ---------- TOTAL LIABILITIES 1,134,793 898,822 ---------- ---------- SHAREHOLDERS' INVESTMENT: Class A Common Stock, $.01 par value, 60,000,000 shares authorized; 35,544,523 and 26,264,523 shares issued at September 30, 1997 and December 31, 1996, respectively 355 263 Common Stock, $.01 par value, 5,550,000 shares authorized; 5,113,021 shares issued at September 30, 1997 and December 31, 1996 51 51 Additional paid-in capital 487,383 395,278 Unrealized holding gain on marketable securities - 47,272 Accumulated deficit (231,599) (207,557) ---------- ---------- TOTAL SHAREHOLDERS' INVESTMENT 256,190 235,307 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $1,390,983 $1,134,129 ========== ==========
The accompanying notes to unaudited consolidated financial statements are an integral part of these balance sheets. -4- UNAUDITED CONSOLIDATED Jones Intercable, Inc. STATEMENTS OF OPERATIONS and Subsidiaries For the three and nine months ended September 30, 1997 and 1996
- -------------------------------------------------------------------------------------------------------------------- For the Three Months Ended For the Nine Months Ended -------------------------- ------------------------- Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996 (Stated in Thousands Except Per Share Data) - -------------------------------------------------------------------------------------------------------------------- REVENUES FROM OPERATIONS: Cable Television Revenue Subscriber service fees $ 85,201 $ 64,710 $ 243,513 $ 180,852 Management fees 4,201 4,740 13,236 14,594 Distributions and brokerage fees - - 2,768 15,483 Non-cable Revenue 2,543 5,693 6,864 24,367 --------- --------- --------- --------- TOTAL REVENUES 91,945 75,143 266,381 235,296 COSTS AND EXPENSES: Cable Television Expenses Operating expenses 44,424 33,762 127,170 95,342 General and administrative expenses * 4,697 4,235 14,780 12,164 Non-cable operating, general and administrative 2,567 5,757 7,261 24,546 Depreciation and amortization 36,147 30,654 106,580 84,692 --------- --------- --------- --------- OPERATING INCOME 4,110 735 10,590 18,552 OTHER INCOME (EXPENSE): Interest expense (21,605) (17,620) (65,308) (50,188) Equity in losses of affiliated entities (809) (1,695) (3,562) (3,703) Gain on sale of assets 1,854 2,873 49,396 2,873 Interest income 292 573 1,095 3,065 Other, net (1,138) (2,074) (2,794) (1,705) --------- --------- --------- --------- LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (17,296) (17,208) (10,583) (31,106) Income tax benefit - - - - --------- --------- --------- --------- LOSS BEFORE EXTRAORDINARY ITEM (17,296) (17,208) (10,583) (31,106) EXTRAORDINARY ITEM: Loss on early extinguishment of debt, net of related income tax (13,459) - (13,459) - --------- --------- --------- --------- NET LOSS $ (30,755) $ (17,208) $ (24,042) $ (31,106) ========= ========= ========= ========= PRIMARY LOSS PER SHARE: $ (.88) $ (.55) $ (.74) $ (.99) ========= ========= ========= ========= AVERAGE NUMBER OF CLASS A COMMON AND COMMON SHARES OUTSTANDING 34,920 31,378 32,571 31,371 ========= ========= ========= =========
* Of the total general and administrative expenses, approximately $1,681,000 and $1,380,000 for the three months ended September 30, 1997 and 1996, respectively, and approximately $4,369,000 and $3,244,000 for the nine months ended September 30, 1997 and 1996, respectively, represent related party expenses. The accompanying notes to unaudited consolidated financial statements are an integral part of these statements. -5- UNAUDITED CONSOLIDATED STATEMENTS OF Jones Intercable, Inc. CASH FLOWS and Subsidiaries For the nine months ended September 30, 1997 and 1996
- ------------------------------------------------------------------------------------ For the Nine Months Ended ------------------------- Sept. 30, 1997 Sept. 30, 1996 (Stated in Thousands) - ------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (24,042) $ (31,106) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 106,580 84,692 Gain on sale of assets (49,396) - Loss on early extinguishment of debt 13,459 - Equity in losses of affiliates 3,562 3,703 Class A Stock option expense 195 195 Decrease in restricted cash 1,016 5,252 Decrease (increase) in trade receivables (5,184) 3,679 Increase in other receivables, prepaid expenses and other assets (234) (13,602) Increase (decrease) in accounts payable, accrued liabilities and subscriber prepayments and deposits 3,958 (6,489) --------- --------- Net cash provided by operating activities 49,914 46,324 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of cable television systems (388,483) (298,020) Deposit on cable television system 12,000 (12,000) Purchase of property and equipment (89,475) (66,033) Proceeds from sale of assets 111,276 - Other, net 841 2,217 --------- --------- Net cash used in investing activities (353,841) (373,836) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 537,500 322,000 Repayment of borrowings (395,500) - Redemption of 11.5% Debentures (170,800) - Proceeds from the sale of Senior Notes, net 248,600 - Senior note offering costs (4,498) - Proceeds from issuance of Class A Common Stock, net 91,554 - Decrease (increase) in accounts receivable from affiliated entities (1,871) 4,950 Proceeds from Class A stock options 448 149 Other, net 1,413 227 --------- --------- Net cash provided by financing activities 306,846 327,326 --------- --------- Increase in Cash and Cash Equivalents 2,919 (186) Cash and Cash Equivalents, beginning of period 1,671 2,314 --------- --------- Cash and Cash Equivalents, end of period $ 4,590 $ 2,128 ========= =========
