-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, duwraqHPGdj6hkN6qghMvVtqOH+GeVQ+Yhs2JlkocmlIaRAH+uq7gvrFIrCNzJdr ELKrhZWDfV+Mvr4rwVdI4A== 0000950134-94-000408.txt : 19940415 0000950134-94-000408.hdr.sgml : 19940415 ACCESSION NUMBER: 0000950134-94-000408 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940228 FILED AS OF DATE: 19940414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JONES INTERCABLE INC CENTRAL INDEX KEY: 0000275605 STANDARD INDUSTRIAL CLASSIFICATION: 4841 IRS NUMBER: 840613514 STATE OF INCORPORATION: CO FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09953 FILM NUMBER: 94522628 BUSINESS ADDRESS: STREET 1: PO BOX 3309 STREET 2: 9697 E. MINERAL AVE CITY: ENGLEWOOD STATE: CO ZIP: 80155-3309 BUSINESS PHONE: 3037923111 10-Q 1 FORM 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) (X) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended February 28, 1994 ( ) Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________ to ___________ Commission File Number 0-8947 JONES INTERCABLE, INC. Exact name of registrant as specified in charter Colorado #84-0613514 State of incorporation I.R.S. employer I.D.# 9697 East Mineral Avenue, Englewood, Colorado 80112 Address of principal executive office (303) 792-3111 Registrant's telephone number Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 during the preceding l2 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Shares outstanding of each of the registrant's classes of Common Stock, as of April 5, 1994. 4,913,021 - Common Stock, $.01 par value 14,817,088 - Class A Common Stock, $.01 par value 2 JONES INTERCABLE, INC. AND SUBSIDIARIES I N D E X
Page Number ------ PART I. FINANCIAL INFORMATION. Item 1. Financial Statements Unaudited Consolidated Balance Sheets February 28, 1994 and May 31, 1993 3 - 4 Unaudited Consolidated Statements of Operations Three and Nine Months Ended February 28, 1994 and 1993 5 Unaudited Consolidated Statements of Cash Flows Nine Months Ended February 28, 1994 and 1993 6 Notes to Unaudited Consolidated Financial Statements February 28, 1994 7 - 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 18 PART II. OTHER INFORMATION. Item 6. Exhibits and Reports on Form 8-K 19
2 3 UNAUDITED CONSOLIDATED Jones Intercable, Inc. BALANCE SHEETS and Subsidiaries As of February 28, 1994 and May 31, 1993
February 28, May 31, 1994 1993 ASSETS (Stated in Thousands) - -------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS $ 3,905 $ 1,131 RECEIVABLES: Trade receivables, net of allowance for doubtful accounts of $430,100 in February and $339,600 in May 5,428 4,936 Affiliated entities 19,374 15,347 Other 736 517 INVESTMENT IN CABLE TELEVISION PROPERTIES: Property, plant and equipment, at cost 285,758 262,214 Less-accumulated depreciation (115,201) (97,501) ------------- ------------- 170,557 164,713 Franchise costs, net of accumulated amortization of $72,084,300 in February and $62,265,900 in May 77,799 73,678 Cost in excess of interests in net assets purchased, net of accumulated amortization of $5,630,200 in February and $4,802,900 in May 39,595 37,621 Noncompete agreement, net of accumulated amortization of $709,100 in February and $622,900 in May 441 527 Subscriber lists, net of accumulated amortization of $28,776,800 in February and $24,146,500 in May 20,169 20,074 Investments in cable television partnerships and affiliates 85,664 54,705 ------------- ------------- TOTAL INVESTMENT IN CABLE TELEVISION PROPERTIES 394,225 351,318 ------------- ------------- DEFERRED TAX ASSET, net of valuation allowance of $33,535,300 in February and $26,161,000 in May 3,862 3,862 DEPOSITS, PREPAID EXPENSES AND OTHER ASSETS 23,169 22,461 ------------- ------------- TOTAL ASSETS $ 450,699 $ 399,572 ============= =============
The accompanying notes to unaudited consolidated financial statements are an integral part of these balance sheets. 3 4 UNAUDITED CONSOLIDATED Jones Intercable, Inc. BALANCE SHEETS and Subsidiaries As of February 28, 1994 and May 31, 1993
February 28, May 31, 1994 1993 LIABILITIES AND SHAREHOLDERS' INVESTMENT (Stated in Thousands) - -------------------------------------------------------------------------------------------------------------- LIABILITIES: Accounts payable and accrued liabilities $ 35,894 $ 35,629 Subscriber prepayments and deposits 4,883 5,080 Subordinated debentures and other debt 281,052 281,214 Credit facility 115,000 46,000 ------------- ------------- TOTAL LIABILITIES 436,829 367,923 ------------- ------------- SHAREHOLDERS' INVESTMENT: Class A Common Stock, $.01 par value, 30,000,000 shares authorized; 13,520,502 and 13,481,280 shares issued at February 28 and May 31 135 135 Common Stock, $.01 par value, 5,550,000 shares authorized; 5,498,539 shares issued at February 28 and May 31 55 55 Additional paid-in capital 134,404 134,034 Accumulated deficit (106,342) (88,193) Less: 1,830,932 shares of Common Stock and Class A Common Stock held in Treasury, at cost, at February 28 and May 31 (14,382) (14,382) ------------- ------------- TOTAL SHAREHOLDERS' INVESTMENT 13,870 31,649 ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 450,699 $ 399,572 ============= =============
The accompanying notes to unaudited consolidated financial statements are an integral part of these balance sheets. 4 5 UNAUDITED CONSOLIDATED Jones Intercable, Inc. STATEMENTS OF OPERATIONS and Subsidiaries For the three and nine months ended February 28, 1994 and 1993
For the Three Months Ended For the Nine Months Ended -------------------------- ------------------------- February 28, February 28, February 28, February 28, 1994 1993 1994 1993 (In Thousands Except Per Share Data) - ------------------------------------------------------------------------------------------------------------------------ REVENUES FROM CABLE TELEVISION OPERATIONS: Subscriber service fees $ 28,939 $ 28,249 $ 85,155 $ 76,796 Management fees 4,334 4,138 12,970 12,735 ------------ ------------ ------------ ------------ TOTAL REVENUES 33,273 32,387 98,125 89,531 COSTS AND EXPENSES: Operating, general and administrative expenses* 19,039 20,107 56,303 50,941 Depreciation and amortization 11,063 11,504 32,045 31,843 ------------ ------------ ------------ ------------ OPERATING INCOME 3,171 776 9,777 6,747 OTHER INCOME (EXPENSE): Interest expense (9,371) (10,899) (26,921) (30,672) Loss on sale of assets - - - (1,753) Equity in losses of affiliated entities (999) (691) (3,078) (2,055) Interest income 955 791 2,731 2,847 Other, net (277) 230 (658) (432) ------------ ------------ ------------ ------------ LOSS BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND ACCOUNTING CHANGE (6,521) (9,793) (18,149) (25,318) Income tax benefit - - - - ------------ ------------ ------------ ------------ LOSS BEFORE EXTRAORDINARY ITEM AND ACCOUNTING CHANGE (6,521) (9,793) (18,149) (25,318) EXTRAORDINARY ITEM: Loss on early extinguishment of debt - (52) - (7,657) CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING METHOD: Change in method of accounting for income taxes - - - 3,862 ------------ ------------ ------------ ------------ NET LOSS $ (6,521) $ (9,845) $ (18,149) $ (29,113) ============ ============ ============ ============ NET LOSS PER CLASS A COMMON AND COMMON SHARE Loss before extraordinary item $ (.38) $ (.70) $ (1.06) $ (1.90) Extraordinary item - - - (.58) Accounting change - - - .29 ------------ ------------ ------------ ------------ NET LOSS PER CLASS A COMMON AND COMMON SHARE $ (.38) $ (.70) $ (1.06) $ (2.19) ============ ============ ============ ============ AVERAGE NUMBER OF CLASS A COMMON AND COMMON SHARES OUTSTANDING 17,188 14,093 17,167 13,310 ============ ============ ============ ============
* Of the total operating, general and administrative expenses, approximately $475,200 and $375,900 for the three months ended February 28, 1994 and 1993, respectively, and approximately $1,397,400 and $1,129,200 for the nine months ended February 28, 1994 and 1993, respectively, represent related party expenses. The accompanying notes to unaudited consolidated financial statements are an integral part of these statements. 5 6 UNAUDITED CONSOLIDATED Jones Intercable, Inc. STATEMENTS OF CASH FLOWS and Subsidiaries For the nine months ended February 28, 1994 and 1993
