-----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, JYrBXIAxab0ZTKZSjvWKmCbjHThHb2YxNsUiiZEzbs8cdmj2sIrjvnB+L4PTrdnw VKmOCaNHYto3xReuRnyZ8g== 0000950159-99-000327.txt : 19991117 0000950159-99-000327.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950159-99-000327 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JONES INTERCABLE INC CENTRAL INDEX KEY: 0000275605 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 840613514 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09953 FILM NUMBER: 99756465 BUSINESS ADDRESS: STREET 1: C/O COMCAST CORP STREET 2: 1500 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19102-2148 BUSINESS PHONE: 2156651700 MAIL ADDRESS: STREET 1: 9697 EAST MINERAL AVENUE CITY: ENGLEWOOD STATE: CO ZIP: 80112 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) (X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended: SEPTEMBER 30, 1999 OR ( ) Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Transition Period from ________ to ________. Commission File Number 1-9953 JONES INTERCABLE, INC. (Exact name of registrant as specified in charter) COLORADO 84-0613514 - ------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) c/o Comcast Corporation 1500 Market Street, Philadelphia, PA 19102-2148 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (215) 665-1700 ------------------------------ 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 twelve 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 ___ -------------------------- As of September 30, 1999, there were 36,937,420 shares of Class A Common Stock and 5,113,021 shares of Common Stock outstanding. JONES INTERCABLE, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 TABLE OF CONTENTS
Page Number PART I FINANCIAL INFORMATION ITEM 1 Financial Statements Review Report of Independent Public Accountants................................2 Condensed Consolidated Balance Sheet as of September 30, 1999 and December 31, 1998 (Unaudited)...........................3 Condensed Consolidated Statement of Operations and Accumulated Deficit for the Nine and Three Months Ended September 30, 1999 and 1998 (Unaudited)..................................4 Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 1999 and 1998 (Unaudited)........................................5 Notes to Condensed Consolidated Financial Statements (Unaudited)................................................... 6 - 10 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations...............................................................11 - 15 PART II OTHER INFORMATION ITEM 1 Legal Proceedings........................................................16 - 19 ITEM 6 Exhibits and Reports on Form 8-K............................................. 19 SIGNATURES............................................................................. 20
----------------------------------- This Quarterly Report on Form 10-Q is for the three months ended September 30, 1999. This Quarterly Report modifies and supersedes documents filed prior to this Quarterly Report. The SEC allows us to "incorporate by reference" information that we file with them, which means that we can disclose important information to you by referring you directly to those documents. Information incorporated by reference is considered to be part of this Quarterly Report. In addition, information we file with the SEC in the future will automatically update and supersede information contained in this Quarterly Report. In this Quarterly Report, "Jones Intercable," "we," "us" and "our" refer to Jones Intercable, Inc. and its subsidiaries. You should carefully review the information contained in this Quarterly Report and in other reports or documents that we file from time to time with the SEC. In this Quarterly Report, we state our beliefs of future events and of our future financial performance. In some cases, you can identify those so-called "forward-looking statements" by words such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue" or the negative of those words and other comparable words. You should be aware that those statements are only our predictions. Actual events or results may differ materially. In evaluating those statements, you should specifically consider various factors, including the risks outlined below. Those factors may cause our actual results to differ materially from any of our forward-looking statements. Factors Affecting Future Operations The cable communications industry may be affected by, among other things: o changes in laws and regulations, o changes in the competitive environment, o changes in technology, o franchise related matters, o market conditions that may adversely affect the availability of debt and equity financing for working capital, capital expenditures or other purposes; and o general economic conditions. REVIEW REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Jones Intercable, Inc.: We have made a review of the accompanying condensed consolidated balance sheet of Jones Intercable, Inc. (a Colorado corporation) and subsidiaries as of September 30, 1999, the related condensed consolidated statement of operations and accumulated deficit for the nine and three months ended September 30, 1999 and 1998 and the condensed consolidated statement of cash flows for the nine months ended September 30, 1999 and 1998. 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 condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Jones Intercable, Inc. and subsidiaries as of December 31, 1998 (not presented herein), and, in our report dated February 17, 1999, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1998, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. ARTHUR ANDERSEN LLP Denver, Colorado November 4, 1999 2 JONES INTERCABLE, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 PART I FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(Dollars in thousands, except share data) September 30, December 31, 1999 1998 ----------- ----------- ASSETS CURRENT ASSETS Cash and cash equivalents ......................................................... $ 20,788 $ 2,586 Accounts receivable, less allowance for doubtful accounts of $4,648 and $2,822 .................................................. 30,611 32,452 Inventories, net .................................................................. 20,721 20,239 Other current assets .............................................................. 10,061 28,734 ----------- ----------- Total current assets ........................................................ 82,181 84,011 ----------- ----------- INVESTMENTS .......................................................................... 23,671 19,724 ----------- ----------- PROPERTY AND EQUIPMENT ............................................................... 898,259 818,871 Accumulated depreciation .......................................................... (304,749) (244,631) ----------- ----------- Property and equipment, net ....................................................... 593,510 574,240 ----------- ----------- DEFERRED CHARGES AND OTHER ........................................................... 1,631,361 1,500,083 Accumulated amortization .......................................................... (566,875) (446,965) ----------- ----------- Deferred charges and other, net ................................................... 1,064,486 1,053,118 ----------- ----------- $ 1,763,848 $ 1,731,093 =========== =========== LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses ............................................. $ 91,993 $ 89,516 Accrued interest .................................................................. 22,681 23,265 Current portion of long-term debt ................................................. 2,460 2,237 Due to affiliates ................................................................. 34,880 ----------- ----------- Total current liabilities ................................................... 152,014 115,018 ----------- ----------- LONG-TERM DEBT, less current portion ................................................. 1,643,122 1,460,470 ----------- ----------- OTHER LIABILITIES .................................................................... 14,485 ----------- ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' (DEFICIENCY) EQUITY Class A common stock, $.01 par value - authorized, 60,000,000 shares; issued, 36,937,420 and 36,143,054 .............................................. 369 361 Common stock, $.01 par value - authorized, 5,550,000 shares; issued, 5,113,021 .... 51 51 Additional capital ................................................................ 504,472 495,116 Accumulated deficit ............................................................... (541,033) (339,923) Accumulated other comprehensive loss .............................................. (9,632) ----------- ----------- Total stockholders' (deficiency) equity ..................................... (45,773) 155,605 ----------- ----------- $ 1,763,848 $ 1,731,093 =========== ===========
See notes to condensed consolidated financial statements. 3 JONES INTERCABLE, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT (Unaudited)