The accompanying notes to unaudited consolidated financial statements are an integral part of these statements. -6- NOTES TO UNAUDITED CONSOLIDATED Jones Intercable, Inc. FINANCIAL STATEMENTS and Subsidiaries (1) This Form 10-Q is being filed by Jones Intercable, Inc. and its subsidiaries (the "Company"). The majority of the Company's cable television systems are owned by two of the Company's wholly owned subsidiaries, Jones Cable Holdings, Inc. ("JCH") and Jones Cable Holdings II, Inc. ("JCH II"). This Form 10-Q is being filed in conformity with the SEC requirements for unaudited financial statements and does not contain all of the necessary footnote disclosures required for a fair presentation of the Consolidated Balance Sheets, Consolidated Statements of Operations and Consolidated Statements of Cash Flows in conformity with generally accepted accounting principles. However, in the opinion of management, this data includes all adjustments, consisting only of normal recurring accruals, necessary to present fairly the Company's financial position at September 30, 1997 and December 31, 1996 and its results of operations and cash flows for the three and nine months ended September 30, 1997 and 1996. Results of operations for these periods are not necessarily indicative of results to be expected for the full year. (2) The Company has completed the following transactions in 1997: Acquisitions of cable television systems ---------------------------------------- On January 31, 1997, the Company purchased from Maryland Cable Partners, L.P., an unaffiliated party, the cable television system serving the communities of Berwyn Heights, Bladensburg, Bowie, Brentwood, Cheverly, College Park, Colmar Manor, Cottage City, Edmonston, Glenarden, Greenbelt, Hyattsville, Landover Hills, Laurel, Mt. Rainer, New Carrollton, North Brentwood, Riverdale, Takoma Park, University Park and unincorporated portions of northern Prince Georges County, all in the State of Maryland (the "North Prince Georges County System"). The purchase price was $231,367,000 and was funded by borrowings under JCH's revolving credit facility. The Company paid Jones Financial Group, Ltd. ("Financial Group"), an affiliated company, a fee of $2,082,000 upon closing of this transaction for acting as the Company's financial advisor in connection with this transaction. All fees paid to Financial Group by the Company are based upon 90% of the estimated commercial rate charged by unaffiliated financial advisors. The North Prince Georges County System is contiguous to the Company's South Prince Georges County System and is operated as part of the Company's Prince Georges County System in the Virginia/Maryland cluster. On June 30, 1997, the Company purchased from Cable TV Joint Fund 11 (the "Venture"), a venture comprised of four managed partnerships, the cable television system serving the City of Manitowoc, Wisconsin (the "Manitowoc System"). The purchase price for the Manitowoc System was $16,122,333. The Company received, from the four managed partnerships that comprise the Venture, general partner distributions totaling approximately $4,556,000 upon the closing of the sale of the Manitowoc System. Funding of the net purchase price of $11,566,000 was provided by borrowings under the Company's credit facilities. On August 31, 1997, the Company purchased from Jones Intercable Investors, L.P. (the "Partnership"), a managed partnership, the cable television system serving communities in and around Independence, Missouri (the "Independence System") for a purchase price of $171,213,667, which represented the average of three independent appraisals of the fair market value of the Independence System. The Company received a limited partner distribution totaling $25,721,000 from the sale by the Partnership of the Independence System because of the Company's equity interest in the Partnership, which reduced the Company's basis in the assets of the Independence System. The Partnership paid The Jones Group, Ltd., a wholly owned subsidiary of the Company, a $4,280,000 brokerage fee in connection with this transaction, which reduced the Company's basis in the assets of the Independence System. Funding of the net purchase price of $141,200,000 for the Independence System was provided by all of the net proceeds from the Company's Class A Common Stock offering discussed in Note 4 and borrowings from JCH II's credit facility. -7- Exchange of cable television system ----------------------------------- On April 15, 1997, the Company conveyed to an affiliate of Tele- Communications, Inc. the cable television systems serving areas in and around Evergreen, Idaho Springs and Jefferson County, Colorado in exchange for the cable television system serving areas in and around Annapolis, Maryland (the "Annapolis System") and cash in the amount of $2,500,000. The Company paid Financial Group a $695,250 fee upon completion of this exchange as compensation to it for acting as the Company's financial advisor in connection with this transaction. All fees paid to Financial Group by the Company are based upon 90% of the estimated commercial rate charged by unaffiliated financial advisors. The Annapolis System is now operated as part of the Company's Chesapeake Bay Group in the Virginia/Maryland cluster. Sales of Assets --------------- On April 25, 1997, the Company tendered all of its shares of Bell Cablemedia plc to Cable & Wireless Communications plc ("CWC") in exchange for 25,017,385 shares of CWC. During April and May 1997, the Company sold all of its shares of CWC for an aggregate sales price of $109,276,000. The Company recognized a pre-tax gain on this transaction of $44,563,000. Proceeds from the sale were used to reduce outstanding indebtedness under the Company's credit facilities. On October 16, 1997, the Company sold the cable television system serving areas in and around Walnut Valley, California for $33,493,000 to Century Communications Corp., an unaffiliated party. The Company will recognize a pre- tax gain of approximately $22,500,000 related to this sale in the fourth quarter of 1997. Proceeds from the sale were used to reduce outstanding indebtedness under the Company's credit facilities. The Company paid Financial Group a fee of $678,000 upon completion of the sale for acting as the Company's financial advisor in connection with this transaction. All fees paid to Financial Group by the Company are based upon 90% of the estimated commercial rate charged by unaffiliated financial advisors. The pro forma effect of the above-described 1997 transactions on the Company's results of operations for the nine months ended September 30, 1997 are presented in the following unaudited tabulation: For the nine months ended September 30, 1997: --------------------------------------------
