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 September 30, 2000.
[ ] 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 333-62077
Jones International Networks, Ltd.
Exact name of registrant as specified in charter
Colorado #84-1470911
State of organization I.R.S. employer I.D.#
9697 East Mineral Avenue, 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 / /
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Jones International Networks, Ltd.:
Unaudited Consolidated Statements of Financial Position
as of December 31, 1999 and September 30, 2000........................ 2
Unaudited Consolidated Statements of Operations
for the Three and Nine Months Ended September 30, 1999 and 2000....... 3
Unaudited Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1999 and 2000................. 4
Notes to Unaudited Consolidated Financial Statements.................... 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations .......................... 15
PART II. OTHER INFORMATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk........... 26
Item 5. Other Materially Important Events.................................... 26
Item 6. Exhibits and Reports on Form 8-K..................................... 26
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
December 31, September 30,
1999 2000
------------- -------------
CURRENT ASSETS:
Cash and cash equivalents ...................................................... $ 13,270,784 $ 11,770,176
Available for sale securities .................................................. 6,888,741 3,118,104
Accounts receivable, net of allowance for doubtful accounts of
$1,192,818 and $2,252,587, respectively ..................................... 14,049,008 14,442,097
Accounts receivable--Jones International, Ltd. ................................. 382,221 --
Receivables from affiliates .................................................... 473,759 --
Prepaid expenses ............................................................... 284,863 518,613
Other current assets ........................................................... 693,218 852,180
------------- -------------
Total current assets ...................................................... 36,042,594 30,701,170
------------- -------------
Property and equipment, net .................................................... 22,959,104 21,009,339
Intangible assets, net ......................................................... 63,642,270 63,072,268
Investment in affiliates ....................................................... 309,117 33,000
Debt offering costs, net of accumulated amortization
of $960,077 and $1,548,549, respectively .................................... 4,138,699 3,550,227
Deferred equity offering costs (Note 4) ........................................ 240,859 --
Other non-current assets ....................................................... 1,128,902 1,586,563
------------- -------------
Total assets .............................................................. $ 128,461,545 $ 119,952,567
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable--trade ........................................................ $ 4,738,526 $ 5,268,348
Producers' fees payable ........................................................ 5,307,947 5,683,332
Cable programming distribution payments payable ................................ 3,236,996 1,494,276
Accrued liabilities and other current liabilities .............................. 2,328,858 3,081,200
Accounts payable--Jones International, Ltd. .................................... -- 340,118
Interest payable ............................................................... 5,875,000 2,937,500
Deferred revenues .............................................................. 1,309,155 1,323,832
------------- -------------
Total current liabilities ................................................. 22,796,482 20,128,606
------------- -------------
LONG-TERM LIABILITIES:
Customer deposits and deferred revenues ........................................ 581,700 613,507
Other long-term liabilities .................................................... 602,791 1,022,523
Senior secured notes ........................................................... 100,000,000 100,000,000
------------- -------------
Total long-term liabilities ............................................... 101,184,491 101,636,030
------------- -------------
MINORITY INTEREST IN
CONSOLIDATED SUBSIDIARIES ................................................... 565,149 1,224,324
------------- -------------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
COMMON STOCK SUBJECT TO PUT, Class A Common Stock,
$.01 par value: 126,405 shares issued and
outstanding, respectively ................................................... 1,213,488 1,213,488
------------- -------------
SHAREHOLDERS' EQUITY (DEFICIT):
Series A Preferred Stock, $.01 par value
authorized, 1,918,000 shares authorized,
issued and outstanding ..................................................... 23,975,000 23,975,000
Class A Common Stock, $.01 par value:
100,000,000 shares authorized; 5,268,521 and
5,313,312 shares issued and outstanding, respectively ...................... 52,685 53,133
Class B Common Stock, $.01 par value: 2,231,400 shares
authorized, issued and outstanding ......................................... 22,314 22,314
Additional paid-in capital ..................................................... 27,588,370 28,259,787
Accumulated other comprehensive loss ........................................... (25,652) (6,273)
Accumulated deficit ............................................................ (48,910,782) (56,553,842)
------------- -------------
Total shareholders' equity (deficit) ...................................... 2,701,935 (4,249,881)
------------- -------------
Total liabilities and shareholders' equity (deficit) ...................... $ 128,461,545 $ 119,952,567
============= =============
The accompany notes to these unaudited consolidated financial statements
are an integral part of these consolidated financial statements.
2
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
1999 2000 1999 2000
------------ ------------ ------------ ------------
Revenues, including revenues from
affiliated entities of $782,211,
$812,324, $3,745,869 and $2,756,365,
respectively (Note 2) ......................... $ 16,862,085 $ 21,679,248 $ 44,604,034 $ 62,340,491
Operating expenses, including charges
from affiliated entities of $1,668,900,
$1,633,911, $5,685,038 and $4,856,342,
respectively (Note 2):
Operations .................................... 10,925,535 13,813,344 30,733,749 40,487,266
Selling and marketing ......................... 1,725,932 2,601,114 4,353,136 7,622,309
General and administrative .................... 299,890 431,120 1,030,832 1,327,744
Depreciation and amortization ................. 2,528,424 3,617,242 6,499,131 10,597,413
------------ ------------ ------------ ------------
Total operating expenses .................... 15,479,781 20,462,820 42,616,848 60,034,732
------------ ------------ ------------ ------------
OPERATING INCOME ................................ 1,382,304 1,216,428 1,987,186 2,305,759
------------ ------------ ------------ ------------
OTHER (INCOME) EXPENSE:
Interest expense (Note 2) ..................... 3,325,536 3,124,881 9,606,566 9,411,558
Interest income ............................... (202,473) (239,328) (725,707) (713,504)
Equity in loss (income) of subsidiaries ....... (29,444) -- (85,446) (2,225)
Write-off of equity offering costs ............ -- 725,128 -- 725,128
Other expense (income) ........................ 40,845 (51,219) 99,345 (179,670)
------------ ------------ ------------ ------------
Total other expense, net .................... 3,134,464 3,559,462 8,894,758 9,241,287
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES
AND MINORITY INTEREST ......................... (1,752,160) (2,343,034) (6,907,572) (6,935,528)
Income tax provision .......................... 391,618 3,610 411,541 48,357
------------ ------------ ------------ ------------
LOSS BEFORE MINORITY INTEREST ................... (2,143,778) (2,346,644) (7,319,113) (6,983,885)
Minority interest in net income (loss)
of consolidated subsidiaries ................ 165,001 70,757 610,751 659,175
------------ ------------ ------------ ------------
NET LOSS ........................................ $ (2,308,779) $ (2,417,401) $ (7,929,864) $ (7,643,060)
============ ============ ============ ============
ADJUSTMENTS TO ARRIVE AT COMPREHENSIVE
INCOME (LOSS) .................................. (4,495) (6,805) 26,363 (19,379)
------------ ------------ ------------ ------------
COMPREHENSIVE LOSS (INCOME) ..................... $ (2,304,284) $ (2,410,596) $ (7,956,227) $ (7,623,681)
============ ============ ============ ============
NET LOSS PER COMMON SHARE:
Basic ......................................... $ (0.30) $ (0.32) $ (1.04) $ (1.00)
============ ============ ============ ============
Fully diluted ................................. $ (0.30) $ (0.32) $ (1.04) $ (1.00)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES:
Basic ......................................... 7,625,149 7,671,117 7,618,555 7,661,163
============ ============ ============ ============
Fully diluted ................................. 7,586,498 7,630,531 7,592,788 7,620,577
============ ============ ============ ============
The accompany notes to these unaudited consolidated financial statements
are an integral part of these consolidated financial statements.
