-----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, Ai9RVcMTikVS7G418I0oZFDDtfb7li5c8mj7YrYICQuNnArqBpMCsUsrbI4FjreM 9VHfVGRUng5AFC6Rss3vmg== 0000927356-98-000297.txt : 19980312 0000927356-98-000297.hdr.sgml : 19980312 ACCESSION NUMBER: 0000927356-98-000297 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980311 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-K SEC ACT: SEC FILE NUMBER: 001-09953 FILM NUMBER: 98563661 BUSINESS ADDRESS: STREET 1: 9697 EAST MINERAL AVENUE CITY: ENGLEWOOD STATE: CO ZIP: 80112 BUSINESS PHONE: 3037923111 MAIL ADDRESS: STREET 1: 9697 EAST MINERAL AVENUE CITY: ENGLEWOOD STATE: CO ZIP: 80112 10-K 1 FORM 10-K FORM 10-K 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) OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the year ended December 31, 1997 Commission file number: 1-9953 JONES INTERCABLE, INC. ---------------------- (Exact name of registrant as specified in its charter) COLORADO 84-0613514 -------- ---------- (State of Organization) (IRS Employer Identification No.) P.O. Box 3309, Englewood, Colorado 80155-3309 --------------------------------------------- (Address of principal executive office and Zip Code) (303) 792-3111 -------------- (Registrant's telephone no. including area code) Securities registered pursuant to Section 12(g) of the Act: ---------------------------------------------------------- Common Stock, $.01 par value Class A Common Stock, $.01 par value Indicate by check mark whether the registrant, (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Aggregate market value as of February 20, 1998 of the voting stock held by non- affiliates: Common Stock $34,811,319 Class A Common Stock $341,631,413 Shares outstanding of each of the registrant's classes of common stock as of February 20, 1998: Common Stock: 5,113,021 Class A Common Stock: 35,578,398 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ((S)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. JONES INTERCABLE, INC. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 TABLE OF CONTENTS Page No. -------- PART I...................................................................... 1 ITEM 1. BUSINESS........................................................... 1 The Company........................................................... 1 Principal Shareholders of the Company................................. 2 The Cable Television Industry......................................... 3 System Operations.................................................. 3 Programming........................................................ 4 System Revenues.................................................... 4 The Company's Cable Television Business............................... 5 The Company's Other Businesses and Investments........................10 Acquisitions of Cable Television Systems in 1997......................10 Exchange of Cable Television Systems in 1997..........................11 Proposed Acquisitions of Cable Television Systems in 1998.............11 Disposition of Cable Television System in 1997........................12 Sale of Investment in Cable & Wireless Communications plc.............13 Public Debt and Equity Offerings in 1997..............................13 The Company's Credit Facilities.......................................13 Cable Television Franchises...........................................14 Competition...........................................................14 Broadcast Television...............................................14 Traditional Overbuild..............................................15 DBS................................................................15 Telephone and Utility Companies....................................15 Private Cable......................................................16 MMDS...............................................................16 Regulation and Legislation............................................17 Cable Rate Regulation..............................................17 Cable Entry Into Telecommunications................................18 Telephone Company Entry Into Cable Television......................19 Electric Utility Entry Into Telecommunications/Cable Television....19 Additional Ownership Restrictions..................................19 Must Carry/Retransmission Consent..................................20 Access Channels....................................................20 Access to Programming..............................................20 Inside Wiring......................................................21 i Other FCC Regulations...............................................21 Internet Access.....................................................21 Copyright...........................................................21 State and Local Regulation..........................................22 Risk Factors...........................................................22 ITEM 2. PROPERTIES..........................................................23 ITEM 3. LEGAL PROCEEDINGS...................................................26 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................................................28 PART II......................................................................29 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.........................................29 ITEM 6. SELECTED FINANCIAL DATA.............................................32 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........................................................33 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................................41 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..........................................................73 PART III.....................................................................73 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..........................................................73 ITEM 11. EXECUTIVE COMPENSATION..............................................79 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT....................................82 ITEM 13. CERTAIN TRANSACTIONS................................................86 PART IV......................................................................91 ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K....................................91 ii Certain information contained in this Form 10-K Report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this Form 10-K Report that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future, including such matters as changes in the cable television industry, the Company's acquisition and clustering strategies, capital expenditures, the Company's operating strategies, the liquidation of the Company's managed partnerships, the development of new services and technologies, particularly those in the telecommunications area, the effects of competition, governmental regulation policies, the Company's expansion plans and other such matters, are forward-looking statements. These forward-looking statements are based upon certain assumptions and are subject to a number of risks and uncertainties. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors. PART I ITEM 1. BUSINESS ----------------- THE COMPANY - ----------- Jones Intercable, Inc. (the "Company") is a Colorado corporation organized in 1970. The Company is primarily engaged in the cable television business. The majority of the Company's cable television systems are owned indirectly by the Company through the Company's wholly owned subsidiaries, Jones Cable Holdings, Inc. ("JCH") and Jones Cable Holdings II, Inc. ("JCH II"). In addition, the Company operates cable television systems for its managed partnerships. See Item 1, The Company's Cable Television Business. The Company has a subsidiary engaged in the cable television system brokerage business and a subsidiary that manufacturers and markets data encryption products. The Company also has minority equity interests in affiliated companies that provide educational programming, products and services. See Item 1, The Company's Other Businesses and Investments. At December 31, 1997, the Company had a total of approximately 3,513 employees. The executive offices of the Company are located at 9697 E. Mineral Avenue, Englewood, Colorado 80112, and its telephone number is (303) 792-3111. 1 PRINCIPAL SHAREHOLDERS OF THE COMPANY - ------------------------------------- Jones International, Ltd. ("International") beneficially owns approximately 48% of the Common Stock of the Company and approximately 6% of the Class A Common Stock of the Company. Glenn R. Jones, the Chairman of the Board of Directors and Chief Executive Officer of the Company, personally owns approximately 9% of the Company's Common Stock and approximately 1% of the Company's Class A Common Stock. Because of his 100% ownership of International, Mr. Jones is deemed to be the beneficial owner of all shares of the Company owned by International, and his direct and indirect stock ownership gives him voting power over approximately 37% of votes to be cast by all shareholders of the Company on matters not requiring a class vote. BCI Telecom Holding Inc. ("BTH") owns approximately 36% of the Company's Class A Common Stock and, through such ownership, BTH has an approximate 31% economic interest in the Company. Mr. Jones has the right to designate seven members of the Board of Directors, BTH has the right to designate three members of the Board of Directors and three members of the Board of Directors are jointly designated by Mr. Jones and BTH. See Item 5, Market for Registrant's Common Equity and Related Stockholder Matters, Item 10, Directors and Executive Officers of the Registrant and Item 12, Security Ownership of Certain Beneficial Owners, Directors and Management. In addition, BTH holds options to purchase 2,878,151 shares of Common Stock of the Company from International, Glenn R. Jones and certain of their affiliates which, if and when exercised, would enable BTH to elect a majority of the members of the Board of Directors of the Company. Except in limited circumstances, such options will only be exercisable during the 12-month period following December 20, 2001. Pursuant to the terms of the shareholders agreement dated as of December 20, 1994 among Glenn R. Jones, International, BTH and the Company (the "Shareholders Agreement"), International and BTH, the principal shareholders of the Company, have certain rights and obligations with respect to certain transactions proposed by or otherwise affecting the Company. The Shareholders Agreement grants BTH certain significant consent rights. Notwithstanding such rights, the Company can acquire systems from its managed partnerships and can sell, buy or make investments in other cable television systems in amounts of $50,000,000 or less, up to an aggregate of $250,000,000, without BTH's consent. The Company may not, without the prior written consent of BTH, acquire or sell any cable television system other than as described above and may not incur debt if the resulting debt to cash flow ratio of the Company would exceed 7:1. In addition, pursuant to the terms of the Shareholders Agreement, the principal shareholders and/or certain of their affiliates have certain rights to distribute programming on the Company's cable television systems and the first opportunity to supply certain services and equipment to the Company (on competitive terms and conditions) and the Company has agreed to regularly advise and consult with BTH with respect to the Company's strategic, operating and financial plans and other matters. See Item 13, Certain Transactions. Because of these and other rights granted to the Company's principal shareholders under the Shareholders Agreement, certain actions that management of the Company might desire to take could be dependent upon the agreement and cooperation of the Company's principal shareholders. From time to time, disagreements concerning the Company's strategic plan, acquisitions and other matters have occurred between the principal shareholders. These disagreements have been reflected, in some cases, in divided votes by the Company's Board of Directors and, in other cases, in the Company being unable to obtain BTH's 2 consent under the Shareholders Agreement. Should similar disagreements among the Company's principal shareholders occur in the future, management's ability to implement its strategic plan or take other actions could be frustrated, delayed or prevented. In February 1998, BTH filed a lawsuit against the Company, International and Mr. Jones alleging among other things breaches of the Shareholders Agreement. See Item 3, Legal Proceedings. THE CABLE TELEVISION INDUSTRY - ----------------------------- The cable television industry, which started as a technical solution to the problem of delivering television signals to remote areas of rural America, has now become an entertainment staple in a majority of American homes. It is a dynamic, evolving and ever more complex industry. Cable penetration, or the percentage of U.S. television households that subscribe to cable television, now stands at approximately 67%. A cable television system is a facility that receives satellite, broadcast and FM radio signals by means of high antennas, a microwave relay service or earth stations. It then amplifies the signals and distributes them by coaxial and/or fiber-optic cable to the premises of its subscribers, who pay a fee for the service. A cable television system may also originate its own programming for distribution through its cable plant. The physical plant of a cable television system consists of four principal operating components. The first, known as the "headend" facility, receives television and radio signals with microwave relay systems, special antennas and satellite earth stations. The second component, the distribution network, originating at the headend and extending throughout the system, consists of coaxial and/or fiber-optic cables placed on poles or buried underground, and associated electronic equipment. The third component of the system is a "drop cable" that extends from the distribution network into the subscriber's home and connects to the subscriber's television set. The fourth component, a converter, is the home terminal device often necessary to expand channel capacity and to deliver pay-per-view and other premium services. The cable television industry is undergoing significant change. The cable television business is evolving from a traditional coaxial network delivering only video entertainment to a more sophisticated, digital platform environment where cable systems may deliver traditional programming as well as other services, including data, telephone and expanded educational and entertainment services on an interactive basis. See Item 1, The Company's Cable Television Business. System Operations. The operation of cable television systems is generally ----------------- conducted pursuant to the terms of a franchise or similar license granted by the local governing body for the area to be served or by a state agency. Franchises generally are granted on a non-exclusive basis for a period of 5 to 15 years. Joint use or pole rental agreements are normally entered into with electric and/or telephone utilities serving a cable television system's area and annual rentals generally range from $5 to $15 for each pole used. These rates may increase in the future. See Item 1, Cable Television Franchises; Item 1, Competition; and Item 1, Regulation and Legislation. 3 PROGRAMMING. Cable television systems generally offer various types of ----------- programming, which include basic service, tier service, premium services, pay- per-view programs and packages including several of these services at combined rates. Basic cable television service usually consists of signals of all national television networks broadcast by their local affiliates, various independent and educational television stations (both VHF and UHF) and certain signals received from satellites, and also usually includes programs originated locally by the system, which may consist of music, news, weather reports, stock market and financial information and live or videotaped programs of a public service or entertainment nature. FM radio signals are also frequently distributed to subscribers as part of the basic service. The Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") contains signal carriage requirements. Rules promulgated under the 1992 Cable Act allow each commercial television broadcast station to elect every three years whether to require the cable systems in its area to carry its signal or to require the cable systems to negotiate with the station for "retransmission consent" to carry the station. If a local commercial broadcast television station requires a cable system to negotiate with the station for retransmission consent, and the cable system is unable to obtain retransmission consent, the cable system is not permitted to continue carriage of such station. See Item 1, Regulation and Legislation. To date, no broadcast stations that elected retransmission consent in areas served by any of the Company's cable television systems have withheld consent to the retransmission of their signals by a Company-owned cable television system. In most systems, tier services are also offered on an optional basis to subscribers. These channels generally include most of the cable networks such as Entertainment and Sports Programming Network (ESPN), Cable News Network (CNN), Turner Network Television (TNT), The Family Channel, The Discovery Channel and others. Systems also offer a package that includes the basic service channels and the tier services. Cable television systems offer premium services to their subscribers, which consist of feature films, sporting events and other special features that are presented without commercial interruption. The cable television operator buys premium programming from suppliers such as HBO, Showtime, Cinemax, Encore and others at a cost based on the number of subscribers served by the cable operator. The per service cost of premium service programming usually is significantly more expensive for the system operator than the basic service or tier service programming, and consequently the system operator prices premium service separately when sold to subscribers. Cable television systems also offer to subscribers pay-per-view programming. Pay-per-view is a service that allows subscribers to receive single programs, frequently consisting of recently released motion pictures and major sporting events, and to pay for such service on a program-by-program basis. System Revenues. Monthly service fees for basic, tier and premium --------------- services constitute the major source of revenue for cable television systems. A subscriber to a cable television system generally pays an initial connection charge and a fixed monthly fee for the cable programming services received. The amount of the monthly service fee varies from one area to another, and 4 historically has been a function, in part, of the number of channels and services included in the service package and the cost of such services to the cable television system operator. In most instances, a separate monthly fee for each premium service and certain other specific programming is charged to subscribers, with discounts generally available to subscribers receiving multiple premium services. Cable television operators have been able to generate additional revenue through the sale of commercial spots and channel space to advertisers. As with other forms of advertising, the cable television operator receives a fee from the advertisers that is based on the programming service on which the advertisements appear, the volume of advertising and the time of the day at which it is broadcast. Advertising, as well as fees generated by home shopping and pay-per-view, represent additional sources of revenue for cable television systems. These services are not regulated under the 1992 Cable Act. The 1992 Cable Act mandated a greater degree of regulation of the cable television industry, including rate regulation. Under the 1992 Cable Act's definition of "effective competition," nearly all cable systems in the United States, including almost all of those owned and managed by the Company, are subject to rate regulation with respect to basic cable services. In addition, the FCC is permitted to regulate rates for non-basic service tiers other than premium services in response to local complaints. Rate regulations adopted by the FCC provide for a benchmark and price cap system that is used to regulate basic and non-basic service rates, and cost-of-service showings are available to cable operators to allow them to justify rates above benchmark levels. The 1996 Telecommunications Act (the "1996 Telecom Act") eliminated rate regulation for small cable operators. The 1996 Telecom Act sunsets FCC rate regulation of cable programming service tiers for all cable television systems regardless of size on March 31, 1999. See Item 1, Regulation and Legislation. THE COMPANY'S CABLE TELEVISION BUSINESS - --------------------------------------- The Company is engaged primarily in the cable television business, operating cable television systems for itself and for its managed partnerships. The Company currently is one of the largest cable television system operators in the United States, with owned and managed systems totaling 1.46 million basic subscribers. 5 The following table shows the cable television systems owned or managed by the Company as of December 31, 1997: CABLE SYSTEMS OWNED BY THE COMPANY ---------------------------------- Alexandria VA Independence MO Pima County AZ Augusta GA Manitowoc WI Prince Georges County MD Celebration FL Oxnard CA Prince William County VA Chesapeake Bay Group MD Panama City Beach FL Savannah GA CABLE SYSTEMS OWNED BY MANAGED PARTNERSHIPS ------------------------------------------- Albuquerque NM (1) Grants NM Roseville CA Aurora Cluster IL Lake Almanor CA Socorro NM Barrington Cluster IL Lake County IL So. Sioux City NE Broward County FL (2) Littlerock CA (1) So. Suburban Cluster IL Buffalo MN Myrtle Creek & Communities OR Surfside Beach SC (2) Calvert County MD Naperville IL Three Rivers MI (2) Clearlake CA (3) NE Indiana & Communities IN (2) Wheaton IL Ft. Myers FL (2) Palmdale CA (1) Winnemucca NV Glencoe/Owatonna MN (2) Park Forest IL Yorba Linda CA (2) __________________ (1) Sale of system to the Company pending as of March 1998 (2) Sale of system to third party pending as of March 1998 (3) System sold to third party in January 1998 As of December 31, 1997, Company-owned systems served approximately 765,100 basic subscribers and systems owned by Company-managed partnerships served approximately 697,800 basic subscribers. As indicated in the table above, a significant number of cable television systems owned by Company-managed partnerships are scheduled to be sold in 1998, including the Albuquerque, New Mexico system, the Palmdale, California system and the Littlerock, California system which are to be acquired by the Company. As of December 31, 1997, on a pro forma basis for the acquisitions of cable systems by the Company and sales of cable systems by managed partnerships pending as of March 1998, Company-owned systems served approximately 950,000 basic subscribers and systems owned by Company-managed partnerships served approximately 327,000 basic subscribers. The Company intends to liquidate its 18 remaining 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 most of the cable television systems owned by its managed partnerships. During 1997, the Company liquidated five of its managed partnerships by arranging on behalf of such partnerships for the sale of all of the remaining assets of such partnerships to the Company. See Item 1, Acquisitions of Cable Television Systems in 1997. As of the first quarter of 1998, the Company is in the process of liquidating seven more of its managed partnerships by arranging on behalf of such partnerships for the 6 sale of all of the remaining assets of such partnerships either to the Company or to unaffiliated entities. These seven liquidations are expected to be accomplished before the end of 1998. See Item 1, Proposed Acquisitions of Cable Television Systems in 1998. In addition, several other of the Company's managed partnerships recently have sold or are in the process of selling cable systems to unaffiliated entities as intermediate steps toward the eventual liquidation of such managed partnerships. Over the last several years, the Company has taken significant steps to simplify its corporate structure. This process has included the above- referenced sales of cable television systems owned by certain managed partnerships either to the Company or to unaffiliated entities and the divestiture of certain of the Company's non-strategic assets. As a result of this strategy, on a pro forma basis for the cable system acquisitions by the Company and cable system sales by the managed partnerships pending as of March 1998, 74% of total subscribers served by the Company would have been owned by the Company as of December 31, 1997, compared to 23% in June 1995. See Item 1, Proposed Acquisitions of Cable Television Systems in 1998. During this process of simplifying its corporate structure, the Company has also made progress in clustering its owned subscribers in two primary groups of cable systems. The Company's Virginia/Maryland cluster is based primarily on geography. The Company's suburban cluster is based on similar market and operating characteristics, rather than geography. These clusters represent 93% of Company-owned subscribers. The Company believes that its clustering strategy should allow it to obtain both economies of scale and operating efficiencies. The Virginia/Maryland cluster is comprised of cable systems serving approximately 405,000 basic subscribers in communities in Maryland and Virginia surrounding Washington, D.C. On a pro forma basis for the Company's pending cable system acquisitions, the Company's suburban cluster is comprised of seven cable systems serving approximately 488,500 basic subscribers. The suburban cluster includes the Savannah and Augusta, Georgia systems, the Pima County, Arizona system and the Independence, Missouri system, and it will include the Albuquerque, New Mexico system that is scheduled to be acquired by the Company in the second quarter of 1998 and the Palmdale, California system and the Littlerock, California system that are scheduled to be acquired by the Company in the third quarter of 1998. See Item 1, Proposed Acquisitions of Cable Television Systems in 1998. The Company also intends to maintain and enhance the value of its 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. Key elements of the Company's operating strategy include increasing basic penetration levels and revenue per subscriber through targeted marketing, superior customer service, maintenance of high technical standards and growth of advertising sales and pay-per-view revenues. The Company has deployed fiber optic cable wherever practical in its current rebuild and upgrade projects, which improves system reliability and picture quality, increases channel capacity and provides the potential for new business opportunities. 7 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 revolving 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. 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. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. Within the past several years, the cable television industry has seen much change. The cable television business is evolving from a traditional coaxial network delivering only video entertainment to a more sophisticated, digital platform environment where cable systems may be capable of delivering traditional programming as well as other services, including data, telephone and expanded educational and entertainment services on an interactive basis. As this convergence of various technologies progresses, cable television companies will reevaluate their system architecture and upgrade their cable plants in order to take advantage of new opportunities. As described above, in response to these changes the Company has decided to cluster its systems on the basis of operating characteristics and/or geographic areas to achieve economies of scale and reasonable returns on the investments made. The Company is also being affected by the entry into the marketplace of local telephone companies that, as a result of the passage of recent legislation, now have the ability to provide telephone and video services in direct competition with the Company. See Item 1, Regulation and Legislation. This direct competition with local telephone companies is an additional consideration in the ongoing evaluation by the Company of its position in this changing marketplace. See Item 1, Competition. The Company intends, where possible, to pursue these new technological opportunities as they evolve. With respect to the systems owned by the Company and its subsidiaries, the Company earns revenues through monthly service rates and related charges to cable television subscribers. The Company's subscribers have the option to choose a limited basic service consisting generally of broadcast stations and a few cable networks ("basic" service) or a package of services consisting of basic service and tier services ("basic plus" service). The basic plus service generally consists of most of the cable networks, including ESPN, USA Network, CNN, Discovery, Lifetime and others. See Item 1, The Cable Television Industry, Programming. Monthly service rates include fees for basic service, basic plus service and premium services. At December 31, 1997, monthly basic service rates ranged from $6.95 to $17.90 for residential subscribers, monthly basic plus service rates ranged from $22.61 to $29.13 for residential subscribers, and monthly premium services ranged from $6.00 to $12.40 per premium service. In addition, the Company earns revenues from pay-per-view programs and advertising fees. Pay-per-view programs, which usually are either unique sporting events or recently released movies, are available on many of the Company's cable television systems. Subscribers are permitted to choose individual movies for a set fee ranging from $1.99 to $6.95 per movie and individual special events 8 for a set fee ranging from $3.95 to $45.95 per event. Related charges may include a nonrecurring installation fee that ranges from $1.99 to $54.95; however, from time to time the Company has followed the common industry practice of reducing the installation fee during promotional periods. Commercial subscribers such as hotels, motels and hospitals are charged a nonrecurring connection fee that usually covers the cost of installation. Except under the terms of certain contracts with commercial subscribers and residential apartment and condominium complexes, subscribers are free to discontinue the service at any time without penalty, and most terminations occur because a subscriber moves to another home or to another city. For the year ended December 31, 1997, of the total subscriber fees received by Company-owned systems, basic and basic plus service fees accounted for approximately 66% of total revenues, premium service fees accounted for approximately 18% of total revenues, pay-per-view fees were approximately 3% of total revenues, advertising fees were approximately 6% of total revenues and the remaining 7% of total revenues came primarily from equipment rentals, installation fees and program guide charges. The Company is dependent upon timely receipt of service fees to provide for maintenance and replacement of plant and equipment, current operating expenses and other costs. As the general partner of its managed partnerships, the Company earns management fees that are generally 5% of the gross revenues of the partnership, not including revenues from the sale of cable television systems or franchises. The Company also receives reimbursement from its managed partnerships for certain allocated overhead and administrative expenses incurred by the Company in its management activities. These management fees and reimbursements will be reduced and eventually will be eliminated as the Company completes the planned liquidation of its managed partnerships. From time to time, and although not obligated to do so, the Company has made advances to certain of its managed partnerships and has deferred collection of management fees and expense reimbursements owed by certain of its managed partnerships to allow for expansion of a cable television system or other cash needs of such a partnership. The Company expects that all advances and/or deferred fees and expense reimbursements will be paid to the Company prior to the liquidation of the managed partnerships that owe amounts to the Company. With respect to the managed partnerships, the Company as general partner is legally entitled to partnership distributions from the sale or refinancing of partnership cable systems, which in most cases is equal to 25% of the net remaining assets of a partnership after the payment of partnership debts and after limited partners have received an amount equal to their original investment plus, in many cases, a preferential return on their investment. Based upon the sale prices for the partnership-owned cable systems currently under contract for sale and the most recent appraisals of the current fair market value of the partnership-owned cable systems not yet under contract for sale, the Company estimates that it will receive general partner distributions from its remaining managed partnerships totaling approximately $68,000,000. The Company's business consists of providing cable television services to a large number of customers, the loss of any one or more of which would have no material effect on the Company's business. Each of the cable television systems owned or operated by the Company has had some subscribers who later terminated the service. Terminations occur primarily because people move to 9 another home or to another city. In other cases, people terminate on a seasonal basis or because they no longer can afford or are dissatisfied with the service. The amount of past due accounts in systems owned or operated by the Company is not significant. The Company's policy with regard to these accounts is basically one of disconnecting service before a past due account becomes material. The Company does not depend to any material extent on the availability of raw materials, it carries no significant amounts of inventory and it has no material backlog of customer orders. The Company has engaged in research and development activities relating to the provision of new services. Compliance with Federal, state and local provisions that have been enacted or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the environment has had no material effect upon the capital expenditures, earnings or competitive position of the Company. THE COMPANY'S OTHER BUSINESSES AND INVESTMENTS - ---------------------------------------------- The Jones Group, Ltd., a wholly owned subsidiary of the Company, is a cable television brokerage firm that may earn fees from the Company's managed partnerships when such partnerships sell cable systems. Jones Futurex, Inc., also a wholly owned subsidiary of the Company, manufactures and markets data encryption products and provides contract manufacturing services. The Company owns an approximate 16% equity interest in Jones Education Group, Ltd. and an approximate 26% equity interest in Jones Education Group, Ltd.'s subsidiary, Knowledge TV, Inc. Jones Education Group, Ltd. offers a variety of integrated educational products and services. Knowledge TV, Inc. provides educational programming through its cable television network, JEC Knowledge TV. ACQUISITIONS OF CABLE TELEVISION SYSTEMS IN 1997 - ------------------------------------------------ North Prince Georges County System. In January 1997, the Company acquired ---------------------------------- 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. Ranier, New Carrollton, North Brentwood, Riverdale, Takoma Park, University Park and portions of Prince Georges County, all in the State of Maryland (the "North Prince Georges County System") from Maryland Cable Partners, L.P., an unaffiliated entity. The purchase price for the North Prince Georges County System was $231,367,000. The purchase of the North Prince Georges County System was funded by borrowings available under the Company's credit facilities. The Company paid Jones Financial Group, Ltd. ("Financial Group"), an affiliate of the Company, a fee of $2,082,000 for acting as the Company's financial advisor in connection with this transaction. The North Prince Georges County System was contiguous to the South Prince Georges County System, which already was owned by the Company. The Company has combined the North Prince Georges County System and the South Prince Georges County System and thus the Company now serves all of Prince Georges County, Maryland in the northern suburbs of Washington, D.C. The Prince Georges County System is operated as part of the Virginia/Maryland cluster. 