As Reported Adjustments Pro Forma ----------- ----------- --------- Revenues $ 266,381 $ 22,298 $ 288,679 =========== =========== ========= Operating Income $ 10,590 $ (1,077) $ 9,513 =========== =========== ========= Net Loss $ (24,042) $ (51,619) $ (75,661) =========== =========== ========= Loss Per Share $ (.74) $ (2.32) =========== =========
-8- The pro forma effect of the above-described 1997 transactions as well as the acquisition of the cable television system serving Manassas, Virginia in January 1996, the acquisition of the cable television systems serving South Prince Georges County, Maryland and Reston, Virginia in February 1996, the acquisition of the cable television system serving Savannah, Georgia in April 1996, the sale of Galactic Radio, Inc. in June 1996, the sale of the assets of Jones Satellite Programming, Inc. in July 1996 and the sale of certain cable television systems owned by managed partnerships during 1996 and 1997 on the Company's results of operations for the nine months ended September 30, 1996 are presented in the following unaudited tabulation: For the nine months ended September 30, 1996: --------------------------------------------
As Reported Adjustments Pro Forma ----------- ----------- --------- Revenues $ 235,296 $ 48,086 $ 283,382 =========== =========== ========= Operating Income $ 18,552 $ (48,948) $ (30,396) =========== =========== ========= Net Loss $ (31,106) $ (69,219) $(100,325) =========== =========== ========= Loss Per Share $ (.99) $ (3.20) =========== =========
(3) On July 28, 1997, the Company entered into an agreement with Cable TV Fund 12-BCD Venture (the "Venture"), a venture comprised of three managed partnerships, to purchase the cable television system serving areas in and around Albuquerque, New Mexico (the "Albuquerque System") for $222,963,267, subject to customary closing adjustments. The purchase price represents the average of three independent appraisals of the fair market value of the Albuquerque System. Upon closing, subject to amending the Venture's current credit arrangements, the Company anticipates it will receive, from the three partnerships that comprise the Venture, general partner distributions totaling approximately $8,100,000, which will reduce the Company's basis in the assets of the Albuquerque System. Funding for this transaction is expected to be provided by JCH II's credit facility. The closing of this transaction, which is expected in the first quarter of 1998, is subject to a number of conditions including the approval of the holders of a majority of the limited partnership interests of each of the managed partnerships that comprise the Venture and the consents of governmental authorities and other third parties. (4) On August 26, 1997, the Company sold 9,200,000 shares of its Class A Common Stock to the public at a price of $10.50 per share. Net proceeds to the Company were $91,554,000. The proceeds were used to fund a portion of the purchase of the Independence System. (5) On March 18, 1997, the Company issued and sold $250,000,000 of its 8 7/8% Senior Notes due April 1, 2007. Proceeds from the sale of the Senior Notes were used to redeem the Company's $160 million 11.5% Subordinated Debentures (the "11.5% Debentures") due 2004 at 106.75% of par value on July 15, 1997 and for general corporate purposes. The Company recognized an extraordinary loss on early extinguishment of debt of approximately $13,500,000 in the third quarter of 1997 as a result of this redemption. Pending the redemption of the 11.5% Debentures, the Company applied the proceeds to reduce amounts outstanding under the Company's credit facilities. (6) On December 23, 1996, the Company redeemed 225 of its 380 shares of Jones Global Group, Inc. ("Global Group") in exchange for a $8,950,188 note receivable from Global Group. The note was repaid during the first quarter of 1997. As a result of this transaction, the Company now owns a 20% interest in Global Group. As a result of this transaction, the Company recognized a gain of $2,979,000 in the first quarter of 1997. -9- (7) Net income (loss) per share of Class A Common Stock and Common Stock is based on the weighted average number of shares outstanding during the periods. Common stock equivalents were not significant to the computation of primary earnings (loss) per share. (8) For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. No amounts were paid or received relating to income taxes during the nine months ended September 30, 1997 and 1996. Approximately $68,718,000 and $60,137,000 of interest expense was paid during the nine months ended September 30, 1997 and 1996, respectively. On April 25, 1997, the Company tendered its Bell Cablemedia plc shares in exchange for shares of CWC. No other material non-cash investing or financing transactions were recorded during the first nine months of 1997 and 1996. (9) Certain prior period amounts have been reclassified to conform to the current period presentation. -10- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL - ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS - ----------------------------------- The