3
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended
September 30,
1999 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................. $ (7,929,864) $ (7,643,060)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization .......................................... 6,499,131 10,597,413
Amortization of debt offering costs .................................... 555,365 588,472
Distributions received ................................................. -- 405,992
Equity in income of subsidiaries ....................................... (85,446) (2,225)
Gain on distributions from affiliates .................................. -- (142,650)
Write-off of deferred equity offering costs ............................ -- 725,128
Write-off of software .................................................. -- 65,380
Minority interest in net income of consolidated subsidiaries ........... 610,751 659,175
Net change in assets and liabilities:
Decrease (increase) in receivables .................................... 1,425,349 (393,089)
Decrease (increase) in receivables from affiliates .................... (332,841) 473,759
Decrease (increase) in prepaid expenses and other current assets ...... 104,604 (461,002)
Decrease in tax benefit receivable from Jones International, Ltd. ..... 1,338,402 --
Increase in other assets .............................................. (358,894) (37,929)
Increase (decrease) in accounts payable ............................... 1,797,194 (295,362)
Increase (decrease) in producers' fees payable ........................ (582,472) 375,385
Increase (decrease) in accounts payable to Jones International, Ltd. .. (1,070,143) 722,339
Decrease in interest payable .......................................... (2,643,750) (2,937,500)
Increase in deferred revenues ......................................... 784,796 14,677
Increase (decrease) in accrued and other liabilities .................. (939,302) 752,342
Increase in customer deposits ......................................... 49,910 31,807
------------ ------------
Net cash provided by (used in) operating activities .................. (777,210) 3,499,052
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ....................................... (587,612) (2,226,400)
Proceeds from/ purchase of available for sale securities ................. (1,673,837) 3,790,016
Cable programming distribution agreements payments ....................... (3,760,873) (5,281,109)
Purchases of intangible assets and programming ........................... (430,154) (812,898)
Distributions of capital from affiliates ................................. -- 15,000
Purchase of Broadcast Programming ........................................ (20,860,131) --
------------ ------------
Net cash used in investing activities ................................ (27,312,607) (4,515,391)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Series A Preferred Equity ...................... 20,100,000 --
Payments for equity offering costs ....................................... -- (484,269)
------------ ------------
Net cash provided by (used in) financing activities .................. 20,100,000 (484,269)
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS ...................................... (7,989,817) (1,500,608)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ............................. 20,654,013 13,270,784
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................................... $ 12,664,196 $ 11,770,176
------------ ------------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Class A Common Stock issued for GAC equity agreement ..................... $ 142,428 $ --
============ ============
Class A Common Stock issued for radio programs ........................... $ -- $ 671,865
============ ============
Interest paid ............................................................ $ 11,456,250 $ 11,750,000
============ ============
Income tax paid .......................................................... $ 411,541 $ 48,357
============ ============
The accompany notes to these unaudited consolidated financial statements
are an integral part of these consolidated financial statements.
4
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This Form 10-Q is being filed by Jones International Networks, Ltd. and its
subsidiaries (the "Company"). The accompanying consolidated statements of
financial position as of December 31, 1999 and September 30, 2000, the
consolidated statements of operations for the three and nine months ended
September 30, 1999 and 2000, and the statements of cash flows for the nine
months ended September 30, 1999 and 2000, are unaudited. This Form 10-Q is being
filed in conformity with the SEC requirements for unaudited financial statements
and does not contain all of the necessary footnote disclosures required for a
complete presentation of the consolidated statements of financial position,
consolidated statements of operations and consolidated statements of cash flows
in conformity with generally accepted accounting principles. However, in the
opinion of management, these statements include all adjustments, consisting of
normal recurring accruals, necessary for the fair presentation of results for
these interim periods. The results of operations for the nine months ended
September 30, 2000 are not necessarily indicative of results to be expected for
the entire year, or for any other interim period.
COMPREHENSIVE LOSS (INCOME)--Adjustments to comprehensive loss (income)
represent the net change in unrealized losses (gains) on available for sale
securities.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires the Company to make
estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RECLASSIFICATIONS--Certain prior period amounts have been reclassified to
conform to the current presentation.
(2) TRANSACTIONS WITH AFFILIATED ENTITIES
The Company is a subsidiary of Jones International, Ltd. ("Jones
International"), a holding company with ownership in several companies involved
in various industries. Jones International is wholly owned by the Company's
Chairman, Glenn R. Jones, who is Chairman and Chief Executive Officer of Jones
International and various of its subsidiaries. Certain officers or directors of
the Company are also officers or directors of these affiliated entities and,
from time to time, the Company may have transactions with these entities.
Certain expenses are paid by affiliated entities on behalf of the Company and
are allocated at cost based on specific identification or other methods which
management believes are reasonable. Principal recurring transactions with
affiliates, excluding Galactic/Tempo, d/b/a Superaudio ("Superaudio") and Jones
Capstar Programming, LLC ("Jones/Capstar"), are described below.
REVENUES--The Company earns up to a three percent commission on the sale of
airtime for informational programming on an affiliated network. As a result of
the related party ceasing its distribution efforts in the last quarter of 1999,
this service was terminated in September 1999. For the three and nine months
ended September 30, 1999, the Company received approximately $33,000 and
$121,000, respectively, for this service.
The Company distributes its Great American Country network programming to
certain cable television systems owned or managed by Jones Intercable, Inc.