For the Nine Months Ended ------------------------- February 28, February 28, 1994 1993 (Stated in Thousands) - ------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (18,149) $ (29,113) Adjustments to reconcile net loss to net cash provided by operating activities: Extraordinary loss on early extinguishment of debt - 7,657 Loss on sale of assets - 1,753 Cumulative effect of change in method of accounting for income taxes - (3,862) Class A Common Stock option expense 87 1,870 Depreciation and amortization 32,045 31,843 Deferred distribution revenue - 4,778 Increase in trade receivables (492) (478) Equity in losses of affiliated entities 3,078 2,055 Amortization of discount on debentures - 332 Increase in other receivables, deposits, prepaid expenses and other assets (1,344) (2,274) Increase in accounts payable, accrued liabilities and subscriber prepayments and deposits (299) 7,734 -------------- -------------- Net cash provided by operating activities 14,926 22,295 -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in Mind Extension University (11,618) (8,349) Purchase of property and equipment (17,195) (13,831) Purchase of cable television system (27,880) (74,317) Sale of cable television system - 1,377 Investments in cable television partnerships and affiliates (22,943) (3,885) Other, net 2,390 4,512 -------------- -------------- Net cash used in investing activities (77,246) (94,493) -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of debt - (111,000) Proceeds from borrowings 69,000 60,000 Proceeds from the issuance of Class A Common Stock 283 58,234 Increase in accounts receivable from affiliated entities (4,027) (4,443) Redemption of debentures - (79,462) Proceeds from debenture offering, net - 155,735 Other, net (162) (6,326) -------------- -------------- Net cash provided by financing activities 65,094 72,738 -------------- -------------- Increase In Cash and Cash Equivalents 2,774 540 Cash and Cash Equivalents, beginning of period 1,131 2,414 -------------- -------------- Cash and Cash Equivalents, end of period $ 3,905 $ 2,954 ============== ==============
The accompanying notes to unaudited consolidated financial statements are an integral part of these statements. 6 7 NOTES TO UNAUDITED CONSOLIDATED Jones Intercable, Inc. FINANCIAL STATEMENTS and Subsidiaries (1) This Form 10-Q is being filed by Jones Intercable, Inc. (the "Company") in conformity with the SEC requirements for unaudited financial statements and does not contain all of the necessary footnote disclosures required for a fair presentation of the Balance Sheets, Statements of Operations and Statements of Cash Flows in conformity with generally accepted accounting principles. However, in the opinion of management, this data includes all adjustments, consisting only of normal recurring accruals, necessary to present fairly the Company's financial position at February 28, 1994 and May 31, 1993 and its results of operations and cash flows for the three and nine months ended February 28, 1994 and 1993. Results of operations for these periods are not necessarily indicative of results to be expected for the full year. (2) On November 12, 1993, the Company announced that negotiations have commenced regarding the possible acquisition by the Company of substantially all of the assets of Jones Spacelink, Ltd., the Company's parent, in return for the issuance of Class A Common Stock of the Company to Jones Spacelink, Ltd. Negotiations between the Company and its parent are continuing and no agreement on the terms and conditions of the proposed transaction has yet been reached. (3) On December 2, 1993, the Company and Bell Canada International Inc. ("BCI") signed a letter of intent to enter into a strategic relationship whereby BCI would acquire an approximate 30 percent equity interest in the Company through the purchase of Class A Common Stock of the Company. Under the terms of the letter of intent, BCI would invest approximately $275,000,000 at closing at a purchase price of $27.50 per share of Class A Common Stock of the Company to acquire its 30 percent interest. BCI also was committed to invest up to an additional $125,000,000 to maintain its 30 percent interest in the event the Company offered additional Class A Common Stock in the public marketplace. BCI had the right to maintain or increase its ownership by investing amounts beyond the initial $400,000,000 commitment. In addition, Jones International, Ltd., which is wholly-owned by Glenn R. Jones, Chairman and Chief Executive Officer of the Company, would grant BCI an option to acquire certain shares of the Common Stock of the Company. Except in limited circumstances, the option would only be exercisable during the eighth year after closing. Its exercise would result in BCI holding a sufficient number of shares of the Common Stock of the Company to enable it to elect 75 percent of the Company's Board of Directors. BCI would also invest in a number of affiliates of Jones International, Ltd. which are engaged in the telecommunications and distribution businesses. On March 28, 1994, the Company and BCI modified certain of the financial terms of their letter of intent as a result of the most recent pronouncements by the FCC which will further regulate the U.S. cable television industry (see Regulatory Matters). Under the modified terms of the transaction, the original commitment by BCI to invest $400,000,000 over time remains as originally planned, however, the original investment will be in two installments: the purchase immediately by BCI of 2,500,000 million newly issued Class A shares of Jones Intercable at $22 per share for $55,000,000, and the purchase at closing at $27.50 per share of sufficient Class A shares to acquire the 30% interest, for a total consideration of approximately $261,000,000. The Company received the $55,000,000 initial investment, representing an approximate 13% interest in the Company, in the fourth quarter of fiscal 1994. The $55,000,000 was used to reduce amounts outstanding under the Company's revolving credit facility. In addition, BCI committed to invest an additional $139,000,000 to maintain its 30% interest. This funding will allow the parties to begin to implement their business and growth strategies for the Company in advance of the formal completion of their strategic alliance. 7 8 Closing on the transaction, which is subject to certain conditions, including the execution of definitive agreements and the acquisition by the Company of substantially all of the assets of Jones Spacelink, Ltd., is expected to occur in the first quarter of fiscal 1995. (4) On January 28, 1993, the Company entered into an agreement with American Cable TV Investors 2 ("ACT 2") (the "Agreement") to acquire the cable television systems serving North Augusta, South Carolina and surrounding areas (the "North Augusta System") for $28,500,000 subject to normal closing adjustments. The North Augusta System is contiguous to the Augusta, Georgia cable system managed by the Company on behalf of one of its partnerships. As a result of a renegotiation of the Agreement between the Company and ACT 2, the purchase price was reduced to $27,200,000, subject to normal closing adjustments. The Company paid The Jones Group, Ltd., an affiliate of the Company, $680,000 for brokerage services related to this acquisition. The transaction closed on December 15, 1993. (5) During fiscal 1992 and 1993, the Company invested $10,000,000 in Mind Extension University, Inc., ("ME/U") an affiliated company that provides educational programming through affiliated and unaffiliated cable television systems, for 25% of the stock of ME/U, which also received certain advertising avails and administrative and marketing considerations from the Company. The number of shares of Class A Common Stock of ME/U issued