(Amounts in thousands, except per share data) Nine Months Ended Three Months Ended September 30, September 30, 1999 1998 1999 1998 --------- --------- --------- ----------- REVENUES Cable Communications Revenues Subscriber service fees ................................... $ 394,126 $ 300,108 $ 135,477 $ 111,404 Management fees ........................................... 957 10,080 2,446 Distributions and brokerage fees .......................... 3,966 23,049 18,304 Non-cable revenue ............................................ 2,259 4,484 608 809 --------- --------- --------- --------- 401,308 337,721 136,085 132,963 --------- --------- --------- --------- COSTS AND EXPENSES Cable Communications Expenses Operating ................................................. 161,034 94,818 51,032 36,458 Selling, general and administrative ....................... 91,213 79,196 31,012 27,234 Non-cable operating, selling, general and administrative ..... 2,504 5,087 1,123 887 Restructuring charges ........................................ 55,400 Depreciation and amortization ................................ 199,668 144,608 75,264 52,768 --------- --------- --------- --------- 509,819 323,709 158,431 117,347 --------- --------- --------- --------- OPERATING (LOSS) INCOME ......................................... (108,511) 14,012 (22,346) 15,616 OTHER (INCOME) EXPENSE Interest expense ............................................. 86,549 68,965 31,468 24,781 Equity in net losses (income) of affiliates .................. 3,026 3,959 (932) 1,067 Investment income ............................................ (679) (1,313) (970) (566) Other expense (income) ....................................... 3,703 10,196 (2,426) 4,738 --------- --------- --------- --------- 92,599 81,807 27,140 30,020 --------- --------- --------- --------- LOSS BEFORE INCOME TAXES ........................................ (201,110) (67,795) (49,486) (14,404) INCOME TAXES .................................................... --------- --------- --------- --------- NET LOSS ........................................................ (201,110) (67,795) (49,486) (14,404) ACCUMULATED DEFICIT Beginning of period .......................................... (339,923) (259,505) (491,547) (312,896) --------- --------- --------- --------- End of period ................................................ ($541,033) ($327,300) ($541,033) ($327,300) ========= ========= ========= ========= BASIC LOSS FOR COMMON STOCKHOLDERS PER COMMON SHARE ............................................. ($ 4.81) ($ 1.66) ($ 1.18) ($ .35) ========= ========= ========= ========= BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING ........................................... 41,783 40,849 42,050 41,088 ========= ========= ========= =========
See notes to condensed consolidated financial statements. 4 JONES INTERCABLE, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(Dollars in thousands) Nine Months Ended September 30, 1999 1998 --------- --------- OPERATING ACTIVITIES Net loss ($201,110) ($ 67,795) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 199,668 144,608 Amortization of deferred revenue (1,800) Loss on sale of assets 3,616 Noncash interest expense 175 Equity in net losses of affiliates 3,026 3,959 --------- --------- (41) 84,388 Changes in working capital and other liabilities 20,932 (4,477) --------- --------- Net cash provided by operating activities 20,891 79,911 --------- --------- FINANCING ACTIVITIES Proceeds from borrowings 183,535 481,346 Repayments of long-term debt (978) (232,000) Proceeds from Class A Common Stock options exercised 9,364 5,580 Net transactions with affiliates 35,904 3,669 --------- --------- Net cash provided by financing activities 227,825 258,595 --------- --------- INVESTING ACTIVITIES Acquisitions, net of cash acquired (50,213) (214,846) Capital expenditures (91,207) (85,045) Additions to deferred charges (89,517) (40,889) Proceeds from the sale of assets 350 Other, net 423 1,261 --------- --------- Net cash used in investing activities (230,514) (339,169) --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 18,202 (663) CASH AND CASH EQUIVALENTS, beginning of period 2,586 3,595 --------- --------- CASH AND CASH EQUIVALENTS, end of period $ 20,788 $ 2,932 ========= =========
See notes to condensed consolidated financial statements. 5 JONES INTERCABLE, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Basis of Presentation The condensed consolidated balance sheet as of December 31, 1998 has been condensed from the audited consolidated balance sheet as of that date. The condensed consolidated balance sheet as of September 30, 1999, the condensed consolidated statement of operations and accumulated deficit for the nine and three months ended September 30, 1999 and 1998 and the condensed consolidated statement of cash flows for the nine months ended September 30, 1999 and 1998 have been prepared by Jones Intercable, Inc. (the "Company") and have not been audited by the Company's independent auditors. In the opinion of management, all adjustments necessary to present fairly the financial position, results of operations and cash flows as of September 30, 1999 and for all periods presented have been made. Certain information and note disclosures normally included in the Company's annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 1998 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC"). The results of operations for the periods ended September 30, 1999 are not necessarily indicative of operating results for the full year. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES New Accounting Pronouncement In June 1998, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes the accounting and reporting standards for derivatives and hedging activity. Upon the adoption of SFAS No. 133, all derivatives are required to be recognized in the statement of financial position as either assets or liabilities and measured at fair value. In July 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 an amendment of FASB Statement No. 133" deferring the effective date for implementation of SFAS No. 133 to fiscal years beginning after June 15, 2000. The Company is currently evaluating the impact the adoption of SFAS No. 133 will have on its financial position and results of operations. Loss for Common Stockholders Per Common Share Loss for common stockholders per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. For the nine and three months ended September 30, 1999 and 1998, the Company's potential common shares of 16,000 shares, 424,000 shares, 16,000 shares and 498,000 shares, respectively, have an antidilutive effect on loss for common stockholders per common share and, therefore, have not been used in determining the total weighted average number of common shares outstanding. Reclassifications Certain reclassifications have been made to the prior year condensed consolidated financial statements to conform to those classifications used in 1999. 3. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS Closing of Acquisition of Controlling Interest in the Company by Comcast Corporation On April 7, 1999, Comcast Corporation ("Comcast") completed the acquisition of a controlling interest in the Company for aggregate consideration of $706.3 million. In June 1999, Comcast acquired an additional 1.0 million shares of the Company's Class A Common Stock for $50.0 million in a private transaction. As of September 30, 1999, Comcast owns approximately 13.8 million shares of the Company's Class A Common Stock and approximately 2.9 million shares of the Company's Common Stock, representing 39.6% of the economic interest and 48.3% of the voting interest in the Company. Comcast has contributed its shares in the Company to its wholly owned subsidiary, Comcast Cable Communications, Inc. ("Comcast Cable"). The approximately 2.9 million shares of Common Stock owned by Comcast Cable represent shares having the right to elect 6 JONES INTERCABLE, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) approximately 75% of the Board of Directors of the Company. The Company is now a consolidated public company subsidiary of Comcast Cable. In August 1999, Comcast announced its intention to commence an offer to exchange 1.4 shares of its Class A Special Common Stock for each share of Class A Common Stock and Common Stock of the Company for up to 79% of the combined number of shares of the Company's Class A Common and Common Stock outstanding (subject to certain terms and conditions to be contained in the offer documents). The offer would commence upon registration of Comcast's Class A Special Common Stock to be offered in the exchange offer with the SEC pursuant to an effective registration statement. Comcast intends to contribute the shares of the Company's Class A Common Stock and Common Stock received in the exchange offer to Comcast Cable. In connection with Comcast's acquisition of a controlling interest in the Company on April 7, 1999, all of the persons who were executive officers of the Company as of that date terminated their employment with the Company. The Company's Board of Directors has