("Jones Intercable"). Since April 7, 1999, Jones Intercable has not been an
affiliate of the Company due to the sale of Mr. Jones' interest in Jones
Intercable. Jones Intercable, through its new parent, has continued to pay the
Company programming license fees subsequent to the sale of Mr. Jones' interest
in Jones Intercable. For the three and nine months ended in September 30, 1999,
Jones Intercable and it's affiliated partnerships paid total license fees to the
Company of approximately $0 and $322,000, respectively, for this programming
service.
Jones Earth Segment, Inc. ("Earth Segment"), a wholly owned subsidiary of
the Company, provides playback, editing, duplication, trafficking and uplinking
services to its cable programming network affiliates, to an affiliated entity
and to third parties. This affiliated entity terminated its use of certain earth
station services provided by Earth Segment in March 2000. Earth Segment charges
affiliates for its services using rates which are calculated to achieve a
specified rate of return on its investment to Earth Segment. For the three
months ended September 30, 1999 and 2000, Jones International and its affiliates
paid satellite delivery and production support fees to the Company of
approximately $381,000 and $427,000, respectively, for these services.
5
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
For the nine months ended September 30, 1999 and 2000, Jones International and
its affiliates paid satellite delivery and production support fees to the
Company of approximately $2,197,000 and $1,601,000, respectively, for these
services.
In addition, Jones Space Holdings, Inc. ("Space Holdings"), a subsidiary of
the Company, subleases a non-preemptible satellite transponder to an affiliate
of International. For the three months ended September 30, 1999 and 2000, the
Company received satellite transponder lease revenues of approximately $368,000
and $385,000, respectively, for this service. For the nine months ended
September 30, 1999 and 2000, the Company received satellite transponder lease
revenues of approximately $1,106,000 and $1,155,000, respectively, for this
service.
OPERATING EXPENSES--The Product Information Network Venture, ("PIN
Venture") pays out a significant portion of the revenues generated by its
infomercial programming in the form of system rebates to cable systems which
enter into agreements to air such programming. The PIN Venture has continued to
pay rebates to Jones Intercable (and its affiliated partnerships) subsequent to
the change in the ownership described above. For the three months ended
September 30, 1999, the PIN Venture paid Jones Intercable (and its affiliated
partnerships) and Cox Communications rebates of approximately $714,000. For the
nine months ended September 30, 1999, the PIN Venture paid rebates to Jones
Intercable (and its affiliated partnerships) and Cox Communications of
approximately $2,654,000. For the three months ended September 30, 2000, the PIN
Venture paid rebates to Cox Communications of approximately $937,000. For the
nine months ended September 30, 2000, the PIN Venture paid rebates to Cox
Communications of approximately $2,777,000.
Jones Network Sales ("JNS"), a wholly owned subsidiary of Jones
International, provided certain affiliate sales and marketing services to the
Company. As a result of an affiliated entity ceasing operations, such affiliate
sales and marketing functions have been incorporated into the operations of the
Company starting in January 2000. For the three and nine months ended September
30, 1999, the Company paid JNS approximately $318,000 and $1,020,000,
respectively, for these services.
Galactic Radio, Inc. ("Galactic Radio"), a wholly owned subsidiary of the
Company, had a transponder lease agreement with Jones Satellite Holdings, Inc.
("Satellite Holdings"), an affiliate of Jones International, for the use of the
sub-carriers on a non-preemptible satellite transponder. This agreement allowed
Galactic Radio to use a portion of the transponder to distribute its audio
programming. Galactic Radio terminated this agreement on January 31, 2000. For
the three months ended September 30, 1999, the Company paid Satellite Holdings
approximately $174,000 for this service. For the nine months ended September 30,
1999 and 2000, the company paid Satellite Holdings approximately $522,000 and
$58,000, respectively, for this service.
The Company leases and subleases office space in Englewood, Colorado from
affiliates of Jones International. For the three months ended September 30, 1999
and 2000, the Company paid these affiliates approximately $74,000 and $134,000,
respectively, for rent and associated expenses. For the nine months ended
September 30, 1999 and 2000, the Company paid $144,000 and $373,000,
respectively, for rent and associated expenses.
An affiliate of Jones International charged the Company approximately
$11,000 during the nine months ended September 30, 2000 for the allocated costs
of its airplane which was used by the Company in connection with a proposed
equity offering.
An affiliate of Jones International provides computer hardware and software
support services to the Company. For the three months ended September 30, 1999
and 2000, the Company paid the affiliate approximately $165,000 and $335,000,
respectively, for such services. For the nine months ended September 30, 1999
and 2000, the Company paid approximately $575,000 and $1,025,000, respectively,
for such services.
The Company and its consolidated subsidiaries reimburse Jones International
and its affiliates for certain allocated administrative expenses. These expenses
generally consist of salaries, related benefits and other related costs.
Allocations of personnel costs are generally based on actual time spent by
affiliated associates with respect to the Company. For the three months ended
September 30, 1999 and 2000, the Company reimbursed Jones International and its
affiliates approximately $224,000 and $228,000, respectively. For the nine
months ended September 30, 1999 and 2000, the Company reimbursed Jones
International and its affiliates approximately $770,000 and $612,000,
respectively.
6
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
To assist funding its operating and investing activities in the past, the
Company had borrowed funds from Jones International. Jones International's
interest rate was calculated using the published prime rate plus two percent.
Jones International charged interest on its advances to the Company at rates of
approximately 10 percent per annum for the nine months ended September 30, 1999.
For the three and nine months ended September 30, 1999, the Company paid Jones
International interest of approximately $0 and $38,000, respectively. In the
first quarter of 1999, Jones International elected to repay the income tax
benefit receivable of approximately $1,335,000 through a reduction of the
intercompany balance between the Company and Jones International. The remaining
intercompany balance of approximately $255,000 was repaid in April 1999.
In the normal course of business, Jones International (1) remits funds on
behalf of the Company to third parties and affiliates in payment of products and
services purchased by the Company, and (2) receives funds on behalf of the
Company in payment for products and services provided by the Company. Starting
in April 1999, these amounts are generally reimbursed from or to Jones
International on a monthly basis. Outstanding payable to Jones International and
related parties at September 30, 2000 was $340,000.