to the Company was based on the average of two separate independent appraisals of ME/U. In May 1993, the Board of Directors of the Company also approved a $10,000,000 advance to ME/U on an as-needed basis. Of this advance, one-half will be converted into shares of Class A Common Stock of ME/U at a price per share equal to the value of such shares as established by the next equity investment in ME/U by an unaffiliated party. Any amount not converted into equity will earn interest at the Company's weighted average cost of borrowing plus two percent. As of February 28, 1994, all of the $10,000,000 had been advanced. On December 2, 1993, the Board of Directors of the Company approved an additional $5,000,000 advance to ME/U on an as needed basis. Of this advance, one-half will be converted into shares of Class A Common Stock of ME/U at a price per share equal to the value of such shares as established by the next equity investment in ME/U by an unaffiliated party. Any amount not converted into equity will earn interest at the Company's weighted average cost of borrowing plus two percent. As of February 28, 1994, $1,617,500 of the $5,000,000 had been advanced. These advances have been reflected as investments in cable television partnerships and affiliates on the Company's Consolidated Balance Sheets due to their expected long-term nature. (6) In fiscal 1993, the Company entered into a license agreement with Jones Space Segment, Inc. ("Space Segment"), an affiliate of International, to use a non-preemptible transponder on a domestic communications satellite that Space Segment currently leases. The Company agreed to pay Space Segment $2,400,000 over a twelve-month period beginning on or about December 15, 1992, the delivery date of the transponder. Space Segment has the right to terminate the license at any time upon 30 days' written notice to the Company. On November 9, 1993, the Company extended the term of the license agreement through December 31, 1994 on the same terms and conditions as the previous agreement. The Company recognized $2,100,000 of rental expense related to this lease in the first nine months of fiscal 1994. (7) On June 18, 1993, the Company filed two shelf registration statements with the Securities and Exchange Commission relating to the offering of $500,000,000 of Senior Debt Securities, Senior Subordinated Debt Securities and Subordinated Debt Securities and the offering of 6,000,000 shares of Class A Common Stock of the Company. These registration statements are effective, but no securities have been sold except for 2,500,000 shares of Class A Common Stock sold to BCI in the fourth quarter of fiscal 1995. The proceeds from these offerings would be added to the general funds of the Company and may be used to make acquisitions of domestic cable television systems or interests therein, investments in cable television/telephony systems in the United Kingdom or for general corporate purposes. The Company also has another effective registration statement, which expires in June 1994, that allows the Company, from time to time, to offer up to $400,000,000 of Senior Debt Securities, 8 9 Senior Subordinated Debt Securities and Subordinated Debt Securities. Of the total $400,000,000 registered, $260,000,000 of Senior Subordinated Debt Securities have been sold. (8) On March 30, 1994, the Company and Jones Global Group, Inc., (collectively "Jones"), and BCI and Cable and Wireless plc signed a letter of intent to consolidate their cable television and associated telephony operations in the United Kingdom and Spain. The transaction will combine the cable interests of these companies into BCETI Cable Limited, which is currently owned 80% by BCI and 20% by Cable and Wireless plc. The consolidation will coincide with a public offering of BCETI Cable. As part of the transaction, Jones will contribute its United Kingdom and Spain interests, and Cable and Wireless plc will contribute its equity interest in Jones Cable Group of Leeds Holdings plc, in exchange for shares in BCETI Cable. Closing on this transaction, which is expected in the first quarter of fiscal 1995, is subject to certain conditions, including the execution of definitive agreements and completion of the public share offering. (9) On January 7, 1994, the Company entered into an agreement with Bresnan Communications Company ("Bresnan") to sell its Gaston County, North Carolina cable television system (the "Gaston System") to Bresnan for $36,500,000, subject to normal closing adjustments. Bresnan and Time Warner Cable, a division of Time Warner Entertainment, L.P. ("TWC"), have agreed to a like-kind exchange of assets whereby TWC would acquire the Gaston System from Bresnan and Bresnan would acquire from TWC the assets of cable television systems owned by TWC. If for any reason Bresnan is unable to perform its obligations, TWC has agreed to purchase the Gaston System directly from the Company. Closing on this transaction is expected to occur in the first quarter of fiscal 1995. (10) On February 2, 1994, the Company invested $15,500,000 in J.B. Acquisition Company, a partnership with Paine Webber Cable Capital, Inc; and Sandler Capital Management and several of its affiliates. J.B. Acquisition Company purchased from PacTel Cable all of the shares of four United Kingdom companies engaged in the cable television/telephony business. The combined properties represent approximately 225,000 franchise licensed homes in the United Kingdom, principally in Norwich and Peterborough. (11) 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. Common stock equivalents were not significant to the computation of primary earnings per share. Conversion of the Convertible Subordinated Debentures to Class A Common Stock was assumed for calculation of fully diluted earnings per share with the resulting effect being anti-dilutive. (12) For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. During the nine months ended February 28, 1994, approximately $89,700 of income taxes paid in prior periods was refunded to the Company. No amounts were paid or received relating to income taxes during the nine months ended February 28, 1993. Approximately $30,592,700 and $28,860,600 of interest expense was paid during the nine months ended February 28, 1994 and 1993, respectively. During the first nine months of fiscal 1993 the Company recorded approximately $1,870,000 of Additional Paid-in Capital related to the granting of Class A Common Stock options. Approximately $65,000 of Additional Paid-in Capital was recorded related to the granting of Class A Common Stock options during the first nine months of fiscal 1994. 9 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION The Company historically has grown by acquiring, constructing and managing cable television systems for the account of public limited partnerships that it has sponsored. In addition to acquisitions through Company-managed limited partnerships, the Company has acquired systems and franchises for its own account, which have been financed primarily through borrowed funds. The Company currently plans to focus the majority of its acquisition efforts on acquiring cable television systems owned by its managed partnerships, subject to the availability of debt and/or equity financing at the time the various partnerships achieve their investment objectives. To enable the Company to accomplish the foregoing objectives, on December 2, 1993, the Company and Bell Canada International Inc. ("BCI") signed a letter of intent to enter into a strategic relationship whereby BCI would acquire an approximate 30 percent equity interest in the Company through the purchase of Class A Common Stock of the Company. Under the terms of the letter of intent, BCI would invest approximately $275,000,000 at closing at a purchase price of $27.50 per share of Class A Common Stock of the Company to acquire its 30 percent interest. BCI also was committed to invest up to an additional $125,000,000 to maintain its 30 percent interest in the event the Company