following discussion of the Company's financial condition and results of operations contains, in addition to historical information, forward-looking statements that are based upon certain assumptions and are subject to a number of risks and uncertainties. The Company's actual results may differ significantly from the results predicted in such forward-looking statements. FINANCIAL CONDITION The Company is engaged primarily in the cable television business, operating cable systems for itself and for its managed partnerships. The Company currently is the ninth largest cable television system operator in the United States, with owned and managed systems totaling approximately 1.4 million basic subscribers. As of September 30, 1997, on a pro forma basis for all completed and pending acquisitions and sales of cable systems, Company-owned systems served approximately 895,000 basic subscribers and systems held by Company-managed partnerships served approximately 493,000 basic subscribers. Key elements of the Company's operating strategy include increasing the number of owned subscribers clustered in attractive demographic areas and increasing penetration and revenues per subscriber by targeted marketing, superior customer service and the maintenance of high technical standards. Over the last several years, the Company has taken significant steps to simplify its corporate structure. This process has included the sale of cable television systems owned by certain managed partnerships to either the Company or to third parties and the divestiture of certain of the Company's non- strategic assets. As a result of this strategy, on a pro forma basis as of September 30, 1997, 64% of total subscribers would have been owned by the Company compared to 23% in June 1995. During this process, the Company has also made significant progress in clustering its owned subscribers in two primary groups of cable systems. The Company's Virginia/Maryland cluster, owned by JCH, is based primarily on geography. The Company's suburban cluster, owned by JCH II, is based on similar market and operating characteristics, rather than geography. These clusters represent approximately 90% of Company-owned subscribers. The Company believes that its clustering strategy should allow it to obtain both economies of scale and operating efficiencies, for example in areas such as marketing, administrative and capital expenditures. The Company intends to liquidate its managed partnerships as such partnerships achieve their investment objectives and as opportunities for sales of partnership cable television systems arise in the marketplace. In accordance with this strategy, the Company is marketing for sale many of the cable television systems owned by its managed partnerships. During the first nine months of 1997, six cable television systems serving 174,000 basic subscribers, including the Independence System and the Manitowoc System which were purchased by the Company, were sold by managed partnerships. In addition, five cable television systems serving 216,000 basic subscribers, including the Albuquerque System which is to be purchased by the Company, are under contract to be sold. The Company also intends to maintain and enhance the value of its current cable television systems through capital expenditures. Such expenditures will include, among others, cable television plant extensions and the upgrade and rebuild of certain systems. The Company also intends to institute new services as they are developed and become economically viable. In implementing the Company's acquisition strategy, the Company acquired the North Prince Georges County System in January 1997 and the Annapolis System in April 1997 because they are near other systems owned by the Company in the Washington, DC area. The Company purchased the Independence System in August 1997 because its operating characteristics are similar to the other systems in JCH II. In addition, the Company purchased the Manitowoc System in June 1997. The net effect of the acquisitions of such systems and the disposition of the Company's Colorado cable television systems, as well as internal growth, have increased the Company's owned basic subscriber base by approximately 196,000 basic subscribers since January 1, 1997 -11- to approximately 781,000 basic subscribers at September 30, 1997. Such transactions are described in detail in Note 2 of the Notes to Unaudited Consolidated Financial Statements. The North Prince Georges County System was purchased for $231,367,000. Funding was provided by borrowings available under JCH's revolving credit facility. The Annapolis System, together with $2,500,000 in cash, was acquired in exchange for the Colorado cable television systems owned by the Company. The Manitowoc System was purchased for a net purchase price of $11,556,000. Funding was provided by borrowings under the Company's credit facilities. The Independence System was purchased for net cash of $141,200,000. Funding was provided by the net proceeds from the Company's Class A Common Stock offering discussed below and borrowings from JCH II's credit facility. The Company has entered into an agreement to acquire the Albuquerque System for $222,963,267, because its operating characteristics are similar to the other systems in JCH II. Closing is expected late in the first quarter of 1998. Funding is expected to be provided by borrowings under JCH II's credit facility. This transaction is described in detail in Note 3 of the Notes to Unaudited Consolidated Financial Statements. Acquisitions of cable television systems, the development of new services and capital expenditures for system extensions and upgrades are subject to the availability of cash generated from operations, borrowings under the Company's credit facilities, debt and/or equity financing. There can be no assurance that the capital