(3) NET LOSS PER COMMON SHARE
Basic earnings per share ("EPS") is computed by dividing the net earnings
applicable to common shares by the weighted average of common shares outstanding
during the period. Diluted EPS adjusts the basic weighted average of common
shares outstanding by the assumed conversion of shares subject to put in the
periods in which such effect would have been dilutive. Prior period amounts have
been adjusted to reflect the effect of the 5-for-4 stock split which was
effective on January 28, 2000. The table below presents a reconciliation of
weighted average shares used in the calculation of basic and diluted EPS:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
1999 2000 1999 2000
--------- --------- --------- ---------
Weighted average shares for basic EPS ....... 7,625,149 7,671,117 7,618,555 7,661,163
Less: shares subject to put ................. 38,651 40,586 25,767 40,586
--------- --------- --------- ---------
Weighted average shares for diluted EPS ..... 7,586,498 7,630,531 7,592,788 7,620,577
========= ========= ========= =========
(4) DEFERRED EQUITY OFFERING COSTS
The Company incurred approximately $0.7 million in deferred equity
offering costs relating to an attempted initial public offering commenced by
the Company in late 1999. Deferred equity offering costs consist primarily of
financial printing, legal counsel, independent public accountants, regulatory
and stock exchange registration fees, and other various costs associated with
the offering. As a result of the Company's withdraw of this proposed equity
offering, the Company has expensed all deferred equity offering costs
relating to this equity offering. All of such costs were expensed in the
third quarter of 2000.
(5) COMMITMENTS AND CONTINGENCIES
EQUITY AGREEMENT--In the first quarter of 1998, Great American Country and
the Company entered into an equity affiliate agreement with a multiple cable
system operator ("MSO"). Pursuant to the terms of such agreement, the Company
agreed to issue shares of Class A Common Stock to the MSO in return for the MSO
providing Great American Country's programming to no less than 500,000 of its
subscribers by December 31, 1998. Because of a put option granted to the MSO,
the shares issued to that MSO are presented separate from the Shareholders'
Deficit section of the Statements of Financial Position. The amount of accretion
from the value of the shares issued to the put option at the exercise date is
not significant.
The MSO was granted a put option on the stock issued, whereby, if as of
December 31, 2001, the Company or its successor has not completed a public
offering of its securities, the MSO would have the option within 60 days of such
date to require the Company to buy back its Class A Common Stock at a price
equal to all or a portion of the license fees that would have been paid during
the period between the date of the agreement and the exercise date of the put
option. The purchase price would be based on the total number of MSO subscribers
receiving the Great American Country service as of December 31, 1998. Based on
the cumulative amount of license fees received for the Great American Country
service from the inception of the agreement, the
7
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
estimated purchase price of the Class A Common Stock in the event the put option
is exercised would be approximately $1,030,000.
(6) UNAUDITED CONDENSED CONSOLIDATING FINANCIAL INFORMATION FOR SUBSIDIARY
GUARANTORS
In 1998, the Company issued $100 million of Senior Secured Notes (the
"Notes"). The Notes are fully and unconditionally guaranteed, jointly and
severally, on a senior unsecured basis by the following wholly-owned
subsidiaries of the Company: JPN, Inc., Jones Direct, Ltd., Jones Space
Holdings, Inc., Jones Earth Segment, Inc., Jones Infomercial Networks, Inc.,
Jones Radio Holdings, Inc., Great American Country, Inc., Jones Galactic Radio,
Inc., Jones Infomercial Network Ventures, Inc., Jones Galactic Radio Partners,
Inc., Jones Radio Network, Inc., Jones Audio Services, Inc., Jones Radio Network
Ventures, Inc., MediaAmerica, Inc., Jones Broadcast Programming, Inc., MAI
Radio, Inc., Jones MatchMedia, Inc., and Jones/Owens Radio Programming LLC
(collectively, the "Subsidiary Guarantors"). The only existing subsidiary of the
Company that did not guarantee the Notes is the PIN Venture (the "Non-Guarantor
Subsidiary"). Superaudio and Jones/Capstar were subsidiaries of the Company that
did not guarantee the Notes. Superaudio ceased distributing its programming and
all other operating activities on January 31, 2000. Jones Radio Network, Inc.
purchased all Jones/Capstar assets on April 1, 2000 and now produces and
distributes its programming. Assets and liabilities that were transferred to
Jones Radio Network, Inc. are now reported under the "Subsidiary Guarantors."
The Company has not provided separate complete financial statements and
other disclosures of the respective Subsidiary Guarantors because management has
determined that such information is not material to investors. There are no
significant contractual restrictions on distributions from each of the
Subsidiary Guarantors to the Company.
Investments in subsidiaries are required to be accounted for by investors
using the equity method for purposes of the supplemental condensed consolidating
financial statement presentation. Under this method, investments are recorded at
cost and adjusted for the investor company's ownership share of the
subsidiaries' cumulative results of operations. In addition, investments
increase by the amount of contributions to subsidiaries and decrease by the
amount of distributions from subsidiaries. The elimination entries eliminate the
equity method accounting for the investment in subsidiaries and the equity in
earnings of subsidiaries, intercompany payables and receivables and other
transactions between subsidiaries including contributions and distributions.
Sections 13 and 15(d) of the Securities Exchange Act of 1934 require
presentation of the following supplemental condensed consolidating financial
statements. Presented below is unaudited condensed consolidating financial
information for the Company and its subsidiaries as of and for the nine months
ended September 30, 1999 and 2000.