offered additional Class A Common Stock in the public marketplace. BCI had the right to maintain or increase its ownership by investing amounts beyond the initial $400,000,000 commitment. In addition, Jones International, Ltd., which is wholly-owned by Glenn R. Jones, Chairman and Chief Executive Officer of the Company, would grant BCI an option to acquire certain shares of the Common Stock of the Company. Except in limited circumstances, the option would only be exercisable during the eighth year after closing. Its exercise would result in BCI holding a sufficient number of shares of the Common Stock of the Company to enable it to elect 75 percent of the Company's Board of Directors. BCI would also invest in a number of affiliates of Jones International, Ltd. which are engaged in the telecommunications and distribution businesses. On March 28, 1994, the Company and BCI modified certain of the financial terms of their letter of intent as a result of the most recent pronouncements by the FCC which will further regulate the U.S. cable television industry (see Regulatory Matters). Under the modified terms of the transaction, the original commitment by BCI to invest $400,000,000 over time remains as originally planned, however, the original investment will be in two installments: the purchase immediately by BCI of 2,500,000 million newly issued Class A shares of Jones Intercable at $22 per share for $55,000,000, and the purchase at closing at $27.50 per share of sufficient Class A shares to acquire the 30% interest, for a total consideration of approximately $261,000,000. The Company received the $55,000,000 initial investment, representing an approximate 13% interest in the Company, in the fourth quarter of fiscal 1994. The $55,000,000 was used to reduce amounts outstanding under the Company's revolving credit facility. In addition, BCI committed to invest an additional $139,000,000 to maintain its 30% interest. This funding will allow the parties to begin to implement their business and growth strategies for the Company in advance of the formal completion of their strategic alliance. Closing on the transaction, which is subject to certain conditions, including the execution of definitive agreements and the acquisition by the Company of substantially all of the assets of Jones Spacelink, Ltd., is expected to occur in the first quarter of fiscal 1995. The Company has been negatively impacted by the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"), and the rules and regulations of the Federal Communications 10 11 Commission (the "FCC") promulgated thereunder. The Company reduced service rates for basic and tier services in its owned and managed systems as required effective September 1, 1993. This resulted in a decrease in operating revenues in those systems which was somewhat mitigated by increases in revenues from premium service, pay-per-view and advertising sales. In February, the FCC announced a further ratemaking which, when implemented, could reduce rates further. Based on the foregoing, the Company believes that the new rate regulations will have a negative effect on revenues and cash flow from the Company's owned and managed cable television systems. The Company's ability to borrow under its credit facility, as discussed below, is in part a function of the Company's ratio of debt to cash flow. Based upon the effect of the 1992 Cable Act and the reduction in the Company's annualized cash flow, the Company's borrowing base has correspondingly been decreased. However, after consideration of such decreases in revenues and cash flow, the Company has maintained compliance with the terms of its debt agreements, as amended, for the quarter ended February 28, 1994 and expects to maintain compliance through fiscal 1994. The Company purchased property, plant and equipment totaling approximately $17,195,000 during the first nine months of fiscal 1994. Such expenditures were principally the result of the following: (a) new extension projects, drop materials, converters and various maintenance projects in the Pima County, Arizona system, (b) new extension projects, drop materials, converters and rebuild projects in the Anne Arundel County and Charles County, Maryland systems (c) drop materials, converters and plant rebuild projects in the Alexandria, Virginia system and (d) a corporate office building in Denver, Colorado. Estimated capital expenditures for the remainder of fiscal 1994 are approximately $6,000,000. The level of expenditures will depend, in part, upon the Company's determination as to the proper scope and timing of such expenditures in light of the adoption of the 1992 Cable Act, the rules and regulations adopted in connection with such legislation, and the Company's liquidity position. The Company owns a 38% interest in Jones Global Group, Inc. ("Jones Global Group"), a Colorado corporation 62% of which is owned by International. Jones Global Group's wholly-owned subsidiaries, Jones Global Funds, Inc. ("Jones Global Funds") and Jones Cable Group, Ltd. ("Jones Cable Group"), acquire, manage and operate cable television/telephony systems in the United Kingdom. In February 1992, upon receipt of approval from United Kingdom regulatory authorities, Jones United Kingdom Fund, Ltd. ("Jones UK Fund"), a Colorado limited partnership of which Jones Global Funds serves as the general partner, acquired, through its nominees, Jones Global Funds and Jones Cable Group, beneficial ownership of all of the shares of Jones Cable Group of South Hertfordshire Limited ("Jones South Hertfordshire"). Jones South Hertfordshire was awarded the franchise to construct, develop and operate a cable television/telephony system in the South Hertfordshire franchise area, which is located in the northwestern suburbs of London, England (the "South Herts System"). From August 15, 1990 through April 1, 1994, Jones UK Fund had raised approximately $52,254,000 in gross offering proceeds, or $45,069,100 net of sales commissions and other organization and offering costs. On November 5, 1993, Jones Intercable of South Hertfordshire, Inc., a subsidiary of the Company, invested $5,000,000 in the South Herts System by purchasing 34,000 shares of capital stock of Jones South Hertfordshire. Also in November 1993, affiliates of Sandler Capital Management, an investor group not otherwise affiliated with Jones UK Fund or Jones Global Funds, committed to invest L.6,800,000 in Jones South Hertfordshire, of which L.2,266,667 has been funded. Assuming that such investor group fully funds its commitment, Jones South Hertfordshire would be owned approximately 67% by Jones UK Fund, 22% by affiliates of Sandler Capital Management and 11% by a subsidiary of the Company. In addition, the Company has agreed to loan up to $10,000,000, on a non-permanent basis, to Jones South Hertfordshire on an as- needed basis. The Company has made advances to Jones South Hertfordshire to fund the development and construction of the South Herts System. As of February 28, 1994, approximately $1,327,000 of such advances to Jones South Hertfordshire were outstanding. These advances have been reflected as investments in cable television partnerships and affiliates on the 11 12 Company's Consolidated Balance Sheets, with interest charged at the Company's weighted average cost of borrowing. Jones Global Group, on behalf of other affiliated United Kingdom corporations, also applied for cable television franchises in various other unbuilt areas in the United Kingdom, and franchises in two other areas - -Aylesbury-Chiltern and Leeds - were awarded to such affiliates. Jones Cable Group of Leeds Holdings plc ("Jones of Leeds") has obtained commitments from equity investors and banks to provide L.152,500,000 for the construction and operation of the cable television and telecommunications system for Leeds. A group of investors subscribed for L.77,500,000 of equity and the banks have agreed to lend L.75,000,000 on a non-recourse basis. As one of the equity investors, the Company has committed to invest