10 Manitowoc System. In June 1997, the Company purchased the cable ---------------- television system serving the City of Manitowoc, Wisconsin (the "Manitowoc System") from Cable TV Joint Fund 11, a venture that was comprised of four Company-managed partnerships, for a purchase price of $16,122,333. The Company received, from the four managed partnerships that comprised the venture, general partner distributions totaling approximately $4,556,000. Funding of the net purchase price of $11,566,333 was provided by borrowings available under the Company's credit facilities. Independence System. In August 1997, the Company purchased from Jones ------------------- Intercable Investors, L.P. ("Jones Intercable Investors"), 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 price 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 of the Independence System because of the Company's equity interest in Jones Intercable Investors, which distribution reduced the Company's basis in the assets of the Independence System. Jones Intercable Investors paid The Jones Group, Ltd., a wholly owned subsidiary of the Company, a $4,280,000 brokerage fee in connection with this transaction, which fee reduced the Company's basis in the assets of the Independence System. Funding of the net purchase price of $141,212,667 for the Independence System was provided by all of the $91,602,000 net proceeds from the Company's sale of 9,200,000 shares of its Class A Common Stock to the public in August 1997 and borrowings available under the Company's credit facilities. EXCHANGE OF CABLE TELEVISION SYSTEMS IN 1997 - -------------------------------------------- Exchange of Colorado Systems for Annapolis System. In April 1997, the ------------------------------------------------- Company conveyed to an affiliate of Tele-Communications, Inc. the cable television systems serving areas in and around Evergreen and Idaho Springs and portions of 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 Financial Group for acting as the Company's financial advisor in connection with this transaction. The Annapolis System is now operated as part of the Company's Chesapeake Bay Group in the Virginia/Maryland cluster. PROPOSED ACQUISITIONS OF CABLE TELEVISION SYSTEMS IN 1998 - --------------------------------------------------------- Albuquerque System. In July 1997, the Company entered into an agreement ------------------ with Cable TV Fund 12-BCD Venture (the "Venture"), a venture comprised of three managed partnerships, to acquire the cable television system serving areas in and around Albuquerque, New Mexico, (the "Albuquerque System") for a purchase price of $222,963,267, subject to customary closing adjustments. This purchase price represents the average of three independent appraisals of the fair market value of the Albuquerque System. Upon closing, the Company anticipates that 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 borrowings available under the Company's credit facilities. The closing of this transaction, which is expected in the second quarter of 1998, is subject to a number of conditions including the approval of the transaction by the holders 11 of a majority of the limited partnership interests of each of the three partnerships that comprise the Venture and the consents of governmental authorities and other third parties. Palmdale System. In March 1998, the Company entered into an agreement --------------- with the Venture to acquire the cable television system serving areas in and around Palmdale and Lancaster, California (the "Palmdale System") for a purchase price of $138,205,200, subject to customary closing adjustments. The purchase price represents the average of three independent appraisals of the fair market value of the Palmdale System. Upon closing, the Company anticipates that it will receive, from the three partnerships that comprise the Venture, general partner distributions totaling approximately $24,000,000, which will reduce the Company's basis in the assets of the Palmdale System. Funding for this transaction is expected to be provided by borrowings available under the Company's credit facilities. The closing of this transaction, which is expected to occur in the third quarter of 1998, is subject to a number of conditions including the approval of the transaction by the holders of a majority of the limited partnership interests of each of the three partnerships that comprise the Venture, the expiration or termination of all waiting periods under the Hart Scott Rodino Anti-Trust Improvements Act of 1976 applicable to the agreement or the transactions contemplated thereby, and the consents of governmental authorities and other third parties. Littlerock System. In March 1998, the Company entered into an agreement ----------------- with Cable TV Fund 14-B, Ltd. ("Fund 14-B") to acquire the cable television system serving areas in and around Littlerock, California (the "Littlerock System") for a purchase price of $10,720,400, subject to customary closing adjustments. The purchase price represents the average of three independent appraisals of the fair market value of the Littlerock System. Funding for this transaction is expected to be provided by borrowings available under the Company's credit facilities. The closing of this transaction, which is expected to occur concurrently with the closing of the purchase by the Company of the Palmdale System in the third quarter of 1998, is subject to a number of conditions including the approval of the transaction by the holders of a majority of the limited partnership interests of Fund 14-B, the expiration or termination of all waiting periods under the Hart Scott Rodino Anti-Trust Improvements Act of 1976 applicable to the agreement or the transactions contemplated thereby, and the consents of governmental authorities and other third parties. DISPOSITION OF CABLE TELEVISION SYSTEM IN 1997 - ---------------------------------------------- Walnut Valley System. In October 1997, the Company sold the cable -------------------- television system serving areas in around Walnut Valley, California to Century Communications Corp., an unaffiliated party, for a sales price of $32,493,000. The Company recognized a pre-tax gain of approximately $20,836,000 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 as compensation to Financial Group for acting as the Company's financial advisor in connection with this transaction. 12 SALE OF INVESTMENT IN CABLE & WIRELESS COMMUNICATIONS PLC - --------------------------------------------------------- In April 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. PUBLIC DEBT AND EQUITY OFFERINGS IN 1997 - ---------------------------------------- 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 these Senior Notes were used to redeem the Company's $160,000,000 11.5% Subordinated 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% Subordinated Debentures in July 1997, the Company applied the proceeds from the sale of the Senior Notes to reduce amounts outstanding under the Company's credit facilities. In August 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. The net proceeds to the Company from this public equity offering totaled $91,602,000. These proceeds were used to fund a portion of the Company's purchase of the Independence System from Jones Intercable Investors. See Item 1, Acquisitions of Cable Television Systems in 1997. THE COMPANY'S CREDIT FACILITIES - ------------------------------- The Company's credit facilities consist of two revolving credit facilities, one for JCH and one for JCH II. Each revolving credit facility has maximum available borrowings of $600,000,000. The $600,000,000 JCH revolving credit facility is a reducing revolving credit facility. The entire $600,000,000 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 December 31, 1997 was $343,000,000. The $600,000,000 JCH II revolving credit facility consists of a $300,000,000 reducing revolving credit facility and a $300,000,000 364-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 19, 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 December 31, 1997 was $128,000,000, which was borrowed under the reducing revolving credit facility. 13 CABLE TELEVISION FRANCHISES - --------------------------- The cable television systems owned or managed by the Company are constructed and operated under fixed-term franchises or other types of operating authorities (referred to collectively herein as "franchises") that are generally non-exclusive and are granted by state and/or local governmental authorities. These franchises typically contain many conditions, such as time limitations on commencement and completion of construction, conditions of service, including the number of channels, types of programming and the provision of free service to schools and certain other public institutions, and the maintenance of insurance and indemnity bonds. The provisions of local franchises are subject to federal regulation. The Company holds approximately 120 franchises. These franchises provide for the payment of fees to the issuing authorities and range from 3% to 5% of gross revenues. The 1984 Cable Act prohibits franchising authorities from imposing annual franchise fees in excess of 5% of gross revenues and also permits the cable television system operator to seek renegotiation and modification of franchise requirements if warranted by changed circumstances. The Company has never had a franchise revoked. The Company's franchises initially had terms of approximately 10 to 15 years. The duration of the Company's outstanding franchises presently varies from a period of months to an indefinite period of time. The Company is currently negotiating the renewal of 17 franchises that are either operating under extensions or will expire prior to December 31, 1998, and also is negotiating the renewal of 25 franchises awarded by communities located in Prince Georges County, Maryland that are either operating under extensions or will expire prior to December 31, 1998. The Prince Georges County communities have joined together with the Prince Georges County Cable Commission for the renewal negotiations. The Company has experienced lengthy negotiations with some franchising authorities for the granting of franchise renewals. Some of the issues involved in recent renewal negotiations include rate regulation, customer service standards, cable plant upgrade or replacement and shorter terms of franchise agreements. The Company expects that the franchises operating under extensions or expiring prior to December 31, 1998 will be renewed in due course. COMPETITION - ----------- Cable television systems currently experience competition from several sources. Broadcast Television. Cable television systems have traditionally --------------------- competed with broadcast television, which consists of television signals that the viewer is able to receive directly on his television without charge using an "off-air" antenna. The extent of such competition is dependent in part upon the quality and quantity of signals available by such antenna reception as compared to the services provided by the local cable system. Accordingly, it has generally been less difficult for cable operators to obtain higher penetration rates in rural areas where signals available off-air are limited, than in metropolitan areas where numerous, high quality off-air signals are often available without the aid of cable television systems. 14 Traditional Overbuild. Cable television franchises are not exclusive, so --------------------- that more than one cable television system may be built in the same area (known as an "overbuild"), with potential loss of revenues to the operator of the original cable television system. The Company has experienced overbuilds in connection with certain systems that it has owned or managed for limited partnerships, and currently there are overbuilds in both owned and managed systems. Constructing and developing a cable television system is a capital intensive process, and it is often difficult for a new cable system operator to create a marketing edge over the existing system. Generally, an overbuilder would be required to obtain franchises from the local governmental authorities, although in some instances, the overbuilder could be the local government itself. In any case, an overbuilder would be required to obtain programming contracts from entertainment programmers and, in most cases, would have to build a complete cable system, including headends, trunk lines and drops to individual subscribers homes, throughout the franchise areas. The Company anticipates competition in the Augusta franchise area. The City of Augusta has granted a franchise to an unaffiliated cable operator, and the Company anticipates that this operator will commence service in the franchise area during the second half of 1998. The Company's Panama City Beach system has lost basic subscribers and commercial units to an overbuilder. This overbuild continues to provide significant competition. A portion of the Company's Chesapeake Bay Group serving Anne Arundel County, Maryland is overbuilt by a competing cable television system. DBS. High-powered direct-to-home satellites have made possible the wide- --- scale delivery of programming to individuals throughout the United States using small roof-top or wall-mounted antennas. Several companies began offering direct broadcast satellite ("DBS") service over the last few years. Companies offering DBS service use video compression technology to increase channel capacity of their systems to 100 or more channels and to provide packages of movies, satellite network and other program services which are competitive to those of cable television systems. DBS faces technical and legal obstacles to offering its customers local broadcast programming, although at least one DBS provider is now attempting to do so. In addition to emerging high-powered DBS competition, cable television systems face competition from a major medium- powered satellite distribution provider and several low-powered providers, whose service requires use of much larger home satellite dishes. Not all subscribers terminate cable television service upon acquiring a DBS system. The Company has observed that there are DBS subscribers that also elect to subscribe to cable television service in order to obtain the greatest variety of programming on multiple television sets, including local programming not available through DBS service. The ability of DBS service providers to compete successfully with the cable television industry will depend on, among other factors, the availability of equipment at reasonable prices. Telephone and Utility Companies. Federal cross-ownership restrictions ------------------------------- historically limited entry by local telephone companies into the cable television business. The 1996 Telecom Act eliminated this cross-ownership restriction, making it possible for companies with considerable resources to overbuild existing cable operators and enter the business. Several telephone companies have begun seeking cable television franchises from local governmental authorities and constructing cable television systems. GTE, a local exchange carrier, which provides telephone service in a multi-state region, including California, has obtained a franchise from the City of Oxnard, California and has commenced providing video programming in Oxnard in competition with the Company's Oxnard cable system. In addition, Ameritech, one of the seven regional Bell Operating Companies ("BOCs"), 15 which provides telephone service in a multi-state region including Illinois, has been the most active BOC in seeking local cable franchises within its service area. It has already begun cable service in competition with partnership-owned cable systems in Elgin, Glen Ellyn and Naperville, Illinois. The Company cannot predict at this time the extent of telephone company competition that will emerge to Company owned or managed cable television systems. The entry of telephone companies as direct competitors, however, is likely to continue over the next several years and could adversely affect the profitability and market value of the Company's owned and managed systems. The entry of electric utility companies into the cable television business, as now authorized by the 1996 Telecom Act, could have a similar adverse effect. The local electric utility in the Washington, D.C. area recently announced plans to participate in RCN, a planned video competitor. Private Cable. Additional competition is provided by private cable ------------- television systems, known as Satellite Master Antenna Television (SMATV), serving multi-unit dwellings such as condominiums, apartment complexes, and private residential communities. These private cable systems may enter into exclusive agreements with apartment owners and homeowners associations, which may preclude operators of franchised systems from serving residents of such private complexes. Private cable systems that do not cross public rights of way are free from the federal, state and local regulatory requirements imposed on franchised cable television operators. In some cases, the Company has been unable to provide cable television service to buildings in which private operators have secured exclusive contracts to provide video and telephony services. The Company is interested in providing these same services, but expects that the market to install and provide these services in multi-unit buildings will continue to be highly competitive. In late 1995, the Company launched a competitive telephone service in selected apartments and condominium units in its Alexandria, Virginia System, and began providing such service in the first half of 1997 in Maryland as well. The Company has been granted Competitive Local Exchange Carrier status in the states of Maryland and Virginia. The Company faces considerable competition in providing telephony service from incumbent local exchange carriers and a host of alternative carriers. MMDS. Cable television systems also compete with wireless program ---- distribution services such as multichannel, multipoint distribution service ("MMDS") systems, commonly called wireless cable, which are licensed to serve specific areas. MMDS uses low-power microwave frequencies to transmit television programming over-the-air to paying subscribers. The MMDS industry is less capital intensive than the cable television industry, and it is therefore more practical to construct MMDS systems in areas of lower subscriber penetration. Wireless cable systems are now in direct competition with cable television systems in several areas of the country, including the Company's system in Pima County, Arizona. Telephone companies have acquired or invested in wireless companies, and may use MMDS systems to provide services within their service areas in lieu of wired delivery systems. Enthusiasm for MMDS has waned in recent months, however, as Bell Atlantic and NYNEX have suspended their investment in two major MMDS companies. To date, the Company has not lost a significant number of subscribers, nor a significant amount of revenue, to MMDS operators competing with the Company's cable television systems. A series of actions taken by the FCC, however, including reallocating certain frequencies to the wireless services, are intended to facilitate the development of wireless cable television systems as an alternative means of distributing video programming. In addition, Local Multipoint Distribution Services ("LMDS"), could also pose a significant threat to the cable television industry, if and when it becomes 16 established. The potential impact, however, of LMDS is difficult to assess due to the newness of the technology and the absence of any current fully operational LMDS systems. Cable television systems are also in competition, in various degrees with other communications and entertainment media, including motion pictures and home video cassette recorders. REGULATION AND LEGISLATION - -------------------------- The operation of cable television systems is extensively regulated by the FCC, some state governments and most local governments. The new Telecommunications Act of 1996 ("1996 Telecom Act") alters the regulatory structure governing the nation's telecommunications providers. It removes barriers to competition in both the cable television market and the local telephone market. Among other things, it also reduces the scope of cable rate regulation. The 1996 Telecom Act requires the FCC to undertake a host of implementing rulemakings, the final outcome of which cannot yet be determined. Moreover, Congress and the FCC have frequently revisited the subject of cable regulation. Future legislative and regulatory changes could adversely affect the Company's operations, and there has been a recent increase in calls to maintain or even tighten cable regulation in the absence of widespread effective competition. This section briefly summarizes key laws and regulations affecting the operation of the Company's cable systems and does not purport to describe all present, proposed, or possible laws and regulations affecting the Company. Cable Rate Regulation. The 1992 Cable Act imposed an extensive rate --------------------- regulation regime on the cable television industry. Under that regime, all cable systems are subject to rate regulation, unless they face "effective competition" in their local franchise area. Federal law now defines "effective competition" on a community-specific basis as requiring either low penetration (less than 30%) by the incumbent cable operator, appreciable penetration (more than 15%) by competing multichannel video providers ("MVPs"), or the presence of a competing MVP affiliated with a local telephone company. The FCC has officially recognized that the Anne Arundel System and the Panama City Beach System face "effective competition," and a similar petition is now pending at the FCC concerning the Pima County, AZ system. Although the FCC rules control, local government units (commonly referred to as local franchising authorities or "LFAs") are primarily responsible for administering the regulation of the lowest level of cable -- the basic service tier ("BST"), which typically contains local broadcast stations and public, educational, and government ("PEG") access channels. Before an LFA begins BST rate regulation, it must certify to the FCC that it will follow applicable federal rules, and many LFAs have voluntarily declined to exercise this authority. LFAs also have primary responsibility for regulating cable equipment rates. Under federal law, charges for various types of cable equipment must be unbundled from each other and from monthly charges for programming services. The 1996 Telecom Act allows operators to aggregate costs for broad categories of equipment across geographic and functional lines. This change should facilitate the introduction of new technology. 17 The FCC itself directly administers rate regulation of any cable programming service tiers ("CPST"), which typically contain satellite-delivered programming. Under the 1996 Telecom Act, the FCC can regulate CPST rates only if an LFA first receives at least two rate complaints from local subscribers and then files a formal complaint with the FCC. When new CPST rate complaints are filed, the FCC now considers only whether the incremental increase is justified and will not reduce the previously established CPST rate. Under the FCC's rate regulations, most cable systems were required to reduce their BST and CPST rates in 1993 and 1994, and have since had their rate increases governed by a complicated price cap scheme that allows for the recovery of inflation and certain increased costs, as well as providing some incentive for expanding channel carriage. The FCC has modified its rate adjustment regulations to allow for annual rate increases and to minimize previous problems associated with regulatory lag. Operators also have the opportunity of bypassing this "benchmark" regulatory scheme in favor of traditional "cost-of-service" regulation in cases where the latter methodology appears favorable. Premium cable services offered on a per-channel or per- program basis remain unregulated, as do affirmatively marketed packages consisting entirely of new programming product. Federal law requires that the BST be offered to all cable subscribers, but limits the ability of operators to require purchase of any CPST before purchasing premium services offered on a per-channel or per-program basis. The 1996 Telecom Act sunsets FCC regulation of CPST rates for all systems (regardless of size) on March 31, 1999. Certain critics of the cable television industry, however, have called for a delay in the regulatory sunset and some have even urged more rigorous rate regulation in the interim, including a limit on operators passing through to their customers increased programming costs. The 1996 Telecom Act also relaxes existing uniform rate requirements by specifying that uniform rate requirements do not apply where the operator faces "effective competition," and by exempting bulk discounts to multiple dwelling units, although complaints about predatory pricing still may be made to the FCC. Cable Entry Into Telecommunications. The 1996 Telecom Act provides that ----------------------------------- no state or local laws or regulations may prohibit or have the effect of prohibiting any entity from providing any interstate or intrastate telecommunications service. States are authorized, however, to impose "competitively neutral" requirements regarding universal service, public safety and welfare, service quality, and consumer protection. State and local governments also retain their authority to manage the public rights-of-way and may require reasonable, competitively neutral compensation for management of the public rights-of-way when cable operators provide telecommunications service. The favorable pole attachment rates afforded cable operators under federal law can be gradually increased by utility companies owning the poles (beginning in 2001) if the operator provides telecommunications service, as well as cable service, over its plant. Cable entry into telecommunications will be affected by the regulatory landscape now being fashioned by the FCC and state regulators. One critical component of the 1996 Telecom Act to facilitate the entry of new telecommunications providers (including cable operators) is the interconnection obligation imposed on all telecommunications carriers. In July 1997, the Eighth Circuit Court of Appeals vacated certain aspects of the FCC's initial interconnection order. That 18 decision is now on appeal to the U.S. Supreme Court. The Company has already secured authorization to provide local exchange service in Maryland and portions of Virginia and has begun offering some telecommunications services to customers in both jurisdictions. Telephone Company Entry Into Cable Television. The 1996 Telecom Act --------------------------------------------- allows telephone companies to compete directly with cable operators by repealing the historic telephone company/cable cross-ownership ban. Local exchange carriers ("LECs"), including the BOCs, can now compete with cable operators both inside and outside their telephone service areas. Because of their resources, LECs could be formidable competitors to traditional cable operators, and certain LECs have begun offering cable service. As described above, the Company is now witnessing the beginning of LEC competition in a few of its cable communities. Under the 1996 Telecom Act, a LEC providing video programming to subscribers will be regulated as a traditional cable operator (subject to local franchising and federal regulatory requirements), unless the LEC elects to provide its programming via an "open video system" ("OVS"). To qualify for OVS status, the LEC must reserve two-thirds of the system's activated channels for unaffiliated entities. RCN and affiliates of local power companies recently have been certified to provide OVS service in areas encompassing the Company's cable systems in suburban Maryland and Virginia. This potential OVS competition is not yet operational. Although LECs and cable operators can now expand their offerings across traditional service boundaries, the general prohibition remains on LEC buyouts (i.e., any ownership interest exceeding 10 percent) of co-located cable systems, cable operator buyouts of co-located LEC systems, and joint ventures between cable operators and LECs in the same market. The 1996 Telecom Act provides a few limited exceptions to this buyout prohibition, including a carefully circumscribed "rural exemption." The 1996 Telecom Act also provides the FCC with the limited authority to grant waivers of the buyout prohibition (subject to LFA approval). Electric Utility Entry Into Telecommunications/Cable Television. The 1996 --------------------------------------------------------------- Telecom Act provides that registered utility holding companies and subsidiaries may provide telecommunications services (including cable television) notwithstanding the Public Utilities Holding Company Act. Electric utilities must establish separate subsidiaries, known as "exempt telecommunications companies" and must apply to the FCC for operating authority. Again, because of their resources, electric utilities could be formidable competitors to traditional cable systems. Additional Ownership Restrictions. The 1996 Telecom Act eliminates --------------------------------- statutory restrictions on broadcast/cable cross-ownership (including broadcast network/cable restrictions), but leaves in place existing FCC regulations prohibiting local cross-ownership between co-located television stations and cable systems. The 1996 Telecom Act also eliminates the three year holding period required under the 1992 Cable Act's "anti-trafficking" provision. The 1996 Telecom Act leaves in place existing restrictions on cable cross-ownership with SMATV and MMDS facilities, but lifts those restrictions where the cable operator is subject to effective competition. In January 1995, however, the FCC adopted regulations which permit cable operators to own and operate SMATV systems within their franchise area, provided that such operation is consistent with local cable franchise requirements. 19 Pursuant to the 1992 Cable Act, the FCC adopted rules precluding a cable system from devoting more than 40% of its activated channel capacity to the carriage of affiliated national program services. A companion rule establishing a nationwide ownership cap on any cable operator equal to 30% of all domestic cable subscribers has been stayed pending further judicial review, although the FCC recently expressed an interest in reviewing and reimposing this limit. There are no federal restrictions on non-U.S. entities having an ownership interest in cable television systems or the FCC licenses commonly employed by such systems. Section 310(b)(4) of the Communications Act does, however, prohibit foreign ownership of FCC broadcast and telephone licenses, unless the FCC concludes that such foreign ownership is consistent with the public interest. BTH's investment in the Company could, therefore, adversely affect any plan to acquire FCC broadcast or common carrier licenses. Must Carry/Retransmission Consent. The 1992 Cable Act contains broadcast --------------------------------- signal carriage requirements that allow local commercial television broadcast stations to elect once every three years between requiring a cable system to carry the station ("must carry") or negotiating for payments for granting permission to the cable operator to carry the station ("retransmission consent"). Less popular stations typically elect "must carry," and more popular stations typically elect "retransmission consent." Must carry requests can dilute the appeal of a cable system's programming offerings, and retransmission consent demands may require substantial payments or other concessions. Either option has a potentially adverse affect on the Company's business. Additionally, cable systems are required to obtain retransmission consent for all "distant" commercial television stations (except for satellite-delivered independent "superstations" such as WGN). The burden associated with "must carry" may increase substantially if broadcasters proceed with planned conversion to digital transmission and the FCC determines that cable systems must carry all analogue and digital broadcasts in their entirety. Access Channels. LFAs can include franchise provisions requiring cable --------------- operators to set aside certain channels for public, educational and governmental access programming. Federal law also requires cable systems to designate a portion of their channel capacity (up to 15% in some cases) for commercial leased access by unaffiliated third parties. The FCC has adopted rules regulating the terms, conditions and maximum rates a cable operator may charge for use of the designated channel capacity, but use of commercial leased access channels has been relatively limited. The FCC released revised rules in February 1997 mandating a modest rate reduction. The reduction sparked some increase in part-time use, but did not make commercial leased access substantially more attractive to third party programmers. Certain of those programmers have now appealed the revised rules to the D.C. Court of Appeals. Should the courts and the FCC ultimately determine that an additional reduction in access rates is required, cable operators could lose programming control of a substantial number of cable channels. Access to Programming. To spur the development of independent cable --------------------- programmers and competition to incumbent cable operators, the 1992 Cable Act imposed restrictions on the dealings between cable operators and cable programmers. Of special significance from a competitive business posture, the 1992 Cable Act precludes video programmers affiliated with cable companies from favoring cable operators over competitors and requires such programmers to sell their programming 20 to other multichannel video distributors. This provision limits the ability of vertically integrated cable programmers to offer exclusive programming arrangements to cable companies. There recently has been increased interest in further restricting the marketing practices of cable programmers, including subjecting programmers who are not affiliated with cable operators to all of the existing program access requirements. Inside Wiring. The FCC recently determined that an incumbent cable ------------- operator can be required by the owner of a multiple dwelling unit ("MDU") complex to remove, abandon or sell the "home run" wiring it initially provided. In addition, the FCC is reviewing the enforceability of contracts to provide exclusive video service within a MDU complex. The FCC has proposed abrogating all such contracts held by incumbent cable operators, but allowing such contracts when held by new entrants. These changes, and others now being considered by the FCC, would, if implemented, make it easier for an MDU complex owner to terminate service from an incumbent cable operator in favor of a new entrant and leave the already competitive MDU sector even more challenging for incumbent operators. Other FCC Regulations. In addition to the FCC regulations noted above, --------------------- there are other FCC regulations covering such areas as equal employment opportunity, subscriber privacy, programming practices (including, among other things, syndicated program exclusivity, network program nonduplication, local sports blackouts, indecent programming, lottery programming, political programming, sponsorship identification, and children's programming advertisements), registration of cable systems and facilities licensing, maintenance of various records and public inspection files, frequency usage, lockbox availability, antenna structure notification, tower marking and lighting, consumer protection and customer service standards, technical standards and consumer electronics equipment compatibility. Federal requirements governing Emergency Alert Systems and Closed Captioning adopted in 1997 will impose additional costs on the operation of cable systems. The FCC is currently considering whether cable customers must be allowed to purchase cable converters from third party vendors. If the FCC concludes that such distribution is required, and does not make appropriate allowances for signal piracy concerns, it may become more difficult for cable operators to combat theft of service. The FCC has the authority to enforce its regulations through the imposition of substantial fines, the issuance of cease and desist orders and/or the imposition of other administrative sanctions, such as the revocation of FCC licenses needed to operate certain transmission facilities used in connection with cable operations. Internet Access. Many cable operators have begun offering high speed --------------- internet service to their customers. At this time, there is no significant federal or local regulation of this service. However, as internet services develop, it is possible that new regulations could be imposed. Copyright. Cable television systems are subject to federal copyright --------- licensing covering carriage of television and radio broadcast signals. In exchange for filing certain reports and contributing a percentage of their revenues to a federal copyright royalty pool (that varies depending on the size of the system and the number of distant broadcast television signals carried), cable operators can obtain blanket permission to retransmit copyrighted material on broadcast signals. The possible modification or elimination of this compulsory copyright license is the subject of continuing legislative review and could adversely affect the Company's ability to obtain desired broadcast 21 programming. In addition, the cable industry pays music licensing fees to BMI and is negotiating a similar arrangement with ASCAP. Copyright clearances for nonbroadcast programming services are arranged through private negotiations. State and Local Regulation. Cable television systems generally are -------------------------- operated pursuant to nonexclusive franchises granted by a municipality or other state or local government entity in order to cross public rights-of-way. Federal law now prohibits franchise authorities from granting exclusive franchises or from unreasonably refusing to award additional franchises. Cable franchises generally are granted for fixed terms and in many cases include monetary penalties for non-compliance and may be terminable if the franchisee fails to comply with material provisions. The terms and conditions of franchises vary materially from jurisdiction to jurisdiction. Each franchise generally contains provisions governing cable operations, service rates, franchise fees, system construction and maintenance obligations, system channel capacity, design and technical