8
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS -
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999:
(IN THOUSANDS)
Non-
The Subsidiary Guarantor Elimination
Company Guarantors Subsidiaries Entries Reported
-------- ---------- ------------ ----------- --------
Revenues .............................................. $ -- $ 29,959 $ 15,819 $ (1,174) $ 44,604
Operating expenses:
Operations ....................................... -- 17,892 14,016 (1,174) 30,734
Selling and marketing ............................ -- 3,901 452 -- 4,353
General and administrative ....................... 1,031 -- -- -- 1,031
Depreciation and amortization .................... 5 6,428 66 -- 6,499
-------- -------- -------- -------- --------
Total operating expenses .................... 1,036 28,221 14,534 (1,174) 42,617
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS) .......................... (1,036) 1,738 1,285 -- 1,987
-------- -------- -------- -------- --------
OTHER EXPENSE (INCOME):
Interest expense ................................. 9,607 -- -- -- 9,607
Interest income .................................. (568) (67) (91) -- (726)
Equity share of loss (income) of subsidiaries .... (2,239) 865 (85) 1,374 (85)
Other expense (income), net ...................... 94 3 2 -- 99
-------- -------- -------- -------- --------
Total other expense (income) ................ 6,894 801 (174) 1,374 8,895
-------- -------- -------- -------- --------
Income (loss) before income taxes
and minority interest ......................... (7,930) 937 1,459 (1,374) (6,908)
Income tax provision ............................. -- 411 -- -- 411
-------- -------- -------- -------- --------
Income (loss) before minority interest ........... (7,930) 526 1,459 (1,374) (7,319)
Minority interest in net loss of
consolidated subsidiaries ..................... -- (3) -- 614 611
-------- -------- -------- -------- --------
NET INCOME (LOSS) ..................................... $ (7,930) $ 529 $ 1,459 $ (1,988) $ (7,930)
======== ======== ======== ======== ========
UNAUDITED CONDENSED CONSOLIDATING CASH FLOWS -
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999:
(IN THOUSANDS)
Non-
The Subsidiary Guarantor Elimination
Company Guarantors Subsidiaries Entries Reported
-------- ---------- ------------ ----------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................... $ (7,930) $ 529 $ 1,459 $ (1,988) $ (7,930)
Adjustment to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Non-cash expenses ................................. 1,469 4,127 (4) 1,988 7,580
Net change in assets and liabilities .............. (23,923) 22,519 977 -- (427)
-------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities ........................... (30,384) 27,175 2,432 -- (777)
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment .................. (12) (396) (180) -- (588)
Purchase of investments ............................. (1,674) -- -- -- (1,674)
Cable programming distribution agreements payments .. -- (3,761) -- -- (3,761)
Purchase of intangible assets ....................... -- (430) -- -- (430)
Purchase of Broadcast Programming assets ............ -- (20,860) -- -- (20,860)
-------- -------- -------- -------- --------
Net cash used in investing activities ............ (1,686) (25,447) (180) -- (27,313)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of
Series A Preferred Equity ....................... 20,100 -- -- -- 20,100
-------- -------- -------- -------- --------
20,100 -- -- -- 20,100
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS .............................. (11,970) 1,728 2,252 -- (7,990)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ............................... 17,881 956 1,817 -- 20,654
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD .............. $ 5,911 $ 2,684 $ 4,069 $ -- $ 12,664
======== ======== ======== ======== ========
9
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF FINANCIAL POSITION -
AS OF SEPTEMBER 30, 2000:
(IN THOUSANDS)
Non-
The Subsidiary Guarantor Elimination
Company Guarantors Subsidiaries Entries Reported
-------- ---------- ------------ ----------- --------
ASSETS:
Cash and cash equivalents ........................ $ 3,604 $ 4,601 $ 3,565 $ -- $ 11,770
Available for sale securities .................... 2,216 -- 902 -- 3,118
Accounts receivable, net ......................... -- 14,333 109 -- 14,442
Other current assets ............................. 79 1,164 128 -- 1,371
--------- --------- --------- --------- ---------
Total current assets ................... 5,899 20,098 4,704 -- 30,701
--------- --------- --------- --------- ---------
Property and equipment ........................... 32 20,592 385 -- 21,009
Intangible assets ................................ 3,560 59,510 1 -- 63,071
Other long-term assets ........................... 34,050 (27,347) -- (1,532) 5,171
--------- --------- --------- --------- ---------
Total assets ........................... $ 43,541 $ 72,853 $ 5,090 $ (1,532) $ 119,952
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT):
Accounts payable ................................. $ 555 $ 3,189 $ 1,524 $ -- $ 5,268
Producers' fees payable .......................... -- 5,684 -- -- 5,684
Accrued liabilities .............................. 3,361 4,373 92 -- 7,826
Other current liabilities ........................ (58,360) 58,974 737 -- 1,351
--------- --------- --------- --------- ---------
Total current liabilities .............. (54,444) 72,220 2,353 -- 20,129
--------- --------- --------- --------- ---------
Senior secured notes ............................. 100,000 -- -- -- 100,000
Other long-term liabilities ...................... 1,022 614 -- -- 1,636
--------- --------- --------- --------- ---------
Total long-term liabilities ............ 101,022 614 -- -- 101,636
--------- --------- --------- --------- ---------
Minority interest ................................ -- -- -- 1,224 1,224
Class A Common Stock subject to put .............. 1,213 -- -- -- 1,213
Shareholders' equity (deficit):
Series A Preferred Stock .................... 23,975 -- -- -- 23,975
Class A Common Stock ........................ 53 -- -- -- 53
Class B Common Stock ........................ 22 -- -- -- 22
General Partners' Contributions ............. -- -- 350 (350) --
Additional paid-in capital .................. 28,260 -- -- -- 28,260
Accumulated other comprehensive income ...... (6) -- -- -- (6)
Retained earnings (deficit) ................. (56,554) 19 2,387 (2,406) (56,554)
--------- --------- --------- --------- ---------
Total shareholders' equity (deficit) ............. (4,250) 19 2,737 (2,756) (4,250)
--------- --------- --------- --------- ---------
Total liabilities and shareholders'
equity (deficit) .................... $ 43,541 $ 72,853 $ 5,090 $ (1,532) $ 119,952
========= ========= ========= ========= =========
10
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS -
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000:
(IN THOUSANDS)
Non-
The Subsidiary Guarantor Elimination
Company Guarantors Subsidiaries Entries Reported
-------- ---------- ------------ ----------- --------
Revenues .............................................. $ -- $ 44,691 $ 18,954 $ (1,305) $ 62,340
Operating expenses:
Operations ....................................... -- 24,974 16,819 (1,305) 40,488
Selling and marketing ............................ -- 6,959 663 -- 7,622
General and administrative ....................... 1,328 -- -- -- 1,328
Depreciation and amortization .................... 8 10,485 104 -- 10,597
-------- -------- -------- -------- --------
Total operating expenses .................... 1,336 42,418 17,586 (1,305) 60,035
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS) .......................... (1,336) 2,273 1,368 -- 2,305
-------- -------- -------- -------- --------
OTHER EXPENSE (INCOME):
Interest expense ................................. 9,410 2 -- -- 9,412
Interest income .................................. (428) (118) (168) -- (714)
Equity share of loss (income) of subsidiaries .... (3,411) 4,223 -- (814) (2)
Other expense (income), net ...................... 736 (253) 62 -- 545
-------- -------- -------- -------- --------
Total other expense (income) ................ 6,307 3,854 (106) (814) 9,241
-------- -------- -------- -------- --------
Income (loss) before income taxes and
minority interest .............................. (7,643) (1,581) 1,474 814 (6,936)
Income tax provision ............................. -- 47 1 -- 48
-------- -------- -------- -------- --------
Income (loss) before minority interest ........... (7,643) (1,628) 1,473 814 (6,984)
Minority interest in net loss of
consolidated subsidiaries ...................... -- -- -- 659 659
-------- -------- -------- -------- --------
NET INCOME (LOSS) ..................................... $ (7,643) $ (1,628) $ 1,473 $ 155 $ (7,643)
======== ======== ======== ======== ========
UNAUDITED CONDENSED CONSOLIDATING CASH FLOWS -
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000:
(IN THOUSANDS)
Non-
The Subsidiary Guarantor Elimination
Company Guarantors Subsidiaries Entries Reported
-------- ---------- ------------ ----------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................ $ (7,643) $ (1,628) $ 1,473 $ 155 $ (7,643)
Adjustment to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Non-cash expenses ...................................... (1,400) 14,285 167 (155) 12,897
Net change in assets and liabilities ................... 603 (2,699) 341 -- (1,755)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating activities ... (8,440) 9,958 1,981 -- 3,499
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ....................... (25) (2,014) (188) -- (2,227)
Proceeds from/purchase of investments .................... 4,673 19 (902) -- 3,790
Purchase of intangible assets ............................ (9) (6,085) -- -- (6,094)
Distributions of capital from affiliates ................. -- 15 -- -- 15
-------- -------- -------- -------- --------
Net cash provided by (used in) investing activities ... 4,639 (8,065) (1,090) -- (4,516)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for equity offering costs ....................... (484) -- -- -- (484)
-------- -------- -------- -------- --------
Net cash used in financing activities ................. (484) -- -- -- (484)
-------- -------- -------- -------- --------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ................................... (4,285) 1,893 891 -- (1,501)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD .................................... 7,889 2,708 2,674 -- 13,271
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................... $ 3,604 $ 4,601 $ 3,565 $ -- $ 11,770
======== ======== ======== ======== ========
11
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(7) REPORTABLE SEGMENTS
The Company has six reportable segments: radio programming syndication,
cable television programming, Internet programming content, Internet advertising
sales services, satellite services and general and administrative. The Company's
reportable segments have been determined in accordance with the Company's
internal management structure. The Company evaluates performance based on many
factors; one of the primary measures is EBITDA. EBITDA represents operating
income (loss) plus depreciation and amortization minus the EBITDA attributable
to the minority interest in the PIN Venture, a consolidated 55.3%-owned
subsidiary.