elected new executive officers, each of whom also is an officer of Comcast. As of July 7, 1999, all persons who were employed at the Company's former corporate offices in Englewood, Colorado had terminated their employment with the Company. The Company's corporate offices are now located at 1500 Market Street, Philadelphia, Pennsylvania 19102-2148. To facilitate an orderly change in control to Comcast, the Company established retention and severance programs for its corporate and field office employees who were to be terminated due to the change in control. The programs provide for cash severance payments to employees that have been or will be terminated due to the change in control. During the nine months ended September 30, 1999, the Company incurred expense relating to the severance of approximately 350 corporate and field office employees totaling $39.1 million, of which $34.9 million had been paid and $4.2 million was accrued at September 30, 1999. Such costs were included in restructuring charges in the Company's condensed consolidated statement of operations and accumulated deficit. In addition to the severance expense described above, during the nine months ended September 30, 1999, the Company incurred an additional $16.3 million of restructuring costs related to the change in control relating to an employment contract termination, costs associated with the termination of an information technology services agreement with a former affiliated entity and lease termination costs. Of this total, $9.5 million had been paid and $6.8 million was accrued at September 30, 1999. Such costs were included in restructuring charges in the Company's condensed consolidated statement of operations and accumulated deficit during the nine months ended September 30, 1999. Littlerock System Acquisition On January 29, 1999, the Company, through a wholly owned subsidiary, acquired the cable communications system serving areas in and around Littlerock, California (the "Littlerock System") for $10.7 million in cash from Cable TV Fund 14-B, Ltd., a partnership managed by the Company (see Note 8). The acquisition was accounted for under the purchase method of accounting. As such, the operating results of the Littlerock System have been included in the accompanying condensed consolidated statement of operations and accumulated deficit from the acquisition date. The acquisition was funded with borrowings under the subsidiary's existing credit facility. Calvert County System Acquisition On July 6, 1999, the Company, through a wholly owned subsidiary, acquired the cable communications system serving areas in and around Calvert County, Maryland (the "Calvert County System") for $39.5 million in cash, subject to customary closing adjustments, from Cable TV Fund 14-A, Ltd., a partnership managed by the Company (see Note 8). The acquisition was accounted for under the purchase method of accounting. As such, the operating results of the Calvert County System have been included in the Company's condensed consolidated statement of operations and accumulated deficit from the date of acquisition. The acquisition was funded with borrowings under the subsidiary's existing credit facility. Exchange of Cable Communications Systems In May 1999, the Company entered into an agreement to exchange certain cable communications systems with Adelphia Communications ("Adelphia"). Under the terms of the agreement, the Company will receive 7 JONES INTERCABLE, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) approximately 103,000 cable subscribers in Michigan from Adelphia. In exchange, Adelphia will receive cable communications systems in California currently owned by the Company serving approximately 108,000 subscribers. All of the cable systems involved in the transaction will be valued based upon independent appraisals with any difference in relative value to be funded with cash or additional cable systems. The system exchange is subject to customary closing conditions and regulatory approvals and is expected to close by mid-2000. 4. INVESTMENTS Partnership Liquidations The sales of all remaining partnership-owned cable communications systems were completed in July 1999 and the Company is in the final stages of liquidating its managed partnerships. The Company is a defendant in litigation filed by limited partners of certain of its managed partnerships challenging the terms of certain sales of partnership-owned cable communications systems to the Company and/or its subsidiaries (see Note 8 and Part II, Other Information, Item 1, Legal Proceedings). The managed partnerships that are involved in this litigation will not be dissolved until such litigation is finally resolved and terminated. At Home Warrants In June 1998, the Company entered into a six year Distribution Agreement with At Home Corporation ("@Home"), which provides for the distribution of high speed Internet services to the Company's cable communications systems. Deployment began in December 1998. In conjunction with the Distribution Agreement, the Company and @Home entered into a Warrant Purchase Agreement providing for the Company's purchase of up to a maximum of 4,092,200 shares of @Home Series A Common Stock at $5.25 per share (as adjusted for @Home's 2-for-1 stock split in June 1999). The warrants become exercisable after March 31 each year, beginning in 1999, as the Company launches @Home services in its cable communications systems. As of March 31, 1999, warrants to purchase 260,000 shares of @Home Series A Common Stock were exercisable. No additional warrants became exercisable in the second and third quarters of 1999. Accordingly, as of March 31, 1999, the Company recorded an investment in @Home warrants of $19.7 million and deferred revenue of an equal amount. The Company's investment in @Home warrants is classified as available for sale and recorded at fair value, with unrealized gains or losses resulting from changes in fair value between measurement dates recorded as a component of accumulated other comprehensive loss in the Company's condensed consolidated balance sheet. As of September 30, 1999, the Company had recorded an unrealized loss of $9.6 million related to this investment. 5. LONG-TERM DEBT Interest Rates As of September 30, 1999 and December 31, 1998, the Company's effective weighted average interest rate on its long-term debt outstanding was 7.51% and 6.76%, respectively. Lines of Credit As of September 30, 1999, certain subsidiaries of the Company had unused lines of credit of $270.5 million, all of which is restricted by the covenants of the related debt agreements and to subsidiary general purposes and dividend declaration. 6. RELATED PARTY TRANSACTIONS Management Agreement Effective April 7, 1999, the Company and Comcast entered into a management agreement pursuant to which Comcast will manage the operations of the Company and its subsidiaries, subject to such direction and control of the Company as the Company may reasonably determine from time to time. The terms of the management agreement were approved by the independent members of the Company's Board of Directors. The management agreement generally provides that Comcast will supervise the management and operations of the Company's cable systems and arrange for and supervise certain administrative functions. As compensation for such services the management agreement provides for Comcast to charge management fees of 4.5% of gross cable communications revenues (as defined). During the nine and three months ended September 30, 1999, Comcast charged the Company management fees of $11.9 million and $6.1 million, respectively. 8 JONES INTERCABLE, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) On behalf of the Company, Comcast seeks and secures long-term programming contracts that generally provide for payment based on either a monthly fee per subscriber per channel or a percentage of certain subscriber revenues. Amounts charged to the Company by Comcast for programming (the "Programming Charges") are in an amount equal to the sum of (i) the actual cost incurred by Comcast plus (ii) one-half of the difference between the cost the Company would pay in an arms-length transaction if the Company were a stand-alone multiple cable communications systems operator with a subscriber base equal to that of the Company's cable systems, and the actual cost incurred by Comcast. The Programming Charges are included in operating expenses in the Company's condensed consolidated statement of operations and accumulated deficit. The Company purchases certain other services, including insurance, from Comcast under cost-sharing arrangements on terms that reflect Comcast's actual cost. The Company reimburses Comcast for certain other costs (primarily salaries) under cost-reimbursement arrangements. Under all of these arrangements, the Company incurred total expenses of $74.4 million and $36.1 million, respectively, including $72.9 million and $35.4 million, respectively of Programming Charges, during the nine and three months ended September 30, 1999. The management agreement also provides that Comcast will not enter into any agreements or transactions or obtain any