L.11,625,000 over the next 2 1/2 years. As the Company funds this investment, it will retain a 15% investment in Jones of Leeds. Approximately L.3,000,000 is required to be paid by the Company during fiscal 1994. During the first nine months of fiscal 1994, approximately L.1,743,800 of this requirement was paid by the Company. On March 7, 1994, the Company invested an additional L.1,162,500 in Jones of Leeds to maintain its 15% interest. Jones Cable Group will manage the Leeds project pursuant to a management agreement. Jones Global Group incurred certain costs in connection with obtaining and maintaining the franchises and licenses in both Aylesbury-Chiltern and Leeds. The Company has advanced funds to Jones Global Group for these purposes. As of February 28, 1994, the Company's advances totaled approximately $399,400. These advances have been reflected as investments in cable television partnerships and affiliates on the Company's Consolidated Balance Sheets due to their long-term nature, with interest charged at the Company's weighted average cost of borrowing. Jones Spanish Holdings, Inc. ("Spanish Holdings") is an affiliate indirectly owned 38% by the Company and 62% by International. Spanish Holdings currently is seeking opportunities to develop cable television operations in Spain. The Company has made advances totaling $623,300 during fiscal 1994, and has advanced a total of $7,617,900 as of February 28, 1994 to fund Spanish Holdings' activities to date. Additional advances may be made in the future. These advances have been reflected as investments in cable television partnerships and affiliates on the Company's Consolidated Balance Sheets due to their expected long-term nature, with interest charged at the Company's weighted average cost of borrowing. On February 2, 1994, the Company invested $15,500,000 in J.B. Acquisition Company, a partnership with Paine Webber Cable Capital, Inc; and Sandler Capital Management and several of its affiliates. J.B. Acquisition Company purchased from PacTel Cable all of the shares of four United Kingdom companies engaged in the cable television/telephony business. The combined properties represent approximately 225,000 franchise licensed homes in the United Kingdom, principally in Norwich and Peterborough. On March 30, 1994, the Company and Jones Global Group, Inc. (collectively "Jones"), and BCI and Cable and Wireless plc signed a letter of intent to consolidate their cable television and associated telephony operations in the United Kingdom and Spain. The transaction will combine the cable interests of these companies into BCETI Cable Limited, which is currently owned 80% by BCI and 20% by Cable and Wireless plc. The consolidation will coincide with a public offering of BCETI Cable. As part of the transaction, Jones will contribute its United Kingdom and Spain interests, and Cable and Wireless plc will contribute its equity interest in Jones Cable Group of Leeds Holdings plc, in exchange for shares in BCETI Cable. Closing on this transaction, which is expected in the first quarter of fiscal 1995, is subject to certain conditions, including the execution of definitive agreements and completion of the public share offering. During fiscal 1992 and 1993, the Company invested $10,000,000 in ME/U for 25% of the stock of ME/U, which also received certain advertising avails and administrative and marketing considerations from the Company. The number of shares of Class A Common Stock of ME/U issued to the Company was based on the average of two separate independent appraisals of ME/U. In May 1993, the Board of Directors of the Company also approved a $10,000,000 advance to ME/U on an as-needed basis. Of this advance, one-half will be converted 12 13 into shares of Class A Common Stock of ME/U at a price per share equal to the value of such shares as established by the next equity investment in ME/U by an unaffiliated party. Any amount not converted into equity will earn interest at the Company's weighted average cost of borrowing plus two percent. As of February 28, 1994, all of the $10,000,000 had been advanced. On December 2, 1993, the Board of Directors of the Company approved an additional $5,000,000 advance to ME/U on an as needed basis. Of this advance one-half will be converted into shares of Class A Common Stock of ME/U at a price per share equal to the value of such shares as established by the next equity investment in ME/U by an unaffiliated party. Any amount not converted into equity will earn interest at the Company's weighted average cost of borrowing plus two percent. As of February 28, 1994, $1,617,500 of the $5,000,000 had been advanced. These advances have been reflected as investments in cable television partnerships and affiliates on the Company's Consolidated Balance Sheets due to their expected long-term nature. On December 8, 1992, the Company entered into a $300,000,000 reducing revolving credit agreement with a number of commercial banks. The amount of borrowings available under this agreement remains at $300,000,000 through May 31, 1995, after which availability is reduced quarterly until expiration on November 30, 2000. Interest on amounts outstanding under the credit facility range from LIBOR plus 1 3/8% to LIBOR plus 2 1/2% depending upon whether certain financial ratios have been achieved. For the three months ended February 28, 1994, the Company's effective interest rate on the credit facility was 5.5%. A fee of 1/2% per annum on the unused portion of the new commitment is also required. Substantially all of the Company's cable television related assets are pledged as security under the agreement. At February 28, 1994, the Company had $115,000,000 outstanding under the credit facility, leaving $185,000,000 of potential availability on this credit facility; however, due to covenant restrictions, the Company can access only approximately $20,000,000 of this availability. In March 1994, the Company used the $55,000,000 of proceeds received from the sale of 2,500,000 shares of Class A Common Stock to BCI to repay amounts outstanding under the credit facility. As of March 31, 1994, $67,500,000 was outstanding on the credit facility, leaving approximately $50,000,000 of availability accessible to the Company. The Company owns the cable television system serving certain areas in and around Alexandria, Virginia. On December 17, 1992, the Chesapeake and Potomac Telephone Company of Virginia and Bell Atlantic Video Service Company ("Bell Atlantic") filed suit in U. S. District Court in Alexandria, Virginia seeking to declare unconstitutional the provisions in the 1984 Cable Act that prohibit telephone companies from owning a cable television system in their telephone service areas. On August 24, 1993, the court held that the 1984 Cable Act's cross-ownership provision is unconstitutional, and it issued an order enjoining the United States Justice Department from enforcing the cross-ownership ban. This decision has been appealed to the United States Court of Appeals for the Fourth Circuit, and the case could ultimately be reviewed by the United States Supreme Court. Unless the decision is stayed or overturned on appeal, Bell Atlantic will be permitted to provide cable television services to subscribers in competition with the Company's system as soon as it obtains all required local and federal authorization from the City of Alexandria and the FCC. Congress could, in response to this decision, enact legislation to prevent telephone companies from cross-subsidizing telephone and cable television services. Competition from an overbuilder with Bell Atlantic's financial resources would likely have an adverse effect on the Company's financial condition and results of operations. At this time, the magnitude of such effect is not known or estimable. On February 22, 1994, the Company and The Jones Group, Ltd., were named as defendants in a lawsuit brought by three individuals who are Class A Unitholders in Jones Intercable Investors, L.P. (the "Partnership"), a master limited