performance, customer service standards, and indemnification protections. A number of states subject cable television systems to the jurisdiction of centralized state governmental agencies, some of which impose regulation of a character similar to that of a public utility. Although LFAs have considerable discretion in establishing franchise terms, there are certain federal limitations. For example, LFAs cannot insist on franchise fees exceeding 5% of the system's gross revenues, cannot dictate the particular technology used by the system, and cannot specify video programming other than identifying broad categories of programming. Federal law contains renewal procedures designed to protect incumbent franchisees against arbitrary denials of renewal. Even if a franchise is renewed, the franchise authority may seek to impose new and more onerous requirements such as significant upgrades in facilities and services or increased franchise fees as a condition of renewal. Similarly, if a franchise authority's consent is required for the purchase or sale of a cable system or franchise, such authority may attempt to impose more burdensome or onerous franchise requirements in connection with a request for consent. Historically, franchises have been renewed for cable operators that have provided satisfactory services and have complied with the terms of their franchises. RISK FACTORS - ------------ Shares of the Company's Class A Common Stock and Common Stock are available for purchase in the market. The purchase of shares of the Company's Class A Common Stock and Common Stock involves certain risks. Prospective purchasers of the Company's securities should consider carefully the risks related to: (i) the Company's history of net losses, (ii) its substantial leverage, (iii) the probability that most of the Company's remaining managed partnerships will not make distributions to their limited partners in amounts sufficient to provide the returns on investment originally anticipated by the limited partners and, in some cases, will not provide the limited partners with a return of all of their initial capital contributions, (iv) the control of the Company by its principal shareholders and disagreements among the Company's principal shareholders, (v) the fact that the Company engages in and expects to continue to engage in certain transactions with its affiliates, (vi) the significant governmental regulation of the cable television industry, (vii) current and 22 threatened competition from various sources and (viii) other information about the Company set forth in this Form 10-K Report. ITEM 2. PROPERTIES ------------------- The Company leases a portion of its executive offices from Jones Properties, Inc., a subsidiary of International. The offices consist of a 101,500 square foot office building located at 9697 East Mineral Avenue, Englewood, Colorado. The lease has a 15-year term expiring in July 2000 with three 5-year renewal options at market rates existing at the beginning of the option period. The annual rent is currently $24.00 per square foot, plus operating expenses, and will not, by the terms of the lease, exceed such amount during the remainder of the term. The Company subleases approximately 44% of the building to International and certain other affiliates on the same terms and conditions as the primary lease. The Company, through Jones Panorama Properties, Inc., a wholly owned subsidiary of the Company, owns a 60,000 square foot office building (the "Panorama Falls Building") located at 9085 E. Mineral Avenue, Englewood, Colorado. The Company leases a portion of the Panorama Falls Building from its subsidiary for a lease price of $12.00 per square foot. The Panorama Falls Building houses additional executive offices of the Company. The Company has subleased approximately 45% of the Panorama Falls Building to International and others on the same terms and conditions as the primary lease. CABLE TELEVISION SYSTEMS OWNED BY THE COMPANY - --------------------------------------------- A majority of the Company's cable television systems are owned by the Company's wholly owed subsidiaries JCH and JCH II. JCH owns and operates the cable television systems that comprise the Company's Virginia/Maryland cluster. The Virginia/Maryland cluster is comprised of: the Chesapeake Bay Group of cable systems that serve customers in communities in and around Anne Arundel County and Charles County, Maryland, including the City of Annapolis; the Prince Georges County, Maryland system that services all of Prince Georges County, Maryland; the Alexandria, Virginia system; and the Prince William County system that serves the communities of Dale City, Manassas and Reston, Virginia. JCH II owns and operates the Company's suburban cluster of cable systems serving areas in and around Augusta and Savannah, Georgia, Pima County, Arizona and Independence, Missouri. It is anticipated that JCH II will acquire the cable system serving Albuquerque, New Mexico in the second quarter of 1998, and that it will also acquire the cable systems serving Palmdale, California and Littlerock, California in the third quarter of 1998. The Company directly owns and operates the cable television systems serving Manitowoc, Wisconsin, Oxnard, California and Panama City Beach and Celebration, Florida. The following table sets forth (i) the monthly basic plus service rates charged to subscribers and (ii) the number of basic subscribers and pay units for the cable television systems owned by the Company. The monthly basic plus service rates set forth herein represent, with respect to systems with multiple headends, the basic plus service rate charged to the majority of the subscribers within the system. In cable television systems, basic subscribers can subscribe to more than one pay TV 23 service. Thus, the total number of pay services subscribed to by basic subscribers are called pay units. As of December 31, 1997, cable television systems owned by the Company passed approximately 1,186,000 homes, representing an approximate 64% penetration rate. The figures in the following table are compiled from the Company's records and may be subject to adjustments. SYSTEMS OWNED BY JONES CABLE HOLDINGS, INC. - ------------------------------------------- PRINCE GEORGES COUNTY, MARYLAND * At 12/31 - ------------------------------- ------------------------ 1997 1996 -------- -------- Monthly basic plus service rate $ 29.13 $ 25.89 Basic subscribers 165,846 73,852 Pay units 216,708 134,975 * The Prince Georges County, Maryland system includes the South Prince Georges County system (acquired in February 1996) and the North Prince Georges County system (acquired in January 1997). CHESAPEAKE BAY GROUP, MARYLAND * At 12/31 - ------------------------------ ---------------------------------------- 1997 1996 1995 -------- -------- -------- Monthly basic plus service rate $ 24.96 $ 24.15 $ 22.85 Basic subscribers 102,209 74,252 71,997 Pay units 108,335 80,339 79,484 * The Chesapeake Bay Group includes the Anne Arundel County system, the Charles County system and the Annapolis system. The Annapolis system was acquired in April 1997. PRINCE WILLIAM COUNTY, VIRGINIA * At 12/31 - ------------------------------- ---------------------------------------- 1997 1996 1995 -------- -------- -------- Monthly basic plus service rate $ 28.17 $ 25.57 $ 24.07 Basic subscribers 95,725 92,951 49,297 Pay units 97,042 91,007 44,935 * The Prince William County, Virginia system includes the Dale City system (acquired in November 1995), the Manassas system (acquired in January 1996) and the Reston system (acquired in February 1996). ALEXANDRIA, VIRGINIA At 12/31 - -------------------- ---------------------------------------- 1997 1996 1995 -------- -------- -------- Monthly basic plus service rate $ 27.93 $ 24.98 $ 23.33 Basic subscribers 41,137 40,525 38,916 Pay units 31,926 33,387 32,510 24 SYSTEMS OWNED BY JONES CABLE HOLDINGS II, INC. - ---------------------------------------------- AUGUSTA, GEORGIA At 12/31 - ---------------- ---------------------------------------- 1997 1996 1995 -------- -------- -------- Monthly basic plus service rate $ 27.68 $ 25.73 $ 23.98 Basic subscribers 89,170 85,816 84,146 Pay units 73,307 70,619 67,428 PIMA COUNTY, ARIZONA At 12/31 - -------------------- ---------------------------------------- 1997 1996 1995 -------- -------- -------- Monthly basic plus service rate $ 26.45 $ 25.80 $ 24.00 Basic subscribers 62,364 59,434 56,512 Pay units * 35,532 38,898 33,737 * The Pima County system had a successful promotion of pay channels in late 1996, resulting in a significant increase in pay units in 1996. The promotion was discontinued in 1997, and the system was unable to maintain the increase experienced in 1996. SAVANNAH, GEORGIA * At 12/31 - ----------------- ------------------------ 1997 1996 -------- -------- Monthly basic plus service rate $ 24.17 $ 23.94 Basic subscribers 66,184 62,780 Pay units 40,428 36,629 * The Savannah system was acquired in April 1996. INDEPENDENCE, MISSOURI * At 12/31 - ---------------------- -------- 1997 -------- Monthly basic plus service rate $ 25.92 Basic subscribers 87,070 Pay units 63,481 * The Independence system was acquired in August 1997. 25 SYSTEMS OWNED BY JONES INTERCABLE, INC. - --------------------------------------- OXNARD, CALIFORNIA At 12/31 - ------------------ ---------------------------------------- 1997 1996 1995 -------- -------- -------- Monthly basic plus service rate $ 23.40 $ 21.15 $ 19.15 Basic subscribers* 35,985 40,134 39,101 Pay units* 24,234 28,701 26,751 * The reduction in the number of basic subscribers and pay units is due to an overbuild of the system. PANAMA CITY BEACH, FLORIDA * At 12/31 - -------------------------- ---------------------------------------- 1997 1996 1995 -------- -------- -------- Monthly basic plus service rate $ 23.10 $ 21.10 $ 21.10 Basic subscribers* 7,072 7,248 7,380 Pay units 7,076 7,251 6,285 * The reduction in the number of basic subscribers and pay units is due to an ongoing overbuild of the system. CELEBRATION, FLORIDA At 12/31 - -------------------- ------------------------ 1997 1996 -------- -------- Monthly basic plus service rate $ 20.94 $ 20.94 Basic subscribers* 428 186 Pay units 281 108 MANITOWOC, WISCONSIN * At 12/31 - -------------------- -------- 1997 -------- Monthly basic plus service rate $ 22.61 Basic subscribers 11,954 Pay units 7,151 * The Manitowoc system was acquired in June 1997. ITEM 3. LEGAL PROCEEDINGS -------------------------- Tampa Litigation - ---------------- The Company is a defendant in a now-consolidated civil action filed by limited partners of Cable TV Fund 12-D, Ltd., one of the Company's managed partnerships. The case, styled David ----- 26 Hirsch, Marty, Inc. Pension Plan (by its trustee and beneficiary, Martin Ury) - ----------------------------------------------------------------------------- and Jonathan and Eileen Fussner, derivatively on behalf of Cable TV Fund 12-B, - ------------------------------------------------------------------------------ Ltd., Cable TV Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd., plaintiffs v. Jones - -------------------------------------------------------------------------------- Intercable, Inc., defendant, and Cable TV Fund 12-BCD Venture, Cable TV Fund - ---------------------------------------------------------------------------- 12-B, Ltd., Cable TV Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd., nominal - -------------------------------------------------------------------------- defendants (District Court, Arapahoe County, State of Colorado, Case No. 95-CV- - ---------- 1800, Division 3), is a derivative action filed on behalf of Cable TV Fund 12-B, Ltd. ("Fund 12-B"), Cable TV Fund 12-C, Ltd. ("Fund 12-C") and Cable TV Fund 12- D, Ltd. ("Fund 12-D"). The consolidated complaint generally alleges that the Company breached its fiduciary duty to the plaintiffs and to the other limited partners of Fund 12-B, Fund 12-C and Fund 12-D and the Cable TV Fund 12-BCD Venture (the "Venture") in connection with the Venture's sale of the Tampa, Florida cable television system (the "Tampa System") to a subsidiary of the Company and the subsequent trade of the Tampa System to Time Warner Entertainment Advance/Newhouse Partnership ("Time Warner"), an unaffiliated cable television system operator, in exchange for cable television systems owned by Time Warner. The consolidated complaint also sets forth a claim for breach of contract and a claim for breach of the implied covenant of good faith and fair dealing. Among other things, the plaintiffs assert that the subsidiary of the Company that acquired the Tampa System paid an inadequate price for the Tampa System. The price paid for the Tampa System was determined by the average of three separate, independent appraisals of the Tampa System's fair market value as required by the limited partnership agreements of Fund 12-B, Fund 12-C and Fund 12-D. The plaintiffs have challenged the adequacy and independence of the appraisals. The consolidated complaint seeks damages in an unspecified amount and an award of attorneys' fees, and the complaint also seeks punitive damages and certain equitable relief. The Company has filed its answer to the consolidated complaint and has generally denied the substantive allegations in the complaint and has asserted a number of affirmative defenses. The Company intends to defend this lawsuit vigorously. In August 1997, the Company moved for summary judgment in its favor on the ground that plaintiffs did not make demand on the Company for the relief they seek before commencing their lawsuits or show that such a demand would have been futile. In January 1998, the court (i) held that plaintiffs did not make demand before commencing their lawsuits or show that such demand would have been futile, (ii) stayed the consolidated case and vacated the February 1998 trial date, (iii) ordered that plaintiffs make a demand on the Company and that the Company appoint an independent counsel to review, consider and report on that demand, (iv) ordered that the independent counsel be appointed at the March 1998 meeting of the Company's Board of Directors and (v) ordered that the independent counsel be subject to the approval of the court. The court set a new trial date for October 1998 in the event that the case is not resolved through the independent counsel process or otherwise. The partnership agreements of Fund 12-B, Fund 12-C and Fund 12-D provide that the Company will not be liable to the partnerships or to the limited partners of the partnerships for any act or omission performed or omitted by it in good faith pursuant to the authority granted to the Company by the partnership agreements. The partnership agreements further provide that the Company will be liable to the partnerships and to their limited partners only for fraud, bad faith or gross negligence in the performance of the cable television activities of the partnerships or negligence in the management of the internal affairs of the partnerships. The partnership agreements further provide that the partnerships shall indemnify and save harmless the Company and its affiliates and any 27 agent or officer or director thereof from any loss or damage incurred by them, including legal fees and expenses and amounts paid in settlement by reason of any action performed by the Company or any agent, officer or director thereof on behalf of the partnerships or in furtherance of their interests; provided, however, that the foregoing shall not relieve the Company of its fiduciary duty to the limited partners or liability for (nor shall the Company be indemnified for) its fraud, bad faith or gross negligence in the performance of the cable television activities of the partnerships or negligence in the management of the internal affairs of the partnerships. In accordance with these provisions of the partnership agreements, Fund 12-B, Fund 12-C and Fund 12-D will be obligated to indemnify and save harmless the Company from any loss incurred by it, including its legal fees and expenses and amounts paid in settlement, in connection with this litigation concerning the Tampa System's sale unless the Company is found to have breached its fiduciary duty to the limited partners in connection with the Tampa System's sale or is found to have committed fraud or to have acted in bad faith or with gross negligence in connection with the Tampa System sale. Amounts reimbursed to the Company by the three partnerships would be in proportion to their ownership interests in the Venture. Shareholder Litigation - ---------------------- In February 1998, BTH, the Company's largest shareholder, filed an action in the United States District Court for the District of Colorado against the Company, Jones International, Ltd. ("International"), Jones Internet Channel, Inc. ("JICI") and Glenn R. Jones. BCI Telecom Holding, Inc., plaintiff v. Jones --------------------------------------------- Intercable, Inc., Jones International, Ltd., Jones Internet Channel, Inc. and - ----------------------------------------------------------------------------- Glenn R. Jones, defendants (U.S. District Court for the District of Colorado, - -------------------------- Civil Action No. 98-D-224). Mr. Jones is the Company's Chairman and Chief Executive Officer. International is owned by Mr. Jones, and it also is one of the Company's largest shareholders. JICI is a wholly owned subsidiary of International. BTH, the Company, International and Mr. Jones are parties to a Shareholders Agreement dated as of December 20, 1994 (the "Shareholders Agreement"). In its complaint, BTH alleges that the defendants have violated the Shareholders Agreement and certain duties allegedly owed to BTH, and conspired with each other to do so. More specifically, BTH claims that under the Shareholders Agreement, the offering of the service known as the "Internet Channel" to the Company's subscribers, and any affiliation agreement between the Company and JICI for the provision of the Internet Channel service, could not proceed without approval of a specific group of directors of the Company, including the three directors designated by BTH. BTH also maintains, in connection with the relationship and proposed affiliate agreement between the Company and JICI, that the defendants have breached a provision of the Shareholders Agreement defining the "Core Business" of the Company. In addition to damages, BTH seeks an injunction prohibiting the Company from making the Internet Channel available to additional subscribers and from entering into an affiliate agreement with JICI for the Internet Channel, as well as other equitable relief. A hearing on the motion of the plaintiff for a preliminary injunction has been set for March 23, 1998. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ------------------------------------------------------------ The annual meeting of the shareholders of the Company was held on November 3, 1997. Proxies for the meeting were solicited pursuant to Regulation 14A under the Exchange Act, there was 28 no solicitation in opposition to the nominees for director listed in the proxy statement and all of such nominees were elected at the meeting. In addition, at the meeting the shareholders voted to ratify the appointment of Arthur Andersen LLP as independent auditors for the Company for the year ending December 31, 1997. The shareholders of the Company also approved a proposal to amend the Company's 1992 Stock Option Plan to increase the number of shares of Class A Common Stock authorized under the Company's 1992 Stock Option Plan from 1,800,000 shares to 2,583,455 shares. The vote on this amendment to the Company's 1992 Stock Option Plan was as follows, with each share of Common Stock being entitled to one vote, and each share of Class A Common Stock being entitled to 1/10 of one vote: CLASS OF SHARES VOTING APPROVING DISAPPROVING ABSTAINING - ---------------------- --------- ------------ ---------- Common Stock 4,171,551 86,317 30,523 Class A Common Stock 2,715,177 497,004 7,344 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED ---------------------------------------------------------- STOCKHOLDER MATTERS ------------------- The Company's Common Stock and Class A Common Stock are traded in the over- the-counter market and authorized for quotation on the National Market System operated by the National Association of Securities Dealers, Inc. (NASDAQ) under the following symbols: Common Stock - JOIN Class A Common Stock - JOINA 29 The following table shows the high and low prices as quoted on the NASDAQ National Market System for each quarterly period of the years ended December 31, 1996 and 1997 for each class of the Company's stock: Common Stock Class A Common Stock ------------------ -------------------- Year Ended 12/31/96 High Low High Low -------- -------- --------- --------- First Quarter 17 12 15 11 7/8 Second Quarter 16 14 14 5/8 13 1/8 Third Quarter 15 1/2 12 14 11 3/8 Fourth Quarter 13 7/8 10 1/4 13 7/8 10 1/8 Common Stock Class A Common Stock ------------------ -------------------- Year Ended 12/31/97 High Low High Low -------- -------- --------- --------- First Quarter 17 12 15 11 7/8 First Quarter 10 7/8 9 1/2 11 9 1/8 Second Quarter 13 7/8 9 1/4 13 3/8 8 1/4 Third Quarter 13 1/2 10 3/4 13 11/16 10 1/2 Fourth Quarter 17 1/2 12 1/8 18 1/8 12 3/8 At December 31, 1997, the Common Stock and Class A Common Stock of the Company were held of record by 663 and 1,351 shareholders, respectively. The Company has never paid a cash dividend with respect to its shares of Common Stock or Class A Common Stock, and it has no present intention to pay cash dividends in the foreseeable future. The current policy of the Company's Board of Directors is to retain earnings to provide funds for the operation and expansion of its business. Future dividends, if any, will be determined by the Board of Directors in light of the circumstances then existing, including the Company's earnings and financial requirements and general business conditions. If cash dividends are paid in the future, the holders of the Class A Common Stock will be paid $.005 per share per quarter in addition to the amount payable per share of Common Stock. Such additional dividends on the Class A Common Stock are not cumulative but would be adjusted appropriately if cash dividends are declared with respect to a period other than a quarterly period. Certain of the Company's debt arrangements restrict the right of the Company to declare and pay cash dividends. Holders of Class A Common Stock have limited voting rights compared to the holders of Common Stock. In all circumstances where the shareholders vote together as a single class, the holders of Class A Common Stock are entitled to one-tenth of a vote per share and the holders of Common Stock are entitled to one vote per share. In addition, the Company's Articles of Incorporation provide that the holders of Class A Common Stock, voting as a separate class, are entitled to elect 25% of the membership of the Board of Directors, and that the holders of Common Stock, voting as a separate class, are entitled to elect 75% of the membership of the Board of Directors. Glenn R. Jones, the Chairman and Chief Executive Officer of the Company, beneficially owns 57% of the voting power of the outstanding Common Stock and 37% of the total voting power of the outstanding Class A Common Stock and Common Stock combined. Thus, Mr. Jones has the 30 power to elect the majority of the members of the Company's Board of Directors and to otherwise effectively control all matters requiring shareholder approval. In addition, BTH beneficially owns 36% of the voting power of the outstanding Class A Common Stock and 15% of the voting power of the Class A Common Stock and Common Stock combined. Also, BTH holds options to purchase 2,878,151 shares of Common Stock of the Company from Mr. Jones and certain of his affiliates, which, if and when exercised, would afford BTH effective control of the Company. Except in limited circumstances, such options will only be exercisable during the 12- month period following December 20, 2001. The voting control of the Company's shares by Mr. Jones and BTH and certain provisions of the Company's Articles of Incorporation may be deemed to have certain anti-takeover effects. This voting control may have the effect of delaying, deferring or preventing a change of control of the Company, including any business combination with an unaffiliated party, impeding the ability of shareholders other than those affiliated with Mr. Jones and BTH to replace management even if factors warrant such a change and affecting the price that investors might be willing to pay in the future for shares of the Company's Class A Common Stock and Common Stock. In addition, the size and the makeup of the Company's Board of Directors are governed by provisions of the Shareholders Agreement. See Item 10, Directors and Executive Officers of the Registrant. 31 Item 6. Selected Financial Data - -------------------------------- The following table sets forth selected financial data regarding the Company's financial position and operating results. This data should be read in conjunction with the Company's consolidated financial statements and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing in Item 7.
1997 1996 1995 1994 1993 --------- --------- ---------- ----------- ----------- (in thousands except per share data) REVENUES: Cable Television Revenue Subscriber service fees $ 333,826 $ 248,626 $ 135,350 $ 103,335 $ 99,438 Management fees 17,253 19,104 21,462 17,952 17,255 Distributions and Brokerage Fees 2,768 15,483 - - - Non-cable Revenue 8,741 28,497 32,026 10,602 7,624 --------- --------- -------- -------- -------- TOTAL REVENUES 362,588 311,710 188,838 131,889 124,317 --------- --------- -------- -------- -------- COSTS AND EXPENSES: Cable Television Expenses Operating expenses 174,967 131,529 77,638 55,196 54,307 General and administrative 19,642 16,586 8,284 8,120 10,034 Non-cable operating, general and administrative 9,297 28,410 32,382 11,810 7,989 --------- --------- -------- -------- -------- OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION 158,682 135,185 70,534 56,763 51,987 DEPRECIATION AND AMORTIZATION 175,839 131,186 55,805 45,585 43,328 --------- --------- -------- -------- -------- OPERATING INCOME (LOSS) $ (17,157) $ 3,999 $ 14,729 $ 11,178 $ 8,659 ========= ========= ======== ======== ======== LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS $ (41,764) $ (62,660) $ (21,024) $ (8,691) $ (36,066) INCOME TAX BENEFIT 3,275 - - - - --------- --------- -------- -------- -------- LOSS BEFORE EXTRAORDINARY ITEMS (38,489) (62,660) (21,024) (8,691) (36,066) EXTRAORDINARY ITEMS- LOSS ON EARLY EXTINGUISHMENT OF DEBT, NET OF TAX (13,459) - (692) - (12,781) --------- --------- -------- -------- -------- NET LOSS $ (51,948) $ (62,660) $ (21,716) $ (8,691) $ (48,847) ========= ========= ======== ======== ======== LOSS PER SHARE: LOSS BEFORE EXTRAORDINARY ITEMS $ (1.11) $ (2.00) $ (.67) $ (.45) $ (2.16) EXTRAORDINARY ITEMS (.39) - (.02) - (.76) --------- --------- -------- -------- -------- $ (1.50) $ (2.00) $ (.69) $ (.45) $ (2.92) ========= ========= ======== ======== ======== LOSS PER SHARE ASSUMING DILUTION LOSS BEFORE EXTRAORDINARY ITEMS $ (1.11) $ (2.00) $ (.67) $ (.45) $ (2.16) EXTRAORDINARY ITEMS (.39) - (.02) - (.76) --------- --------- -------- -------- -------- $ (1.50) $ (2.00) $ (.69) $ (.45) $ (2.92) ========= ========= ======== ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING 34,610 31,372 31,270 19,517 16,728 ======== ========= ======== ======== ======== TOTAL ASSETS $1,371,371 $1,134,129 $ 860,499 $ 608,289 $ 434,298 ========= ========= ======== ======== ======== TOTAL DEBT $1,024,732 $ 806,147 $ 492,714 $ 281,578 $ 372,908 ========= ========= ======== ======== ======== SHAREHOLDERS' INVESTMENT $ 228,518 $ 235,307 $ 292,795 $ 271,284 $ 17,503 ========= ========= ======== ======== ========
32 Item 7. Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations - ------------- FINANCIAL CONDITION The Company is engaged primarily in the cable television business, operating cable systems for itself and for its managed partnerships. The Company is one of the largest cable television system operators in the United States, with owned and managed systems totaling approximately 1.46 million basic subscribers. As of December 31, 1997, on a pro forma basis for all completed and pending acquisitions and sales of cable systems, Company-owned systems served approximately 950,000 basic subscribers and systems held by Company- managed partnerships served approximately 327,000 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 December 31, 1997, 74% 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 93% 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 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, eleven cable television systems serving 390,000 basic subscribers, including the Albuquerque System, the Palmdale System and the Littlerock System which are to be purchased by the Company, were under contract to be sold at March 10, 1998. 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 Virginia/Maryland Cluster. 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 and the sale of the Walnut Valley System, as well as internal subscriber growth, have increased the Company's owned basic subscriber base by approximately 180,000 basic subscribers since January 1, 1997 to approximately 765,000 basic subscribers at December 31, 1997. Such transactions are described in detail in Note 2 of the Notes to Consolidated Financial Statements. 33 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 $11,566,000. 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 agreements to acquire the Albuquerque System for $222,963,267, the Palmdale System for $138,205,200 and the Littlerock System for $10,720,400 because their operating characteristics are similar to the other systems in JCH II. Closing is expected in the second 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 2 of the Notes to Consolidated Financial Statements. From time to time, the Company makes loans to its managed partnerships, although it is not required to do so. As of December 31, 1997, the Company had advanced funds to various managed partnerships totaling approximately $7,783,000, an increase of approximately $3,787,000 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 1998. 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 $133,598,000 during 1997. Of the capital expenditures, $119,251,000 are principally the result of the following: (a) the upgrade and rebuild of the cable plant in the Company's cable television systems in Virginia/Maryland; Savannah, Georgia; Independence, Missouri and Oxnard, California and (b) new extension projects, drop materials, converters and various maintenance projects in the Pima County, Arizona; Augusta, Georgia; and Virginia/Maryland systems. Approximately $14,347,000 of the expenditures was for the development of telephone service in the Virginia/Maryland Cluster. Estimated capital expenditures for 1998 are approximately $165,000,000. These capital expenditures include approximately $49,500,000 for the rebuild of cable plant, approximately $9,600,000 for the development of telephone service and $3,600,000 for the development of digital television. The remaining $102,300,000 is for cable extensions, drop materials and labor, converters, equipment and various enhancements in all of the Company's cable television systems. 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. 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 December 31, 1997 was $343,000,000. 34 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 December 31, 1997 was $128,000,000. This amount was borrowed under the reducing revolving credit facility. On October 16, 1997, the Company sold the cable television system serving areas in and around Walnut Valley, California for $32,493,000 to Century Communications Corp., an unaffiliated party. Proceeds from the sale were used to reduce outstanding indebtedness under the Company's credit facilities. 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 $91,602,000. 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 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 1997, the Company received brokerage fees of $3,695,000, less expenses of $927,000. 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. 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. 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. 35 Impact of the Year 2000 Issue ----------------------------- The Year 2000 issue is the result of many computer programs being written such that they will malfunction when reading a year of "00". This problem could cause system failure or miscalculations causing disruptions of business processes. The Company has initiated an assessment of its computer applications to determine the extent of the problem. Based on this assessment the Company has determined that the majority of its computer applications supporting business processes, including accounting and billing, are designed to handle the Year 2000 appropriately. The Company is currently focusing its efforts on the impact of the Year 2000 issue on service delivery. The Company has established an internal team to address this issue. The Company is identifying and testing all date-sensitive equipment involved in delivering service to its customers. In addition, the Company will assess its options regarding repair or replacement of affected equipment during this testing. The Company currently has no definitive estimate of the cost or the extent of the impact, if any, this problem will have on service delivery, however the Company does not believe that the impact will be material. The Company anticipates completion of its testing in 1998, at which time it will determine the financial impact on the Company. RESULTS OF OPERATIONS Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 --------------------------------------------------------------------- Revenues The Company derives its revenues from four primary sources: subscriber service fees from Company-owned cable television systems, management fees from managed partnerships, fees and distributions paid upon the sale of certain cable television properties owned by managed partnerships and revenues from non-cable television subsidiaries. Total revenues for the year ended December 31, 1997 totaled $362,588,000, an increase of $50,878,000, or 16%, over the total of $311,710,000 for the year ended December 31, 1996. This increase reflects the Company's acquisition of the following cable television systems: the Manassas System on January 10, 1996; the South Prince Georges County System on February 29, 1996; the Reston System on February 29, 1996; the Savannah System 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; (iii) a decrease in management fees due to the sale of certain cable television systems owned by managed partnerships; and (iv) the sale of the Walnut Valley System in August, 1997. 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, the decrease in management fees and the sale of the Walnut Valley System (the "Pro Forma Adjustments"), total revenues would have increased $25,185,000, or 8%. The Company's subscriber service fees for the year ended December 31, 1997 totaled $333,826,000, an increase of $85,200,000 or 34%, over the total of $248,626,000 for the year ended December 31, 1996. The acquisition of the Acquired Systems accounted for $61,397,000, or 72%, of the increase in subscriber service fees. With the Pro Forma Adjustments, subscriber service fees would have increased $23,803,000, or 8%. This increase was due primarily to an increase in the number of basic 36 subscribers and basic service rate adjustments in the cable television systems owned by the Company. Disregarding the effect of acquisitions during 1997, basic subscribers increased 15,116, an increase of 3.1%. The Company receives management fees generally equal to 5% of the gross operating revenues of its managed limited partnerships. Management fees totaled $17,253,000 in 1997, a decrease of $1,851,000, or 10%, over the total of $19,104,000 reported in 1996. The sale of certain systems owned by managed partnerships during 1997 and 1996 caused this decrease. As the Company liquidates its managed partnerships, management fees will continue to decrease. On a pro forma basis, management fees would have increased $1,076,000, or 7%. This increase was due to the revenue growth from basic rate adjustments and increases in the subscriber base of the remaining systems owned by managed partnerships. In its capacity as the general partner of its managed partnerships, the Company may receive general partner distributions upon the sale of certain 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, Ltd.'s Lancaster, New York System in April 1996. No such revenue was received in 1997. In addition, The Jones Group, Ltd., a wholly owned subsidiary of the Company, may earn brokerage fees upon the sale of certain managed cable television systems to third parties. The Company earned brokerage fees of $3,695,000 less expenses of $927,000 during 1997. A brokerage fee of $2,100,000, less expenses of $617,000, was earned in 1996. The Company operates Jones Futurex, Inc. ("Futurex"), a manufacturer of various electronic components. In addition, the Company owned and operated Jones Galactic Radio, Inc. ("Galactic Radio"), until its sale on June 14, 1996 and Jones Satellite Programming, Inc. ("JSP"), a distributor of satellite programming to satellite dish owners, until the sale of its assets on July 31, 1996. Non-cable revenues totaled $8,741,000 in 1997, a decrease of $19,756,000, or 69%, over the $28,497,000 recognized in 1996. This decrease was primarily due to the sales of Galactic Radio and JSP. 