resources necessary to accomplish the Company's acquisition and development plans will be available on terms and conditions acceptable to the Company, or at all. From time to time, the Company makes loans to its managed partnerships, although it is not required to do so. As of September 30, 1997, the Company had advanced funds to various managed partnerships totaling approximately $5,867,000, an increase of approximately $1,871,000 over the amount advanced at December 31, 1996. These advances represent funds for capital expansion and improvements of properties owned by the Company's managed partnerships where additional credit sources were not then available to the partnerships. None of these advances are individually significant. These advances reduce the Company's available cash and its liquidity. The Company anticipates the repayment of these advances over time. The Company does not anticipate significant increases in the amount advanced to its managed partnerships during the remainder of 1997. These advances bear interest at rates equal to the Company's weighted average cost of borrowing. The Company purchased property, plant and equipment totaling approximately $89,475,000 during the first nine months of 1997. Of the capital expenditures, $71,593,000 are principally the result of the following: (a) the upgrade and rebuild of the cable plant in the Company's cable television systems in the Washington, DC area and (b) new extension projects, drop materials, converters and various maintenance projects in the Pima County, Arizona; Augusta, Georgia; and Washington, DC area systems. The remainder of the capital expenditures included $9,369,000 related to the development of a new customer care/billing system and $8,513,000 related to the development of telephone service in Maryland and Virginia. Estimated capital expenditures for the remainder of 1997 are approximately $15,500,000. Of these capital expenditures, approximately $ 14,550,000 will be for cable extensions, rebuilds and other enhancements in the cable television systems owned by the Company and $950,000 will be for the development of a customer care/billing system. Funding for such expenditures is expected to be provided by cash generated from operations and borrowings available under the Company's credit facilities, as discussed below. Sources of Funds ---------------- The Company's main sources of capital consist of cash generated from operations and borrowings available under two revolving credit facilities, one for JCH and one for JCH II. Each revolving credit facility has maximum available borrowings of $600 million. -12- The $600 million JCH revolving credit facility is a reducing revolving credit facility. The entire $600 million commitment is available through March 31, 1999, at which time the commitment will be reduced quarterly with a final maturity date of December 31, 2004. The balance outstanding on JCH's revolving credit facility at September 30, 1997 was $351,000,000. The $600 million JCH II Revolving Credit Facility consists of a $300 million reducing revolving credit facility and a $300 million 364 day revolving credit facility. The reducing revolving credit facility allows for borrowings through the final maturity date of December 31, 2005. The maximum amount available reduces quarterly beginning March 31, 2000 through the final maturity date of December 31, 2005. The 364 day revolving credit facility allows for borrowings through October 1998, at which time any outstanding borrowings convert to a term loan payable in semi-annual installments commencing June 30, 2001 with a final maturity date of December 31, 2005. The balance outstanding on the JCH II Revolving Credit Facility at September 30, 1997 was $134,000,000. This amount was borrowed under the reducing revolving credit facility. On August 26, 1997, the Company sold 9,200,000 shares of its Class A Common Stock to the public at a price of $10.50 per share. Net proceeds to the Company were $91,554,000. The proceeds were used to fund a portion of the purchase of the Independence System. During April and May 1997, the Company sold all of its 25,017,385 shares of CWC for an aggregate sales price of $109,276,000. Proceeds from the sale were used to reduce amounts outstanding under the Company's credit facilities. In March 1997, the Company issued and sold $250,000,000 of its 8 7/8% Senior Notes due April 1, 2007. Proceeds from the sale of the Senior Notes were used to redeem the Company's $160 million 11.5% Subordinated Debentures (the "11.5% Debentures") due 2004 at 106.75% of par value on July 15, 1997 and for general corporate purposes. Pending the redemption of the 11.5% Debentures, the Company used the proceeds from the 8 7/8% Senior Notes to reduce amounts outstanding under the Company's credit facilities. The Company, in its capacity as the general partner of its managed partnerships, may from time to time receive general partner distributions upon the sale of cable television systems owned by such partnerships. No such distributions were received during the nine months ended September 30, 1997. In addition, the Company through The Jones Group, Ltd., a wholly owned subsidiary, may receive brokerage fees upon the sale of the managed partnerships' cable television systems to third parties. During the nine months ended September 30, 1997, the Company received brokerage fees of $3,695,000, less expenses of $927,000. On October 16, 1997, the Company sold the cable television system serving areas in and around Walnut Valley, California for $33,493,000 to Century Communications Corp., an unaffiliated party. The Company will recognize a gain of approximately $22,500,000 related to this sale in the fourth quarter of 1997. Proceeds from the sale were used to reduce outstanding indebtedness under the Company's credit facilities. The Company paid