services on behalf of the Company or its cable systems with or from any affiliate of Comcast other than those specifically provided for in the management agreement without the prior written consent of the Company, except for agreements or transactions on terms that are no less favorable to the Company than those that might be obtained at the time from a person or entity that is not an affiliate of Comcast in an arms-length transaction. Further, the management agreement provides that without the prior written consent of the Company, Comcast will not change the independent auditor of the Company or change Comcast's independent auditor such that Comcast and the Company have the same independent auditor. The Company will have the right to terminate the management agreement effective as of April 7, 2004 by written notice to Comcast no later than January 7, 2004, and if no such notice is given, the management agreement shall automatically terminate on April 7, 2009. Due to affiliates in the Company's condensed consolidated balance sheet primarily consists of amounts due to Comcast and its affiliates under the cost-sharing arrangements described above and amounts payable to Comcast and its affiliates as reimbursement for payments made, in the ordinary course of business, by such affiliates on behalf of the Company. Other Related Party Transactions In April 1999, the Company paid Glenn R. Jones, the former Chief Executive Officer of the Company, and Jones International, Ltd. $25.0 million to relinquish their rights to place new programming channels on the Company's cable communications systems. Such payments will be amortized over the period of approximately 10 1/2 years, which is consistent with the term under which such programming could have been launched under the original agreement. In addition, the Company paid Mr. Jones $8.0 million in April 1999 to terminate Mr. Jones' employment contract with the Company (see Note 3). E! Entertainment Television E! Entertainment Television is an affiliate of Comcast that provides cable television programming. During the nine and three months ended September 30, 1999, the Company made payments to E! Entertainment Television totaling $370,000 and $212,000, respectively, for programming provided to cable systems owned by the Company. QVC, Inc. Comcast, on behalf of the Company, has an affiliation agreement with QVC, Inc. ("QVC"), an electronic retailer and a majority-owned and controlled subsidiary of Comcast, to carry its programming. In return for carrying QVC programming, the Company receives an allocated portion, based upon market share, of a percentage of net sales of merchandise sold to QVC customers located in the Company's service area. For the nine and three monthsended September 30, 1999, the Company's subscriber service fees revenue includes approximately $808,000 and $308,000, respectively, relating to QVC. 9 JONES INTERCABLE, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED (Unaudited) 7. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION The Company made cash payments for interest of $87.0 million, $68.7 million, $28.7 million and $27.1 million during the nine and three months ended September 30, 1999 and 1998, respectively. The Company's investment in @Home warrants (see Note 4) had no impact on the Company's condensed consolidated statement of cash flows due to its non-cash nature. 8. COMMITMENTS AND CONTINGENCIES The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position, results of operations or liquidity of the Company. There are currently lawsuits pending in federal courts that have been filed against the Company relating to the sale of the Palmdale, Albuquerque, Littlerock and Calvert County cable communications systems by Company- managed partnerships to the Company or one of its subsidiaries. The complaints generally allege that the Company acquired those systems at a price that did not reflect their fair value and that the proxy statements mailed to the limited partners of the partnerships that owned these systems were false, misleading and failed to disclose material facts about the cable communications system market place. The Company intends to continue to vigorously defend these lawsuits. In July 1999, the Company and certain of its subsidiaries and managed partnerships were named defendants in a lawsuit that alleges that they withheld information, including lists of the names and addresses of limited partners, from the plaintiffs. The plaintiffs had planned to conduct tender offers to purchase limited partnership interests from the limited partners. The plaintiffs allege that they were injured by not receiving the information and by not being able to conduct tender offers for the limited partnership interests. The Company intends to defend this lawsuit vigorously on its own behalf and on behalf of its subsidiaries and managed partnerships. In July 1999, the Court of Appeals of Maryland issued a decision in United Cable Television of Baltimore, Ltd. Partnership v. Burch holding that to the extent that a charge assessed customers who were delinquent in payment of their cable bills exceeded the 6% maximum interest rate prescribed by the Constitution of the State of Maryland, such charge was not enforceable. The Court ordered the cable company to make appropriate refunds to subscribers. While the Company was not a party to that litigation and believes that it has meritorious defenses to similar actions filed on behalf of Company subscribers in Maryland, nevertheless a decision by a court in these actions based solely upon the premise set forth in Burch could have an adverse effect on the Company. 10 JONES INTERCABLE, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview We have experienced significant growth in recent years both through strategic acquisitions and growth in our existing business. We have historically met our cash needs for operations through our cash flows from operating activities. Cash requirements for acquisitions and capital expenditures have been provided through our financing activities, as well as our existing cash and cash equivalents. We are engaged primarily in the cable communications business. Over the last several years, we have taken significant steps to simplify our corporate structure. This process has included the sale of cable communications systems owned by certain managed partnerships to either us or to third parties, and the divestiture of certain of our non-strategic assets. During this process, we have also made significant progress in clustering our owned subscribers into two primary groups of cable systems. Our Virginia/Maryland cluster is based primarily on geography, while our suburban cluster is based on similar market and operating characteristics rather than geography. These clusters represent approximately 95% of our owned subscribers. General Developments of Business See Note 3 to our condensed consolidated financial statements included in Item 1. Liquidity and Capital Resources See Note 3 to our condensed consolidated financial statements included in Item 1. Cash and Cash Equivalents Cash and cash equivalents as of September 30, 1999 were $20.8 million (see "Statement of Cash Flows"). Investments See Note 4 to our condensed consolidated financial statements included in Item 1. We do not have any significant contractual funding commitments with respect to any of our investments. However, to the extent we do not fund our investees' capital calls, we expose ourselves to dilution of our ownership interests. We continually evaluate our existing investments as well as new investment opportunities. Financing See Note 5 to our condensed consolidated financial statements included in Item 1. As of September 30, 1999 and December 31, 1998, our long-term debt, including current portion, was $1.646 billion and $1.463 billion, respectively, of which 54.7% and 48.5%, respectively, was at variable rates. We may from time to time, depending on certain factors including market conditions, make optional repayments on our debt obligations. We, in our capacity as the general partner of our managed partnerships, have from time to time received general partner distributions upon the sale of cable communications systems owned by such partnerships. In addition, we, through a wholly owned subsidiary, have earned brokerage fees upon the sale of the managed partnerships' cable communications systems to third parties. During the nine and three months ended September 30, 1999 and 1998, we received partnership distributions and earned brokerage fees, net of expenses, of $4.0 million, $23.0 million, zero and $18.3 million, respectively. Upon the distributions from the sales of the remaining cable communications systems owned by managed partnerships in July 1999, general partner distributions and brokerage fees ceased to be a source of funds for us. Year 2000 Readiness Disclosure The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Certain of our computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000 (the "Year 2000 Issue"). If this situation occurs, the potential exists for computer system failure or miscalculations by computer programs, which could cause disruption of operations. We are in the process of evaluating and addressing the impact of the Year 2000 Issue on our operations to ensure that our information technology and business systems recognize calendar Year 2000. We are utilizing both internal and external resources in implementing our Year 2000 program, which consists of the following phases: Assessment Phase. Structured evaluation, including a detailed inventory outlining the impact that the Year 2000 Issue may have on current operations. 