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 television entities. The Company is reimbursed by its managed partnerships for costs associated with the administration of the partnerships. The principal administrative 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 totaled $174,967,00 for the year ended December 31, 1997, an increase of $43,438,000, or 33%, over the total of $131,529,000 for the year ended December 31, 1996. The acquisition of the Acquired Systems accounted for $33,024,000, or 76%, of this increase. With the Pro Forma Adjustments, cable operating expenses would have increased $10,414,000, or 6%, for 1997 compared to 1996. This increase was due primarily to increases in basic and tier programming costs. Cable general and administrative expenses totaled $19,642,000 for the year ended December 31, 1997, an increase of $3,056,000, or 18%, over the total of $16,586,000 for the year ended December 31, 1996. This increase was due to the effect of the Acquired Systems. As the Company acquires cable television systems for its own account and sells cable television systems owned by managed partnerships, and thereby transitions from a management company to an operating company, the Company's proportionate percentage of total general and administrative expenses will increase. With the Pro Forma 37 Adjustments, cable general and administrative expenses would have decreased $1,491,000, or 7%, for 1997. This decrease was due to effective cost controls relating to general and administrative expenses. Non-cable operating, general and administrative expenses totaled $9,297,000 for the year ended December 31, 1997, a decrease of $19,113,000, or 67%, over the total of $28,410,000 for the year ended December 31, 1996. This decrease was primarily due to the sales of Galactic Radio and JSP during 1996. Depreciation and amortization expense totaled $175,839,000 for the year ended December 31, 1997, an increase of $44,653,000, or 34%, over the total of $131,186,000 for the year ended December 31, 1996. Depreciation and amortization relating to the Acquired Systems and the $14,228,000 write-off of costs associated with the development of a billing system by an affiliate were primarily responsible for this increase. Operating Income The Company recognized an operating loss of $17,157,000 for the year ended December 31, 1997 compared to operating income of $3,999,000 for the year ended December 31, 1996. This change was due to the increase in depreciation and amortization expense. 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. The value of a cable television company is often expressed using multiples of cable television system cash flow. 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 totaled $158,682,000 for the year ended December 31, 1997, an increase of $23,497,000, or 17%, over the total of $135,185,000 for the year ended December 31, 1996. The effect of the Acquired Systems, which was offset, in part, by the general partner distribution received in 1996, was primarily responsible for this increase. With the Pro Forma Adjustments, operating income before depreciation and amortization would have increased $16,105,000, or 12%. Other Income (Expense) Interest expense totaled $86,764,000 for the year ended December 31, 1997, an increase of $18,982,000, or 28%, over the total of $67,782,000 for the year ended December 31, 1996. This increase was due to higher outstanding balances on the Company's interest bearing obligations. Borrowings were used to fund the acquisition of the Acquired Systems. Interest income totaled $1,451,000 for the year ended December 31, 1997, a decrease of $2,307,000, or 61%, over the total of $3,758,000 for the year ended December 31, 1996. This decrease was due to lower average balances of receivables from managed partnerships and lower effective interest rates. Equity in losses of affiliated entities totaled $3,804,000 for the year ended December 31, 1997 an increase of $331,000, or 10%, over the total of $3,473,000 for the year ended December 31, 1996. This increase was due primarily to an increase in the recognition of losses of the managed partnerships. The Company recognized gains on the sale of assets in 1997 totaling $70,232,000, including the $44,563,000 gain on the sale of its CWC shares, the $2,979,000 gain on the redemption of Global Group Shares, the $1,854,000 gain from insurance and sale proceeds from the Company aircraft and the $20,836,000 gain from the sale of the Walnut Valley System. The Company recognized gains on the sales of assets of $5,262,000 during 1996 from the sale of JSP's assets and the Company's sale of certain marketable securities of an unaffiliated company. 38 Net loss totaled $51,948,000 for the year ended December 31, 1997, a decrease of $10,712,000, or 17%, over the total loss of $62,660,000 for the year ended December 31, 1996. This decrease was due primarily to the gains on the sale of assets 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. Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 - --------------------------------------------------------------------- Revenues Total revenues for the year ended December 31, 1996 totaled $311,710,000, an increase of $122,872,000, or 65%, over the total of $188,838,000 for the year ended December 31, 1995. This increase reflected the Company's acquisition of the following cable television systems: the Augusta System on October 20, 1995; the Dale City System on November 29, 1995; the Manassas System on January 10, 1996; the South Prince Georges County System on February 29, 1996; the Reston System on February 29, 1996; and the Savannah System on April 12, 1996 (the "Acquired Systems"). Disregarding the effect of the Acquired Systems and the sales of Galactic Radio on June 14, 1996, and the assets of JSP on July 31, 1996, total revenues would have increased $11,080,000, or 8%. The Company's subscriber service fees increased $113,276,000, or 84%, to $248,626,000 in 1996 from $135,350,000 in 1995. The acquisition of the Acquired Systems accounted for $104,509,000, or 92%, of the increase in subscriber service fees. Disregarding the effect of the Acquired Systems, subscriber service fees would have increased $8,767,000, or 8%. This increase was due primarily to an increase in the number of basic subscribers and basic service rate adjustments in the cable television systems owned by the Company. The Company receives management fees generally equal to 5% of the gross operating revenues of its managed limited partnerships. Management fees totaled $19,104,000 in 1996, a decrease of $2,358,000, or 11%, over the total of $21,462,000 reported in 1995. The sale of certain systems owned by managed partnerships during 1995 and 1996 caused this decrease. On a pro forma basis, management fees would have increased $985,000, or 6%. This increase was due to the revenue growth from basic rate adjustments and increases in the subscriber base of the remaining systems owned by managed partnerships. The Company received a general partner distribution of $14,000,000 upon the sale of Cable TV Fund 11-B, Ltd.'s Lancaster, New York System in April 1996. No such revenue was recognized during 1995. The Company earned brokerage fees of $2,100,000, less expenses of $617,000, upon the sale of Cable TV Fund 11-B, Ltd.'s Lancaster, New York System in April 1996. No such fees were recognized during 1995. Non-cable revenues totaled $28,497,000 in 1996, a decrease of $3,529,000, or 11%, over the $32,025,000 recognized in 1995. This decrease was primarily due to the sales of Galactic Radio and JSP. Costs and Expenses Cable operating expenses increased $53,891,000, or 69%, to $131,529,000 in 1996 from $77,638,000 in 1995. The acquisition of the Acquired Systems accounted for $49,396,000, or 92%, of this 39 increase. Disregarding the effect of the Acquired Systems, cable operating expenses would have increased $5,095,000, or 8%, for 1996 compared to 1995. This increase was due primarily to increases in basic and tier programming costs. Cable general and administrative expenses increased $8,302,000, or 100%, to $16,586,000 in 1996 from $8,284,000 in 1995. This increase was due to the effect of the Acquired Systems. As the Company acquires cable television systems for its own account and sells cable television systems owned by managed partnerships, and thereby transitions from a management company to an operating company, the Company's proportionate percentage of total general and administrative expenses will increase. Disregarding the effect of the Acquired Systems, cable general and administrative expenses would have decreased $682,000, or 8%, for 1996. This decrease was due to effective cost controls relating to general and administrative expenses. Non-cable operating, general and administrative expenses decreased $3,972,000, or 12%, to $28,410,000 in 1996 from $32,382,000 in 1995. This decrease was primarily due to the sales of Galactic Radio and JSP during 1996. Depreciation and amortization expense increased $75,381,000, or 135%, to $131,186,000 in 1996 from $55,805,000 in 1996. Depreciation and amortization relating to the Acquired Systems as well as the accelerated depreciation of certain cable plant being rebuilt in Company-owned cable television systems were primarily responsible for this increase. Operating Income Operating income decreased $10,730,000, or 73%, to $3,999,000 in 1996 from $14,729,000 in 1995. This decrease was due primarily to the increase in depreciation and amortization expense. Operating income before depreciation and amortization increased $64,651,000, or 92%, to $135,185,000 in 1996 from $70,534,000 in 1995. The Acquired Systems and the distribution and brokerage fee relating to the sale of Cable TV Fund 11-B, Ltd.'s Lancaster, New York System were primarily responsible for this increase. Disregarding the effect of the Acquired Systems and the Company's receipt of the distribution and brokerage fee, operating income before depreciation and amortization would have increased $6,507,000, or 12%. Other Income (Expense) Interest expense increased $18,230,000, or 37%, to $67,782,000 in 1996 from $49,552,000 in 1995. This increase was due to higher outstanding balances on the Company's revolving credit facilities because borrowings were used to purchase the Acquired Systems. Interest income decreased $10,625,000, or 74%, to $3,758,000 in 1996 from $14,383,000 in 1995. This decrease was due to a reduction in cash and cash equivalents. Such cash and cash equivalents were used to purchase the Acquired Systems. Equity in losses of affiliated entities increased $3,415,000 to $3,473,000 in 1996 from $58,000 in 1995. This increase was due primarily to an increase in the recognition of losses of Jones Customer Service Management, L.L.C., an affiliate that is developing a subscriber billing and management system. The Company recognized gains on the sales of assets of $5,262,000 during 1996. Such gains resulted from the sale of JSP's assets and the Company's sale of certain marketable securities of an unaffiliated company. No such gain was recognized during 1995. 40 Net loss increased $40,944,000, or 189%, to $62,660,000 in 1996 from $21,716,000 in 1995. This increase was due primarily to the increase in depreciation and amortization expense related to the Acquired Systems. 41 Item 8. Financial Statements and Supplementary Data ------------------------------------------- INDEX TO FINANCIAL STATEMENTS Page ----
Report of Independent Public Accountants 43 Consolidated Balance Sheets 44 Consolidated Statements of Operations 46 Consolidated Statements of Shareholders' Investment 47 Consolidated Statements of Cash Flows 48 Notes to Consolidated Financial Statements 49
42 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO JONES INTERCABLE, INC.: We have audited the accompanying consolidated balance sheets of JONES INTERCABLE, INC. (a Colorado corporation) and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' investment and cash flows for each of the three years in the period ended December 31, 1997. 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 Intercable, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Denver, Colorado March 10, 1998 ARTHUR ANDERSEN LLP 43 CONSOLIDATED BALANCE SHEETS Jones Intercable, Inc. As of December 31, 1997 and 1996 and Subsidiaries - --------------------------------------------------------------------------------
ASSETS 1997 1996 (Stated in Thousands) - ------------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS $ 3,595 $ 2,687 RECEIVABLES: Trade receivables, net of allowance for doubtful accounts of $1,692,000 in 1997 and $1,483,000 in 1996 27,268 16,327 Affiliated entities 7,783 3,996 Other 1,418 962 INVESTMENT IN CABLE TELEVISION PROPERTIES: Property, plant and equipment, at cost 745,115 569,148 Less - Accumulated depreciation (224,893) (184,738) ---------- --------- 520,222 384,410 Franchise costs and other intangible assets, net of accumulated amortization of $285,212,000 in 1997 and $219,783,000 in 1996 721,336 492,219 Investments in affiliates and domestic cable television partnerships 24,568 31,483 Investment in Bell Cablemedia plc - 111,767 ---------- --------- TOTAL INVESTMENT IN CABLE TELEVISION PROPERTIES 1,266,126 1,019,879 ---------- --------- DEFERRED TAX ASSET, net of valuation allowance of $84,473,000 in 1997 and $68,768,000 in 1996 7,137 3,862 DEPOSITS, PREPAID EXPENSES AND OTHER ASSETS 58,044 86,416 ---------- --------- TOTAL ASSETS $1,371,371 $1,134,129 ========== ==========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 44 CONSOLIDATED BALANCE SHEETS Jones Intercable, Inc. As of December 31, 1997 and 1996 and Subsidiaries - --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT 1997 1996 (Stated in Thousands) - -------------------------------------------------------------------------------------------- LIABILITIES: Accounts payable and accrued liabilities $ 115,189 $ 89,563 Subscriber prepayments and deposits 2,932 3,112 Subordinated debentures and other debt 553,732 463,147 Credit facilities 471,000 343,000 --------- --------- TOTAL LIABILITIES 1,142,853 898,822 --------- --------- COMMITMENTS AND CONTINGENCIES (Notes 2, 4 and 11) SHAREHOLDERS' INVESTMENT: Class A Common Stock, $.01 par value, 60,000,000 shares authorized; 35,554,223 and 26,264,523 shares issued at December 31, 1997 and 1996, respectively 356 263 Common Stock, $.01 par value, 5,550,000 shares Authorized; 5,113,021 shares issued at December 31, 1997 and 1996 51 51 Additional paid-in capital 487,616 395,278 Unrealized holding gain on marketable securities - 47,272 Accumulated deficit (259,505) (207,557) --------- --------- TOTAL SHAREHOLDERS' INVESTMENT 228,518 235,307 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 1,371,371 $ 1,134,129 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 45 CONSOLIDATED STATEMENTS OF OPERATIONS Jones Intercable, Inc. For the years ended December 31, 1997, 1996 and 1995 and Subsidiaries - --------------------------------------------------------------------------------
1997 1996 1995 (In Thousands Except Per Share Data) - ------------------------------------------------------------------------------------------------ REVENUES FROM OPERATIONS: Cable Television Revenue Subscriber service fees $ 333,826 $ 248,626 $ 135,350 Management fees 17,253 19,104 21,462 Distributions and Brokerage Fees 2,768 15,483 - Non-cable Revenue 8,741 28,497 32,026 ------- ------- ------- TOTAL REVENUES 362,588 311,710 188,838 COSTS AND EXPENSES: Cable Television Expenses Operating expenses 174,967 131,529 77,638 General and administrative expenses (including approximately $4,925,000, $4,309,000 and $2,717,000 of related party expenses during the years ended December 31, 1997, 1996 and 1995, respectively) 19,642 16,586 8,284 Non-cable operating, general and administrative 9,297 28,410 32,382 Depreciation and amortization 175,839 131,186 55,805 ------- ------- ------- OPERATING INCOME (LOSS) (17,157) 3,999 14,729 OTHER INCOME (EXPENSE): Interest expense (86,764) (67,782) (49,552) Interest income 1,451 3,758 14,383 Equity in losses of affiliated entities (3,804) (3,473) (58) Gain on sale of assets 70,232 5,262 - Other, net (5,722) (4,424) (526) ------- ------- ------- LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (41,764) (62,660) (21,024) Income tax benefit 3,275 - - ------- ------- ------- LOSS BEFORE EXTRAORDINARY ITEM (38,489) (62,660) (21,024) EXTRAORDINARY ITEM: Loss on early extinguishment of debt, net of related income taxes (13,459) - (692) ------- ------- ------- NET LOSS $ (51,948) $ (62,660) $ (21,716) ======= ======= ======= LOSS PER SHARE: Loss before extraordinary item $ (1.11) $ (2.00) $ (.67) Extraordinary item (.39) - (.02) ------- ------- ------- Net loss $ (1.50) $ (2.00) $ (.69) ======= ======= ======= LOSS PER SHARE assuming dilution Loss before Extraordinary Item $ (1.11) $ (2.00) $ (.67) Extraordinary Item (.39) (.02) ------- ------- NET LOSS $ (1.50) $ (2.00) $ (.69) ======= ======= ======= WEIGHTED AVERAGE NUMBER OF CLASS A COMMON AND COMMON SHARES OUTSTANDING 34,610 31,372 31,270 ======= ======= =======
The accompanying notes to consolidated financial statements are an integral part of these statements. 46 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT Jones Intercable, Inc. For the years ended December 31, 1997, 1996 and 1995 and Subsidiaries - --------------------------------------------------------------------------------
Unrealized Holding Class A Common Stock Common Stock Additional Gain on -------------------- --------------- Paid-In Marketable Accumulated Shares Amount Shares Amount Capital Securities Deficit (Stated in Thousands) - --------------------------------------------------------------------------------------------------------------- BALANCES, December 31, 1994 26,131 $ 261 5,113 $ 51 $ 394,153 $ - $ (123,181) Proceeds from stock options exercised 81 1 - - 461 - - Class A Stock Option Grants - - - - 261 - - Unrealized holding gain on - - - - - 42,504 marketable securities Net loss - - - - - - (21,716) ------ ------- ------ ----- ------ ------- ------- BALANCES, December 31, 1995 26,212 262 5,113 51 394,875 42,504 (144,897) Proceeds from stock options exercised 52 1 - - 142 - - Class A Common Stock Grants - - - - 261 - - Unrealized holding gain on marketable securities - - - - - 4,768 - Net loss - - - - - - (62,660) ------ ------- ------ ----- ------ ------- ------- BALANCES, December 31, 1996 26,264 263 5,113 51 395,278 47,272 (207,557) Proceeds from stock options exercised 90 1 - - 567 - - Proceeds from Class A stock offering 9,200 92 - - 91,510 - - Class A Common Stock Grants - - - - 261 - - Unrealized holding gain on marketable securities - - - - - (47,272) - Net loss - - - - - - (51,948) ------ ------- ------ ----- ------ ------- ------- BALANCES, December 31, 1997 35,554 $ 356 5,113 $ 51 $ 487,616 $ - $ (259,505) ======= ======= ====== ===== ======= ======= =======
The accompanying notes to consolidated financial statements are an integral part of these statements. 47 CONSOLIDATED STATEMENTS OF CASH FLOWS Jones Intercable, Inc. For the years ended December 31, 1997, 1996 and 1995 and Subsidiaries - --------------------------------------------------------------------------------
1997 1996 1995 (Stated in Thousands) - ------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (51,948) $ (62,660) $ (21,716) Adjustments to reconcile net loss to net cash provided by operating activities: Extraordinary loss on early extinguishment of debentures, net of related income taxes 13,459 - 692 Class A Common Stock option expense 261 261 261 Gain on sale of assets (70,232) (5,262) - Deferred Income tax benefit (3,275) - - Depreciation and amortization 175,839 131,186 55,805 Equity in losses of affiliated entities 3,804 3,473 58 Decrease (Increase) in restricted cash 1,016 5,341 (8,574) Decrease (Increase) trade receivables (10,941) 1,418 (7,549) Increase in other receivables, deposits, prepaid expenses and other assets (4,107) (18,529) (14,526) Increase in accounts payable, accrued liabilities and subscriber prepayments and deposits 25,446 17,672 19,040 -------- --------- -------- Net cash provided by operating activities 79,322 72,900 23,491 -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of cable television systems (379,393) (298,929) (253,724) Deposit on cable television systems - (12,000) - Proceeds from sale of assets 142,991 5,262 - Purchase of property and equipment (133,598) (95,900) (63,216) Investment in cable television partnerships and affiliates - - (4,200) Other, net 932 4,133 (304) -------- --------- -------- Net cash used in investing activities (369,068) (397,434) (321,444) -------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 570,500 506,000 30,000 Repayment of debt (442,500) (193,000) - Proceeds from issuance of Class A Common Stock 91,602 - - Proceeds from Senior Note Offering, net of discount 248,600 - 200,000 Senior Note offering costs (4,498) - (3,500) Proceeds from Class A Common Stock options 568 143 462 Decrease (increase) in accounts receivable from affiliated entities (3,787) 10,315 13,712 Redemption of debentures (170,800) - (19,368) Other, net 1,985 433 315 -------- --------- -------- Net cash provided by financing activities 291,670 323,891 221,621 -------- --------- -------- Increase (decrease) In Cash and Cash Equivalents 1,924 (643) (76,332) Cash and Cash Equivalents, beginning of year 1,671 2,314 78,646 -------- --------- -------- Cash and Cash Equivalents, end of year $ 3,595 $ 1,671 $ 2,314 ======== ======= ========
The accompanying notes to consolidated financial statements are an integral part of these statements. 48 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Jones Intercable, Inc. was formed in 1970 to own, operate and manage cable television systems. Jones Intercable, Inc. and its subsidiaries are referred to herein as the "Company." As of December 31, 1997, through a total of 39 owned and managed cable television systems, the Company served approximately 1.46 million subscribers in the United States. A majority of the Company's cable television systems are owned by the Company's wholly owned subsidiaries Jones Cable Holdings, Inc. ("JCH") and Jones Cable Holdings II, Inc. ("JCH II"). JCH owns and operates the cable television systems that comprise the Company's Virginia/Maryland cluster. The Virginia/Maryland cluster is comprised of: the Chesapeake Bay Group of cable systems that serve customers in communities in and around Anne Arundel County and Charles County, Maryland, including the City of Annapolis; the Prince Georges County, Maryland system that services all of Prince Georges County, Maryland; the Alexandria, Virginia system; and the Prince William County system that serves the communities of Dale City, Manassas and Reston, Virginia. JCH II owns and operates the Company's suburban cluster of cable systems serving areas in and around Augusta and Savannah, Georgia, Pima County, Arizona and Independence, Missouri. It is anticipated that JCH II will acquire the cable system serving Albuquerque, New Mexico in the second quarter of 1998, and that it will acquire the cable television systems serving areas in and around Palmdale, California and Littlerock, California in the fourth quarter of 1998. The Company directly owns and operates the cable television systems serving Manitowoc, Wisconsin, Oxnard, California and Panama City Beach and Celebration, Florida. Glenn R. Jones, Chairman and Chief Executive Officer of the Company, controls the election of a majority of the Company's Board of Directors, through his ownership of a majority of the Company's outstanding Common Stock. BCI Telecom Holding, Inc. ("BTH") owns an approximate 31% economic interest in the Company through its ownership of approximately 36% of the Class A Common Stock of the Company. BTH is a subsidiary of BCE Inc., Canada's largest telecommunications company. On December 20, 1994, Jones International, Ltd. ("International"), which is wholly owned by Glenn R. Jones, Chairman and Chief Executive Officer of the Company, as well as certain subsidiaries of International, and Mr. Jones individually, granted BTH options to acquire 2,878,151 shares of the Common Stock of the Company. Except in limited circumstances, the option will only be exercisable during the twelve month period after December 20, 2001. The exercise of such options would result in BTH holding a sufficient number of shares of the Common Stock of the Company to enable BTH to elect a majority of the Company's Board of Directors. 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 $91,602,000. The proceeds were used to fund a portion of the purchase of the Independence System. Effective Registration Statement The Company has an effective registration statement relating to the sale of $500 million of senior debt securities, senior subordinated debt securities, subordinated debt securities and Class A Common Stock. The Company, from time to time, may issue securities not to exceed $500 million pursuant to this registration statement. 49 Summary of Significant Accounting Policies Basis of Presentation The Company changed its fiscal year end from May 31 to December 31, effective December 31, 1995. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company's investments in affiliates and domestic cable television partnerships (Note 4) are carried at cost plus equity in profits and losses. All significant intercompany transactions have been eliminated in consolidation. Statements of Cash Flows The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Income taxes and interest paid during the periods presented are as follows: December 31, ------------------------------- 1997 1996 1995 ------ ------ ------ (Stated in Thousands) Income taxes $ - $ - $ - ====== ====== ====== Interest $ 86,584 $ 67,441 $ 43,079 ====== ====== ====== Non-cash transactions: As described in Note 4, on April 25, 1997, the Company tendered its Bell Cablemedia plc ("Bell Cablemedia") shares in exchange for shares of Cable & Wireless Communications plc ("CWC"). As described in Note 4, on December 23, 1996, the Company redeemed 225 shares of Jones Global Group, Inc. ("Global Group") in exchange for a $8,950,188 note receivable. As described in Note 2, on June 14, 1996, the Company sold Jones Galactic Radio, Inc. ("Galactic Radio") to Global Group. The sales price of $17.2 million was paid in the form of 984,968 American Depositary Shares ("ADSs") of Bell Cablemedia. As described in Note 4, on April 11, 1995, the Company converted its $20,000,000 in advances to Knowledge TV, Inc. ("Knowledge TV"), an affiliate of the Company and a subsidiary of Jones Education Group, Ltd. ("Education Group"), into Class A Common Shares of Education Group. During 1997, 1996 and 1995, the Company recorded $261,000, $261,000 and $261,000, respectively, of Additional Paid-in Capital related to Class A Common Stock option grants as discussed in Note 9. 50 Property, Plant and Equipment Depreciation of property, plant and equipment is provided using the straight-line method over the following estimated service lives: Distribution systems including capitalized interest and operating expenses 5-15 years Buildings 10-20 years Equipment and tools 3- 5 years Premium service equipment 5 years Earth receive stations 5-15 years Vehicles 3- 4 years Other property, plant and equipment 3- 5 years 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 value at the date of acquisition and amortized over the remaining terms of the franchises. Amortization is determined using the straight-line method over lives of one to 18 years. Cost in Excess of Interests in Net Assets Purchased The cost of acquisitions in excess of the fair values of net assets acquired is being amortized using the straight-line method over a 40-year life. The Company assesses the realizability of these assets through periodic independent appraisals. Any impairments are recognized as an expense on the Company's Consolidated Statements of Operations. Deferred Financing Costs Costs incurred in connection with the issuance of notes and debentures and the execution of revolving credit agreements are deferred and amortized using the effective interest method over the life of such issues and agreements. Distributions from Managed Partnerships Distributions earned by the Company as general partner of its managed partnerships from cable television properties sold by such partnerships to unaffiliated parties are recorded as revenues when received. Distributions earned by the Company as general partner of its managed partnerships from cable television properties sold by such partnerships to the Company are treated as a reduction of the purchase price of the cable television systems. Distributions earned by the Company as general partner of its managed partnerships from cable television properties sold by such partnerships to entities in which the Company has a continuing equity interest are deferred and recognized as revenue in future periods. 51 Earnings Per Share of Class A Common Stock and Common Stock Net loss per share of Class A Common Stock and Common Stock is based on the weighted average number of shares outstanding during the periods presented. Common stock equivalents were not significant to the computation of primary earnings per share. Treasury Stock Shares held in treasury have been retired and classified as authorized but unissued shares in accordance with the Colorado Business Corporation Act. 2. ACQUISITIONS, EXCHANGES AND SALES Acquisitions by the Company --------------------------- On August 31, 1997, the Company, through JCH II, 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 approximately $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 1 and borrowings from JCH II's credit facility. On June 30, 1997, the Company purchased from Cable TV Joint Fund 11 ("Joint Fund 11"), 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 comprised Joint Fund 11, 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 approximately $11,566,000 was provided by borrowings under the Company's credit facilities. On January 31, 1997, the Company, through JCH, 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 was contiguous to the South Prince Georges County System which was already owned by the 52 Company. The Company has combined the North Prince Georges County System and the South Prince Georges County System and thus the Company now serves all of Prince Georges County, Maryland in the northern suburbs of Washington, D.C. The Prince Georges County System is operated as part of the Virginia/Maryland Cluster. On April 11, 1996, the Company purchased from Jones Spacelink Income/Growth Fund 1-A, Ltd., a Colorado limited partnership managed by the Company, the cable television system serving the areas in and around Lake Geneva, Wisconsin (the "Lake Geneva System"). The purchase price was $6,345,667, which was the average of three separate independent appraisals of the fair market value of the Lake Geneva System. The purchase of the Lake Geneva System was funded by borrowings available under JCH's revolving credit facility. On April 11, 1996, the Company purchased from Jones Spacelink Income/Growth Fund 1-A, Ltd., a Colorado limited partnership managed by the Company, the cable television system serving the areas in and around Ripon, Wisconsin (the "Ripon System"). The purchase price was $3,712,667, which was the average of three separate independent appraisals of the fair market value of the Ripon System. The purchase of the Ripon System was funded by borrowings available under JCH's revolving credit facility. On April 11, 1996, the Company purchased from Jones Spacelink Income Partners 87-1, L.P., a Colorado limited partnership managed by the Company, the cable television systems serving the communities of Lodi, Burbank, Lafayette Township, New London, Bailey Lakes, Savannah, Shreve, Jeromesville, West Lafayette, Loudonville, Perrysville, Creston, Gloria Glens, Sterling, Seville, Westfield Center, Chippewa, Lake Area, Rittman, West Salem, Bloomville, Spencer, Polk and Congress, all in the State of Ohio (the "Lodi System"). The purchase price was $25,706,000, which was the average of three separate independent appraisals of the fair market value of the Lodi System. The purchase of the Lodi System was funded by borrowings available under JCH's revolving credit facility. On February 28, 1996, the Company purchased from IDS/Jones Growth Partners 87-A, Ltd., a Colorado limited partnership managed by the Company, the cable television system serving areas in and around Carmel, Indiana (the "Carmel System"). The purchase price was $44,235,333, which was the average of three separate independent appraisals of the fair market value of the Carmel System. The purchase of the Carmel System was funded by borrowings available under JCH's revolving credit facility. On February 28, 1996, the Company purchased from Jones Cable Income Fund 1- B, Ltd., a Colorado limited partnership managed by the Company, the cable television system serving areas in and around Orangeburg, South Carolina (the "Orangeburg System"). The purchase price was $18,347,667, which was the average of three separate independent appraisals of the fair market value of the Orangeburg System. The purchase of the Orangeburg System was funded by borrowings available under JCH's revolving credit facility. On February 28, 1996, the Company purchased from Cable TV Fund 12-BCD Venture (the "Venture"), a joint venture of three of the Company's managed limited partnerships, the cable television system serving areas in and around Tampa, Florida (the "Tampa System"). The purchase price was $110,395,667, which was the average of three separate independent appraisals of the fair market value of the Tampa System. The purchase of the Tampa System was funded by borrowings available under JCH's revolving credit facility. See Note 11. On January 10, 1996, the Company purchased the cable television systems serving Manassas, Manassas Park, Haymarket and portions of unincorporated Prince William County, all 53 in the State of Virginia (the "Manassas System") from an unaffiliated party. The purchase price of the Manassas System was $71,100,000. The purchase was funded by borrowings available under JCH's revolving credit facility. The Company paid Financial Group a fee of $896,000 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 Manassas System is now operated as part of the Prince William County System in the Virginia/Maryland Cluster. On November 29, 1995, the Company purchased the cable television system serving Dale City, Lake Ridge, Woodbridge, Fort Bevoir, Triangle, Dumfries, Quantico, Accoquan and portions of Prince William County, all in the state of Virginia (the "Dale City System") from an unaffiliated party. The purchase price was $123,000,000. The purchase was funded by cash on hand and borrowings available under JCH's credit facility. The Company paid Financial Group a fee of $1,328,400 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 brokers. The Dale City System is now operated as part of the Prince William County System in the Virginia/Maryland Cluster. On October 20, 1995, the Company purchased the cable television system serving areas in and around Augusta, Georgia (the "Augusta System") from Cable TV Fund 12-B, Ltd. ("Fund 12-B"), a Colorado limited partnership managed by the Company. The purchase price was $142,618,000. The purchase price was determined by averaging three separate independent appraisals of the fair market value of the Augusta System. The Company, as general partner of Fund 12-B, received a $13,222,000 distribution from Fund 12-B upon the closing of this transaction. Such distribution reduced the Company's cost basis in the assets of the Augusta System. Funding for this transaction was provided by cash on hand. Exchanges --------- On April 15, 1997, the Company, through JCH, conveyed to an affiliate of Tele-Communications, Inc. the cable television systems serving areas in and around Evergreen, Idaho Springs and portions of 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. On April 12, 1996, the Company, pursuant to an asset exchange agreement (the "Time Warner Exchange Agreement") with Time Warner Entertainment Company, L.P. ("Time Warner"), an unaffiliated cable television operator, conveyed to Time Warner the cable television systems serving Hilo, Hawaii (the "Hilo System") and Kenosha, Wisconsin (the "Kenosha System") as well as the Lodi System, the Ripon System, the Lake Geneva System and cash in the amount of $11,735,667. In return, the Company received from Time Warner the cable television systems serving the communities in and around Savannah, Georgia (the "Savannah System"). This transaction was considered a non-monetary exchange of similar productive assets for accounting purposes and the Savannah System was recorded at the historical cost of the assets given up plus the $11,735,667 cash consideration, which was funded by borrowings available under JCH's revolving credit facility. The Company paid Financial Group a $1,286,000 fee upon the completion of this transaction as compensation to it for acting 54 as the Company's financial advisor. All fees paid to Financial Group by the Company are based upon 90% of the estimated commercial rate charged by unaffiliated financial advisors. On February 29, 1996, the Company, pursuant to an asset exchange agreement (the "TWEAN Exchange Agreement") with Time Warner Entertainment-Advance/Newhouse Partnership ("TWEAN"), an unaffiliated cable television system operator, conveyed to TWEAN the Carmel System, the Orangeburg System and the Tampa System and cash in the amount of $3,500,000. In return, the Company received from TWEAN the cable television systems serving Andrews Air Force Base, Capitol Heights, Cheltenham, District Heights, Fairmount Heights, Forest Heights, Morningside, Seat Pleasant, Upper Marlboro, and portions of Prince Georges County, all in Maryland (the "South Prince Georges County System"), and portions of Fairfax County, Virginia (the "Reston System"). This transaction was considered a non-monetary exchange of similar productive assets for accounting purposes and the South Prince Georges County System and the Reston System were recorded at the historical cost of the assets given up plus the $3,500,000 cash consideration, which was funded by borrowings available under JCH's revolving credit facility. The Company paid Financial Group a $1,668,000 fee upon the completion of this transaction as compensation to it for acting as the Company's financial advisor. All fees paid to Financial Group by the Company are based upon 90% of the estimated commercial rate charged by unaffiliated financial advisors. The South Prince Georges County System is now operated as part of the Prince Georges County System in the Virginia/Maryland Cluster. The Reston System is now operated as part of the Chesapeake Bay Group in the Virginia /Maryland Cluster. Sales ----- On October 16, 1997, the Company sold the cable television system serving areas in and around Walnut Valley, California (the "Walnut Valley System") for $32,493,000 to Century Communications Corp., an unaffiliated party. The sales price represented the contract price of $33,493,000, less a purchase price adjustment of $1,000,000. The Company recognized a pre-tax gain of approximately $20,836,000 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 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 July 31, 1996, the Company sold the assets of Jones Satellite Programming, Inc. ("JSP"), a wholly owned subsidiary, to an unaffiliated party for $2,873,871. The Company recorded a gain of approximately $2,873,000 upon the closing of this sale. JSP provided satellite programming to satellite dish owners. On June 14, 1996, the Company completed the sale of Galactic Radio to Global Group for $17.2 million. Global Group subsequently sold Galactic Radio to another affiliate of International. The Company's Board of Directors requested and received a fairness opinion related to this sale from an unaffiliated investment banking firm. The sales price was paid in the form of 984,968 ADSs of Bell Cablemedia. The number of ADSs represented the purchase price 55 of $17.2 million divided by the 30-day average closing price of an ADS for the 30-day period immediately preceding the closing date. Due to the related party nature of this transaction, no gain was reflected in the accompanying financial statements. The pro forma effect of the above-described acquisitions, exchanges and sales of cable television properties and the sales of non-strategic subsidiaries on the Company's results of operations for the years ended December 31, 1997 and 1996 as if the transactions occurred on January 1 of the years presented in the following unaudited tabulation:
For the year ended December 31, 1997: ---------------------------------------------------- Acquisitions/ As Reported Exchanges Sales Pro Forma ------------ ---------- ----------- --------- Revenues $ 362,588 $ 28,141 $ (7,408) $ 383,321 ======= ====== ======= ======= Operating Income (Loss) $ (17,157) $ 21 $ (1,416) $ (18,552) ======= ====== ======= ====== Net Loss $ (51,948) $ (7,567) $ (62,679) $(122,194) ======= ====== ======= ======= Loss Per Share $ (1.50) $ (3.53) ======= ====== For the year ended December 31, 1996: ---------------------------------------------------- Acquisitions/ As Reported Exchanges Sales Pro Forma ------------ ---------- ----------- --------- Revenues $ 311,710 $ 98,754 $ (23,795) $ 386,669 ======= ======= ======= ====== Operating Income (Loss) $ 3,999 $ (3,196) $ (3,135) $ (2,332) ======= ======= ======= ====== Net Loss $ (62,660) $(23,028) $ (1,185) $ (86,873) ======= ======= ======= ====== Loss Per Share $ (2.00) $ (2.77) ======= ======
Proposed Acquisitions by the Company ------------------------------------ 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 second 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 56 partnerships that comprise the Venture and the consents of governmental authorities and other third parties. In March 1998, the Company entered into an agreement with the Venture to purchase the cable television systems serving areas in and around Palmdale and Lancaster, California (the "Palmdale/Lancaster System") for a purchase price of $138,205,200 subject to customary closing adjustments. The purchase price represents the average of three independent appraisals of the fair market value of the Palmdale/Lancaster System. Upon closing, the Company anticipates that it will receive, from the three partnerships that comprise the Venture, general partner distributions totaling approximately $24,000,000, which will reduce the Company's basis in the assets of the Palmdale/Lancaster System. Funding for this transaction is expected to be provided by borrowings available under JCH II's credit facility. The closing of this transaction, which is expected to occur in the third quarter of 1998, is subject to a number of conditions including the approval of the transaction by the holders of a majority of the limited partnership interests of each of the three partnerships that comprise the Venture; the expiration or termination of all waiting periods under the Hart Scott Rodino Anti-Trust Improvements Act of 1976 applicable to the agreement or the transactions contemplated thereby; and the receipt of consents of governmental authorities and other third parties. Also in March 1998, the Company entered into an agreement with Cable TV Fund 14-B, Ltd. (Fund 14-B) to purchase the cable television system serving areas in and around Littlerock, California (the "Littlerock System") for a purchase price of $10,720,400, subject to customary closing adjustments. The purchase price represents the average of three independent appraisals of the fair market value of the Littlerock System. Funding for this transaction is expected to be provided by borrowings available under JCH II's credit facility. The closing of this transaction, which is expected to occur concurrently with the closing of the purchase by the Company of the Palmdale/Lancaster System in the third quarter of 1998, is subject to a number of conditions including the approval of the transaction by the holders of a majority of the limited partnership interests of Fund 14-B, the expiration or termination of all waiting periods under the Hart Scott Rodino Anti-Trust Improvements Act of 1976 applicable to the agreement or the transactions contemplated thereby; and the receipt of consents of governmental authorities and other third parties. 3. TRANSACTIONS WITH RELATED PARTIES The Company and the managed partnerships for which the Company is general partner (see Note 5) have had, and will continue to have, certain transactions with International and its other subsidiaries. Principal recurring transactions are as follows: Costs Shared by the Company and Managed Partnerships Jones Interactive, Inc. ("Jones Interactive"), a wholly owned subsidiary of International, provides information management and data processing services for operating companies affiliated with International. Charges to the various operating companies are based on usage of computer time by each entity. Amounts charged to the Company and its managed partnerships for the years ended December 31, 1997, 1996 and 1995 totaled $5,454,000, $5,784,000 and $6,439,000, respectively. The Company is party to a lease with Jones Properties, Inc., a wholly owned subsidiary of International, under which the Company has leased a 101,500 square foot office building in Englewood, Colorado. The lease agreement, as amended, has a 15-year term, expiring July 2000, with three 5-year renewal options. The annual rent is not to exceed $24.00 per square foot 57 plus operating expenses. The Company has subleased approximately 44% of the building to International and certain affiliates of International on the same terms and conditions as the above described lease. Rent payments to Jones Properties, Inc., net of subleasing reimbursements, for the three years ended December 31, 1997, 1996 and 1995 were $1,345,000, $1,467,000 and $1,645,000, respectively. Upon the closing of the BTH investment in December 1994, the Company entered into a Secondment Agreement with BTH. Pursuant to the Secondment Agreement, BTH provided a total of 12 secondees during 1997. These secondees worked for the Company and its managed partnerships. The Company reimbursed BTH for the full employment costs of such individuals. The Company reimbursed BTH $1,180,000, $1,138,000 and $823,000 during the years ended December 31, 1997, 1996 and 1995, respectively. The Company paid approximately 47%, 40% and 25% of the above-described data processing, rental and secondment expenses during the years ended December 31, 1997, 1996 and 1995, respectively. The remainder of the expenses were allocated to and paid by the managed partnerships. Costs Borne and Payments Received by the Company The Company receives satellite programming from Knowledge TV, an affiliate of International. See Note 4. Payments made to Knowledge TV for programming provided to the Company's owned cable television systems for the years ended December 31, 1997, 1996 and 1995 totaled approximately $411,200, $302,600 and $192,600, respectively. The Company received satellite programming from Jones Computer Network, Ltd., a wholly owned subsidiary of Education Group, through April, 1997. See Note 4. Payments made to Jones Computer Network, Ltd. for programming provided to the Company's owned cable television systems for the years ended December 31, 1997, 1996 and 1995 totaled approximately $222,800, $515,400 and $298,000, respectively. The Company receives satellite programming from Great American Country, Inc., an affiliate. Payments made to Great American Country, Inc. for programming provided to the Company's owned cable television systems for the years ended December 31, 1997 and 1996 totaled approximately $313,000 and $281,000, respectively. No payment was made to Great American Country, Inc. for the year ended December 31, 1995. The Company also receives satellite programming from Superaudio, an affiliate of Galactic Radio. The Company sold Galactic Radio to an affiliate of International on June 14, 1996. See Note 2. Payments made to Galactic Radio for programming provided to the Company's owned cable television systems for the year ended December 31, 1997 and for the period from June 15, 1996 to December 31, 1996 totaled approximately $244,000 and $119,000, respectively. The Product Information Network Venture ("PIN") is an affiliate of International that provides a satellite programming service. PIN airs product infomercials 24 hours a day, seven days a week. A portion of the revenues generated by PIN are paid to the cable television systems that carry PIN's programming. Most of the Company's owned cable television systems carry PIN for all or part of each day. Aggregate payments received by the Company from PIN relating to the Company's owned cable television systems totaled approximately $705,000, $466,000 and $300,000 for the years ended December 31, 1997, 1996 and 1995, respectively. 58 Effective upon the closing of the BTH investment in December 1994, the Company entered into a Supply and Services Agreement with BTH. Pursuant to the Supply and Services Agreement, BTH provides the Company with access to the expert advice of personnel from BTH and its affiliates for the equivalent of three man-years on an annual basis. The Company pays an annual fee of $2,000,000 to BTH during the term of the agreement. Payments to BTH under the Supply and Services Agreement during the years ended December 31, 1997, 1996 and 1995 totaled $2,000,000, $2,000,000 and $2,000,000, respectively. Financial Group performs services for the Company as its agent in connection with negotiations regarding various financial arrangements of the Company. In December 1994, the Company entered into a Financial Services Agreement for eight years with Financial Group pursuant to which Financial Group has agreed to render financial advisory and related services to the Company for a fee equal to 90% of the fees that would be charged to the Company by unaffiliated third parties for the same or comparable services. The Company will pay Financial Group an annual $1,000,000 retainer as an advance against payments due pursuant to this agreement and will reimburse Financial Group for its reasonable out-of-pocket expenses. The Company paid fees totaling $3,456,000 in 1997 related to the acquisition of the North Prince Georges County System, the acquisition of the Annapolis System and the sale of the Walnut Valley System. The Company paid fees totaling $3,850,000 in 1996 related to the acquisition of the Manassas System, the South Prince Georges County System, the Reston System and the Savannah System. The Company paid fees totaling $1,328,400 in 1995 related to the purchase of the Dale City System. 4. INVESTMENTS IN CABLE TELEVISION PARTNERSHIPS AND AFFILIATES Jones Global Group, Inc. 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 in the first quarter of 1997. As a result of this transaction, the Company recognized a gain of $2,979,000 and now owns a 20% interest in Global Group. The Company accounts for its investment in Global Group using the equity method. Bell Cablemedia plc On April 25, 1997, the Company tendered all of its shares of Bell Cablemedia to 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. The Company now owns no shares of Bell Cablemedia or CWC. Knowledge TV, Inc. During 1992, the Company invested $10,000,000 in Knowledge TV, (formerly known as Mind Extension University, Inc.) an affiliated company and subsidiary of Education Group, that provides educational programming through affiliated and unaffiliated cable television systems, for 25% of the stock of Knowledge TV, which also received certain advertising avails and administrative and marketing considerations from the Company. The number of shares of Class A Common Stock of Knowledge TV issued to the Company was based on the average of two separate independent appraisals of Knowledge TV. Through its acquisition of the assets of Spacelink, the Company obtained an additional 13% interest in Knowledge TV in December 1994. Spacelink had acquired such interest for $3,135,000. In 1996, additional issuances of 59 Knowledge TV's Class A Common Stock reduced the Company's investment in Knowledge TV to 26 percent. At December 31, 1997, the Company's net investment in Knowledge TV was $830,000. Jones Education Group, Ltd. In 1993, 1994 and 1995, the Company advanced a total of $20,000,000 to Knowledge TV. Interest on such advances was charged at the Company's weighted average cost of borrowing plus two percent. On April 11, 1995, the Company converted its advances to Knowledge TV into shares of Class A Common Stock of Education Group, the parent company of Knowledge TV, for an approximate 17% equity interest in Education Group. In 1996, subsequent issuances of Education Group's Class A Common Stock reduced the Company's investment in Education Group to 16 percent. Jones Intercable Investors, L.P. The Company was the General Partner and a 19% limited partner of Jones Intercable Investors, L.P., a managed partnership. Jones Intercable Investors, L.P. owned the Independence System until it was purchased by the Company on August 31, 1997. See Note 2. The Company received a limited partner distribution of $25,721,000 as a result of the sale of the Independence System, which reduced the Company's basis in the Independence System. Subsequent to the sale of the Independence System and the distribution of the net sales proceeds, Jones Intercable Investors, L.P. was liquidated and dissolved. Jones Customer Service Management, L.L.C. The Company and Jones Cyber Solutions, Ltd. ("JCS"), an indirect subsidiary of International, have formed a venture, known as Jones Customer Service Management, L.L.C., for the purpose of developing a subscriber billing and management system. As of December 31, 1997, the Company had invested $5,200,000 in the venture. The Company accounts for this investment using the equity method and, as of December 31, 1997, had recognized equity losses equal to its investment of $5,200,000. JCS performed the basic system development work for the venture and was paid periodically beginning in 1995 on a time and materials basis, plus 10% of the amount charged, for its own service. The Company and JCS have license rights to use such system in perpetuity. The venture granted to JCS the exclusive right to distribute the system to third parties for a period of five years for a commission on the license fees to be earned by the venture from such licensing. The venture's subscriber billing and management system was trialed in one of the Company's cable systems during 1997. The Company determined, in late 1997, not to pursue the implementation of the subscriber billing and management system in any of the Company's owned or managed cable systems at this time. As a result of this decision, the Company incurred a write-off of $14,228,000 in the fourth quarter of 1997 related to the write-off of costs associated with the planned implementation of the billing system in Company-owned cable systems. Such write-off was included in 1997 depreciation and amortization expense. Net cost of approximately $7,000,000 related to hardware and software licenses, which will continue to be used by the Company, were not included in the write-off. In connection with the development and planned implementation of the venture's subscriber billing and management system, the Company paid Jones Interactive, Inc., a wholly owned subsidiary of International, $2,991,000 during the year ended December 31, 1997, and a total of $6,740,000 from the outset of the project through December 31, 1997, for work done by Jones Interactive, Inc. to prepare the Company's owned and managed cable systems for the 60 implementation of the venture's subscriber billing and management system. All of these costs were included in the $14,228,000 write-off incurred in the fourth quarter of 1997. 5. MANAGED PARTNERSHIPS Organization The Company is general partner for 18 Colorado limited partnerships formed to acquire, construct, develop and operate cable television systems. Partnership capital has been raised principally through a series of public offerings of limited partnership interests. The Company generally made a capital contribution of $1,000 to each partnership and is allocated 1% of all partnership profits and losses. The Company also purchased limited partner interests in certain of the partnerships and generally participates with respect to such interests on the same basis as other limited partners. Management Fees As general partner, the Company manages the managed partnerships and receives a fee for its services generally equal to 5% of the gross revenues of the managed partnerships, excluding revenues from the sale of cable television systems or franchises. Distributions For the managed partnerships formed by the Company, any partnership distributions made from cash flow, as defined, are generally allocated 99% to the limited partners and 1% 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 cable television systems or upon dissolution of the partnership, generally equal to 25% of the net remaining assets of the partnership after payment of the partnership's debts and after investors have received an amount equal to their original capital contributions plus, in many cases, a preferential return on their investments. For the partnerships formerly managed by Spacelink, any partnership distributions made from cash flow, as defined, are generally allocated 99% to the limited partners and 1% 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 generally equal to 25% 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. The Company received distributions from managed partnerships totaling $4,556,000, $14,000,000, and $13,222,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The $4,556,000 distribution received during 1997 from Fund 11-A, Fund 11-B, Fund 11-C and Fund 11-D upon the sale of the Manitowoc System was recorded as a reduction in the Company's cost basis in the assets of the Manitowoc System. The $4,556,000 distribution received during 1997 from Fund 11-A, Fund 11-B, Fund 11-C and Fund 11-D upon the sale of the Manitowoc System was recorded as a reduction in the Company's cost basis in the assets of the Manitowoc System. The $13,222,000 distribution received during 1995 from Fund 12-B upon the sale to the Company of the cable television system serving the area in and around Augusta, Georgia was recorded as a reduction in the Company's cost basis in the assets of the Augusta System. 61 Allocations The Company's managed limited partnerships reimburse the Company for certain allocated overhead and administrative expenses. These expenses generally consist of salaries and related benefits paid to corporate personnel (including secondees of BTH), rent, data processing services and other corporate facilities costs. The Company provides engineering, marketing, administrative, accounting, information management, legal, investor relations and other services to the partnerships. Allocations of personnel costs have been based primarily on actual time spent by Company employees with respect to each partnership managed. Remaining overhead costs are allocated based on the pro rata relationship of the partnership's revenues to the total revenues of all systems owned or managed by the Company. Company-owned systems are also allocated a proportionate share of these expenses under the allocation formulas described above. Amounts charged to managed partnerships and other affiliated companies have directly offset the Company's general and administrative expenses by approximately $21,091,000, $25,322,000 and $31,987,000 for the years ended December 31, 1997, 1996 and 1995, respectively. Advances The Company has made advances to certain of the managed partnerships primarily to accommodate expansion and other financing needs of the partnerships. Such advances bear interest at rates equal to the Company's weighted average cost of borrowing which, for the year ended December 31, 1997 was 7.82%. Interest charged to the limited partnerships for the years ended December 31, 1997, 1996 and 1995 was $363,000, $1,713,000 and $2,592,000, respectively. Certain condensed financial information regarding managed partnerships, on a combined basis, is as follows:
December 31, ---------------------------------- 1997 1996 1995 -------- --------- -------- (Stated in Thousands) Total assets $521,554 $651,053 $ 806,319 Debt 476,849 591,564 676,760 Amounts due general partner 7,783 3,996 14,969 Partners' Capital (Net of accumulated deficit) 19,649 24,172 99,505 Revenues 343,655 380,865 427,877 Depreciation and amortization 106,130 128,095 151,236 Operating income (loss) 7,261 (11,896) (16,438) Net income (loss) 190,227 123,263 20,964
The fair market values of the partnerships' assets, as determined by independent appraisals, exceed the combined amounts due the Company and other outstanding indebtedness for each individual partnership. The amount reported as combined net income (loss) for all managed limited partnerships for the years ended December 31, 1997, 1996 and 1995 included gains on sales and liquidations recognized by certain partnerships which totaled approximately $228,918,000, $181,632,000, and $91,693,000, respectively. 62 6. NOTES RECEIVABLE FROM AFFILIATES On December 19, 1994, Spacelink received a promissory note from Jones Earth Segment, Inc.("Earth Segment"), then an affiliate of Spacelink, in conjunction with the transfer of Earth Segment to International. The Company acquired this note as part of the acquisition of Spacelink's assets. The principal sum is $6,554,500. Interest on the principal is at the prime rate plus one percent and is paid quarterly. The note matures on December 19, 1999. The note is secured by the real and personal property of Earth Segment. Pursuant to a tax sharing agreement with International, Spacelink was allocated tax benefits based on its pro rata share of taxable loss generated as part of the consolidated group. The tax sharing agreement was terminated effective June 1, 1993. The allocated benefits are to be paid no later than five years from the date they were created. The benefits accrue interest at the prime rate in effect at the time they were created. The Company, through its acquisition of Spacelink's assets, acquired a receivable from International relating to this tax sharing agreement. The balance of this receivable at December 31, 1997 was $833,500.
7. DEBT December 31, ---------------------- Debt consists of the following: 1997 1996 --------- ------- (Stated in Thousands) LENDING INSTITUTIONS: JCH Revolving Credit Facility $ 343,000 $ 183,000 JCH II Revolving Credit Facility 128,000 160,000 SENIOR NOTES: Senior Notes due March 15, 2002, interest payable semi-annually at 9 5/8% 200,000 200,000 Senior Notes due April 1, 2007, interest payable at 8 7/8%, net of unamortized discount of $1,333,000 248,667 - SUBORDINATED DEBENTURES: Debentures due July 15, 2004, interest payable semi-annually at 11.5%, redeemed on July 15, 1997 at 106.75% of par - 160,000 Debentures due March 1, 2008, interest payable semi-annually at 10.5%, redeemable at the Company's option on or after March 1, 2000 at 105.25% of par, declining to par by March 1, 2005 100,000 100,000 OTHER: Capitalized equipment lease obligations due in installments through 1998 and other debt 5,065 3,147 --------- ------- Total debt $ 1,024,732 $ 806,147 ========= =======
On October 31, 1995, the Company, through JCH, a wholly owned subsidiary, entered into a $500 million reducing revolving credit facility with a group of commercial banks (the "JCH Credit Facility"). On September 17, 1996, JCH amended this revolving credit facility to 63 allow for borrowings up to $600 million and to reduce by 1/8% the rates of interest charged on any amounts outstanding. This credit facility required the transfer of certain of the Company's cable television properties to JCH. The entire $600 million commitment is available through March 31, 1999, at which time the commitment will be reduced quarterly with a final maturity of December 31, 2004. As of December 31, 1997, $343,000,000 was outstanding under this agreement. Interest on outstanding obligations ranges from Base Rate (which generally approximates the prime rate) to Base Rate plus 1/8% or LIBOR plus 1/2% to LIBOR plus 1% based on certain leverage covenants. In addition, a commitment fee of 3/16% to 3/8% on the unused commitment is also required. The effective interest rate on amounts outstanding at December 31, 1997 was 6.32%. On October 29, 1996, the Company, through JCH II, a wholly owned subsidiary, entered into an additional $600 million credit facility. The credit facility consists of a $300 million reducing revolving credit facility and a $300 million 364 day revolving credit facility (the "JCH II Credit Facility"). The reducing revolving credit facility allows for borrowing 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 automatically convert to a term loan payable in semi-annual installments commencing June 30, 2001 with final maturity date of December 31, 2005. As of December 31, 1997, $128,000,000 was outstanding under this agreement, which was borrowed under the reducing revolving credit facility. Interest on amounts outstanding varies from the Base Rate (which generally approximates the prime rate) to Base Rate plus 1/4% or LIBOR plus 1/2% to 1 1/4%, depending on certain financial covenants. A commitment fee of 1/8% to 3/8% per year on available, but unborrowed, amounts is also required. The effective interest rate on amounts outstanding at December 31, 1997 was 6.28%. On October 6, 1996, the Company entered into a deferred interest rate swap with two commercial banks. The deferred interest rate swap fixes the Company's interest at 6.5% on $50,000,000 of notional principal for three years commencing July 15, 1997. The Company accounts for this swap under hedge accounting rules. On March 18, 1997, the Company issued and sold $250,000,000 of its 8 7/8% Senior Notes due April 1, 2007 at 99.44% of par value. The Senior Notes bear interest at 8 7/8% per annum payable at April 1 and October 1 of each year. The notes are redeemable on or after April 1, 2004 at the option of the Company at 101% of par declining to par on April 1, 2005. The discount to par will be amortized over the life of the notes. The Company paid fees of $4,498,000 relating to this transaction. Such fees will be amortized over the life of the notes. On March 23, 1995, the Company sold $200 million of 9 5/8% Senior Notes due March 15, 2002. The Senior Notes bear interest from the date of issuance at the rate of 9 5/8% per annum, payable semi-annually on March 15 and September 15 of each year. The Senior Notes are not redeemable prior to maturity and are not subject to any sinking fund. The Company paid fees of $3,500,000 relating to this transaction. Such fees will be amortized over the life of the notes. There are no sinking fund requirements related to the 10.5% Senior Subordinated Debentures due March 1, 2008. On July 15, 1997, the Company redeemed its $160 million 11.5% Subordinated Debentures (the "11.5% Debentures") due 2004 at 106.75% of par value, plus accrued interest. The Company recognized an extraordinary loss of $13,459,000 related to this redemption. The 64 11.5% Debentures were redeemed using proceeds from the $250,000,000 Senior Notes issued and sold on March 18, 1997. On October 12, 1995, the Company redeemed the remaining outstanding 7.5% Convertible Subordinated Debentures (the "Convertible Debentures") due 2007, at a price equal to 101.5% of the principal amount, plus accrued interest. The total principal amount of the Convertible Debentures was $43,100,000, of which $23,732,000 were held by the Company and $19,368,000 were held by unaffiliated investors. The Convertible Debentures were redeemed with cash on hand. The Company recognized an extraordinary loss of $692,000 relating to this redemption. The Company has never paid a cash dividend with respect to its shares of Common Stock or Class A Common Stock, and it has no present intention to pay cash dividends in the foreseeable future. The current policy of the Company's Board of Directors is to retain earnings to provide funds for the operation and expansion of its business. Certain of the Company's debt arrangements restrict the right of the Company to declare and pay cash dividends without the consent of the holders of the debt. At December 31, 1997, the carrying amount of the Company's debt was $1,024,732,000 and the estimated fair value was $1,070,940,000. The fair value of the Company's debt is estimated based on the quoted market prices for the same issues. Installments due on debt principal for each of the five years in the period ending December 31, 2002 and thereafter are: $1,595,000, $1,487,000, $1,487,000, $496,000, $303,000,000 and $716,667,000, respectively. 8. INCOME TAXES Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Deferred tax expense or benefit is the result of changes in the liability or asset recorded for deferred taxes. During 1997, 1996, and 1995, changes in the Company's temporary differences and losses from operations, which result primarily from depreciation and amortization, resulted in deferred tax benefits which were offset, in part, by a valuation allowance. A deferred income tax benefit of $3,275,000 was recognized for the year ended December 31, 1997. No current or deferred federal income tax expense or benefit was recorded from continuing operations during the years ended December 31, 1996 or 1995. Income tax expense attributable to income or loss from continuing operations differs from the amounts computed by applying the Federal income tax rate of 35% in 1997, 1996, and 1995 as a result of the following: 65
Year Ended December 31, ---------------------------------------- 1997 1996 1995 ------------------------------------- (Stated in Thousands) Computed "expected" tax benefit $ (13,471) $ (21,931) $ (7,358) State and local taxes, net of federal income tax benefit (1,688) (2,036) (619) Dividends excluded for income tax purposes (102) (89) (73) Intangibles not deductible for tax purposes 876 752 500 Other 116 (449) 261 ------- ------- ------ Total income tax benefit from operations (14,269) (23,753) (7,289) Tax effect of extraordinary operations (4,711) - (265) Valuation Allowance 15,705 23,753 7,554 ------- ------- ------ Total income tax benefit $ 3,275 $ - $ - ======= ======= ======
The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1997, and 1996 are presented below:
December 31, ---------------------- 1997 1996 ----------- --------- (Stated in Thousands) Deferred Tax Assets Net operating loss carryforwards $ 76,543 $ 70,286 Investment tax credit carryforwards 1,024 1,076 Alternative minimum tax credit carryforwards 1,116 1,116 Investment in affiliates and domestic television partnerships 9,597 8,078 Future deductible amounts associated with other assets and liabilities 4,331 3,761 ------- -------- Total gross deferred tax assets 92,611 84,317 Valuation allowance on deferred tax assets (84,473) (68,768) Deferred Tax Liabilities Property and equipment, due to differences in depreciation methods for financial statement and tax purposes (1,001) (11,687) ------ ------- Net Deferred Tax Asset $ 7,137 $ 3,862 ======= =======
At December 31, 1997, the Company had net operating loss carryforwards for income tax purposes aggregating approximately $101,847,000 for alternative minimum tax ("AMT") and $200,113,000 for regular tax which expire $43,126,000 in 2005, $26,203,000 in 2007, $40,809,000 in 2008, $30,216,000 in 2009, $14,732,000 in 2010, $13,267,000 in 2011 and $31,760,000 in 2012. The Company also had investment tax credit carryforwards of $1,024,000 expiring in 1999 through 2005. The Company entered into transactions during 1994 which resulted in a change in greater than 50% of the ownership interests of the Company shares. Tax statutes limit the utilization of existing tax NOLs when this occurs to a specified amount each year plus the amount of existing built-in gain in corporate assets at the ownership change. Management 66 believes that the application of the limitation will not likely cause taxable income to occur in a future period due to unavailability of limited NOLs. Management has established a valuation allowance for all net operating losses and for all investment tax credits and alternative minimum tax credit carryforwards. However, an increase in the deferred tax asset has been recognized due to favorable differences between book and tax basis in tangible and intangible assets. Such differences have been recognized in current taxable income and will reverse in the future. 9. STOCK OPTIONS The Company has two stock option plans, the 1984 nonqualified stock option plan (the "1984 Plan") and the 1992 stock option plan (the "1992 Plan"). The Company accounts for these plans under APB Opinion No. 25, under which no compensation cost has been recognized for option grants that equal market price at time of grant. The Company has adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123) for disclosure purposes. In accordance with SFAS 123, the fair value of each option grant has been estimated as of the date of grant using the Black-Scholes option pricing model using the following weighted-average assumptions: risk-free interest rates of 5.68% to 7.58%; expected dividend yield of 0%; expected lives of 7 years; and expected volatility of 45.06%. Had compensation cost for these plans been determined consistent with SFAS 123, the Company's net loss and net loss per share would have been increased to the following pro forma amounts:
For the Year Ended December 31, ---------------------------------------------------- 1997 1996 1995 --------- --------- ----------- Net loss: As Reported $(51,948) $(62,660) $ (21,716) Pro Forma $(53,820) $(64,092) $ (22,568) Loss Per Share: As Reported $ (1.50) $ (2.00) $ (.69) Pro Forma $ (1.56) $ (2.04) $ (.72)
Because the method of accounting required by SFAS 123 has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The 1984 Plan was approved by the shareholders of the Company to provide for the grant of nonqualified stock options to key contributors to the Company. As of December 31, 1997, all options granted under the 1984 Plan had been exercised, terminated or expired. Options to purchase 708,396 shares were granted under the 1984 Plan, of which 486,091 shares were exercised and options to purchase 222,305 shares had expired, been terminated or were forfeited upon resignation of the holders. No additional options will be granted pursuant to the 1984 Plan. The 1992 Plan was approved by the Company's shareholders in August 1992. Under the terms of the 1992 Plan, as amended in 1997, a maximum of 2,583,455 shares of Class A Common Stock and 200,000 shares of Common Stock are available for grant. All employees of the Company, its parent or any participating subsidiary, including directors of the Company who are also employees, are eligible to participate in the 1992 Plan. Options generally become exercisable in equal installments over a four-year period commencing on the first anniversary of the date of grant. The options expire, to the extent not exercised, on the tenth anniversary of the date of grant, or upon the recipient's earlier termination of employment with the Company. 67 Options can be incentive stock options or non-statutory stock options. The exercise price may not be less than 100% of the fair market value for incentive stock options, but may be less than fair market value for non-statutory options. Stock appreciation rights may be granted in tandem with the grant of stock options. The Board of Directors may, in its discretion, establish provisions for the exercise of options different from those described above. In 1997, 1996, and 1995, the Company recognized approximately $261,000, $261,000 and $261,000, respectively, of non-cash compensation expense related to stock options granted on November 9, 1993 under the 1992 Plan. As of December 31, 1997, options to purchase 1,839,980 shares of Class A Common Stock had been granted, of which options to purchase 77,035 shares had been exercised and 313,097 shares had been terminated or forfeited upon resignation of the holders. As of December 31, 1995, all 200,000 of the Common Stock options authorized by the 1992 Plan had been granted and exercised. Information concerning Class A Common Stock options is as follows:
Year Ended December 31, ----------------------------------------------------------------------------------------- 1997 1996 1995 ---------------------------- ----------------------------- -------------------------- Weighted Weighted Weighted Average Average Average Shares Exercise Price Shares Exercise Price Shares Exercise Price ------ -------------- ------ -------------- ------ -------------- Outstanding at beginning of year 1,329,162 $12.19 1,508,362 $11.93 792,401 $10.74 Granted 365,433 9.27 3,540 13.25 812,479 12.71 Exercised (89,700) 6.34 (52,468) 2.85 (80,667) 5.74 Canceled (155,047) 11.88 (130,272) 12.98 (15,851) 13.17 ----------- ---------- --------- Outstanding at end of year 1,449,848 $12.08 1,329,162 $12.19 1,508,362 $11.93 =========== ========= ========= Exercisable at end of year 820,290 676,414 412,095 Range of exercise prices $9.25-13.81 $5.625-13.81 $5.625-13.81 Weighted-average fair value of options granted during the year $ 5.26 $ 7.56 $ 7.26
10. CLASS A COMMON STOCK The Class A Common Stock has certain preferential rights with respect to cash dividends and upon liquidation of the Company. In the case of cash dividends, the holders of the Class A Common Stock will be paid one-half cent per share per quarter in addition to any amount payable per share for each share of Common Stock. In the event of liquidation, holders of the Class A Common Stock are entitled to a preference of $1 per share. After such amount is paid, holders of the Common Stock are entitled to receive $1 per share for each share of Common Stock outstanding. Any remaining amount would be distributed to the holders of the Class A Common Stock and the Common Stock on a pro rata basis. In general, 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% of the total membership of the Board of Directors. Holders of common stock, voting as a separate class, are entitled to elect the remaining directors. Pursuant to the terms of the Shareholders Agreement dated as of December 20, 1994 among Glenn R. Jones, International, BTH and the Company (the "Shareholders Agreement"), the Company's Board of Directors consists of 13 Directors. The parties to the Shareholders Agreement have agreed that of the four 68 Class A Directors, BTH will be entitled, but not required, to designate one Director and the remaining three directors, which shall be Independent Directors (as such term is defined in the Shareholders Agreement), will be jointly designated by Glenn R. Jones and BTH. The parties to the Shareholders Agreement also have agreed that Mr. Jones will be entitled, but not required, to designate seven of the nine Common Directors and that BTH will be entitled, but not required, to designate two of the Common Directors. In all other matters not requiring a class vote, the holders of the Common Stock and the holders of Class A Common Stock vote as a single class provided that holders of Class A Common Stock have one-tenth of a vote for each share held and the holders of the Common Stock have one vote for each share held. 11. COMMITMENTS AND CONTINGENCIES The Company rents office facilities and equipment under various long-term lease arrangements. Minimum commitments under noncancelable operating leases for the five years ending December 31, 2002 and thereafter are as follows:
Building Facilities Equipment Lease Leases Leases Total ----- ------ --------- ------ (Stated in Thousands) 1998 1,365 3,123 350 4,838 1999 1,365 2,575 276 4,216 2000 797 1,701 200 2,698 2001 - 1,111 32 1,143 2002 - 869 - 869 Thereafter - 2,110 - 2,110 ----- ------ --------- ------ Total commitments $ 3,527 $ 11,489 $ 858 $ 15,874 ===== ====== ========= ======
Rent, net of sublease reimbursements, paid during the years ended December 31, 1997, 1996 and 1995, totaled $4,452,000, $4,195,000 and $3,698,000, respectively. Certain amounts included in lease commitments will be allocated to managed limited partnerships using the method discussed in Note 5. Litigation The Company is a defendant in a now-consolidated civil action filed by limited partners of Cable TV Fund 12-D, Ltd., one of the Company's managed partnerships. The case, styled David Hirsch, Marty, Inc. Pension Plan (by its ---------------------------------------------- trustee and beneficiary, Martin Ury) and Jonathan and Eileen Fussner, - --------------------------------------------------------------------- derivatively on behalf of Cable TV Fund 12-B, Ltd., Cable TV Fund 12-C, Ltd. and - -------------------------------------------------------------------------------- Cable TV Fund 12-D, Ltd., plaintiffs v. Jones Intercable, Inc., defendant, and - ------------------------------------------------------------------------------ Cable TV Fund 12-BCD Venture, Cable TV Fund 12-B, Ltd., Cable TV Fund 12-C, Ltd. - -------------------------------------------------------------------------------- and Cable TV Fund 12-D, Ltd., nominal defendants (District Court, Arapahoe - ------------------------------------------------ County, State of Colorado, Case No. 95-CV-1800, Division 3), is a derivative action filed on behalf of Cable TV Fund 12-B, Ltd. ("Fund 12-B"), Cable TV Fund 12-C, Ltd. ("Fund 12-C") and Cable TV Fund 12-D, Ltd. ("Fund 12-D"). The consolidated complaint generally alleges that the Company breached its fiduciary duty to the plaintiffs and to the other limited partners of Fund 12-B, Fund 12-C and Fund 12-D and the Cable TV Fund 12-BCD Venture (the "Venture") in connection with the Venture's sale of the Tampa, Florida cable television system (the "Tampa System") to a subsidiary of the Company and the subsequent trade of the Tampa System to Time Warner Entertainment 69 Advance/Newhouse Partnership ("Time Warner"), an unaffiliated cable television system operator, in exchange for cable television systems owned by Time Warner. The consolidated complaint also sets forth a claim for breach of contract and a claim for breach of the implied covenant of good faith and fair dealing. Among other things, the plaintiffs assert that the subsidiary of the Company that acquired the Tampa System paid an inadequate price for the Tampa System. The price paid for the Tampa System was determined by the average of three separate, independent appraisals of the Tampa System's fair market value as required by the limited partnership agreements of Fund 12-B, Fund 12-C and Fund 12-D. The plaintiffs have challenged the adequacy and independence of the appraisals. The consolidated complaint seeks damages in an unspecified amount and an award of attorneys' fees, and the complaint also seeks punitive damages and certain equitable relief. The Company has filed its answer to the consolidated complaint and has generally denied the substantive allegations in the complaint and has asserted a number of affirmative defenses. The Company intends to defend this lawsuit vigorously. In August 1997, the Company moved for summary judgment in its favor on the ground that plaintiffs did not make demand on the Company for the relief they seek before commencing their lawsuits or show that such a demand would have been futile. In January 1998, the court (i) held that plaintiffs did not make demand before commencing their lawsuits or show that such demand would have been futile, (ii) stayed the consolidated case and vacated the February 1998 trial date, (iii) ordered that plaintiffs make a demand on the Company and that the Company appoint an independent counsel to review, consider and report on that demand, (iv) ordered that the independent counsel be appointed at the March 1998 meeting of the Company's Board of Directors and (v) ordered that the independent counsel be subject to the approval of the court. The court set a new trial date for October 1998 in the event that the case is not resolved through the independent counsel process or otherwise. The partnership agreements of Fund 12-B, Fund 12-C and Fund 12-D provide that the Company will not be liable to the partnerships or to the limited partners of the partnerships for any act or omission performed or omitted by it in good faith pursuant to the authority granted to the Company by the partnership agreements. The partnership agreements further provide that the Company will be liable to the partnerships and to their limited partners only for fraud, bad faith or gross negligence in the performance of the cable television activities of the partnerships or negligence in the management of the internal affairs of the partnerships. The partnership agreements further provide that the partnerships shall indemnify and save harmless the Company and its affiliates and any agent or officer or director thereof from any loss or damage incurred by them, including legal fees and expenses and amounts paid in settlement by reason of any action performed by the Company or any agent, officer or director thereof on behalf of the partnerships or in furtherance of their interests; provided, however, that the foregoing shall not relieve the Company of its fiduciary duty to the limited partners or liability for (nor shall the Company be indemnified for) its fraud, bad faith or gross negligence in the performance of the cable television activities of the partnerships or negligence in the management of the internal affairs of the partnerships. In accordance with these provisions of the partnership agreements, Fund 12-B, Fund 12-C and Fund 12-D will be obligated to indemnify and save harmless the Company from any loss incurred by it, including its legal fees and expenses and amounts paid in settlement, in connection with this litigation concerning the Tampa System's sale unless the Company is found to have breached its fiduciary duty to the limited partners in connection with the Tampa System's sale or is found to have committed fraud or to have acted in bad faith or with gross negligence in connection with the Tampa System sale. Amounts reimbursed to the Company by the three partnerships would be in proportion to their ownership interests in the Venture. 70 In February 1998, BTH, the Company's largest shareholder, filed an action in the United States District Court for the District of Colorado against the Company, Jones International, Ltd. ("International"), Jones Internet Channel, Inc. ("JICI") and Glenn R. Jones. BCI Telecom Holding, Inc., plaintiff ------------------------------------ v. Jones Intercable, Inc., Jones International, Ltd., Jones Internet Channel, - ----------------------------------------------------------------------------- Inc. and Glenn R. Jones, defendants (U.S. District Court for the District of - ----------------------------------- Colorado, Civil Action No. 98-D-224). Mr. Jones is the Company's Chairman and Chief Executive Officer. International is owned by Mr. Jones, and it is also one of the Company's largest shareholders. JICI is a wholly owned subsidiary of International. BTH, the Company, International and Mr. Jones are parties to a Shareholders Agreement dated as of December 20, 1994 (the "Shareholders Agreement"). In its complaint, BTH alleges that the defendants have violated the Shareholders Agreement and certain duties allegedly owed to BTH, and conspired with each other to do so. More specifically, BTH claims that under the Shareholders Agreement, the offering of the service known as the "Internet Channel" to the Company's subscribers, and any affiliation agreement between the Company and JICI for the provision of the Internet Channel service, could not proceed without approval of a specific group of directors of the Company, including the three directors designated by BTH. BTH also maintains, in connection with the relationship and proposed affiliate agreement between the Company and JICI, that the defendants have breached a provision of the Shareholders Agreement defining the "Core Business" of the Company. In addition to damages, BTH seeks an injunction prohibiting the Company from making the Internet Channel available to additional subscribers and from entering into an affiliate agreement with JICI for the Internet Channel, as well as other equitable relief. A hearing on the motion of the plaintiff for a preliminary injunction has been set for March 23, 1998. In addition to the above matters, the Company is involved in certain other litigation in its normal course of business. The Company is also negotiating the renewal of certain franchise agreements with franchising authorities. Management believes that the ultimate resolution of such matters will not have a material adverse effect on the Company's financial position or results of operations. 12. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment as of December 31, 1997 and 1996, consisted of the following:
December 31, ---------------------- 1997 1996 --------- -------- Distribution systems $ 579,544 $ 443,109 Buildings 18,331 15,833 Land 4,762 3,665 Equipment and tools 12,322 10,378 Premium service equipment 54,790 37,412 Earth receive stations 3,701 3,644 Vehicles 4,160 2,676 Leasehold improvements and office furniture 21,466 19,728 Other 46,039 32,703 -------- -------- 745,115 569,148 Accumulated depreciation (224,893) (184,738) -------- -------- $ 520,222 $ 384,410 ======== ========
71 13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
1997 -------------------------------------------------------- Three Months Ended -------------------------------------------------------- March 31 June 30 September 30 December 31 --------- ------- ------------- ----------- (In Thousands Except Per Share Data) Revenues $ 83,502 $ 90,934 $ 91,945 $ 96,207 Depreciation and amortization 35,532 34,901 36,147 69,259 Operating income (loss) 2,384 4,096 4,110 (27,747) Net income (loss) (15,481) 22,554 (30,755) (27,906) Net income (loss) per share $ (.50) $ .72 $ (.88) $ (.69)
1996 -------------------------------------------------------- Three Months Ended -------------------------------------------------------- March 31 June 30 September 30 December 31 -------- ------ ----------- ------------ (In Thousands Except Per Share Data) Revenues $ 66,987 $ 93,166 $ 75,143 $ 76,414 Depreciation and 25,361 28,677 30,654 46,494 amortization Operating income (loss) 373 17,444 735 (14,553) Net income (loss) (14,789) 891 (17,208) (31,554) Net income (loss) per share $ (.47) $ .03 $ (.55) $ (1.01)
72 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ------------------------------------------------------ ON ACCOUNTING AND FINANCIAL DISCLOSURE -------------------------------------- None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ------------------------------------------------------------ The Company's Articles of Incorporation provide that, 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 constituting 25% of the total membership of the Board of Directors. If such 25% is not a whole number, holders of Class A Common Stock are entitled to elect the nearest higher whole number of Directors constituting 25% of the membership of the Board of Directors. Holders of Common Stock, voting as a separate class, are entitled to elect the remaining Directors. Directors of the Company serve until the next annual meeting of the Company and until their successors shall be elected and qualified. Pursuant to the terms of the Shareholders Agreement, the Company's Board of Directors consists of 13 members. The parties to the Shareholders Agreement have agreed that, of the four Class A Directors, BTH will be entitled, but not required, to designate one Director and the remaining three Directors, which shall be Independent Directors (as such term is defined in the Shareholders Agreement), will be jointly designated by Glenn R. Jones and BTH. The parties to the Shareholders Agreement also have agreed that Mr. Jones will be entitled, but not required, to designate seven of the nine Common Directors and that BTH will be entitled, but not required, to designate two of the nine Common Directors. William E. Frenzel, Donald L. Jacobs, Robert Kearney and Robert B. Zoellick are serving as the Class A Directors and Glenn R. Jones, Robert E. Cole, Josef J. Fridman, James J. Krejci, James B. O'Brien, Raphael M. Solot, Howard O. Thrall, Siim A. Vanaselja and Sanford Zisman are serving as the Common Directors. Messrs. Frenzel, Jacobs and Zoellick were jointly designated by Glenn R. Jones and BTH and they are serving as Independent Directors. Messrs. Fridman, Kearney and Vanaselja were designated by BTH. Messrs. Jones, Cole, Krejci, O'Brien, Solot, Thrall and Zisman were designated by Mr. Jones. The Company has agreed that in the event that Mr. Jones or BTH chooses to designate one or more nominees to the Board of Directors pursuant to the terms of the Shareholders Agreement, the Company will use its reasonable efforts to include each such nominee in the group of nominees proposed by management of the Company for election to the Board, recommend to the shareholders of the Company each such nominee's election to the Board and solicit proxies for each such nominee from all holders of voting securities entitled to vote thereon. In addition, each of BTH and Mr. Jones have agreed to vote or cause to be voted all of the shares of the Company owned or controlled by them at any meeting of shareholders of the Company, or in any written consent executed in lieu of such a meeting of shareholders, in favor of their mutual nominees to the Board of Directors. 73 Certain information concerning the directors and executive officers of the Company is set forth below. Glenn R. Jones 68 Chairman of the Board and Chief Executive Officer James B. O'Brien 48 President and Director Ruth E. Warren 48 Group Vice President/Operations Kevin P. Coyle 46 Group Vice President/Finance Christopher J. Bowick 42 Group Vice President/Technology Cynthia A. Winning 46 Group Vice President/Marketing Cheryl M. Sprague 45 Group Vice President/Human Resources Elizabeth M. Steele 46 Vice President/General Counsel/Secretary Larry W. Kaschinske 38 Vice President/Controller Robert E. Cole 65 Director William E. Frenzel 69 Director Josef J. Fridman 52 Director Donald L. Jacobs 59 Director Robert Kearney 61 Director James J. Krejci 56 Director Raphael M. Solot 64 Director Howard O. Thrall 50 Director Siim A. Vanaselja 41 Director Sanford Zisman 58 Director Robert B. Zoellick 44 Director Mr. Glenn R. Jones has served as Chairman of the Board of Directors and Chief Executive Officer of the Company since its formation in 1970, and he was President from June 1984 until April 1988. Mr. Jones is the sole shareholder, President and Chairman of the Board of Directors of Jones International, Ltd. He is also Chairman of the Board of Directors of the subsidiaries of the Company and of certain other affiliates of the Company. Mr. Jones has been involved in the cable television business in various capacities since 1961, and he is a member of the Board of Directors and of the Executive Committee of the National Cable Television Association. In addition, Mr. Jones is a member of the Board of Education Council of the National Alliance of Business. Mr. Jones is also a founding member of the James Madison Council of the Library of Congress. Mr. Jones has been the recipient of several awards including: the Grand Tam Award in 1989, the highest award from the Cable Television Administration and Marketing Society; the President's Award from the Cable Television Public Affairs Association in recognition of Jones International's educational efforts through Mind Extension University (now Knowledge TV); the Donald G. McGannon Award for the advancement of minorities and women in cable from the United Church of Christ Office of Communications; the STAR Award from American Women in Radio and Television, Inc. for exhibition of a commitment to the issues and concerns of women in television and radio; the Cableforce 2000 Accolade awarded by Women in Cable in recognition of the Company's innovative employee programs; the Most Outstanding Corporate Individual Achievement Award from the International Distance Learning Conference for his contributions to distance education; the Golden Plate Award from the American Academy of Achievement for his advances in distance education; the Man of the Year named by the Denver chapter of the Achievement Rewards for College Scientists; and in 1994 Mr. Jones was inducted into Broadcasting and Cable's Hall of Fame. 74 Mr. James B. O'Brien, the Company's President, joined the Company in January 1982. Prior to being elected President and a Director of the Company in December 1989, Mr. O'Brien served as a division manager, director of operations planning/assistant to the CEO, Fund Vice President and Group Vice President/Operations. Mr. O'Brien was appointed to the Company's Executive Committee in August 1993. As President, he is responsible for the day-to-day operations of the cable television systems managed and owned by the Company. Mr. O'Brien is a board member of Cable Labs, Inc., the research arm of the U.S. cable television industry. He also serves as Chairman of the Board of Directors of the Cable Television Administration and Marketing Association and as a director of the Walter Kaitz Foundation, a foundation that places people of ethnic minority groups in positions with cable television systems, networks and vendor companies. Ms. Ruth E. Warren joined the Company in August 1980 and has served in various operational capacities, including system marketing manager, director of marketing, assistant division manager, regional vice president and Fund Vice President, since then. Ms. Warren was elected Group Vice President/Operations of the Company in September 1990. Ms. Warren is a past president of Women in Cable & Telecommunications and she is the current Chairman of the Women in Cable Foundation. She serves on the 5 Points Media Center Board, the Corporate Advisory Board of Planned Parenthood of the Rocky Mountains, and the Advisory Board for the Domestic Abuse Awareness Project. In 1995, Ms. Warren received the Corporate Business Woman of the Year Award from the Colorado Women's Chamber of Commerce. Mr. Kevin P. Coyle joined The Jones Group, Ltd. in July 1981 as Vice President/Financial Services. In September 1985, he was appointed Senior Vice President/Financial Services. He was elected Treasurer of the Company in August 1987, Vice President/Treasurer in April 1988 and Group Vice President/Finance and Chief Financial Officer in October 1990. Mr. Christopher J. Bowick joined the Company in September 1991 as Group Vice President/Technology and Chief Technical Officer. Prior to joining the Company, Mr. Bowick worked for Scientific Atlanta's Transmission Systems Business Division in various technical management capacities since 1981, and as Vice President of Engineering since 1989. Mr. Bowick also has served since 1995 as President of Jones Futurex, Inc., the Company's wholly owned subsidiary that manufactures and markets data encryption products. Ms. Cynthia A. Winning joined the Company as Group Vice President/Marketing in December 1994. Previous to joining the Company, Ms. Winning served since 1994 as the President of PRS Inc., Denver, Colorado, a sports and event marketing company. From 1979 to 1981 and from 1986 to 1994, Ms. Winning served as the Vice President and Director of Marketing for Citicorp Retail Services, Inc., a provider of private-label credit cards for ten national retail department store chains. From 1981 to 1986, Ms. Winning was the Director of Marketing Services for Daniels & Associates cable television operations, as well as the Western Division Marketing Director for Capital Cities Cable. Ms. Winning also serves as a board member of Cities in Schools, a dropout intervention/prevention program. 75 Ms. Cheryl M. Sprague joined the Company in November 1997 as Group Vice President/Human Resources. Prior to November 1997 and since December 1995, Ms. Sprague served as Director, Human Resources for Westmoreland Coal Company, where she was responsible for human resources management for said company and three of its subsidiaries. From October 1993 to December 1995, Ms. Sprague served as President of Peak Executive Resources, where she provided consulting services in organizational development and human resources to businesses experiencing organizational transition. From April 1992 to October 1993, Ms. Sprague was Vice President, Human Resources for Penrose-St. Francis Healthcare System, where she was responsible for the management of all human resources activities. Ms. Sprague serves as an adjunct instructor at Regis University and has earned the professional designation as a Senior Professional in Human Resources from the Society for Human Resource Management and its affiliate, the Human Resources Certification Board. Ms. Sprague is a past president of the Colorado Human Resource Association and was named by that association as the Colorado Human Resources Administrator of the Year in 1986. Ms. Sprague also serves as a director on the Area VI Board for the Society for Human Resource Management. Ms. Elizabeth M. Steele joined the Company in August 1987 as Vice President/General Counsel and Secretary. From August 1980 until joining the Company, Ms. Steele was an associate and then a partner at the Denver law firm of Davis, Graham & Stubbs, which serves as counsel to the Company. Mr. Larry Kaschinske joined the Company in 1984 as a staff accountant in the Company's former Wisconsin Division, was promoted to Assistant Controller in 1990, named Controller in August 1994 and was elected Vice President/Controller in June 1996. Mr. Robert E. Cole was appointed a Director of the Company in March 1996. Mr. Cole is currently self-employed as a partner of First Variable Insurance Marketing and is responsible for marketing to National Association of Securities Dealers, Inc. firms in northern California, Oregon, Washington and Alaska. From 1993 to 1995, Mr. Cole was the Director of Marketing for Lamar Life Insurance Company; from 1992 to 1993, Mr. Cole was Senior Vice President of PMI Inc., a third party lender serving the special needs of Corporate Owned Life Insurance (COLI) and from 1988 to 1992, Mr. Cole was the principal and co-founder of a specialty investment banking firm that provided services to finance the ownership and growth of emerging companies, productive assets and real property. Mr. Cole is a Certified Financial Planner and a former United States Naval Aviator. Mr. William E. Frenzel was appointed a Director of the Company in April 1995. Mr. Frenzel has been a Guest Scholar since 1991 with the Brookings Institution, a research organization located in Washington D. C. Until his retirement in January 1991, Mr. Frenzel served for twenty years in the United States House of Representatives, representing the State of Minnesota, where he was a member of the House Ways and Means Committee and its Trade Subcommittee, the Congressional Representative to the General Agreement on Tariffs and Trade (GATT), the Ranking Minority Member on the House Budget Committee and a member of the National Economic Commission. Mr. Frenzel also served in the Minnesota Legislature for eight years. He is a Distinguished Fellow of the Tax Foundation, Vice Chairman of the Eurasia Foundation, a Board Member of the U.S.-Japan 76 Foundation, the Close-Up Foundation, Sit Mutual Funds and Chairman of the Japan-America Society of Washington. Mr. Josef J. Fridman was appointed a Director of the Company in February 1998. Mr. Fridman is currently senior vice-president, law and corporate secretary of BCE Inc., Canada's largest telecommunications company. Mr. Fridman joined Bell Canada, a wholly owned subsidiary of BCE Inc., in 1969, and has held increasingly senior positions with Bell Canada and BCE Inc. since such time. Mr. Fridman has held his current position since January 1991. Mr. Fridman's directorships include Telesat Canada, TMI Communications, Inc., Telebec Itee, BCI Telecom Holding Inc. and BCE Corporate Services Inc. He is a member of the Quebec Bar Association, the Canadian, American and International Bar Associations and the Lord Reading Law Society. Mr. Fridman is a governor of the Quebec Bar Association. Mr. Donald L. Jacobs was appointed a Director of the Company in April 1995. Mr. Jacobs is a retired executive officer of TRW. Prior to his retirement, he was Vice President and Deputy Manager of the Space and Defense Sector; prior to that appointment, he was the Vice President and General Manager of the Defense Systems Group and prior to his appointment as Group General Manager, he was President of ESL, Inc., a wholly owned subsidiary of TRW. During his career, Mr. Jacobs served on several corporate, professional and civic boards. Mr. Robert Kearney was appointed a Director of the Company in July 1997. Mr. Kearney is a retired executive officer of Bell Canada. Prior to his retirement in December 1993, Mr. Kearney was the President and Chief Executive Officer of Bell Canada. He served as Chairman of BCE Canadian Telecom Group in 1994 and as Deputy Chairman of BCI Management Limited in 1995. During his career, Mr. Kearney served in a variety of capacities in the Canadian, American and International Standards organizations, and he has served on several corporate, professional and civic boards. Mr. James J. Krejci was President of the International Division of International Gaming Technology, International headquartered in Reno, Nevada, until March 1995. Prior to joining IGT in May 1994, Mr. Krejci was Group Vice President of Jones International, Ltd. and was Group Vice President of the Company. He also served as an officer of subsidiaries of Jones International, Ltd. until leaving the Company in May 1994. Mr. Krejci has been a Director of the Company since August 1987. Mr. Raphael M. Solot was appointed a Director of the Company in March 1996 and he was elected Vice Chairman of the Board of Directors in November 1997. Mr. Solot is an attorney and has practiced law for 34 years with an emphasis on franchise, corporate and partnership law and complex litigation. Mr. Howard O. Thrall was appointed a Director of the Company in March 1996. Mr. Thrall had previously served as a Director of the Company from December 1988 to December 1994. Mr. 77 Thrall is a management and international marketing consultant, having active assignments with First National Net, Inc., LEP Technologies, Cheong Kang Associates (Korea), Aero Investment Alliance, Inc. and Western Real Estate Partners, among others. From September 1993 through July 1996, Mr. Thrall served as Vice President of Sales, Asian Region, for World Airways, Inc. headquartered at the Washington Dulles International Airport. From 1984 until August 1993, Mr. Thrall was with the McDonnell Douglas Corporation, where he concluded as a Regional Vice President, Commercial Marketing with the Douglas Aircraft Company subsidiary. Mr. Siim A. Vanaselja was appointed a Director of the Company in August 1996. He is the Executive Vice President and Chief Financial Officer of Bell Canada International Inc. and Vice President of BCI Telecom Holding Inc. Mr. Vanaselja joined BCE Inc., Canada's largest telecommunications company, in February 1994 as Assistant Vice-President, International Taxation. In June 1994, he was appointed Assistant Vice-President and Director of Taxation, and in February 1995, Mr. Vanaselja was appointed Vice-President, Taxation. On August 1, 1996, Mr. Vanaselja was appointed the Executive Vice President and Chief Financial Officer of Bell Canada International Inc., a subsidiary of BCE Inc. Prior to joining BCE Inc. and since August 1989, Mr. Vanaselja was a partner in the Toronto office of KPMG Peat Marwick Thorne. Mr. Vanaselja has been a member of the Institute of Chartered Accountants of Ontario since 1982 and is a member of the Canadian Tax Foundation, the Tax Executives Institute and the International Fiscal Association. Mr. Sanford Zisman was appointed a director of the Company in June 1996. Mr. Zisman is a principal in the law firm of Zisman & Ingraham, P.C. of Denver, Colorado and he has practiced law for 32 years, specializing in the areas of tax, business and estate planning and probate administration. Mr. Zisman was a member of the Board of Directors of Saint Joseph Hospital, the largest hospital in Colorado, from 1991 to 1997, serving at various times as Chairman of the Board, Chairman of the Finance Committee and Chairman of the Strategic Planning Committee. Since 1982, he has also served on the Board of Directors of Maxim Series Fund, Inc., a subsidiary of Great-West Life Assurance Company. Mr. Robert B. Zoellick was appointed a Director of the Company in April 1995. Mr. Zoellick is the John M. Olin Professor at the U.S. Naval Academy for the 1997 - 1998 term. From 1993 through 1997, he was an Executive Vice President at Fannie Mae, a federally chartered and stockholder-owned corporation that is the largest housing finance investor in the United States. From August 1992 to January 1993, Mr. Zoellick served as Deputy Chief of Staff of the White House and Assistant to the President. From May 1991 to August 1992, Mr. Zoellick served concurrently as the Under Secretary of State for Economic and Agricultural Affairs and as Counselor of the Department of State, a post he assumed in March 1989. From 1985 to 1988, Mr. Zoellick served at the Department of Treasury in a number of capacities, including Counselor to the Secretary. Mr. Zoellick currently serves on the boards of Alliance Capital and Said Holdings. 78 ITEM 11. EXECUTIVE COMPENSATION -------------------------------- SUMMARY COMPENSATION TABLE The following table sets forth certain information relating to the compensation paid by the Company during the Company's fiscal years ended December 31, 1997 and 1996, during the 12 months ended December 31, 1995 and during the Company's fiscal year ended May 31, 1995 to those persons who were, at December 31, 1997, the Chief Executive Officer and the other four most highly compensated executive officers of the Company.
LONG TERM COMPENSATION ANNUAL COMPENSATION AWARDS NAME AND ---------------------- -------------------- -------- ALL OTHER PRINCIPAL POSITION YEAR (1) SALARY BONUS OPTIONS COMPENSATION(2) - --------------------------- ------------ ----------- --------- -------------------- --------------- Glenn R. Jones (3) YE 12/31/97 $2,714,425 $ 0 110,937(8) $162,865 Chairman of the Board YE 12/31/96 2,620,102 0 0 157,380 and Chief Executive Officer YE 12/31/95 2,500,067 0 125,937(8) 150,006 FYE 5/31/95 1,401,846 900,000 122,269(8) 135,623 James B. O'Brien (4) YE 12/31/97 $ 252,045 $175,000 17,000(8) $ 28,661 President and Director YE 12/31/96 240,961 163,366 0 25,978 YE 12/31/95 230,866 139,870 17,000(8) 19,852 FYE 5/31/95 224,961 250,000 14,387(8) 28,498 Kevin P. Coyle (5) YE 12/31/97 $ 191,552 $100,000 10,000(8) $ 17,493 Group Vice President/ YE 12/31/96 184,185 72,750 0 15,558 Finance YE 12/31/95 177,160 74,895 8,085(8) 15,811 FYE 5/31/95 173,616 45,000 7,762(8) 12,814 Christopher J. Bowick (6) YE 12/31/97 $ 176,075 $ 70,427 10,000(8) $ 14,790 Group Vice President/ YE 12/31/96 169,302 96,872 0 15,152 Technology YE 12/31/95 162,211 48,725 7,850(8) 10,159 FYE 5/31/95 158,061 54,529 7,378(8) 12,756 Ruth E. Warren (7) YE 12/31/97 $ 177,273 $ 70,906 10,000(8) $ 12,764 Group Vice YE 12/31/96 170,454 77,327 0 12,558 President/Operations YE 12/31/95 163,314 49,056 7,860(8) 9,644 FYE 5/31/95 149,854 50,126 7,418(8) 7,888
_________________ (1) In 1995, the Company changed its fiscal year from a year ending May 31 to a calendar year ending December 31. (2) The Company's employees are entitled to participate in a 401(k) profit sharing plan. Certain senior employees of the Company are also eligible to participate in a deferred compensation plan. The amounts shown in the column reflect the Company's contributions pursuant to these plans for the benefit of the named person's account. 79 (3) Mr. Jones' salary, bonus, options and all other compensation for the transition period 6/1/95 through 12/31/95 were $1,458,391, $0, 125,937 and $87,504, respectively. (4) Mr. O'Brien's salary, bonus, options and all other compensation for the transition period 6/1/95 through 12/31/95 were $137,133, $139,870, 17,000 and $8,228, respectively. (5) Mr. Coyle's salary, bonus, options and all other compensation for the transition period 6/1/95 through 12/31/95 were $104,820, $53,007, 8,085 and $6,289, respectively. (6) Mr. Bowick's salary, bonus, options and all other compensation for the transition period 6/1/95 through 12/31/95 were $96,352, $48,725, 7,850 and $5,781, respectively. (7) Ms. Warren's salary, bonus, options and all other compensation for the transition period 6/1/95 through 12/31/95 were $97,007, $49,056, 7,860 and $5,236, respectively. (8) Represents the number of shares of the Company's Class A Common Stock underlying the options granted. OPTION GRANTS IN 1997 The following table sets forth information with respect to grants of stock options during 1997 for the Executive Officers named in the Summary Compensation Table.
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION INDIVIDUAL GRANTS FOR OPTION TERM (2) - ------------------------------------------------------------------------------ --------------------------- % OF TOTAL OPTIONS GRANTED TO ALL EMPLOYEES EXERCISE OPTIONS IN PRICE EXPIRATION NAME GRANTED(1) 1997 ($/SHARE) DATE 5% ANNUAL 10% ANNUAL ---- ---------- ---- --------- ---- --------- ---------- Glenn R. Jones 110,937 30.80% $9.25 2/10/07 $645,653 $1,635,211 James B. O'Brien 17,000 4.72% $9.25 2/10/07 $ 98,940 $ 250,580 Kevin P. Coyle 10,000 2.78% $9.25 2/10/07 $ 58,200 $ 147,400 Christopher J. 10,000 2.78% $9.25 2/10/07 $ 58,200 $ 147,400 Bowick Ruth E. Warren 10,000 2.78% $9.25 2/10/07 $ 58,200 $ 147,400
___________________ (1) Represents the number of shares of the Company's Class A Common Stock underlying the options granted. 80 (2) The dollar amounts shown under these columns are the result of calculations at 5% and 10% compound growth rates set by the Securities and Exchange Commission, and therefore are not intended to forecast possible future appreciation of the Company's stock price. In all cases, the appreciation is calculated from the award date to the end of the option term. AGGREGATED OPTION EXERCISES IN 1997 AND OPTION VALUES AT DECEMBER 31, 1997 The following table sets forth information with respect to stock option exercises during 1997 by the Executive Officers named in the Summary Compensation Table.