partnership in which the Company is general partner. The litigation, entitled Luva Vaughan et al v. Jones Intercable, Inc. et al, Case No. CV 94-3652 was filed in the Circuit Court for Jackson County, Missouri, and purports to be "for the use and benefit of" the Partnership. The suit seeks rescission of the sale of the Alexandria, Virginia cable television system (the "Alexandria System") by the Partnership to the Company, which sale was completed on November 2, 1992. It also seeks a constructive trust on the profits derived from the operation of the Alexandria System since the date of the sale, and seeks an accounting and other equitable relief. The plaintiffs also 13 14 allege that the $1,830,850 commission paid to The Jones Group, Ltd. by the Partnership in connection with such sale was improper, and ask the Court to order that such commission be repaid to the Partnership. To date, the Company has been served, but The Jones Group, Ltd. has not been served. Under the terms of the partnership agreement of the Partnership, the Company has the right to acquire cable television systems from the Partnership at a purchase price equal to the average of three independent appraisals of the cable television system to be acquired. The plaintiffs claim that the appraisals obtained in connection with the sale of the Alexandria System were improperly obtained, were not made by qualified appraisers and were otherwise improper. The purchase price paid by the Company upon such sale was approximately $73,200,000. The Company believes both that the appraisals were properly obtained and that the brokerage commission was properly paid to The Jones Group, Ltd. in accordance with the express terms of the partnership agreement. The Company further believes that its defenses are meritorious and it intends to vigorously defend the litigation. From time to time, the Company may make loans to its managed limited partnerships. As of February 28, 1994, the Company had advanced funds to various managed partnerships and other affiliates of the Company totaling approximately $19,374,000, an increase of approximately $4,027,000 over the amount advanced at May 31, 1993. A significant portion of these advances represents funds for capital expansion and improvements of properties owned by partnerships where additional credit sources were not then available to the partnerships. These advances reduce the Company's available cash and its liquidity. The Company anticipates the repayment of these advances over time. On December 21, 1992, the Company entered into a license agreement with Jones Space Segment, Inc. ("Space Segment"), an affiliate of International, to use a non-preemptible transponder on a domestic communications satellite that Space Segment currently leases. The Company agreed to pay Space Segment $2,400,000 over a twelve-month period beginning on or about December 15, 1992, the delivery date of the transponder. Space Segment has the right to terminate the lease at any time upon 30 days' written notice to the Company. On November 9, 1993, the Company extended the term of the license agreement through December 31, 1994 on the same terms and conditions as the previous agreement. The Company paid $2,100,000 related to this license agreement during the first nine months of fiscal 1994. On January 28, 1993, the Company entered into an agreement with American Cable TV Investors 2 ("ACT 2") (the "Agreement") to acquire the cable television systems serving North Augusta, South Carolina and surrounding areas (the "North Augusta System") for $28,500,000 subject to normal closing adjustments. The North Augusta System is contiguous to the Augusta, Georgia cable system managed by the Company on behalf of one of its partnerships. As a result of a renegotiation of the Agreement between the Company and ACT 2, the purchase price was reduced to $27,200,000, subject to normal closing adjustments. The Company paid the Jones Group, Ltd., an affiliate of the Company, $680,000 for brokerage services related to this acquisition. The transaction closed on December 15, 1993. On June 18, 1993, the Company filed two shelf registration statements with the Securities and Exchange Commission relating to the offering of $500,000,000 of Senior Debt Securities, Senior Subordinated Debt Securities and Subordinated Debt Securities and the offering of 6,000,000 shares of Class A Common Stock of the Company. These registration statements are effective, but no securities have been sold except for 2,500,000 shares of Class A Common Stock sold to BCI in the fourth quarter of fiscal 1995. The proceeds from these offerings would be added to the general funds of the Company and may be used to make acquisitions of domestic cable television systems or interests therein, investments in cable television/telephony systems in the United Kingdom or for general corporate purposes. The Company also has another effective registration statement, which expires in June 1994, that allows the Company, from time to time, to offer up to $400,000,000 of Senior Debt Securities, Senior Subordinated Debt Securities and Subordinated Debt Securities. Of the total $400,000,000 registered, $260,000,000 of Senior Subordinated Debt Securities have been sold. 14 15 At February 28, 1994, the Company has $279,368,000 of Subordinated Debentures outstanding. These debentures do not require any cash payments for sinking fund requirements until fiscal 2003. The Company is in full compliance with covenant restrictions regarding these debentures. The Company intends to expand its business in the future; however, the Company's ability to expand will be limited by the availability of capital and the availability of cable television investments suitable for the Company. The strategic relationship the Company has agreed to enter into with BCI, in which BCI would purchase a 30 percent interest in the Company, would provide additional financing for the Company's expansion. BCI's proposed investment together with the Company's sale of its own equity or debt securities, subject to market conditions, and borrowings under the Company's credit facility would provide the funding to further the Company's strategic plans. Closing on the BCI transaction, which is subject to certain conditions, is expected to occur during the first quarter of fiscal 1995. Until that time or in the event the transaction is not consummated, the Company believes it will meet its capital needs, service its obligations, and maintain its liquidity using cash flow from operations, the sale of its own equity or debt securities, subject to market conditions, and borrowings under the Company's credit facility. Regulatory Matters. Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"), which became effective on December 4, 1992. This legislation has caused significant changes to the regulatory environment in which the cable television industry operates. The 1992 Cable Act generally allows for a greater degree of regulation of the cable television industry. Under the 1992 Cable Act's definition of effective competition, nearly all cable systems in the United States, including those owned and managed by the Company, are subject to rate regulation of basic cable services. In addition, the 1992 Cable Act allows the FCC to regulate rates for non-basic service tiers other than premium services in response to complaints filed by franchising authorities and/or cable subscribers. In April 1993, the FCC adopted regulations governing rates for basic and non- basic services. The FCC's rules became effective on September 1, 1993. Based on the Company's assessment of the FCC's rulemakings concerning rate regulation under the 1992 Cable Act, the Company reduced rates charged for certain regulated services effective September 1, 1993. On an annualized basis, such rate reductions will result in an estimated reduction in revenue of approximately $5,500,000, or 4.5%, and a decrease in operating income before depreciation and amortization of approximately $5,200,000, or 9%. In addition, on