The following tables set forth the Company's financial results by business
segments. The presentation of reportable segments has been changed from that
presented in prior periods to (1) reflect the Internet programming content
segment and Internet advertising sales services segment and (2) combine radio
programming and radio advertising sales services segments into the radio
programming syndication segment. The Company has also added the presentation of
segment EBITDA. Management believes that this presentation provides a more
meaningful analysis of the Company's business segments. EBITDA of the cable
television programming segment excludes EBITDA attributable to the minority
interest in the PIN Venture. The prior year's results have been reclassified to
conform to the new presentation.
Three Months Ended Nine Months Ended
September 30, September 30,
Revenues: 1999 2000 1999 2000
-------- -------- -------- --------
(in thousands)
Radio programming syndication ............ $ 8,085 $ 10,609 $ 18,808 $ 31,216
Cable television ......................... 6,587 7,850 19,229 24,839
Internet programming content ............. -- 39 -- 82
Internet advertising sales services ...... -- 1,505 -- 1,506
Satellite services ....................... 2,190 1,676 6,567 4,697
-------- -------- -------- --------
Total revenues ........................ $ 16,862 $ 21,679 $ 44,604 $ 62,340
======== ======== ======== ========
EBITDA:
Radio programming syndication ............ $ 2,056 $ 2,483 $ 2,690 $ 7,931
Cable television ......................... 468 788 1,446 3,131
Internet programming content ............. (175) (600) (175) (1,704)
Internet advertising sales services ...... -- 1,065 -- 684
Satellite services ....................... 1,861 1,528 5,556 4,188
-------- -------- -------- --------
Segment EBITDA ........................... 4,210 5,264 9,517 14,230
Reconciliation to operating income:
General and administrative - Corporate ... (300) (430) (1,031) (1,328)
Depreciation and amortization ............ (2,528) (3,617) (6,499) (10,597)
-------- -------- -------- --------
Total operating income ................ $ 1,382 $ 1,217 $ 1,987 $ 2,305
======== ======== ======== ========
12
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 2000 1999 2000
-------- -------- -------- --------
(in thousands)
Reconciliation of segment EBITDA to total EBITDA:
Segment total ...................................... $ 4,210 $ 5,264 $ 9,517 $ 14,230
General and administrative - Corporate ............. (300) (430) (1,031) (1,328)
Less: EBITDA minority interest ..................... (162) (56) (624) (658)
-------- -------- -------- --------
Total EBITDA .................................... $ 3,748 $ 4,778 $ 7,862 $ 12,244
======== ======== ======== ========
Depreciation and amortization:
Radio programming syndication ...................... $ 957 $ 1,672 $ 2,112 $ 4,970
Cable television ................................... 580 955 1,375 2,663
Internet programming content ....................... -- 26 -- 48
Internet advertising sales services ................ -- 8 -- 15
Satellite services ................................. 989 953 3,007 2,893
-------- -------- -------- --------
Segment total ................................... 2,526 3,614 6,494 10,589
General and administrative - Corporate ............. 2 3 5 8
-------- -------- -------- --------
Total depreciation and amortization ............. $ 2,528 $ 3,617 $ 6,499 $ 10,597
======== ======== ======== ========
Capital expenditures:
Radio programming syndication ...................... $ 50 $ 576 $ 232 $ 1,277
Cable television ................................... 64 63 196 235
Internet programming content ....................... 4 80 4 295
Internet advertising sales services ................ -- 16 -- 97
Satellite services ................................. 16 248 144 298
-------- -------- -------- --------
Segment total ................................... 134 983 576 2,202
General and administrative - Corporate ............. 12 23 12 25
-------- -------- -------- --------
Total capital expenditures ...................... $ 146 $ 1,006 $ 588 $ 2,227
======== ======== ======== ========
13
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
As of September 30,
1999 2000
--------- ---------
(in thousands)
Total assets:
Radio programming syndication ............ $ 65,654 $ 73,133
Cable television ......................... 20,070 24,177
Internet programming content ............. 3 319
Internet advertising sales services ...... -- 669
Satellite services ....................... 20,289 16,895
--------- ---------
Segment total ......................... 106,016 115,193
General and administrative - Corporate ... 44,488 43,541
Elimination of inter-segment assets ...... (25,710) (38,782)
--------- ---------
Total assets .......................... $ 124,794 $ 119,952
========= =========
Segment EBITDA excludes intersegment transactions between the satellite
services and cable programming segments for the satellite services provided to
the PIN Venture and Great American Country for $872,000, and $948,000, for the
three months ended September 30, 1999 and 2000, respectively, and $2,609,000,
and $2,845,000, for the nine months ended September 30, 1999 and 2000,
respectively. In addition, segment EBITDA excludes intersegment transactions
among radio programming syndication and Internet programming segments for the
sale of radio airtime to Internet for approximately $48,000 and $586,000 for the
three and nine months ended September 30, 2000, respectively. Segment EBITDA
differs from operating income (loss) of each of the segments by the amount of
depreciation and amortization expenses of each segment.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of results of the Company's financial condition
and results of operations contains, in addition to historical information,
forward-looking statements that are based upon certain assumptions and are
subject to a number of risks and uncertainties. The Company's actual results may
differ significantly from the results described in such forward-looking
statements.