Financial Group a fee of $678,000 upon completion of the sale for acting as the Company's financial advisor in connection with this transaction. All fees paid to Financial Group by the Company are based upon 90% of the estimated commercial rate charged by unaffiliated financial advisors. On December 23, 1996, the Company redeemed 225 of its 380 shares of Global Group in exchange for a $8,950,188 note receivable from Global Group. The note was repaid during the first quarter of 1997. As a result of this transaction, the Company recognized a gain of $2,979,000 in the first quarter of 1997. The Company has sufficient sources of capital available, consisting of cash generated from operations and available borrowings from its credit facilities, to fund its committed acquisition requirements and to meet its operational needs. -13- RESULTS OF OPERATIONS Revenues -------- The Company derives its revenues from four primary sources: subscriber fees from Company-owned cable television systems, management fees from managed partnerships, fees and distributions payable upon the sale of cable television properties owned by managed partnerships and revenues from a non-cable television subsidiary. Total revenues for the three months ended September 30, 1997 totaled $91,945,000, an increase of $16,802,000, or 22%, over the total of $75,143,000 for the three months ended September 30, 1996. The increase in revenue between the three month periods is due primarily to the acquisition of the North Prince Georges County System on January 31, 1997, the acquisition of the Manitowoc System on June 30, 1997 and the acquisition of the Independence System on August 31, 1997. The increase in revenues due to these acquisitions was offset, in part, by the sale of two non-cable subsidiaries in 1996 and a decrease in management fees due to the sale of certain cable systems owned by managed partnerships. On a pro forma basis, adjusting for all of the foregoing transactions, total revenues would have increased $6,727,000, or 8%. Total revenues for the nine months ended September 30, 1997 totaled $266,381,000, an increase of $31,085,000, or 13%, over the total of $235,296,000 for the nine months ended September 30, 1996. This increase reflects the Company's acquisition of the following: the cable television system serving Manassas, Virginia on January 10, 1996; the cable television system serving South Prince Georges County, Maryland on February 29, 1996; the cable television system serving Reston, Virginia on February 29, 1996; the cable television system serving Savannah, Georgia on April 12, 1996; the North Prince Georges County System, on January 31, 1997; the Annapolis System on April 15, 1997; the Manitowoc System on June 30, 1997 and the Independence System on August 31, 1997 (the "Acquired Systems"). The increase in revenues would have been greater but for the following: (i) the receipt of a general partner distribution and brokerage fee totaling $15,483,000 in 1996 compared to brokerage fees of $2,768,000 in 1997; (ii) the reduction in 1997 non-cable revenue due to the sale of two non-cable subsidiaries in 1996; and (iii) a decrease in management fees due to the sale of certain cable television systems owned by managed partnerships. Adjusting for the effect of the Acquired Systems, the second quarter 1996 general partner distribution and brokerage fee, the sale of the non-cable subsidiaries and the decrease in management fees (the "Pro Forma Adjustments"), total revenues would have increased $20,358,000, or 8%. The Company's subscriber service fees increased $20,491,000, or 32%, to $85,201,000 for the three months ended September 30, 1997 from $64,710,000 for the three months ended September 30, 1996. Subscriber service fees for the nine months ended September 30 increased $62,661,000, or 35%, to $243,513,000 in 1997 from $180,852,000 in 1996. The acquisition of the Acquired Systems accounted for $14,106,000, or 69%, and $43,225,000, or 69%, respectively, of the increases in subscriber service fees for the three and nine month periods. With the Pro Forma Adjustments, subscriber service fees would have increased $6,385,000, or 8%, and $19,436,000, or 9%, respectively, for the three and nine month periods ended September 30, 1997. These increases were due primarily to increases in the number of basic subscribers and basic service rate adjustments in the cable television systems owned by the Company. Disregarding the effect of acquisitions during the first nine months of 1997, basic subscribers increased 14,385, an annualized increase of 3.5%. The Company receives management fees generally equal to 5% of the gross operating revenues of its managed partnerships. Management fees totaled $4,201,000 for the three months ended September 30, 1997, a decrease of $539,000, or 11%, over the total of $4,740,000 reported for the three months ended September 30, 1996. For the nine months ended September 30, 1997, management fees totaled $13,236,000 compared to $14,594,000 in 1996, a decrease of $1,358,000, or 9%. These decreases in management fees were the result of the sale of certain cable television systems owned by managed partnerships in 1996 and 1997. Disregarding the -14- effect of the sale of such cable television systems, management fees would have increased $182,000, or 5%, and $663,000, or 5%, respectively, for the three and nine months ended September 30, 1997. In its capacity as the general partner of its managed partnerships, the Company may receive general partner distributions upon the sale of cable television properties owned by such partnerships. The Company received a distribution of $14,000,000 upon the sale of Cable TV Fund 11-B's Lancaster, New York System in April 1996. No such revenue was recognized during the three and nine month periods ended September 30, 1997. In addition, the Company through