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED NUMBER OF OPTIONS AT IN-THE-MONEY OPTIONS AT CLASS A 12/31/97 12/31/97 COMMON STOCK -------- -------- SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/ NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE ---- --------------- -------- ------------- ------------- Glenn R. Jones 30,000 $155,625 542,812/235,039 $2,520,195/$1,523,150 James B. O'Brien 0 -- 28,001/32,693 $122,013/$217,139 Kevin P. Coyle 0 -- 12,932/17,923 $57,158/$121,487 Christopher J. 0 -- 12,931/17,614 $56,805/$119,978 Bowick Ruth E. Warren 0 -- 15,639/17,639 $66,996/$120,101
Compensation of Directors - ------------------------- Directors of the Company who are not full-time employees of the Company or any of its affiliates earn $5,000 each calendar quarter for their services as director, and an additional $1,250 is paid to each such director for every meeting of the Board of Directors attended in person. No additional compensation for director service is paid to directors who are full-time employees of the Company or any of its affiliates. Compensation for director service by employees of BTH is paid to BTH rather than to the BTH directors themselves. Section 16(a) Beneficial Ownership Reporting Compliance - ------------------------------------------------------- Section 16(a) of the Exchange Act requires certain persons, including directors and officers of the Company, to file reports of ownership and changes in ownership of the Company's securities with the Securities and Exchange Commission. The Company is required to disclose in this Form 10-K Report any late or missed filings of those reports during 1997 by its officers (as such term is defined in the rules promulgated under Section 16 of the Exchange Act), directors and 10% shareholders. 81 Based upon the Company's review of the reporting forms received by it and representations from certain persons that no Form 5 reports were required to be filed by those persons, the Company believes that all filing requirements applicable to its officers, directors and 10% shareholders were complied with during 1997 except that BTH filed a report on Form 5 in February 1998 to show its acquisition of shares of the Company's Class A Common Stock in August 1997, rather than a Form 4 in September 1997. Employment Agreement - -------------------- On December 20, 1994, the Company entered into an Employment Agreement with Glenn R. Jones (the "Employment Agreement") pursuant to which the Company agreed to employ Mr. Jones as Chief Executive Officer of the Company for a period of up to eight years from December 20, 1994. Under the terms of the Employment Agreement, Mr. Jones received a base salary of $2,500,000 in fiscal year 1995 (which approximated his fiscal year 1994 combined compensation from the Company and Jones Spacelink, Ltd.), and in the years thereafter he is entitled to an annual cost of living index based salary adjustment. In addition, Mr. Jones is entitled to participate in the Company's employee benefit plans at a level generally commensurate with his participation prior to December 1994. No other employee of the Company has an employment agreement with the Company. Compensation Committee Interlocks and Insider Participation - ----------------------------------------------------------- A Compensation Committee of the Board of Directors was established in January 1995. Glenn R. Jones, Robert Kearney and Donald L. Jacobs are the current members of the Compensation Committee. Mr. Jones is the Chief Executive Officer and a director of the Company, and Messrs. Kearney and Jacobs are non- employee directors of the Company. Glenn R. Jones, James B. O'Brien and Elizabeth M. Steele, executive officers of the Company, serve as officers and directors of certain of the Company's affiliates. As individuals, these executive officers had no transactions with the Company other than as disclosed herein with respect to executive compensation. ITEM 12. SECURITY OWNERSHIP OF CERTAIN --------------------------------------- BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT ------------------------------------------- The following table sets forth certain information as of February 20, 1998, regarding ownership of the Company's Common Stock or Class A Common Stock by persons (including any group) known to the Company to be beneficial owners of more than 5% of either class of stock, the individual directors of the Company, each of the executive officers named in the Summary Compensation Table and the executive officers and directors of the Company as a group. Under the rules of the Securities and Exchange Commission, a person (or group of persons) is deemed to be a "beneficial owner" of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security. A person is also deemed to be a beneficial owner of any security which that person has the right to acquire within 60 days. 82
AMOUNT AND NATURE NAME AND ADDRESS OF OF BENEFICIAL BENEFICIAL OWNER (1) TITLE OF CLASS OWNERSHIP (2) PERCENT OF CLASS - -------------------- -------------- ----------------- ---------------- Jones International, Ltd. Common Stock 2,441,751 (3)(4) 47.76 9697 East Mineral Avenue Englewood, CO 80112 Class A 2,223,414 (3) 6.25 Common Stock Glenn R. Jones Common Stock 2,916,151 (3)(5) 57.03 9697 East Mineral Avenue Englewood, CO 80112 Class A 3,051,420 (3)(6) 8.43 Common Stock Christopher J. Bowick Common Stock 2,678 .05 9697 East Mineral Avenue Englewood, CO 80112 Class A 17,276 (7) .05 Common Stock Kevin P. Coyle Common Stock 345 (8) .01 9697 East Mineral Avenue Englewood, CO 80112 Class A 17,442 (9) .05 Common Stock William E. Frenzel Class A 400 less than .01 1775 Massachusetts Ave., N.W. Common Stock Washington, D.C. 20036 James J. Krejci Class A 5,000 .01 3100 Arapahoe Avenue Common Stock Boulder, CO 80303 James B. O'Brien Class A 45,847 (10) .13 9697 East Mineral Avenue Common Stock Englewood, CO 80112 Raphael M. Solot Common Stock 300 .01 501 South Cherry Street Denver, CO 80222 Ruth E. Warren Common Stock 208 less than .01 9697 East Mineral Avenue Englewood, CO 80112 Class A 26,758 (11) .08 Common Stock Sanford Zisman Common Stock 500 (12) .01 3773 Cherry Creek North Drive Denver CO 80209
83
Robert B. Zoellick Class A 300 less than .01 3900 Wisconsin Avenue, N.W. Common Stock Washington, D.C. 20016 All executive officers and directors Common Stock 2,920,182 57.11 as a group (20 persons) Class A 3,187,443 (13) 8.78 Common Stock Christine Jones Marocco Common Stock 2,742,537 (14) 53.64 25 East End Avenue, #14F New York NY 10288 Class A 98,748 (15) .28 Common Stock BTH (Intercable) Limited Common Stock 2,878,151 (16)(19) 56.29 (f/k/a Bell Canada International BVI VI Limited) Arawak Chamber Road Town Tortola, BVI BTH (U.S. Cable) Limited Class A 12,782,500 (17)(19) 35.93 (f/k/a Bell Canada International Common Stock BVI III Limited) Arawak Chamber Road Town Tortola, BVI The Capital Group Companies, Inc. Class A 4,871,000 (18)(19) 13.69 333 South Hope Street Common Stock Los Angeles, CA 90071 Capital Research and Class A 3,230,000 (18)(19) 9.08 Management Company Common Stock
(1) Directors and executive officers named in the Summary Compensation Table who are not listed in the table do not beneficially own any of the Company's shares. Shares shown as subject to options means that such options are exercisable within 60 days. (2) Unless otherwise noted, all persons indicated in the table have full voting and investment power with respect to the share ownership described. (3) Glenn R. Jones, Chairman of the Board of Directors and Chief Executive Officer of the Company, owns all of the outstanding shares of Jones International, Ltd. ("International") and is deemed to be the beneficial owner of all shares of the Company owned by International. By virtue of this ownership, Mr. Jones controls approximately 37% of the total votes to be cast by all shareholders of the Company's shares on matters not requiring a class vote, because, with regard to such matters, a share of Common Stock has one vote and a share of Class A 84 Common Stock has 1/10th of a vote. The holders of Class A Common Stock, as a class, are able to elect the greater of 25% or the next highest whole number of the Company's Board of Directors. Thus, holders of the Class A Common Stock, as a class, are presently entitled to elect four Directors. (4) Includes 38,000 shares held by International; 2,239,416 shares held by the Jones International Grantor Business Trust; 100,400 shares held by Jones Entertainment Group, Ltd.; 35,707 shares held by Jones Space Segment, Inc.; 27,585 shares held by Jones Global Group, Inc.; and 643 shares held by Jones Interdigital, Inc. International may be deemed to be the beneficial owner of all shares of Common Stock owned by Jones Entertainment Group, Ltd., Jones Space Segment, Inc., Jones Global Group, Inc. and Jones Interdigital, Inc. (5) Includes 474,400 shares held by the Glenn Jones Grantor Business Trust; 38,000 shares held by International; 2,239,416 shares held by the Jones International Grantor Business Trust; 100,400 shares held by Jones Entertainment Group, Ltd.; 35,707 shares held by Jones Space Segment, Inc.; 27,585 shares held by Jones Global Group, Inc.; and 643 shares held by Jones Interdigital, Inc. (6) Includes 226,893 shares owned by Mr. Jones; 601,113 shares deemed to be held by Mr. Jones pursuant to exercisable stock options; and 2,223,414 shares held by International. (7) Represents shares deemed to be held by Mr. Bowick pursuant to exercisable stock options. (8) Includes 320 shares held by Mr. Coyle's wife. (9) Includes 17,373 shares deemed to be held by Mr. Coyle pursuant to exercisable stock options. (10) Includes 35,847 shares deemed to be held by Mr. O'Brien pursuant to exercisable stock options. (11) Includes 19,994 shares deemed to be held by Ms. Warren pursuant to exercisable stock options. (12) Represents shares held by the Sanford Zisman PC Profit Sharing Plan. (13) Includes 714,603 shares deemed to be held by various executive officers and directors pursuant to exercisable stock options. (14) Includes 12,370 shares held by Mrs. Marocco; 357 shares held by the Joseph Michael Marocco Irrevocable Trust; 15,994 shares held by the Christine Jones Marocco Irrevocable Trust; 2,239,416 shares held by the Jones International Grantor Business Trust in which Mrs. Marocco has shared voting power; and 474,400 shares held by the Glenn Jones Grantor Business Trust in which Mrs. Marocco has shared voting power. (15) Includes 64,113 shares held by Mrs. Marocco; 970 shares held by the Joseph Michael Marocco Irrevocable Trust; 23,665 shares held by the Christine Jones Marocco Irrevocable Trust; and 10,000 shares held by Mrs. Marocco's husband. Mrs. Marocco disclaims beneficial ownership of the shares held by her husband. Mrs. Marocco's husband is a principal in a firm that may from time to time invest in the Company's securities. Mrs. Marocco disclaims beneficial ownership of any securities of the Company that said firm purchases or in which Mr. Marocco may therefor have an interest. 85 (16) BCI Telecom Holding Inc. ("BTH"), the sole shareholder of BTH (Intercable) Limited (f/k/a Bell Canada International BVI VI Limited), is deemed to have beneficial ownership of the 2,878,151 shares of Common Stock covered by Option Agreements dated December 20, 1994 among The Bank of New York, acting as agent for BTH, and the Glenn Jones Grantor Business Trust, the Jones International Grantor Business Trust, Jones Entertainment Group, Ltd., Jones Space Segment, Inc., Jones Global Group, Inc. and Jones Interdigital, Inc. (17) BTH is deemed to be the beneficial owner of the shares of Class A Common Stock owned by its wholly owned subsidiary, BTH (U.S. Cable) Limited (f/k/a Bell Canada International BVI III Limited). (18) The Capital Group Companies, Inc. is the parent holding company of a group of investment management companies, including Capital Research and Management Company, that hold investment power and, in some cases, voting power over shares of the Company's Class A Common Stock. The Capital Group Companies, Inc. has sole voting power over 1,641,000 shares, shared voting power over no shares and sole dispositive power over 4,871,000 shares. Capital Research and Management Company has no sole or shared voting power and sole dispositive power over 3,230,000 shares. (19) This information is based upon filings made by the shareholders with the Securities and Exchange Commission, copies of which were provided to the Company. ITEM 13. CERTAIN TRANSACTIONS ------------------------------ The Company has engaged in and expects to continue to engage in certain transactions with its affiliates. These transactions have involved affiliation agreements for the distribution of programming owned by affiliated companies on cable television systems owned or managed by the Company, lease agreements related to real estate, lease agreements and service agreements related to certain technical, computer, financial and administrative services provided to the Company by affiliates. For the year ended December 31, 1997, approximately $705,000, or less than 1%, of the Company's total revenue and approximately $4,925,000, or 2.5%, of its total operating, general and administrative expenses were a result of related party transactions. Because certain officers and directors of the Company are also officers and directors of affiliated companies, the terms of any agreements between the Company and such affiliates generally are not and will not be the result of arm's length negotiations. There can be no assurance that the terms of any transactions between the Company and its affiliates have been or will be as favorable as the Company could obtain from unrelated parties. Set forth below is a description of the Company's transactions with Jones International, Ltd. ("International"), certain of its subsidiaries and certain other affiliates of the Company, including BTH, during the year ended December 31, 1997. In some instances the dollar amounts of transactions have been rounded to the nearest thousand. Most of the transactions described below are expected to continue during the current fiscal year. 86 JONES INTERNATIONAL, LTD. Jones International, Ltd. and certain of its subsidiaries provide various services to the Company and its managed limited partnerships, including information and data processing services, office space and programming services, as described below. The costs of these services are charged to the Company, and the Company reimburses International accordingly. In some cases, a portion of certain of these expenses are reallocated to the Company's managed partnerships pursuant to the terms of the limited partnership agreements of such limited partnerships. JONES GALACTIC RADIO, INC. Jones Galactic Radio, Inc. is a subsidiary of Jones International Networks, Ltd., an affiliate of International. The Company's cable systems receive audio programming from Superaudio, a joint venture between Jones Galactic Radio, Inc. and an unaffiliated entity. Payments made by the Company to Jones Galactic Radio, Inc. for programming provided to Company-owned cable systems for the year ended December 31, 1997 totaled $243,800. JONES COMPUTER NETWORK, LTD. Jones Computer Network, Ltd., a wholly owned subsidiary of Jones Education Group, Ltd., a company owned 64% by International, 16% by the Company, 12% by BTH and 8% by Mr. Jones, operated, until April, 1997, the television network Jones Computer Network. This network provided programming focused primarily on computers and technology. Jones Computer Network sold its programming to certain cable television systems owned by the Company. Payments made by the Company to Jones Computer Network with respect to programming provided to cable systems owned by the Company for the year ended December 31, 1997 totaled $222,800. KNOWLEDGE TV, INC. Knowledge TV, Inc., a company owned 66% by Jones Education Group, Ltd., 7% by Mr. Jones and 26% by the Company, operates the television network JEC Knowledge TV. JEC Knowledge TV provides programming related to computers and technology; business, careers and finance; health and wellness; and global culture and languages. Knowledge TV, Inc. sells its programming to certain cable television systems owned by the Company. Payments made by the Company to Knowledge TV, Inc. with respect to programming provided to cable television systems owned by the Company for the year ended December 31, 1997 totaled $411,200. JONES FINANCIAL GROUP, LTD. Jones Financial Group, Ltd. ("Financial Group") performs services for the Company as its agent in connection with negotiations regarding various financial arrangements of the Company. Financial Group is owned 81% by International and 19% by Glenn R. Jones. In December 1994, the Company entered into a Financial Services Agreement with Financial Group pursuant to which Financial Group has agreed to render financial advisory and related services to the Company for a fee equal to 90% of the fees that would be charged to the Company by unaffiliated third parties for the 87 same or comparable purposes. The Company pays Financial Group an annual $1,000,000 retainer as an advance against payments due pursuant to this agreement and reimburses Financial Group for its reasonable out-of-pocket expenses. The term of the Financial Services Agreement is for eight years from December 1994. Financial Group and BTH have entered into a separate agreement pursuant to which BTH is entitled to receive one-half of the net fees earned (gross fees less reasonable and customary operating expenses) by Financial Group under the Financial Services Agreement. During the year ended December 31, 1997, the Company paid Financial Group fees totaling $3,456,000 for acting as the Company's financial advisor in connection with certain of the Company's acquisitions, sales and exchanges of cable systems in 1997. JONES INTERACTIVE, INC. Jones Interactive, Inc. ("Interactive"), a wholly owned subsidiary of International, provides information management and data processing services for operating companies affiliated with International. Charges to the various operating companies are based on usage of computer time by each entity. The amount charged to the Company and its managed partnerships by Interactive for the year ended December 31, 1997 totaled $5,454,000. Approximately 47% of this amount was paid by the Company, and the remainder was allocated to and paid by the Company's managed partnerships. As disclosed below, the Company also paid Interactive certain amounts in connection with the development and planned implementation of a new subscriber billing and management system. See Item 13, Investment in Jones Customer Service Management, L.L.C. JONES PROPERTIES, INC. Jones Properties, Inc. is a wholly owned subsidiary of International. The Company is a party to a lease with Jones Properties, Inc. under which the Company has leased a 101,500 square foot office building in Englewood, Colorado. The lease agreement, as amended, has a 15-year term expiring July 2000, with three 5-year renewal options. The annual rent is not to exceed $24.00 per square foot, plus operating expenses. The Company has subleased approximately 44% of the building to International and certain other affiliates on the same terms and conditions of the above-mentioned lease. Rent payments to Jones Properties, Inc. by the Company, net of subleasing reimbursements, for the year ended December 31, 1997 totaled $1,345,000. Approximately 47% of this amount was paid by the Company, and the remainder was allocated to and paid by the Company's managed partnerships. PRODUCT INFORMATION NETWORK The Product Information Network Venture (the "PIN Venture") is a venture among a subsidiary of Jones International Networks, Ltd., an affiliate of International, and two unaffiliated cable system operators. The PIN Venture operates the Product Information Network ("PIN"), which is a 24-hour network that airs long-form advertising generally known as "infomercials." PIN has an affiliation agreement with the Company that expires on February 1, 2005. The PIN Venture generally makes incentive payments of approximately 60% of its net advertising revenue to the cable systems that carry its programming. Most of the Company's owned cable television systems carry 88 PIN for all or part of each day. Aggregate payments received by the Company from the PIN Venture relating to the Company's owned cable television systems totaled $705,000 for the year ended December 31, 1997. GREAT AMERICAN COUNTRY, INC. The Great American Country network provides country music video programming to certain of the Company's owned systems. This network is owned and operated by Great American Country, Inc., a subsidiary of Jones International Networks, Ltd., an affiliate of International. During the year ended December 31, 1997, the Company paid Great American Country, Inc. a total of $313,000 for programming provided by Great American Country to Company-owned cable television systems. JONES INTERNET CHANNEL, INC. Jones Internet Channel, an indirect subsidiary of International, is providing service on two Company-owned cable systems serving subscribers in Alexandria and Dale City, Virginia. As of December 31, 1997, the Company's costs related to this service have not been material. All subscriber revenue generated by Jones Internet Channel's service flows to this affiliate until such time as this affiliate has recouped its costs for cable modems. Other revenues, if and when generated, and subscriber revenue after Jones Internet Channel's recoupment of its cable modem costs, will be shared with the Company. As of December 31, 1997, Jones Internet Channel had not yet recouped its cable modem costs. The Company and Jones Internet Channel have been in the process of negotiating a definitive affiliation agreement that, if and when concluded, would result in the roll-out of Jones Internet Channel to all Company-owned cable systems. The negotiation of a definitive affiliation agreement has been temporarily suspended due to the filing of certain litigation by BTH. See Item 3, Legal Proceedings. SUPPLY AND SERVICES AGREEMENT WITH BTH The Company entered into a Supply and Services Agreement with BTH in December 1994. Pursuant to the Supply and Services Agreement, BTH provides the Company with access to the expert advice of personnel from BTH and its affiliates on an annual basis. The Company has agreed to pay an annual fee of $2,000,000 to BTH during the term of the agreement. Payments made by the Company under the Supply and Services Agreement during the year ended December 31, 1997 totaled $2,000,000. SECONDMENT AGREEMENT WITH BTH The Company entered into a Secondment Agreement with BTH in December 1994. Pursuant to the Secondment Agreement, BTH provided a total of 12 secondees during 1997. These secondees worked for the Company and its managed partnerships. The Company reimbursed BTH for the full employment costs of such individuals. The Company reimbursed BTH $1,180,270 during the year 89 ended December 31, 1997. Approximately 47% of this amount was paid by the Company, and the remainder was allocated to and paid by the Company's managed partnerships. INVESTMENT IN JONES CUSTOMER SERVICE MANAGEMENT, L.L.C. The Company and Jones Cyber Solutions, Ltd. ("JCS"), an indirect subsidiary of International, have formed a venture, known as Jones Customer Service Management, L.L.C., for the purpose of developing a subscriber billing and management system. As of December 31, 1997, the Company had invested $5,200,000 in the venture. The Company accounts for this investment using the equity method and, as of December 31, 1997, had recognized equity losses equal to its investment of $5,200,000. JCS performed the basic system development work for the venture and was paid periodically on a time and materials basis, plus 10% of the amount charged, for its own service. The Company and JCS have license rights to use such system in perpetuity. The venture granted to JCS the exclusive right to distribute the system to third parties for a period of five years for a commission on the license fees to be earned by the venture from such licensing. The venture's subscriber billing and management system was trialed in one of the Company's cable systems during 1997. The Company determined, in late 1997, not to pursue the implementation of the subscriber billing and management system in any of the Company's cable systems at this time. As a result of this decision, the Company incurred a loss of $14,228,000 in the fourth quarter of 1997 related to the write-off of costs associated with the planned implementation of the billing system in Company-owned cable systems. In connection with the development and planned implementation of the venture's subscriber billing and management system, the Company paid Jones Interactive, Inc., a wholly owned subsidiary of International, $2,991,000 during the year ended December 31, 1997, and a total of $6,740,000 from the outset of the project through December 31, 1997, for work done by Jones Interactive, Inc. to prepare the Company's owned and managed cable systems for the implementation of the venture's subscriber billing and management system. All of these costs are included in the $14,228,000 write off. 90 PART IV ITEM 14. EXHIBITS AND REPORTS ON FROM 8-K ------------------------------------------- (a)(1) FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS. (a)(2) SCHEDULES. (a)(3) EXHIBITS. The following exhibits, which are numbered in accordance with Item 601 of Regulation S-K, are filed herewith or, as noted, incorporated by reference herein: 2.1 Exchange Agreement and Plan of Reorganization and Liquidation, dated as of May 31, 1994 by and between the Company and Jones Spacelink, Ltd. (1) 2.2 Stock Purchase Agreement dated as of May 31, 1994, between Bell Canada International Inc. and the Company. (1) 2.3 Transaction Agreement dated as of May 31, 1994, among Glenn R. Jones, Jones International, Ltd., Bell Canada International Inc. and Jones Spacelink, Ltd. (1) 2.4 Purchase and Sale Agreement dated February 22, 1995 between Cable TV Fund 12-B, Ltd. and the Company. (2) 2.5 Amendment No. 1 dated July 24, 1995 to Purchase and Sale Agreement dated February 22, 1995 between Cable TV Fund 12-B, Ltd. and the Company. (3) 2.6 Asset Purchase Agreement dated May 31, 1995 between Benchmark Manassas Cable Fund Limited Partnership and the Company. (4) 2.7 Asset Purchase Agreement dated May 31, 1995 between Cablevision of Manassas Park, Inc. and the Company. (4) 2.8 Asset Purchase Agreement dated as of June 30, 1995 between Columbia Associates, L.P. and the Company. (3) 91 2.9 Purchase and Sale Agreement dated as of August 11, 1995 between IDS/Jones Growth Partners 87-A, Ltd. and the Company. (3) 2.10 Purchase and Sale Agreement dated as of August 11, 1995 between Jones Cable Income Fund 1-B, Ltd. and the Company. (3) 2.11 Purchase and Sale Agreement dated as of August 11, 1995 between Cable TV Fund 12-BCD Venture and the Company. (3) 2.12 Asset Exchange Agreement dated as of August 11, 1995 between Time Warner Entertainment-Advance/Newhouse Partnership and the Company. (3) 2.13 Asset Purchase Agreement dated September 5, 1995 between Cable TV Joint Fund 11 and the Company relating to the Manitowoc System. (4) 2.14 Asset Purchase Agreement dated September 5, 1995, between Jones Spacelink Income Partners 87-1, L.P. and the Company relating to the Lodi System. (4) 2.15 Asset Purchase Agreement dated September 5, 1995, between Jones Spacelink Income/Growth Fund 1-A, Ltd. and the Company relating to the Ripon System. (4) 2.16 Asset Purchase Agreement dated September 5, 1995, between Jones Spacelink Income/Growth Fund 1-A, Ltd. and the Company relating to the Lake Geneva System. (4) 2.17 Asset Exchange Agreement dated September 1, 1995, between the Company and Time Warner Entertainment Company, L.P. (4) 2.18 Assignment and Assumption Agreement dated as of September 15, 1995 between the Company and Jones Cable Holdings, Inc. (5) 2.19 Purchase and Sale Agreement dated as of October 15, 1995 between the Company and Jones Cable Holdings, Inc. (5) 2.20 Asset Purchase Agreement (Walnut) dated August 16, 1996 between Jones Intercable, Inc. and Century Communications Corp. (6) 2.21 Asset Purchase Agreement (Oxnard) dated August 16, 1996 between Jones Intercable, Inc. and Century Communications Corp. (6) 2.22 Asset Exchange Agreement dated October 25, 1996 between Jones Communications of Colorado, Inc. and United CATV, Inc. (7) 92 2.23 Asset Purchase Agreement dated July 30, 1996 between Maryland Cable Partners, L.P. and Jones Communications of Maryland, Inc. (8). 2.24 First Amendment to Purchase Agreement dated January 30, 1997 between Maryland Cable Partners, L.P. and Jones Communications of Maryland, Inc. (8) 2.25 Purchase and Sale Agreement (Independence) dated as of February 28, 1997, between the Company and Jones Intercable Investors, L.P. (23) 2.26 Assignment and Assumption Agreement (Independence) dated as of April 15, 1997 between the Company and Jones Communications of Missouri, Inc. (23) 2.27 Purchase and Sale Agreement (Albuquerque) dated as of July 28, 1997 between the Company and Cable TV Fund 12-BCD Venture. (23) 2.28 Purchase and Sale Agreement (Palmdale) dated as of March 10, 1998 between the Company and Cable TV Fund 12-BCD Venture. 2.29 Purchase and Sale Agreement (Littlerock) dated as of March 10, 1998 between the Company and Cable TV Fund 14-B, Ltd. 3.1 Articles of Incorporation and amendments thereto of the Company. (9) 3.2 Amendment to Articles of Incorporation of Company filed July 24, 1995. (3) 3.3 Amendment to Articles of Incorporation of Company filed September 18, 1996. (21) 3.4 Bylaws of the Company. (3) 4.1 Indenture, dated as of July 15, 1992, between the Company and First Trust National Association. (11) 4.2 Second Supplemental Indenture, dated as of March 1, 1993, between the Company and First Trust National Association. (12) 4.3 Form of Shareholders Agreement among Glenn R. Jones, Jones International, Ltd., Bell Canada International Inc. and the Company. (1) 4.4 Indenture dated March 23, 1995 with respect to the Senior Notes, between the Company and U.S. Trust Company of California, N.A. (13) 4.5 First Supplemental Indenture dated as of March 23, 1995 with respect to $200,000,000 aggregate principal amount of the Company's 9 5/8% Senior Notes due 2002, between the Company and U.S. Trust Company of California, N.A. (13) 4.6 Second Supplemental Indenture dated as of March 21, 1997 with respect to $250,000,000 aggregate principal amount of the Company's 8 7/8% Senior Notes due 2007, between the Company and U.S. Trust Company of California, N.A. (22) 10.1.1 Form of Financial Services Agreement between Jones Financial Group, Ltd. and the Company. (1) 10.1.2 Form of Employment Agreement between Glenn R. Jones and the Company. (1) 93 10.1.3 Form of Supply and Services Agreement between Bell Canada International Inc. and the Company. (1) 10.1.4 Form of Secondment Agreement between Bell Canada International Inc. and the Company. (1) 10.1.5 Form of Option Agreement for Glenn R. Jones and Jones International, Ltd. between Bell Canada International Inc. and Newco. (1) 10.1.6 Affiliate Agreement dated August 1, 1994 between the Company and Jones Infomercial Networks, Inc. (3) 10.2.1 1992 Stock Option Plan. (14) 10.2.2 Form of Basic Incentive Stock Option Agreement. (14) 10.2.3 Form of Basic Non-Qualified Stock Option Agreement. (14) 10.3.1 Office Lease, dated June 8, 1984, between the Company and Jones Properties, Inc., regarding office space at 9697 East Mineral Avenue, Englewood, Colorado. (15) 10.3.2 Office Building Lease dated December 9, 1994 between Jones Panorama Properties, Inc. and the Company regarding Lot 4, Panorama Office Park. (3) 10.4.1 Partnership Agreement for Cable TV Fund 12. (15) 10.4.2 Partnership Agreement for Cable TV Fund 14. (16) 10.4.3 Partnership Agreement for Jones Cable Income Fund 1. (17) 10.4.4 Partnership Agreement for IDS/Jones Growth Partners. (18) 10.4.5 Partnership Agreement for Cable TV Fund 15. (19) 10.4.6 Partnership Agreement for IDS/Jones Growth Partners II, L.P. (20) 10.5.1 Credit Agreement dated October 31, 1995 among Jones Cable Holdings, Inc. and NationsBank of Texas, N.A. and The Bank of Nova Scotia, as lenders and as managing agents and various other lenders. (5) 10.5.2 First Amendment dated as of September 17, 1996 to Credit Agreement dated October 31, 1995 among Jones Cable Holdings, Inc. and Nationsbank of Texas, N.A., individually and as agent for various other lenders. (21) 94 10.5.3 Credit Agreement dated as of October 29, 1996 among Jones Cable Holdings II, Inc. and The Bank of Nova Scotia, Nationsbank of Texas, N.A. and Societe Generale, as managing agents for various lenders. (21) 21 List of Subsidiaries of the Company. 23 Consent of Arthur Andersen & LLP, independent public accountants, to the incorporation by reference of its report into the Company's Form S-8 and Form S-3 Registration Statements. 27 Financial Data Schedule - ------------- (1) Incorporated by reference from the Company's Current Report on Form 8-K, filed on June 6, 1994. (2) Incorporated by reference from the Company's Current Report on Form 8-K dated March 10, 1995. (3) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1995. (4) Incorporated by reference from the Company's Current Report on form 8-K dated September 8, 1995. (5) Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1995. (6) Incorporated by reference from the Company's Current Report on Form 8-K dated August 28, 1996. (7) Incorporated by reference from the Company's Current Report on Form 8-K dated November 5, 1996. (8) Incorporated by reference from the Company's Current Report on Form 8-K dated February 7, 1997. (9) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1988. (10) Incorporated by reference from the Company's Registration Statement No. 33-13545 on Form S-2, filed on April 17, 1987, and Amendment No. 1 thereto, filed on May 8, 1987. 95 (11) Incorporated by reference from the Company's Registration Statement No. 33-47030 on Form S-3, filed on April 8, 1992, and Amendment Nos. 1 and 2 thereof, filed on April 24, 1992 and June 4, 1992, respectively, and Post-Effective Amendment No. 1 thereof, filed on July 15, 1992. (12) Incorporated by reference from the Company's Current Report on Form 8-K, filed on March 1, 1993. (13) Incorporated by reference from the Company's Current Report on form 8-K dated March 23, 1995. (14) Incorporated by reference from the Company's Registration No. 33- 54596 on Form S-8, filed on November 16, 1992. (15) Incorporated by reference from the Company's Registration Statement No. 2-94127. (16) Incorporated by reference from the Company's Registration Statement No. 33-6976, filed on July 3, 1986, and Amendment No. 1 thereto, filed on November 17, 1986. (17) Incorporated by reference from the Company's Registration Statement No. 33-00968 on Form S-1, filed on October 18, 1985. (18) Incorporated by reference from the Company's Registration Statement No. 33-12473. (19) Incorporated by reference from the Company's Registration Statement No. 33-24358. (20) Incorporated by reference from the Company's Registration Statement on Form 8-A No. 0-18133, dated November 16, 1989. (21) Incorporated by reference from the Company's Annual Report on Form 10-K for year ended December 31, 1996. 