February 22, 1994, the FCC announced a further rulemaking which, when implemented, could reduce rates further. The new rate regulations, which were released in March 1994, will be effective on May 15, 1994, and will likely require further reductions in rates in most of the Company's owned and managed systems. The Company has not yet been able to quantify the impact of the new rate regulations, but it believes that the new rate regulations will have a negative effect on its revenues and operating income before depreciation and amortization. The Company has undertaken actions to mitigate a portion of these reductions primarily through (a) new service offerings, (b) product re-marketing and re-packaging and (c) marketing efforts directed at non-subscribers. The 1992 Cable Act contains new broadcast signal carriage requirements, and the FCC has adopted regulations implementing the statutory requirements. These new rules allow a local commercial broadcast television station to elect whether to demand that a cable system carry its signal or to require the cable system to negotiate with the station for "retransmission consent." A cable system is generally required to devote up to one-third of its activated channel capacity for the mandatory carriage of local commercial broadcast television stations, and non-commercial television stations are also given mandatory carriage rights, although such stations are not given the option to negotiate retransmission consent for the carriage of their signals by cable systems. Additionally, cable systems also are required to obtain retransmission consent from all commercial television stations (except for commercial satellite-delivered independent "superstations"), commercial radio stations and, in some instances, low-power television stations carried by cable systems. 15 16 The retransmission consent rules went into effect on October 6, 1993. Throughout all cable television systems owned or managed by the Company, only one broadcast station withheld its consent to retransmission of its signal, and was no longer carried on October 6, 1993. As of October 11, 1993, however, the broadcast station had given its consent, and its signal was restored to that cable system. Certain other broadcast signals are being carried on October 6, 1993 pursuant to extensions offered to the Company by broadcasters, including a one-year extension for carriage of all CBS stations owned and operated by the CBS network (Los Angeles, Chicago, Philadelphia, Green Bay and Minneapolis). Other extensions for approximately 10 to 15 broadcast stations were obtained and approximately five such extensions are still in place. The Company expects to finally conclude retransmission consent negotiations with those remaining stations whose signals are being carried pursuant to extensions without having to terminate the distribution of any of those signals. However, there can be no assurance that such will occur. If any broadcast station currently being carried pursuant to an extension is dropped, there could be a material adverse effect on the system in which it is dropped if a significant number of subscribers in such system were to disconnect their service. However, in most cases, only one broadcaster in any market is being carried pursuant to an extension arrangement, and the dropping of such broadcaster, were that to occur, is not expected to have a material adverse effect on the system. There have been several lawsuits filed by cable operators and programmers in Federal court challenging various aspects of the 1992 Cable Act, including provisions relating to mandatory broadcast signal carriage, retransmission consent, access to cable programming, rate regulations, commercial leased channels and public access channels. On April 8, 1993, a three-judge Federal district court panel issued a decision upholding the constitutional validity of the mandatory signal carriage requirements of the 1992 Cable Act. That decision has been appealed directly to the United States Supreme Court. Appeals have been filed in the Federal appellate court challenging the validity of the FCC's retransmission consent rules. RESULTS OF OPERATIONS Revenues. The Company derives its revenues from three primary sources: subscriber fees from Company-owned cable television systems, management fees from managed limited partnerships, and fees and distributions payable upon the sale of cable television properties owned by managed limited partnerships. Total revenues for the three months ended February 28, 1994 increased $886,000, or 3%, from $32,387,000 reported in fiscal 1993 to $33,273,000 reported in fiscal 1994. Total revenues for the nine months ended February 28, 1994 increased $8,594,000, or 10%, from $89,531,000 reported in fiscal 1993 to $98,125,000 reported in fiscal 1994. These increases are reflective of the Company's purchase in November 1992 of the cable television system serving the areas in and around Alexandria, Virginia (the "Alexandria System") from one of its managed partnerships and the purchase in December 1993 of the cable television system serving North Augusta, South Carolina (the "North Augusta System"). The effect of these acquisitions was somewhat mitigated by the effect of the Company's sale in May 1993 of the cable television systems serving a portion of San Diego and Riverside County, California (the "San Diego System"). Disregarding the effect of these transactions, total revenues would have increased $436,000, or 1%, and $3,694,000, or 4%, for the three and nine months ended February 28, 1994, respectively. The Company's subscriber service revenue increased $690,000, or 2%, and $8,359,000, or 11%, for the three and nine months ended February 28, 1994 as compared to the same periods ended February 28, 1993, totaling approximately $28,939,000 and $85,155,000 for the current fiscal year versus approximately $28,249,000 and $76,796,000 for the prior fiscal year, respectively. The net effect of the purchases of the Alexandria System and the North Augusta System, and the sale of the San Diego System accounted for approximately $450,000, or 65%, and $5,215,000, or 62%, of the increase in subscriber service revenues for the three and nine months ended February 28, 1994, respectively. In addition, increases in the number of basic subscribers, as well as increases in revenues from premium service, pay-per-view, advertising sales and installation of service somewhat mitigated the effect of the reduction in the Company's basic rates due to the new basic rate regulations issued by the FCC in May 16 17 1993 with which the Company complied effective September 1, 1993. As discussed above, on February 22, 1994, the FCC announced a further rulemaking which, when implemented, could reduce rates further. The Company receives management fees generally equal to 5% of the gross operating revenues from its managed partnerships. Management fees increased $196,000, or 5%, totaling $4,334,000 for the three months ended February 28, 1994 compared to $4,138,000 for the same period one year ago. For the nine months ended February 28, 1994, management fees totaled $12,970,000 compared to $12,735,000, an increase of $235,000, or 2%. The increase in growth of management fee revenue is the result of increases in operating revenues of the Company's managed partnerships. Partnership revenues increased as a result of increases in basic subscribers as well as increases in revenues from pay-per-view, advertising sales and the installation of service. These increases somewhat mitigated the effect of the reduction in basic rates in the Company's managed partnerships due to the new basic rate regulations issued by the FCC in May 1993 with which the Company complied effective September 1, 1993. On February 22, 1994, the FCC announced a further ratemaking which, when implemented, could reduce rates further and negatively effect management fee revenues. In its capacity as the general partner of its managed partnerships, the Company also receives revenues in the form of distributions upon the sale of cable television properties owned by such partnerships. No such revenues were received during the first nine months of fiscal 1994 or 1993. Expenses. Operating, general and administrative expenses consist primarily of costs associated with the administration of Company-owned cable television systems and the administration of managed partnerships. 