11 JONES INTERCABLE, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 Detailed Planning Phase. Establishment of priorities, development of specific action steps and allocation of resources to address the issues identified in the Assessment Phase. Conversion Phase. Implementation of the necessary system modifications as outlined in the Detailed Planning Phase. Testing Phase. Verification that the modifications implemented in the Conversion Phase will be successful in resolving the Year 2000 Issue so that all inventory items will function properly, both individually and on an integrated basis. Implementation Phase. Final roll-out of fully tested components into an operational unit. Based on an inventory conducted in 1997, we identified computer systems that required modification or replacement so that they will properly utilize dates beyond December 31, 1999. Many of our critical systems were new and were already Year 2000 compliant as a result of the recent rebuild of many of our cable communications systems. In addition, we have communicated with our significant software suppliers and service bureaus to determine their plans for remediating the Year 2000 Issue in their software which we use or rely upon. As of October 31, 1999, we are in the final stages of our Year 2000 program. We believe that all key systems are Year 2000 compliant. Other systems that required remediation are substantially complete. Further, contingency plans have been created for our key systems and operations. Additional business continuity preparations are being implemented to create post-Year 2000 response teams with a centralized command center to further mitigate Year 2000 risk. Through September 30, 1999, we have incurred approximately $2.5 million in connection with our Year 2000 remediation program. We estimate that we will incur between approximately $0.5 million to $1.0 million of additional expense through December 1999 in connection with our Year 2000 remediation program. Our estimate to complete the remediation plan includes the estimated time associated with mitigating the Year 2000 Issue for third party software. However, there can be no guarantee that the systems of other companies on which we rely will be converted on a timely basis, or that a failure to convert by another company would not have a material adverse effect on us. Our management will continue to periodically report the progress of our Year 2000 remediation program to the Audit Committee of our Board of Directors. The costs of the project and the date on which we plan to complete the Year 2000 modifications and replacements are based on our best estimates, which were derived using assumptions of future events including the continued availability of resources and the reliability of third party modification plans. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. Specific factors that may cause such material differences include, but are not limited to, the availability and cost of personnel with appropriate necessary skills and the ability to locate and correct all relevant computer code and similar uncertainties. We believe that with modifications to existing software and conversions to new software, the Year 2000 Issue can be mitigated. However, if such modifications and conversions are not made, or are not completed within an adequate time frame, the Year 2000 Issue could have a material adverse impact on our operations. 12 JONES INTERCABLE, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 Statement of Cash Flows Cash and cash equivalents increased $18.2 million as of September 30, 1999 from December 31, 1998. The increase in cash and cash equivalents resulted from cash flows from operating, financing and investing activities which are explained below. Net cash provided by operating activities amounted to $20.9 million for the nine months ended September 30, 1999, due principally to our operating income before depreciation and amortization offset, in part, by the effects of the $55.4 million of restructuring charges recognized in the second quarter of 1999 (see Note 3 to our condensed consolidated financial statements included in Item 1). Net cash provided by financing activities was $227.8 million for the nine months ended September 30, 1999. During the nine months ended September 30, 1999, we borrowed $183.5 million under subsidiary credit facilities, primarily for capital expenditures, to fund restructuring costs and to fund the acquisition of the cable communications systems serving areas in and around Littlerock, California (the "Littlerock System") and Calvert County, Maryland (the "Calvert County System"). In addition, during the nine months ended September 30, 1999, affiliates advanced $35.9 million to us for working capital purposes. Net cash used in investing activities was $230.5 million for the nine months ended September 30, 1999. Net cash used in investing activities includes the acquisition of the Littlerock System and the Calvert County System, net of cash acquired, of $50.2 million, capital expenditures of $91.2 million and additions to deferred charges of $89.5 million. 13 JONES INTERCABLE, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 Results of Operations Our summarized consolidated financial information for the nine and three months ended September 30, 1999 and 1998 is as follows (dollars in millions, "NM" denotes percentage is not meaningful):
Nine Months Ended September 30, Increase / (Decrease) 1999 1998 $ % Revenues .................................................. $ 401.3 $ 337.7 $ 63.6 18.8% Operating, selling, general and administrative expenses ... 254.7 179.1 75.6 42.2 -------- -------- Operating income before depreciation and amortization (1) ....................................... 146.6 158.6 (12.0) (7.6) Restructuring charges ..................................... 55.4 55.4 NM Depreciation and amortization ............................. 199.7 144.6 55.1 38.1 -------- -------- Operating (loss) income ................................... (108.5) 14.0 (122.5) NM -------- -------- Interest expense .......................................... 86.6 68.9 17.7 25.7 Equity in net losses of affiliates ........................ 3.0 4.0 (1.0) (25.0) Investment income ......................................... (0.7) (1.3) (0.6) 46.2 Other expense ............................................. 3.7 10.2 (6.5) (63.7) -------- -------- Net loss .................................................. ($ 201.1) ($ 67.8) ($ 133.3) NM ======== ======== Three Months Ended September 30, Increase / (Decrease) 1999 1998 $ % Revenues .................................................. $ 136.1 $ 133.0 $ 3.1 2.3% Operating, selling, general and administrative expenses ... 83.2 64.6 18.6 28.8 -------- -------- Operating income before depreciation and amortization (1) ....................................... 52.9 68.4 (15.5) (22.7) Depreciation and amortization ............................. 75.3 52.8 22.5 42.6 -------- -------- Operating (loss) income ................................... (22.4) 15.6 (38.0) NM -------- -------- Interest expense .......................................... 31.4 24.8 6.6 26.6 Equity in net (income) losses of affiliates ............... (0.9) 1.1 (2.0) NM Investment income ......................................... (1.0) (0.6) (0.4) 66.7 Other (income) expense .................................... (2.4) 4.7 (7.1) NM -------- -------- Net loss .................................................. ($ 49.5) ($ 14.4) ($ 35.1) NM ======== ======== - ------------ (1) Operating income before depreciation and amortization is commonly referred to in the cable communications business as "operating cash flow." Operating cash flow is a measure of a company's ability to generate cash to service its obligations, including debt service obligations, and to finance capital and other expenditures. In part due to the capital intensive nature of the cable communications business and the resulting significant level of non-cash depreciation and amortization expense, operating cash flow is frequently used as one of the bases for comparing businesses in the cable communications industry, although our measure of operating cash flow may not be comparable to similarly titled measures of other companies. Operating cash flow is the primary basis used by our management to measure the operating performance of our business. Operating cash flow does not purport to represent net income or net cash provided by operating activities, as those terms are defined under generally accepted accounting principles, and should not be considered as an alternative to such measurements as an indicator of our performance.