96 (22) Incorporated by reference from the Company's Current Report on Form 8-K dated March 21, 1997 (23) Incorporated by reference from the Company's Current Report on Form 8-K dated August 1, 1997 (b) Reports on Form 8-K None. 97 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 duly authorized. JONES INTERCABLE, INC. By: /s/ Glenn R. Jones ------------------------------------ Glenn R. Jones Chairman of the Board and Dated: March 10, 1998 Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Glenn R. Jones ------------------------------------ Glenn R. Jones Chairman of the Board and Chief Executive Officer Dated: March 10, 1998 (Principal Executive Officer) By: /s/ Kevin P. Coyle ------------------------------------ Kevin P. Coyle Group Vice President/Finance Dated: March 10, 1998 Principal Financial Officer) By: /s/ Larry W. Kaschinske ------------------------------------ Larry W. Kaschinske Controller Dated: March 10, 1998 (Principal Accounting Officer) 98 By: /s/ James B. O'Brien ------------------------------------ James B. O'Brien Dated: March 10, 1998 President and Director By: /s/ Robert E. Cole ------------------------------------ Robert E. Cole Dated: March 10, 1998 Director By: /s/ William E. Frenzel ------------------------------------ William E. Frenzel Dated: March 10, 1998 Director By: /s/ Josef J. Fridman ------------------------------------ Josef J. Fridman Dated: March 10, 1998 Director By: ------------------------------------ Donald L. Jacobs Dated: March 10, 1998 Director By: /s/ Robert Kearney ------------------------------------ Robert Kearney Dated: March 10, 1998 Director By: /s/ James J. Krejci ------------------------------------ James J. Krejci Dated: March 10, 1998 Director By: /s/ Raphael M. Solot ------------------------------------ Raphael M. Solot Dated: March 10, 1998 Director By: /s/ Howard O. Thrall ------------------------------------ Howard O. Thrall Dated: March 10, 1998 Director 99 By: /s/ Siim A. Vanaselja ------------------------------------ Siim A. Vanaselja Dated: March 10, 1998 Director By: /s/ Sanford Zisman ------------------------------------ Sanford Zisman Dated: March 10, 1998 Director By: /s/ Robert B. Zoellick ------------------------------------ Robert B. Zoellick Dated: March 10, 1998 Director 100 EX-2.28 2 PURCHASE & SALE AGRMT (PALMDALE) 3/10/98 EXHIBIT 2.28 PALMDALE SYSTEM --------------- PURCHASE AND SALE AGREEMENT --------------------------- THIS PURCHASE AND SALE AGREEMENT is made as of the 10th day of March, 1998, by and between CABLE TV FUND 12-BCD VENTURE, a Colorado joint venture ("Seller") and JONES INTERCABLE, INC., a Colorado corporation ("Buyer"). RECITALS -------- A. Seller owns and operates a cable television system in and around the City of Palmdale, the City of Lancaster, Edwards Air Force Base and portions of unincorporated Los Angeles County, all in the State of California (the "System"). B. Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, the System upon the terms and conditions set forth in this Agreement. AGREEMENT --------- In consideration of the mutual promises contained in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Purchase and Sale. Subject to the terms and conditions set forth in ----------------- this Agreement, Seller hereby agrees to sell, convey, assign, transfer and deliver to Buyer, and Buyer hereby agrees to purchase from Seller, on the Closing Date (as defined in Paragraph 9 hereof), all of Seller's right, title and interest in and to the System and the Assets (as defined in Paragraph 2 hereof) then being transferred and sold pursuant hereto, free and clear of all security interests, liens, pledges, charges and encumbrances. 2. Assets. (a) The assets to be conveyed to Buyer hereunder shall consist ------ of all of the assets and properties of Seller, whether real, personal, tangible or intangible, of whatever description and wherever located, now owned or used by Seller solely in connection with Seller's ownership or operation of the System, except those items excluded pursuant to subparagraph 2(b) hereof, but including all additions made to the Closing Date, to the end that all of Seller's assets owned on the Closing Date which are used or owned solely in connection with Seller's ownership or operation of the System shall pass to Buyer. Such assets (collectively, the "Assets") shall include, without limitation: (i) all of Seller's towers, tower equipment, antennas, aboveground and underground cable, distribution systems, headend amplifiers, line amplifiers, earth satellite receive stations and related equipment, microwave equipment, testing equipment, motor vehicles, office equipment, furniture and fixtures, supplies, inventory and other physical assets owned or used by Seller solely in connection with Seller's ownership or operation of the System; (ii) the franchises, leases, agreements, permits, consents, licenses and other contracts, pole line or joint pole agreements, underground conduit agreements, agreements for the reception or transmission of signals by microwave, easements, rights-of-way and construction permits, if any, and any other obligations and agreements between Seller and suppliers and customers, which are owned or used by Seller solely in connection with Seller's ownership and operation of the System; (iii) the real property owned and used solely in connection with the System; (iv) all accounts receivable of Seller arising in connection with the System; (v) all engineering records, files, data, drawings, blueprints, schematics, maps, reports, lists and plans and processes owned or developed by or for Seller and intended for use in connection with the System; (vi) all promotional graphics, original art work, mats, plates, negatives and other advertising, or related materials developed by or for Seller and intended for use in connection with the System; (vii) all of Seller's correspondence files, lists, records and reports concerning customers and prospective customers of the Systems, concerning television stations whose transmissions are or may be carried as part of the Systems and concerning all dealings with federal, state, and local regulatory agencies, including all reports filed by or on behalf of Seller with the Federal Communications Commission (the "FCC") in connection with the System and any Statements of Account of the System filed by or on behalf of Seller with the united States Copyright Office in connection with the System; provided however, that Seller shall not transfer to Buyer the licenses and - -------- ------- agreements for which the consent of a third party is required to transfer (the "Additional Agreements") until Seller has obtained the approval of the parties granting the Additional Agreements to such transfer, whereupon such Additional Agreements shall be deemed to be included in the assets to be transferred to Buyer pursuant to this Agreement. (b) The following properties and assets relating to the System and its business operations shall be retained by Seller and shall not be sold, assigned or transferred to Buyer; (i) cash or cash equivalents on hand or in banks; (ii) insurance policies and rights and claims thereunder; (iii) all claims, rights and interest in and to any refunds for Federal, state or local income or other taxes or fees of any nature whatsoever for periods prior to the Closing Date, including without limitation, fees paid to the United States Copyright Office; and (iv) assets disposed of in the normal course of business or with the written consent of Buyer between the date hereof and the Closing Date. 3. Purchase Price. Subject to the adjustments to be made in accordance -------------- with Paragraph 4 hereof, the total purchase price for the Assets shall be One Hundred Thirty-Eight Million Two Hundred Five Thousand Two Hundred Dollars ($138,205,200.00) (the "Purchase Price"), which Purchase Price represents the average of three separate independent appraisals of the System. The Purchase Price shall by payable to Seller at Closing in cash, by cashier's check or by wire transfer of Federal funds to a bank or banks designated by Seller. 4. Adjustments. All adjustments provided for herein with respect to ----------- this transaction shall increase or decrease the Purchase Price, as appropriate, and shall be made as of the close of business (5:01 p.m., local time) on the Closing Date. (a) Rent, pole rents, franchise fees, taxes, power and utility fees and deposits, insurance premiums, licenses, customer prepayments and deposits, and other prepayments and amounts due shall be prorated and debited or credited to Seller or Buyer, as applicable. For purposes of adjustments made under this Paragraph 4(a), the subscriber accounts receivable which are due and payable for and with respect to the month in which the Closing takes place shall be prorated as of the Closing Date. (b) The Purchase Price shall be reduced by any accounts payable, accrued expenses and vehicle lease obligations for which Seller would otherwise be liable hereunder, but for which the obligation for payment is assumed by Buyer. (c) Seller and Buyer shall jointly determine the adjustments required by this Paragraph 4 at the Closing. The net amount to which Buyer or Seller, as the case may be, is entitled pursuant hereto shall be thereupon paid by Buyer or Seller, as the case may be, by an adjustment to the Purchase Price. All adjustments made at Closing shall be tentative and shall be subject to final adjustment within 90 days after Closing. 5. Assumption of Liabilities. Buyer shall agree to assume and discharge ------------------------- all debts, liabilities and obligations of Seller arising with respect to periods subsequent to the Closing Date under any franchise, license, permit, lease, instrument or agreement transferred to Buyer hereunder and, with respect to periods prior to and including the Closing Date, to assume and discharge all obligations of Seller to the extent that the Purchase Price is reduced pursuant to Paragraph 4(b) hereof; provided, however, that Buyer shall not assume the -------- ------- Additional Agreements until Seller has obtained the approval of the parties granting the Additional Agreements to Seller's transfer of the Additional Agreements to Buyer, whereupon the Additional Agreements shall be deemed to be included in the assets to be assumed by Buyer hereunder. Buyer hereby agrees to indemnify and to hold harmless from and against any and all damages, costs, claims and expenses (the "Indemnifiable Claims") arising by reason of the ownership, operation or control of the System after Closing Date; provided, -------- however, that Buyer shall not indemnify and hold harmless Seller from any - ------- Indemnifiable Claims arising under Additional Agreements as a result of actions relating to any period before Seller has obtained the approval of the parties granting the Additional Agreements to Seller's transfer of the Additional Agreements to Buyer. Anything herein to the contrary notwithstanding, there is hereby excluded from the assumed obligations, and Seller hereby agrees to retain and discharge, and to indemnify and hold Buyer harmless from and against, any and all Indemnifiable Claims to the extent they arise (a) out of any debt, liability or obligation arising with respect to periods prior to the Closing Date for which no reduction of the Purchase Price has been made pursuant to Paragraph 4(b) hereof, (b) out of any debt, liability or obligation arising under the Additional Agreements arising as a result of actions relating to any period before Seller has obtained the approval of the parties granting the Additional Agreements to Seller's transfer of the Additional Agreements to Buyer, and (c) any debt, liability or obligation of Seller not expressly assumed hereunder, whenever arising. 6. Seller's Representations. Seller hereby represents, warrants, ------------------------ covenants and agrees, that: (a) Seller is a joint venture duly organized and validly existing under the laws of the State of Colorado. Seller has all requisite partnership power and authority to own and operate its properties and to carry on its business as now and where being conducted. (b) All necessary consents and approvals have been obtained by Seller for the execution and delivery of this Agreement. The execution and delivery of this Agreement by Seller has been duly and validly authorized and approved by all necessary action of Seller. This Agreement is a valid and binding obligation of Seller, enforceable against it in accordance with its terms. (c) Subject to the receipt of any required consents, Seller has full legal power, right and authority to sell and convey to Buyer legal and beneficial title to the Assets and Seller's sale to Buyer shall transfer good and marketable title thereto, free and clear of all security interests, liens, pledges, charges and encumbrances of every kind. (d) The execution, delivery and performance of this Agreement by Seller will not violate any provisions of law and will not, with or without the giving of notice or the passage of time, conflict with or result in any breach of any of the terms or conditions of, or constitute a default under, any mortgage, agreement or other instrument to which Seller is a party or by which Seller, the Assets or the System are bound. The execution, delivery and performance of this Agreement will not result in the creation of any security interest, lien, pledge, charge or encumbrance upon the Assets or the Systems. 7. Conditions Precedent to Buyer's Obligations. The obligations of Buyer ------------------------------------------- under this Agreement with respect to the purchase and sale of the Assets shall be subject to the fulfillment on or prior to the Closing Date of each of the following conditions: (a) All of the representations and warranties by Seller contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date. Seller shall have complied with and performed all of the agreements, covenants and conditions required by this Agreement to be performed or complied with by it on or prior to the Closing Date. (b) Seller shall have delivered to Buyer such instruments, consents and approvals of third parties as are necessary to transfer the Assets to Buyer pursuant to this Agreement. (c) The statutory waiting period applicable to this Agreement and the transactions contemplated hereby under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), shall have been terminated or shall have expired. 8. Conditions Precedent to Seller's Obligation. The obligations of Seller ------------------------------------------- under this Agreement with respect to the purchase and sale of the Assets shall be subject to the fulfillment on or prior to the Closing Date of each of the following conditions: (a) The statutory waiting period applicable to this Agreement and the transactions contemplated hereby under the HSR Act, shall have been terminated or shall have expired. (b) The limited partners of the joint venturers of Seller shall have approved the transactions contemplated by this Agreement. (c) Buyer shall have delivered the Purchase Price to Seller in accordance with Paragraph 3 hereof. 9. Closing. The closing hereunder (the "Closing") shall be held in the ------- offices of Seller, 9697 East Mineral Avenue, Englewood, Colorado, 80112, on such date or dates as the parties hereto shall mutually agree. At the Closing, all cash, checks, notes, deeds, bills of sale, certificates of title, assignments and other instruments and documents referred to or contemplated by this Agreement shall be exchanged by the parties hereto. 10. Brokerage. Seller represents and warrants to Buyer that Seller will be --------- solely responsible for, and pay in full, any and all brokerage or finder's fees or agent's commissions or other like payment owing in connection with Seller's use of any broker, finder or agent in connection with this Agreement or the transactions contemplated hereby. Buyer represents and warrants to Seller that Buyer will be solely responsible for, and pay in full, any and all brokerage or finder's fees or agent's commission or other like payment owing in connection with Buyer's use of any broker, finder or agent in connection with this Agreement or the transaction contemplated hereby. Each party hereto agrees to indemnify and hold the other party hereto harmless against and in respect of any breach by it of the provision of this Paragraph 10. 11. Miscellaneous. ------------- (a) Buyer shall have the right, upon notice to Seller, to assign prior to the Closing Date, in whole or in part, its rights and obligations hereunder to any affiliate of Buyer, including any public limited partnership or partnerships of which Buyer or any affiliate of Buyer is a general partner or any joint venture or general partnership of which Buyer, or any affiliate of Buyer, or any of such public limited partnership or partnerships is a constituent partner, or to any subsidiary of Buyer or other entity controlled by, controlling or under common control with Buyer, or, subject to Seller's consent, to any other entity. (b) From time to time after the Closing Date, Seller shall, if requested by Buyer, make, execute and deliver to Buyer such additional assignments, bills of sale, deeds and other instruments of transfer, as may be necessary or proper to transfer to Buyer all of Seller's right, title and interest in and to the assets covered by this Agreement. Such efforts and assistance shall be without cost to Buyer. (c) This Agreement embodies the entire understanding and agreement among the parties concerning the subject matter hereof and supersedes any and all prior negotiations, understandings or agreements in regard thereto. This Agreement shall be interpreted, governed and construed in accordance with the laws of the State of Colorado. This Agreement may not be modified or amended except by an agreement in writing executed by both Buyer and Seller. (d) Any sales, use, transfer or documentary taxes imposed in connection with the sale and deliver of the Assets and the rights acquired by Buyer under this Agreement shall be paid by Buyer. IN WITNESS WHEREOF the parties have executed this Agreement as of the day and year first above written. SELLER: ------ CABLE TV FUND 12-BCD VENTURE, a Colorado joint venture By: Cable TV Fund 12-B, Ltd., a Colorado limited partnership, as a Venturer By: Cable TV Fund 12-C, Ltd., a Colorado limited partnership, as a Venturer By: Cable TV Fund 12-D, Ltd., a Colorado limited partnership, as a Venturer By: Jones Intercable, Inc., a Colorado corporation, as their General Partner By: /s/ Kevin P. Coyle ---------------------------- Title: Group Vice President/Finance BUYER: ----- JONES INTERCABLE, INC., a Colorado corporation By: /s/ James B. O'Brien -------------------- Title: President EX-2.29 3 PURCHASE & SALE AGRMT (LITTLEROCK) 3/10/98 EXHIBIT 2.29 LITTLEROCK SYSTEM ----------------- PURCHASE AND SALE AGREEMENT --------------------------- THIS PURCHASE AND SALE AGREEMENT is made as of the 10th day of March, 1998, by and between CABLE TV FUND 14-B, LTD., a Colorado limited partnership ("Seller") and JONES INTERCABLE, INC., a Colorado corporation ("Buyer"). RECITALS -------- A. Seller owns and operates a cable television system in and around the Town of Littlerock, California (the "System"). B. Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, the System upon the terms and conditions set forth in this Agreement. AGREEMENT --------- In consideration of the mutual promises contained in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Purchase and Sale. Subject to the terms and conditions set forth in ----------------- this Agreement, Seller hereby agrees to sell, convey, assign, transfer and deliver to Buyer, and Buyer hereby agrees to purchase from Seller, on the Closing Date (as defined in Paragraph 9 hereof), all of Seller's right, title and interest in and to the System and the Assets (as defined in Paragraph 2 hereof) then being transferred and sold pursuant hereto, free and clear of all security interests, liens, pledges, charges and encumbrances. 2. Assets. (a) The assets to be conveyed to Buyer hereunder shall consist ------ of all of the assets and properties of Seller, whether real, personal, tangible or intangible, of whatever description and wherever located, now owned or used by Seller solely in connection with Seller's ownership or operation of the System, except those items excluded pursuant to subparagraph 2(b) hereof, but including all additions made to the Closing Date, to the end that all of Seller's assets owned on the Closing Date which are used or owned solely in connection with Seller's ownership or operation of the System shall pass to Buyer. Such assets (collectively, the "Assets") shall include, without limitation: (i) all of Seller's towers, tower equipment, antennas, aboveground and underground cable, distribution systems, headend amplifiers, line amplifiers, earth satellite receive stations and related equipment, microwave equipment, testing equipment, motor vehicles, office equipment, furniture and fixtures, supplies, inventory and other physical assets owned or used by Seller solely in connection with Seller's ownership or operation of the System; (ii) the franchises, leases, agreements, permits, consents, licenses and other contracts, pole line or joint pole agreements, underground conduit agreements, agreements for the reception or transmission of signals by microwave, easements, rights-of-way and construction permits, if any, and any other obligations and agreements between Seller and suppliers and customers, which are owned or used by Seller solely in connection with Seller's ownership and operation of the System; (iii) the real property owned and used solely in connection with the System; (iv) all accounts receivable of Seller arising in connection with the System; (v) all engineering records, files, data, drawings, blueprints, schematics, maps, reports, lists and plans and processes owned or developed by or for Seller and intended for use in connection with the System; (vi) all promotional graphics, original art work, mats, plates, negatives and other advertising, or related materials developed by or for Seller and intended for use in connection with the System; (vii) all of Seller's correspondence files, lists, records and reports concerning customers and prospective customers of the Systems, concerning television stations whose transmissions are or may be carried as part of the Systems and concerning all dealings with federal, state, and local regulatory agencies, including all reports filed by or on behalf of Seller with the Federal Communications Commission (the "FCC") in connection with the System and any Statements of Account of the System filed by or on behalf of Seller with the united States Copyright Office in connection with the System; provided however, that Seller shall not transfer to Buyer the licenses and - -------- ------- agreements for which the consent of a third party is required to transfer (the "Additional Agreements") until Seller has obtained the approval of the parties granting the Additional Agreements to such transfer, whereupon such Additional Agreements shall be deemed to be included in the assets to be transferred to Buyer pursuant to this Agreement. (b) The following properties and assets relating to the System and its business operations shall be retained by Seller and shall not be sold, assigned or transferred to Buyer; (i) cash or cash equivalents on hand or in banks; (ii) insurance policies and rights and claims thereunder; (iii) all claims, rights and interest in and to any refunds for Federal, state or local income or other taxes or fees of any nature whatsoever for periods prior to the Closing Date, including without limitation, fees paid to the United States Copyright Office; and (iv) assets disposed of in the normal course of business or with the written consent of Buyer between the date hereof and the Closing Date. 3. Purchase Price. Subject to the adjustments to be made in accordance -------------- with Paragraph 4 hereof, the total purchase price for the Assets shall be Ten Million Seven Hundred Twenty Thousand Four Hundred Dollars ($10,720,400.00) (the "Purchase Price"), which Purchase Price represents the average of three separate independent appraisals of the System. The Purchase Price shall by payable to Seller at Closing in cash, by cashier's check or by wire transfer of Federal funds to a bank or banks designated by Seller. 4. Adjustments. All adjustments provided for herein with respect to this ----------- transaction shall increase or decrease the Purchase Price, as appropriate, and shall be made as of the close of business (5:01 p.m., local time) on the Closing Date. (a) Rent, pole rents, franchise fees, taxes, power and utility fees and deposits, insurance premiums, licenses, customer prepayments and deposits, and other prepayments and amounts due shall be prorated and debited or credited to Seller or Buyer, as applicable. For purposes of adjustments made under this Paragraph 4(a), the subscriber accounts receivable which are due and payable for and with respect to the month in which the Closing takes place shall be prorated as of the Closing Date. (b) The Purchase Price shall be reduced by any accounts payable, accrued expenses and vehicle lease obligations for which Seller would otherwise be liable hereunder, but for which the obligation for payment is assumed by Buyer. (c) Seller and Buyer shall jointly determine the adjustments required by this Paragraph 4 at the Closing. The net amount to which Buyer or Seller, as the case may be, is entitled pursuant hereto shall be thereupon paid by Buyer or Seller, as the case may be, by an adjustment to the Purchase Price. All adjustments made at Closing shall be tentative and shall be subject to final adjustment within 90 days after Closing. 5. Assumption of Liabilities. Buyer shall agree to assume and discharge ------------------------- all debts, liabilities and obligations of Seller arising with respect to periods subsequent to the Closing Date under any franchise, license, permit, lease, instrument or agreement transferred to Buyer hereunder and, with respect to periods prior to and including the Closing Date, to assume and discharge all obligations of Seller to the extent that the Purchase Price is reduced pursuant to Paragraph 4(b) hereof; provided, however, that Buyer shall not assume the -------- ------- Additional Agreements until Seller has obtained the approval of the parties granting the Additional Agreements to Seller's transfer of the Additional Agreements to Buyer, whereupon the Additional Agreements shall be deemed to be included in the assets to be assumed by Buyer hereunder. Buyer hereby agrees to indemnify and to hold harmless from and against any and all damages, costs, claims and expenses (the "Indemnifiable Claims") arising by reason of the ownership, operation or control of the System after Closing Date; provided, -------- however, that Buyer shall not indemnify and hold harmless Seller from any - ------- Indemnifiable Claims arising under Additional Agreements as a result of actions relating to any period before Seller has obtained the approval of the parties granting the Additional Agreements to Seller's transfer of the Additional Agreements to Buyer. Anything herein to the contrary notwithstanding, there is hereby excluded from the assumed obligations, and Seller hereby agrees to retain and discharge, and to indemnify and hold Buyer harmless from and against, any and all Indemnifiable Claims to the extent they arise (a) out of any debt, liability or obligation arising with respect to periods prior to the Closing Date for which no reduction of the Purchase Price has been made pursuant to Paragraph 4(b) hereof, (b) out of any debt, liability or obligation arising under the Additional Agreements arising as a result of actions relating to any period before Seller has obtained the approval of the parties granting the Additional Agreements to Seller's transfer of the Additional Agreements to Buyer, and (c) any debt, liability or obligation of Seller not expressly assumed hereunder, whenever arising. 6. Seller's Representations. Seller hereby represents, warrants, ------------------------ covenants and agrees, that: (a) Seller is a limited partnership duly organized and validly existing under the laws of the State of Colorado. Seller has all requisite partnership power and authority to own and operate its properties and to carry on its business as now and where being conducted. (b) All necessary consents and approvals have been obtained by Seller for the execution and delivery of this Agreement. The execution and delivery of this Agreement by Seller has been duly and validly authorized and approved by all necessary action of Seller. This Agreement is a valid and binding obligation of Seller, enforceable against it in accordance with its terms. (c) Subject to the receipt of any required consents, Seller has full legal power, right and authority to sell and convey to Buyer legal and beneficial title to the Assets and Seller's sale to Buyer shall transfer good and marketable title thereto, free and clear of all security interests, liens, pledges, charges and encumbrances of every kind. (d) The execution, delivery and performance of this Agreement by Seller will not violate any provisions of law and will not, with or without the giving of notice or the passage of time, conflict with or result in any breach of any of the terms or conditions of, or constitute a default under, any mortgage, agreement or other instrument to which Seller is a party or by which Seller, the Assets or the System are bound. The execution, delivery and performance of this Agreement will not result in the creation of any security interest, lien, pledge, charge or encumbrance upon the Assets or the Systems. 7. Conditions Precedent to Buyer's Obligations. The obligations of Buyer ------------------------------------------- under this Agreement with respect to the purchase and sale of the Assets shall be subject to the fulfillment on or prior to the Closing Date of each of the following conditions: (a) All of the representations and warranties by Seller contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date. Seller shall have complied with and performed all of the agreements, covenants and conditions required by this Agreement to be performed or complied with by it on or prior to the Closing Date. (b) Seller shall have delivered to Buyer such instruments, consents and approvals of third parties as are necessary to transfer the Assets to Buyer pursuant to this Agreement. (c) The statutory waiting period applicable to this Agreement and the transactions contemplated hereby under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), shall have been terminated or shall have expired. 8. Conditions Precedent to Seller's Obligation. The obligations of Seller ------------------------------------------- under this Agreement with respect to the purchase and sale of the Assets shall be subject to the fulfillment on or prior to the Closing Date of each of the following conditions: (a) The statutory waiting period applicable to this Agreement and the transactions contemplated hereby under the HSR Act, shall have been terminated or shall have expired. (b) The limited partners of Seller shall have approved the transactions contemplated by this Agreement. (c) Buyer shall have delivered the Purchase Price to Seller in accordance with Paragraph 3 hereof. 9. Closing. The closing hereunder (the "Closing") shall be held in the ------- offices of Seller, 9697 East Mineral Avenue, Englewood, Colorado, 80112, on such date or dates as the parties hereto shall mutually agree. At the Closing, all cash, checks, notes, deeds, bills of sale, certificates of title, assignments and other instruments and documents referred to or contemplated by this Agreement shall be exchanged by the parties hereto. 10. Brokerage. Seller represents and warrants to Buyer that Seller will --------- be solely responsible for, and pay in full, any and all brokerage or finder's fees or agent's commissions or other like payment owing in connection with Seller's use of any broker, finder or agent in connection with this Agreement or the transactions contemplated hereby. Buyer represents and warrants to Seller that Buyer will be solely responsible for, and pay in full, any and all brokerage or finder's fees or agent's commission or other like payment owing in connection with Buyer's use of any broker, finder or agent in connection with this Agreement or the transaction contemplated hereby. Each party hereto agrees to indemnify and hold the other party hereto harmless against and in respect of any breach by it of the provision of this Paragraph 10. 11. Miscellaneous. ------------- (a) Buyer shall have the right, upon notice to Seller, to assign prior to the Closing Date, in whole or in part, its rights and obligations hereunder to any affiliate of Buyer, including any public limited partnership or partnerships of which Buyer or any affiliate of Buyer is a general partner or any joint venture or general partnership of which Buyer, or any affiliate of Buyer, or any of such public limited partnership or partnerships is a constituent partner, or to any subsidiary of Buyer or other entity controlled by, controlling or under common control with Buyer, or, subject to Seller's consent, to any other entity. (b) From time to time after the Closing Date, Seller shall, if requested by Buyer, make, execute and deliver to Buyer such additional assignments, bills of sale, deeds and other instruments of transfer, as may be necessary or proper to transfer to Buyer all of Seller's right, title and interest in and to the assets covered by this Agreement. Such efforts and assistance shall be without cost to Buyer. (c) This Agreement embodies the entire understanding and agreement among the parties concerning the subject matter hereof and supersedes any and all prior negotiations, understandings or agreements in regard thereto. This Agreement shall be interpreted, governed and construed in accordance with the laws of the State of Colorado. This Agreement may not be modified or amended except by an agreement in writing executed by both Buyer and Seller. (d) Any sales, use, transfer or documentary taxes imposed in connection with the sale and deliver of the Assets and the rights acquired by Buyer under this Agreement shall be paid by Buyer. IN WITNESS WHEREOF the parties have executed this Agreement as of the day and year first above written. SELLER: ------ CABLE TV FUND 14-B, LTD., a Colorado limited partnership By: Jones Intercable, Inc., a Colorado corporation, as its general partner By: /s/ Kevin P. Coyle ---------------------------- Title: Group Vice President/Finance BUYER: ----- JONES INTERCABLE, INC., a Colorado corporation By: /s/ James B. O'Brien -------------------- Title: President EX-21 4 LIST OF SUBSIDIARIES EXHIBIT 21 ---------- JONES INTERCABLE, INC. LIST OF SUBSIDIARIES Evergreen Intercable, Inc. International Aviation, Ltd. Jones Cable Corporation Jones Cable Holdings, Inc. Jones Cable Holdings II, Inc. Jones Communications, Inc. Jones Communications of Arizona, Inc. Jones Communications of Georgia/South Carolina, Inc. Jones Communications of Maryland, Inc. Jones Communications of Missouri, Inc. Jones Communications of New Mexico, Inc. Jones Communications of Virginia, Inc. Jones Electronic Manufacturing Services, Inc. Jones Futurex, Inc. The Jones Group, Ltd. Jones Intercable Funds, Inc. Jones Intercble of Ft. Myers, Inc. Jones Intercable of Leeds, Inc. Jones Intercable of San Diego, Inc. Jones Intercable of South Hertfordshire, Inc. Jones Material Management, Inc. Jones of Wisconsin, Inc. Jones Panorama Properties, Inc. Jones Programming Services, Inc. Jones Satellite Programming, Inc. Jones Spacelink Acquisition Corporation Jones Spacelink Cable Corporation Jones Spacelink Management, Inc. Jones Telecommunications of Maryland, Inc. Jones Telecommunications of Virginia, Inc. Jones Tri-City Intercable, Inc. Jones U.K. Holdings, Inc. Saturn Cable T.V., Inc. (11700) EX-23 5 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- As independent public accountants, we hereby consent to the incorporation by reference of our report included in this Form 10-K into the Company's previously filed Registration Statements on Form S-3, File Nos. 33-62537 and 33- 62539 and on Form S-8, File Nos. 33-3087, 33-25577, 33-54596 and 33-52813. ARTHUR ANDERSEN LLP Denver, Colorado March 10, 1998 EX-27 6 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 3,595 0 27,268 1,692 0 0 745,115 (224,893) 1,371,371 118,121 1,024,732 0 0 407 228,111 1,371,371 0 362,588 0 203,906 113,682 0 86,764 (41,764) 3,275 (38,489) 0 (13,459) 0 (51,948) (1.50) (1.50)
-----END PRIVACY-ENHANCED MESSAGE-----