RESULTS OF OPERATIONS
The following table sets forth the amount of, and percentage relationship
to total net revenues of, certain items included in the Company's historical
unaudited consolidated statements of operations for the three and nine months
ended September 30, 1999 and 2000:
Three Months Ended September 30, Nine Months Ended September 30,
1999 2000 1999 2000
------------------ ------------------ ------------------ ------------------
(in thousands)
Revenues:
Radio programming syndication ..... $ 8,085 48% $ 10,609 49% $ 18,808 42% $ 31,216 50%
Cable television .................. 6,587 39 7,850 36 19,229 43 24,839 40
Internet programming content ...... -- -- 39 -- -- -- 82 --
Internet advertising sales
services ....................... -- -- 1,505 7 -- -- 1,506 2
Satellite services ................ 2,190 13 1,676 8 6,567 15 4,697 8
-------- ---- -------- ---- -------- ---- -------- ----
Total revenues ................. 16,862 100 21,679 100 44,604 100 62,340 100
-------- ---- -------- ---- -------- ---- -------- ----
Operating expenses:
Radio programming syndication ..... 6,986 41 9,798 45 18,230 41 28,255 45
Cable television .................. 6,699 40 8,017 37 19,158 43 24,371 39
Internet programming content ...... 175 1 665 3 175 -- 1,834 3
Internet advertising sales
services ....................... -- -- 448 2 -- -- 837 1
Satellite services ................ 1,318 8 1,101 5 4,018 9 3,402 6
-------- ---- -------- ---- -------- ---- -------- ----
Segment total .................. 15,178 90 20,029 92 41,581 93 58,699 94
General and administrative ........ 302 2 433 2 1,036 2 1,336 2
-------- ---- -------- ---- -------- ---- -------- ----
Total operating expenses ....... 15,480 92 20,462 94 42,617 95 60,035 96
-------- ---- -------- ---- -------- ---- -------- ----
Operating income ............... 1,382 8 1,217 6 1,987 5 2,305 4
-------- ---- -------- ---- -------- ---- -------- ----
Interest expense, net ................ 3,123 19 2,886 13 8,881 20 8,698 14
Other expense (income), net .......... 12 -- 674 3 14 -- 543 1
Income tax provision ................. 391 2 3 -- 411 1 48 --
Minority interest .................... 165 1 71 1 611 2 659 1
-------- ---- -------- ---- -------- ---- -------- ----
Net loss ............................. $ (2,309) (14)% $ (2,417) (11)% $ (7,930) (18)% $ (7,643) (12)%
======== ==== ======== ==== ======== ==== ======== ====
15
The following table sets forth EBITDA for the three and nine months ended
September 30, 1999 and 2000. EBITDA is unaudited and represents operating income
(loss) plus depreciation and amortization minus EBITDA attributable to the
minority interest in the PIN Venture, a consolidated 55.3%-owned subsidiary.
Management acknowledges that EBITDA is not a measure of performance or liquidity
calculated in accordance with generally accepted accounting principles. However,
EBITDA is a measure widely used by analysts and investors in the media industry
to determine a company's operating performance and ability to service and incur
debt. EBITDA should not be considered in isolation or as a substitute for net
income (loss), cash flows from operating activities or other consolidated income
or cash flow statement data prepared in accordance with generally accepted
accounting principles or as a measure of profitability or liquidity.
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
1999 2000 1999 2000
-------- -------- -------- --------
EBITDA: (in thousands)
Radio programming syndication .......... $ 2,056 $ 2,483 $ 2,690 $ 7,931
Cable television ....................... 468 788 1,446 3,131
Internet programming content ........... (175) (600) (175) (1,704)
Internet advertising sales services .... -- 1,065 -- 684
Satellite services ..................... 1,861 1,528 5,556 4,188
-------- -------- -------- --------
Segment total ....................... 4,210 5,264 9,517 14,230
General and administrative ............. (300) (430) (1,031) (1,328)
Less: EBITDA minority interest ......... (162) (56) (624) (658)
-------- -------- -------- --------
Total EBITDA ........................ $ 3,748 $ 4,778 $ 7,862 $ 12,244
======== ======== ======== ========
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2000
REVENUES
Total revenues increased $4.8 million, or 29%, from $16.9 million for the
three months ended September 30, 1999 to $21.7 million for the three months
ended September 30, 2000. Total revenues adjusted for the acquisition on August
2, 1999 of Broadcast Programming would have been $17.7 million for the three
months ended September 30, 1999. This increase was due to strong growth in our
radio programming syndication, cable television programming operations, Internet
advertising sales services, and an increase in radio programming syndication
revenues resulting from the Broadcast Programming acquisition.
OPERATING EXPENSES
OPERATIONS. Operations expense increased $2.9 million, or 26%, from $10.9
million for the three months ended September 30, 1999 to $13.8 million for the
three months ended September 30, 2000. Total operations expenses adjusted for
the acquisition of Broadcast Programming would have been $11.4 million for the
three months ended September 30, 1999. The increase is due primarily to an
increase in operating expenses resulting from the Broadcast Programming
acquisition, increased expenditures related to radio programming syndication,
cable television and increased operating expenses to develop our Internet
programming content and Internet advertising sales services businesses. As a
percentage of total revenues, total operations expense decreased from 65% for
the three months ended September 30, 1999 to 64% for the three months ended
September 30, 2000.
SELLING AND MARKETING. Selling and marketing expenses increased $0.9 million, or
51%, from $1.7 million for the three months ended September 30, 1999 to $2.6
million for the three months ended September 30, 2000. This increase is due
primarily to increased expenditures to attract additional radio and cable
television affiliates and an increase in selling and marketing expenditures
resulting from the Broadcast Programming acquisition.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased $0.1
million or 44%, from $0.3 million for the three months ended September 30, 1999
to $0.4 million for the three months ended September 30, 2000.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses increased
$1.1 million, or 43% from $2.5 million for the three months ended September 30,
1999 to $3.6 million for the three months ended September 30, 2000. Depreciation
and amortization expenses adjusted for the acquisition of Broadcast Programming
would have been $2.9 million for the three months ended September 30, 1999. This
increase is due primarily to an increase in amortization expenses related to the
Broadcast
16
Programming acquisition and the amortization of payments made under certain
cable programming distribution agreements.