Revenues We derive our revenues from four sources: subscriber service fees from owned cable communications systems, management fees from managed partnerships, brokerage fees and distributions paid upon the sale of cable communications systems owned by managed partnerships and revenues from a non-cable subsidiary. We received management fees generally equal to 5% of gross operating revenues of our managed limited partnerships. Upon the completion of the sale of the remaining cable communications systems owned by 14 JONES INTERCABLE, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 managed partnerships in July 1999, management fees, general partner distributions and brokerage fees ceased to be a source of revenue for us. Of the respective $63.6 million and $3.1 million increases in revenues for the nine and three month periods from 1998 to 1999, $94.0 million and $24.1 million are attributable to increases in subscriber service fees, offset by $9.1 million and $2.5 million decreases in management fees, $19.1 million and $18.3 million decreases in distributions and brokerage fees and $2.2 million and $0.2 million decreases in non-cable revenue. Of the $94.0 million and $24.1 million increases in subscriber service fees, $66.3 million and $14.6 million are attributable to the effects of the acquisitions of cable communications systems, $6.9 million and $3.3 million are attributable to subscriber growth, $10.1 million and $4.0 million relate to changes in rates, $2.2 million and $0.8 million are attributable to growth in cable advertising sales and $8.5 million and $1.4 million relate to other product offerings. Operating, Selling, General & Administrative Expenses Operating, selling, general and administrative expenses consist primarily of costs associated with the operation and administration of owned cable communications systems, the administration of managed partnerships and the operation and administration of our non-cable subsidiary. We are reimbursed by our managed partnerships for costs associated with the administration of the partnerships. Of the respective $75.6 million and $18.6 million increases in operating, selling, general and administrative expenses for the nine and three month periods from 1998 to 1999, $42.3 million and $11.5 million are attributable to the effects of the acquisitions of cable communications systems, $12.7 million and $5.9 million are attributable to increases in the costs of cable programming as a result of changes in rates, subscriber growth and additional channel offerings and $6.7 million and $1.2 million result from increases in the cost of labor, the effects of an adjustment to the cost component factor used to capitalize indirect costs relating to network construction activity, other volume related expenses and costs associated with new product offerings. In addition, $13.9 million of the increase in operating, selling, general and administrative expenses for the nine month periods from 1998 to 1999 is attributable to one-time adjustments related to recent court rulings on late fees (see Note 8 to our condensed consolidated financial statements included in Item 1), sales and use tax audits and other adjustments recorded in the second quarter of 1999. It is anticipated that the cost of cable programming will increase in the future as cable programming rates increase and additional sources of cable programming become available. Management Agreement See Note 6 to our condensed consolidated financial statements included in Item 1. Restructuring Charges See Note 3 to our condensed consolidated financial statement included in Item 1. Depreciation and Amortization Expense The respective $55.1 million and $22.5 million increases in depreciation and amortization expense for the nine and three month periods from 1998 to 1999 are primarily a result of the effects of our acquisitions of cable communications systems and of our capital expenditures. Interest Expense The respective $17.7 million and $6.6 million increases in interest expense are due to higher outstanding balances on our long-term debt and to increases in the effective weighted average interest rate on our long-term debt. Borrowings were used to fund the acquisitions of cable communications systems, fund restructuring costs and to fund capital expenditures. For the nine and three months ended September 30, 1999 and 1998, our losses before income taxes, equity in net losses (income) of affiliates and fixed charges (interest expense) were $111.5 million, $5.1 million, $19.0 million and $11.4 million, respectively. Such losses were not adequate to cover our fixed charges of $86.6 million, $68.9 million, $31.4 million and $24.8 million for the nine and three months ended September 30, 1999 and 1998, respectively. The inadequacy of these losses to cover fixed charges is primarily due to the $55.4 million of restructuring charges incurred during the nine months ended September 30, 1999 and to the substantial non-cash charges for depreciation and amortization expense in all periods. We believe that our losses will not significantly affect the performance of our normal business activities because of our existing cash and cash equivalents, our ability to generate operating income before depreciation and amortization and our ability to obtain external financing. We believe that our operations are not materially affected by inflation. 15 JONES INTERCABLE, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 PART II OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS The Company is subject to legal proceedings and claims that arise in the ordinary course of its cable communications business. In the opinion of management, the amount of ultimate liability with respect to these legal proceedings and claims will not materially affect the Company's financial position, results of operations or liquidity. In addition, the Company is a named defendant in the following legal proceedings relating to acquisitions by the Company or one of its subsidiaries of cable communications systems from several of the Company's managed partnerships or actions taken by the Company or one of its subsidiaries in their roles as general partners of the Company's managed partnerships: Litigation Challenging the Company's Acquisition of the Tampa System Since September 1995, the Company has been a defendant in a consolidated civil action filed by limited partners of Cable TV Fund 12-D, Ltd., one of the Company's managed limited partnerships, captioned 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). The consolidated complaint generally alleged that the Company breached its fiduciary duty to the plaintiffs and to the other limited partners of the three named partnerships and to the Cable TV Fund 12-BCD Venture (the "Venture") in connection with the Venture's sale of the Tampa, Florida cable communications system (the "Tampa System") to a subsidiary of the Company and the subsequent trade of the Tampa System and other cable communications systems owned by the Company in exchange for cable communications systems owned by an unaffiliated cable system operator. The consolidated complaint also set 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 asserted that the subsidiary of the Company that acquired the Tampa System paid an inadequate price for it. 