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, professional fees, subscriber billing costs, data processing costs, rent for leased facilities, cable system maintenance expenses and consumer marketing expenses. For the three months ended February 28, 1994, these costs decreased approximately 5% from $20,107,000 reported in fiscal 1993 to $19,039,000 reported for the same period in fiscal 1994. For the nine months ended February 28, 1994, these costs increased approximately 11%, from $50,941,000 reported in fiscal 1993 to $56,303,000 reported in fiscal 1994. During the third quarter of fiscal 1993, the Company recognized approximately $1,870,000 of non-cash compensation expense related to the granting of Class A Common Stock options. Approximately $65,100 of such expense was recognized during the third quarter of fiscal 1994. Somewhat mitigating the effect of the stock option expense were increases in satellite fees and premium service fees as well as plant related costs which totaled approximately $544,000 for the three months ended February 28, 1994. Increases in personnel costs, satellite fees and premium service fees, and advertising costs accounted for approximately $928,000, $1,596,000 and $259,000 of the increase in operating, general and administrative expenses for the nine months ended February 28, 1994. The net effect of the purchases of the Alexandria System and the North Augusta System and the sale of the San Diego System was an increase in these expenses of approximately $25,000 and $2,251,000 for the three and nine months ended February 28, 1994, respectively. Depreciation and amortization expense decreased $441,000, or 4%, from $11,504,000 reported for the three months ended February 28, 1993 to $11,063,000 reported in the current fiscal year. This decrease was due to the sale of the San Diego System in May 1993. Depreciation and amortization increased $202,000, or 1%, for the nine months ended February 28, 1994, totaling $32,045,000 in fiscal 1994 compared to $31,843,000 in fiscal 1993. This increase is due to the purchase of the Alexandria System in November 1992. Interest expense decreased $1,528,000, or 14%, for the three months ended February 28, 1994 from $10,899,000 reported in the third quarter of fiscal 1993 to $9,371,000 for the third quarter of fiscal 1994. Interest expense decreased $3,751,000, or 12%, for the nine months ended February 28, 1994 from $30,672,000 reported in fiscal 1993 to $26,921,000 reported during fiscal 1994. These decreases were primarily due to the redemption 17 18 of the remaining $138,000,000 principal amount of the Company's 13% Subordinated Debentures due 2000 in May 1993. The effect of this redemption was somewhat mitigated by an increase in interest expense as a result of higher balances outstanding on the Company's revolving credit facility. Equity in losses of affiliated entities, which result primarily from depreciation and amortization expenses, increased $308,000, or 45%, and $1,023,000, or 50%, for the three and nine months ended February 28, 1994 from $691,000 and $2,055,000 in fiscal 1993 to $999,000 and $3,078,000 in fiscal 1994, respectively. These increases were primarily the result of losses recognized by the Company related to its 25% investment in Mind Extension University, Inc. Interest income increased $164,000, or 21%, from $791,000 reported for the three months ended February 28, 1993 to $955,000 reported in the current fiscal year. This increase is due to higher average balances outstanding from certain managed partnerships as well as interest income earned on advances made to Mind Extension University, Inc. Interest income decreased $116,000, or 4%, for the nine months ended February 28, 1994 totaling $2,847,000 in fiscal 1993 compared to $2,731,000 in fiscal 1994. This decrease is reflective of the fact that interest income was earned on excess cash on hand as a result of the Company's sale in July 1992 of $160,000,000 of 11.5% Senior Subordinated Debentures due 2008. This was somewhat mitigated by the increase in interest income in the third quarter of fiscal 1994 caused by the factors described above. Net Losses. 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 may continue in the future. To the extent the Company recognizes liquidation distributions from its managed partnerships in the future, losses may be eliminated; however, there is no assurance as to the timing or recognition of these distributions. 18 19 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. a) Exhibits 1) Accountants' Review Letter, dated April 5, 1994. 15) Letter Regarding Unaudited Interim Financial Statements. b) Reports on Form 8-K 1) The letter of intent signed by the Company with BCE Telecom International, Inc. ("BCETI") whereby, among other things, BCETI would acquire a thirty percent (30%) equity interest in the Company for a total of approximately $400,000,000 was reported on Form 8-K filed with the Securities and Exchange Commission on December 2, 1993. 2) The letter of intent with attached term sheets dated December 2, 1993 between, among others, BCE Telecom International and the Company was reported on Form 8-K filed with the Securities and Exchange Commission on January 10, 1994. 3) The purchase from PacTel Cable of all of the shares of four United Kingdom companies engaged in the television/telephony business on January 27, 1994 by J.B. Acquisition Company, a Colorado general partnership consisting of the Company, Paine Webber Capital, Inc. and Sandler Capital Management and several of its affiliates was reported on Form 8-K filed with the Securities and Exchange Commission on February 18, 1994. 19 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JONES INTERCABLE, INC. /s/ KEVIN P. COYLE Kevin P. Coyle (Group Vice President/Finance) Dated: April 13, 1994 20 EX-1 2 REVIEW REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 REVIEW REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Jones Intercable, Inc.: We have made a review of the accompanying condensed consolidated balance sheet of JONES INTERCABLE, INC. (a Colorado corporation) and subsidiaries as of February 28, 1994, the related condensed consolidated statements of operations for the three-month and nine- month periods ended February 28, 1994 and 1993, and the related condensed consolidated statements of cash flows for the nine-month periods ended February 28, 1994 and 1993. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists primarily of applying analytical review procedures to the financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Jones Intercable, Inc., and subsidiaries as of May 31, 1993 (not presented herein), and, in our report dated August 16, 1993, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of May 31, 1993, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. ARTHUR ANDERSEN & CO. /s/ ARTHUR ANDERSEN & CO. Denver, Colorado, April 5, 1994. EX-15 3 LTR REGARDING UNAUDITED INTERIM FIN. STATEMENTS 1 Exhibit 15 April 13, 1994 Jones Intercable, Inc. and Subsidiaries: We are aware that Jones Intercable, Inc., and subsidiaries has incorporated by reference in its Registration Statement Nos. 33- 25577, 33-3087, 33-41392, 33-45161, 33-47030, 33-54596, 33-64602, 33-64604 and 33-52813 in its Form 10-Q for the quarter ended February 28, 1994, which includes our report dated April 5, 1994 covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933, that report is not considered a part of the registration statements prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Securities Act of 1933. Very truly yours, ARTHUR ANDERSEN & CO. /s/ ARTHUR ANDERSEN & CO. -----END PRIVACY-ENHANCED MESSAGE-----