The Jones Group, Ltd. may earn brokerage fees upon the sale of managed cable television systems to third parties. The Company earned no brokerage fees during the three months ended September 30, 1997. The Company earned brokerage fees of $3,695,000, less expenses of $927,000, during the nine months ended September 30, 1997. A brokerage fee of $2,100,000, less expenses of $617,000, was earned in April 1996. The Company also operates a non-cable subsidiary. Non-cable revenue totaled $2,543,000 for the three months ended September 30, 1997, a decrease of $3,150,000, or 55%, over the $5,693,000 recorded for the three months ended September 30, 1996. For the nine months ended September 30, 1997, non-cable revenue totaled $6,864,000, compared to $24,367,000 in 1996, a decrease of $17,503,000, or 72%. These decreases were due primarily to the sale of Jones Galactic Radio, Inc. ("GRI") and the assets of Jones Satellite Programming, Inc. ("JSP") in June 1996 and July 1996, respectively. Costs and Expenses ------------------ Operating, general and administrative expenses consist primarily of costs associated with the operation and administration of Company-owned cable television systems, the administration of managed partnerships and the operation and administration of the non-cable subsidiaries . The Company is reimbursed by its managed partnerships for costs associated with the administration of the managed partnerships. The principal cost components are salaries paid to corporate and system personnel, programming expenses, consumer marketing expenses, professional fees, subscriber billing costs, data processing costs, rent for leased facilities and cable system maintenance expenses. Cable operating expenses increased $10,662,000, or 32%, to $44,424,000 for the three months ended September 30, 1997 from $33,762,000 in 1996. For the nine months ended September 30, cable operating expenses increased $31,828,000, or 33%, to $127,170,000 in 1997 from $95,342,000 in 1996. The acquisition of the Acquired Systems accounted for $8,022,000, or 75%, and $23,193,000, or 73%, respectively, of the increases for the three and nine month periods. With the Pro Forma Adjustments, cable operating expenses would have increased $2,640,000, or 6%, and $8,635,000, or 7%, respectively, for the three and nine months ended September 30, 1997. These increases were due primarily to increases in basic and tier programming costs. Cable general and administrative expenses increased $462,000, or 11%, to $4,697,000 for the three months ended September 30, 1997 from $4,235,000 in 1996. For the nine months ended September 30, cable general and administrative expenses increased $2,616,000, or 22%, to $14,780,000 in 1997 from $12,164,000 in 1996. As the Company acquires cable television systems on its own behalf and sells cable television systems owned by managed partnerships, and thereby transitions from a management company to an operating company, the Company's proportion of total general and administrative expenses will increase. With the Pro Forma Adjustments, cable general and administrative expenses would have decreased $478,000, or 9%, and $658,000, or 4%, respectively, for the three and nine month periods ended September 30, 1997. These decreases are due to effective cost controls relating to general and administrative expenses. Non-cable operating, general and administrative expenses decreased $3,190,000, or 55%, to $2,567,000 for the three months ended September 30, 1997 from $5,757,000 in 1996. For the nine months ended September 30, non-cable operating, general and administrative expenses decreased $17,285,000, or 70%, to -15- $7,261,000 in 1997 from $24,546,000 in 1996. These decreases were due primarily to the sale of GRI and the assets of JSP. Depreciation and amortization increased $5,493,000, or 18%, to $36,147,000 for the three months ended September 30, 1997 from $30,654,000 in 1996. For the nine months ended September 30, depreciation and amortization increased $21,888,000, or 26%, to $106,580,000 in 1997 from $84,692,000 in 1996. Depreciation and amortization relating to the Acquired Systems was primarily responsible for these increases. Operating Income ---------------- Operating income increased $3,375,000 to $4,110,000 for the three months ended September 30, 1997 from $735,000 in 1996. This increase was due to the acquisition of the Acquired Systems. For the nine months ended September 30, operating income decreased $7,962,000, or 43%, to $10,590,000 in 1997 from $18,552,000 in 1996. This decrease was due primarily to the decrease in brokerage fee and distribution revenue between periods. The cable television industry generally measures the performance of a cable television company in terms of cash flow or operating income before depreciation and amortization. This measure is not intended to be a substitute or improvement upon the items disclosed on the financial statements, rather it is included because it is an industry standard. Operating income before depreciation and amortization increased $8,868,000, or 28%, to $40,257,000 for the three months ended September 30, 1997 from $31,389,000 in 1996. For the nine months ended September 30, operating income before depreciation and amortization increased $13,926,000, or 13%, to $117,170,000 in 1997 from $103,244,000 in 1996. With the Pro Forma Adjustments, operating income before depreciation and amortization would have increased $4,182,000, or 12%, and $12,297,000, or 12%, respectively for the three and nine month periods ended September 30, 1997. Other Income (Expense) ---------------------- Interest expense increased $3,985,000, or 23%, to $21,605,000 for the three months ended September 30, 1997 from $17,620,000 in 1996. For the nine months ended September 30, interest expense increased $15,120,000, or 30%, to $65,308,000 in 1997 from $50,188,000 