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 terms of the limited partnership agreements of the three named partnerships. The plaintiffs also challenged the adequacy and independence of the appraisals. The consolidated complaint sought compensatory damages, an award of attorneys' fees, punitive damages and certain equitable relief. On October 25, 1999, the district court granted the Company's renewed motion to dismiss or for summary judgment based upon the August 1998 report of independent counsel, which had concluded that the plaintiffs' claims are not meritorious. The plaintiffs have the right to appeal this decision. Litigation Challenging the Company's Acquisitions of the Albuquerque, Palmdale, Littlerock and Calvert County Systems In June 1999, the Company was named a defendant in a case captioned City Partnership Co., derivatively on behalf of Cable TV Fund 12-C, Ltd., Cable TV Fund 12-D, Ltd. and Cable TV Fund 12-BCD Venture, plaintiff v. Jones Intercable, Inc., defendant and Cable TV Fund 12-C, Ltd., Cable TV Fund 12-D, Ltd. and Cable TV Fund 12-BCD Venture, nominal defendants (U.S. District Court, District of Colorado, Civil Action No. 99-WM-1151)("City Partnership I") brought by City Partnership Co., a limited partner of the named partnerships. The plaintiff's complaint alleges that the Company breached its fiduciary duty to the plaintiff and to the other limited partners of the partnerships and to Cable TV Fund 12-BCD Venture (the "Venture") in connection with the Venture's sale of the Palmdale, California cable communications system (the "Palmdale System") to a subsidiary of the Company in December 1998. The complaint alleges that the Company acquired the Palmdale System at an unfairly low price that did not accurately reflect the market value of the Palmdale System. The plaintiff also alleges that the proxy solicitation materials delivered to the 16 JONES INTERCABLE, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 limited partners of the partnerships in connection with the votes of the limited partners on the Venture's sale of the Palmdale System contained inadequate and misleading information concerning the state of the market for cable systems and the fairness of the transaction, which the plaintiff claims caused the Company to breach its fiduciary duty of candor to the limited partners and which the plaintiff claims constituted acts and omissions in violation of Section 14(a) of the Securities Exchange Act of 1934, as amended. The plaintiff also claims that the Company breached the contractual provision of the partnerships' limited partnership agreements requiring that the sale price be determined by the average of three separate, independent appraisals, challenging both the independence and the currency of the appraisals. The complaint finally seeks declaratory injunctive relief to prevent the Company from making use of the partnerships' funds to finance the Company's defense of this litigation. The Company has filed motions to dismiss certain of the plaintiff's claims for relief. The Company believes that the procedures followed by it in conducting the votes of the limited partners of the partnerships on the sale of the Palmdale System, including the fairness opinion in the proxy statements delivered to the limited partners of the partnerships, were proper and that the Venture's sale of the Palmdale System at a price determined by averaging three separate, independent appraisals was in accordance with the express provisions of the partnerships' limited partnership agreements. The Company intends to defend this lawsuit vigorously. In June 1999, the Company was named a defendant in a case captioned City Partnership Co., derivatively on behalf of Cable TV Fund 14-B, Ltd., plaintiff v. Jones Intercable, Inc., defendant and Cable TV Fund 14- B, Ltd., nominal defendant (U.S. District Court, District of Colorado, Civil Action No. 99-WM-1051)("City Partnership II") brought by City Partnership Co., a limited partner of Cable TV Fund 14-B, Ltd. ("Fund 14- B"). The plaintiff's complaint alleges that the Company breached its fiduciary duty to the plaintiff and to the other limited partners of Fund 14-B in connection with Fund 14-B's sale of the Littlerock, California cable communications system (the "Littlerock System") to a subsidiary of the Company in January 1999. The complaint alleges that the Company acquired the Littlerock System at an unfairly low price that did not accurately reflect the market value of the Littlerock System. The plaintiff also alleges that the proxy solicitation materials delivered to the limited partners of Fund 14-B in connection with the vote of the limited partners on Fund 14-B's sale of the Littlerock System contained inadequate and misleading information concerning the state of the market for cable systems and the fairness of the transaction, which the plaintiff claims caused the Company to breach its fiduciary duty of candor to the limited partners and which the plaintiff claims constituted acts and omissions in violation of Section 14(a) of the Securities Exchange Act of 1934, as amended. Plaintiff also claims that the Company breached the contractual provision of Fund 14- B's limited partnership agreement requiring that the sale price be determined by the average of three separate, independent appraisals, challenging both the independence and the currency of the appraisals. The complaint finally seeks declaratory injunctive relief to prevent the Company from making use of Fund 14-B's funds to finance the Company's defense of this litigation. The Company has filed motions to dismiss certain of the plaintiff's claims for relief. The Company believes that the procedures followed by it in conducting the vote of the limited partners of Fund 14-B on the sale of the Littlerock System, including the fairness opinion in the proxy statement delivered to the limited partners of Fund 14-B, were proper and that Fund 14-B's sale of the Littlerock System at a price determined by averaging three separate, independent appraisals was in accordance with the express provisions of Fund 14-B's limited partnership agreement. The Company intends to defend this lawsuit vigorously. In August 1999, the Company was named a defendant in a case captioned Gramercy Park Investments, LP, Cobble Hill Investments, LP and Madison/AG Partnership Value Partners II, plaintiffs v. Jones Intercable, Inc. and Glenn R. Jones, defendants, and Cable TV Fund 12-B, Ltd., Cable TV Fund 12-C, Ltd., Cable TV Fund 12-D, Ltd., Cable TV Fund 14-A, Ltd. and Cable TV Fund 14-B, Ltd., nominal defendants (U.S. District Court, District of Colorado, Civil Action No. 99-B-1508)("Gramercy Park") brought as a class and derivative action by limited partners of the named partnerships. The plaintiffs' complaint alleges that the defendants made false and misleading statements to the limited partners of the named partnerships in connection with the solicitation of proxies and the votes of the limited partners on the sales of the Albuquerque, Palmdale, Littlerock and Calvert County cable communications systems by the named partnerships to the Company or one of its subsidiaries in violation of Sections 14 and 20 of the Securities Exchange Act of 1934, as amended. The plaintiffs specifically allege that the proxy statements delivered to 17 JONES INTERCABLE, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 the limited partners in connection with the limited partners' votes on these sales were false, misleading and failed to disclose material facts necessary to make the statements made not misleading. The plaintiffs' complaint also alleges that the defendants breached their fiduciary duties to the plaintiffs and to the other limited partners of the named partnerships and to the named partnerships in connection with the various sales of the Albuquerque, Palmdale, Littlerock and Calvert County cable communications systems to subsidiaries of the Company. The complaint alleges that the Company acquired these cable communications systems at unfairly low prices that did not accurately reflect the market values of the systems. The plaintiffs seek on their own behalf and on behalf of all