in 1996. These increases were due to higher outstanding balances on interest bearing obligations. Borrowings were used to fund the acquisition of the Acquired Systems. Equity in losses of affiliated entities decreased $886,000, or 52%, to $809,000 for the three months ended September 30, 1997 from $1,695,000 in 1996. For the nine month periods, equity in losses of affiliated entities decreased $141,000, or 4%, to $3,562,000 in 1997 from $3,703,000 in 1996. These decreases were due primarily to a reduction in the recognition of losses of Jones Customer Service Management, LLC. The Company recognized gains on the sale of assets of $1,854,000 in the third quarter of 1997 due primarily to insurance and sale proceeds from the Company's aircraft. In addition, the Company recognized a gain of $44,563,000 on the sale of its 25,017,385 CWC shares in the second quarter of 1997 and a gain of $2,979,000 on the redemption of its Global Group shares in the first quarter of 1997. The Company recognized a gain of $2,873,000 on the sale of the assets of JSP in the third quarter of 1996. Interest income decreased $281,000, or 49%, to $292,000 for the three months ended September 30, 1997 from $573,000 in 1996. For the nine months ended September 30, interest income decreased $1,970,000, or 64%, to $1,095,000 in 1997 from $3,065,000 in 1996. These decreases were due to a reduction in receivables from managed partnerships. -16- The Company recognized a loss on early extinguishment of debt of $13,459,000 in the third quarter of 1997 related to the redemption of the 11.5% Debentures. No similar losses were recorded in 1996. Net loss increased $13,547,000, or 79%, to $30,755,000 for the three months ended September 30, 1997 for $17,208,000 in 1996. This increase is due primarily to the loss recognized on the redemption of the 11.5% Debentures. Net loss decreased $7,064,000, or 23%, to $24,042,000 for the nine months ended September 30, from $31,106,000 in 1996 due primarily to the gains on sales recognized in 1997. The Company anticipates the continued recognition of operating income prior to depreciation and amortization charges, but net losses resulting from depreciation, amortization and interest expenses are expected to occur in the future. To the extent the Company recognizes general partner distributions from its managed partnerships and/or gains on the sale of Company-owned systems in the future, such losses may not occur; however, there is no assurance as to the timing or recognition of these distributions or sales. -17- PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. a) Exhibits 15) Letter Regarding Unaudited Interim Financial Statements. 23) Accountants' Review letter, dated November 3, 1997. 27) Financial Data Schedule b) Reports on Form 8-K Report on Form 8-K dated June 30, 1997, reported that on June 30, 1997 the Company purchased the Manitowoc System. Report on Form 8-K dated July 15, 1997, reported that on July 15, 1997 the Company redeemed its 11.5% debentures. Report on Form 8-K dated August 1, 1997 to file the Purchase and Sale Agreements, the historical financial statements and the pro forma financial statements relating to the Company's purchase of the Independence System and the Albuquerque System. Report on Form 8-K dated August 1, 1997 to file the consents to incorporation by reference of previously filed historical financial statements into the Company's registration statement by Arthur Andersen LLP and Ernst & Young, LLP. Report on Form 8-K dated August 20, 1997, reported that the Company had agreed to sell 8,000,000 shares of Class A Common Stock pursuant to its effective registration statement. -18- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JONES INTERCABLE, INC. /S/Kevin P. Coyle ----------------------------------- Kevin P. Coyle (Group Vice President/Finance) Dated: November 6, 1997 -19- EX-15 2 LETTER REGARDING UNAUDITED INTERIM FIN STATEMENTS Exhibit 15 November 3, 1997 Jones Intercable, Inc. and Subsidiaries: We are aware that Jones Intercable, Inc. has incorporated by reference in its Registration Statements on Form S-8, File Nos. 33-3087, 33-25577, 33-52813, and 33-54596, and on Form S-3, File Nos. 33-62537, and 33-62539 its Form 10-Q for the quarter ended September 30, 1997, which includes our report dated November 3, 1997 covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933, that report is not considered a part of the registration statements or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Securities Act of 1933. Very truly yours, ARTHUR ANDERSEN LLP EX-23 3 ACCOUNTANTS' REVIEW LETTER, DATED NOV. 3, 1997 Exhibit 23 REVIEW REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------------- To the Board of Directors and Shareholders of Jones Intercable, Inc.: We have made a review of the accompanying condensed consolidated balance sheet of JONES INTERCABLE, INC. (a Colorado corporation) and subsidiaries as of September 30, 1997, and the related condensed consolidated statements of operations and cash flows for the three and nine month periods ended September 30, 1997 and 1996. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists primarily of applying analytical review procedures to the financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Jones Intercable, Inc., and subsidiaries as of December 31, 1996 (not presented herein), and, in our report dated February 14, 1997, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 1997, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. ARTHUR ANDERSEN LLP Denver, Colorado November 3, 1997 EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 4,590 0 21,511 1,935 0 0 741,648 (209,246) 1,390,983 96,633 1,038,160 0 0 406 255,784 1,390,983 0 266,381 0 266,381 211,656 0 65,308 (10,583) 0 (10,583) 0 (13,459) 0 (24,042) (.74) 0
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