other limited partners compensatory and nominal damages, the costs and expenses of the litigation, including reasonable attorneys' and experts' fees, and punitive and exemplary damages. In August 1999, the Company was named a defendant in a case captioned William Barzler, plaintiff v. Jones Intercable, Inc. and Glenn R. Jones, defendants and Cable TV Fund 14-B, Ltd., nominal defendant (U.S. District Court, District of Colorado, Civil Action No. 99-B-1604)("Barzler") brought as a class and derivative action by a limited partner of the named partnership. The substance of the plaintiff's complaint is similar to the allegations raised in the Gramercy Park case except that it relates only to the sale of the Littlerock cable communications system by Cable TV Fund 14-B, Ltd. In September 1999, the Company was named a defendant in a case captioned Sheryle Trainer, plaintiff v. Jones Intercable, Inc. and Glenn R. Jones, defendants, and Cable TV Fund 14-B, Ltd., nominal defendant (U.S. District Court, District of Colorado, Civil Action No. 99-B-1751)("Trainer") brought as a class and derivative action by a limited partner of the named partnership. The substance of the plaintiff's complaint is similar to the allegations raised in the Gramercy Park case except that it relates only to the sale of the Littlerock cable communications system by Cable TV Fund 14-B, Ltd. In September 1999, the Company was named a defendant in a case captioned Mary Schumacher, Charles McKenzie and Geraldine Lucas, plaintiffs v. Jones Intercable, Inc. and Glenn R. Jones, defendants and Cable TV Fund 12-B, Ltd., Cable TV Fund 12-C, Ltd., Cable TV Fund 12-D, Ltd., Cable TV Fund 14-A, Ltd. and Cable TV Fund 14-B, Ltd., nominal defendants (U.S. District Court, District of Colorado, Civil Action No. 99-WM-1702)("Schumacher") brought as a class and derivative action by three limited partners of the named partnerships. The substance of the plaintiffs' complaint is similar to the allegations raised in the Gramercy Park case. In September 1999, the Company was named a defendant in a case captioned Robert Margolin, Henry Wahlgren and Joan Wahlgren, plaintiffs v. Jones Intercable, Inc. and Glenn R. Jones, defendants and Cable TV Fund 12-B, Ltd., Cable TV Fund 12-C, Ltd., Cable TV Fund 12-D, Ltd., Cable TV Fund 14-A, Ltd. and Cable TV Fund 14-B, Ltd., nominal defendants (U.S. District Court, District of Colorado, Civil Action No. 99-B-1778)("Margolin") brought as a class and derivative action by three limited partners of the named partnerships. The substance of the plaintiffs' complaint is similar to the allegations raised in the Gramercy Park case. The Company believes that the procedures followed by it in conducting the votes of the limited partners of the various partnerships on the sales of the Albuquerque, Palmdale, Littlerock and Calvert County systems and the disclosures in the proxy statements delivered to the limited partners in connection with the limited partners' votes on these sales were proper and complete, and the Company believes that the various sale transactions were fair because they were at prices determined by averaging three separate, independent appraisals of the various cable communications systems sold in accordance with the express provisions of the partnerships' limited partnership agreements. The Company intends to defend the Gramercy Park, Barzler, Trainer, Schumacher and Margolin lawsuits vigorously. In September 1999, the Company filed a motion in the United States District Court for the District of Colorado seeking an order consolidating all seven of the cases challenging the Company's acquisitions of the Albuquerque, Palmdale, Littlerock and Calvert County systems because these seven cases (City Partnership I, City Partnership II, Gramercy Park, Barzler, Trainer, Schumacher and Margolin) involve 18 JONES INTERCABLE, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 common questions of law and fact. A court-mandated settlement conference relating to all seven of these cases occurred on November 2, 1999 and another such meeting has been scheduled for March 14, 2000. Litigation Relating to Limited Partnership List Requests In July 1999, the Company, each of its subsidiaries that serve as general partners of managed partnerships and most of its managed partnerships were named defendants in a case captioned Everest Cable Investors, LLC, Everest Properties, LLC, Everest Properties II, LLC and KM Investments, LLC, plaintiffs v. Jones Intercable, Inc., et al., defendants (Superior Court, Los Angeles County, State of California, Case No. BC 213632). Plaintiffs allege that they had formed a coordinated plan amongst themselves to acquire up to 4.9% of the limited partnership interests in each of the partnerships named as defendants, and that plaintiffs were frustrated in this purpose by the Company's refusal to provide plaintiffs with lists of the names and addresses of the limited partners of these partnerships. The complaint alleges that the Company's actions constituted a breach of contract, a breach of the implied covenant of good faith and fair dealing, a breach of the Company's fiduciary duty and tortious interference with prospective economic advantage. Plaintiffs allege that the Company's failure to provide them with the partnership lists prevented them from making their tender offers and that they have been injured by such action in an amount to be proved at trial, but not less than $17 million. In September 1999, the Company and the defendant subsidiaries and managed partnerships filed demurrers to the plaintiffs' complaint and a hearing on this matter was held on October 22, 1999. Discovery in the case has begun. The Company believes that it and the defendant subsidiaries and managed partnerships have defenses to the plaintiffs' claims for relief and challenges to the plaintiffs' claims for damages. The Company intends to defend this lawsuit vigorously both on its own behalf and on behalf of the defendant subsidiaries and managed partnerships. ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits required to be filed by Item 601 of Regulation S-K: 15.1 Letter Regarding Unaudited Interim Financial Statements. 27.1 Financial Data Schedule. (b) Reports on Form 8-K: We filed Current Report on Form 8-K under Item 5 on August 11, 1999 relating to Comcast Corporation's intention to commence an offer to exchange 1.4 shares of its Class A Special Common Stock for up to 79% of the combined number of our Class A Common Stock and Common Stock outstanding. 19 JONES INTERCABLE, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 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/ LAWRENCE S. SMITH ------------------------------------------ Lawrence S. Smith Principal Accounting Officer /S/ JOSEPH J. EUTENEUER ------------------------------------------ Joseph J. Euteneuer Vice President (Authorized Officer) Date: November 15, 1999 20 EX-15.1 2 November 12, 1999 Jones Intercable, Inc. and Subsidiaries: We are aware that Jones Intercable, Inc. has incorporated by reference in its Registration Statements on Form S-8, File Nos. 33-52813 and 33-54596, and on Form S-3, File No. 333-40149 its Form 10-Q for the quarter ended September 30, 1999, which includes our report dated November 4, 1999 covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933, that report is not considered a part of the registration statements or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Securities Act of 1933. Very truly yours, ARTHUR ANDERSEN LLP EX-27 3
5 0000275605 JONES INTERCABLE, INC. 1,000,000 9-MOS DEC-31-1999 SEP-30-1999 21 0 31 (5) 21 82 898 (305) 1,764 152 1,643 0 0 0 (46) 1,764 401 401 0 (510) 0 0 (87) (201) 0 (201) 0 0 0 (201) 0 0
-----END PRIVACY-ENHANCED MESSAGE-----