OPERATING INCOME
Operating income decreased $0.2 million, or 12%, from an operating income
of $1.4 million for the three months ended September 30, 1999 to operating
income of $1.2 million for the three months ended September 30, 2000, as a
result of the factors discussed herein. Operating loss adjusted for the
acquisition of Broadcast Programming would have been $1.3 million for the three
months ended September 30, 1999.
EBITDA
EBITDA increased $1.0 million, or 27%, from $3.7 million for the three
months ended September 30, 1999, to $4.7 million for the three months ended
September 30, 2000 as a result of the factors discussed herein. EBITDA adjusted
for the acquisition of Broadcast Programming would have been $4.1 million for
the three months ended September 30, 1999.
OTHER EXPENSE
Total other expense increased $0.5 million, or 14%, from $3.1 million for
the three months ended September 30, 1999 to $3.6 million for the three months
ended September 30, 2000. The increase is due primarily to:
- a $0.7 million in expenses related to the write off of certain
deferred equity offering costs. As a result of the withdraw of our
proposed equity offering in October, we have expensed all deferred
offering costs in the third Quarter of 2000; and
- a $0.2 million decrease in interest expense.
NET LOSS
Net loss increased $0.1 million, or 5%, from $(2.3) million for the three
months ended September 30, 1999 to $(2.4) million for the three months ended
September 30, 2000 as a result of the factors discussed herein.
RADIO PROGRAMMING SYNDICATION
REVENUES. Radio programming syndication revenues increased $2.5 million, or 31%,
from $8.1 million for the three months ended September 30, 1999 to $10.6 million
for the three months ended September 30, 2000, due primarily to an increase in
radio advertising revenue and the acquisition of the assets of Broadcast
Programming. During the period from July 1, 2000 to August 2, 2000, Broadcast
Programming generated radio programming syndication revenues of $1.2 million
Separate from Broadcast Programming, advertising revenues increased $1.4 million
due to an increase in rates charged for our advertising spots and an increase in
the number of spots sold. There was a decrease of $0.1 million in radio license
fees, reflecting our decision to focus our programming targeted at larger radio
stations that generally are not charged license fees. Radio revenues adjusted
for the acquisition of Broadcast Programming would have been $8.9 million for
the three months ended September 30, 1999.
EXPENSES. Radio programming expenses increased $2.8 million, or 40%, from $7.0
million for the three months ended September 30, 1999 to $9.8 million for the
three months ended September 30, 2000. Radio expenses adjusted for the
acquisition of Broadcast Programming would have been $7.9 million for the three
months ended September 30, 1999. This increase was primarily due to:
- a $1.0 million increase in operating expenses as a result of the
Broadcast Programming acquisition, including depreciation and
amortization expenses of $0.3 million;
- a $0.7 million increase in radio programming and radio distribution
expenses due to an increase in the number of radio programs we offered
and an increase in the number of radio affiliates;
- a $0.6 million increase in marketing expenses for trade shows and
related marketing expenditures incurred to increase the number of
radio stations receiving our programming;
17
- a $0.4 million increase in depreciation and amortization expenses
related to new equipment purchased for the upgrades of certain radio
programming studios, purchase of new satellite receivers, purchase of
new computer hardware and software and amortization of intangibles
mostly related to the acquisition of Broadcast Programming; and
- a $0.1 million increase in fees paid to license certain radio
programming.
As a percentage of radio programming revenues, radio programming expenses
increased from 86% for the three months ended September 30, 1999 to 92% for the
three months ended September 30, 2000.
OPERATING INCOME. Operating income from radio programming decreased $0.3
million, or 26%, from an operating income of $1.1 million for the three months
ended September 30, 1999 to operating income of $0.8 million for the three
months ended September 30, 2000 as a result of the factors stated herein.
Operating income from radio programming adjusted for the acquisition of
Broadcast Programming would have been approximately $1.0 million for the three
months ended September 30, 1999.
SEGMENT EBITDA. Segment EBITDA from radio programming increased $0.4 million, or
21%, from $2.1 million for the three months ended September 30, 1999 to $2.5
million for the three months ended September 30, 2000 as a result of the factors
stated herein. Segment EBITDA from radio programming adjusted for the Broadcast
Programming acquisition would have been $2.4 million for the three months ended
September 30, 1999.
CABLE TELEVISION PROGRAMMING
We have two cable television networks, Great American Country ("GAC") and
Product Information Network ("PIN"). PIN is owned by a venture which is 55.3%
owned by us.
REVENUES. Cable television programming revenues increased $1.3 million, or 19%,
from $6.6 million for the three months ended September 30, 1999 to $7.9 million
for the three months ended September 30, 2000. This increase was due to the
following:
- GAC's revenues increased $0.7 million, or 57%, as a result of a $0.6
million, or 63%, increase in advertising revenues and $0.1 million, or
44%, increase in license fees. Advertising revenues increased due to
higher advertising rates charged for airtime based on a 25% increase
in the number of subscribers receiving GAC, as well as an increase in
the number of higher paying national advertisers; and
- PIN's revenues increased $0.6 million, or 10%, primarily as a result
of a 12% increase in FTRE's receiving PIN. FTREs represent the number
of full-time revenue equivalent subscribers receiving PIN.
EXPENSES. Cable television programming expenses rose $1.3 million, or 20%, from
$6.7 million for the three months ended September 30, 1999 to $8.0 million for
the three months ended September 30, 2000. This was primarily due to:
- an increase of $0.7 million in rebates to cable systems receiving PIN,
driven by an increase in PIN revenues from September 30, 1999 to
September 30, 2000;
- an increase of $0.4 million in amortization expenses for GAC
distribution agreement payments, driven by GAC's growth in
subscribers;
- an increase of $0.4 million as a result of new associates hired to
sell GAC traditional spot advertising and a national audience ratings
services subscribed to by GAC beginning in January 2000; and
- a decrease of $0.2 million in other cable television programming
expenses.
As part of our efforts to increase GAC subscriber distribution , GAC
entered into a digital satellite distribution agreement with a third party which
will enable GAC to broadcast its programming on a digital platform to cable
systems who elect to carry GAC on their digital programming tiers. We estimate
that expenses will increase approximately $50,000 per month starting in November
2000 as a result of this agreement .
For the three months ended September 30, 1999 and 2000, PIN made rebates of
approximately 76% and 81%, respectively, of
18
its net advertising revenues to cable television systems receiving its
programming. As PIN's FTRE's continue to grow, total cable television
programming expenses will continue to increase and PIN will have to pay out
additional rebates to cable systems as PIN advertising revenues increase. As a
percentage of cable television programming revenues, cable television
programming expenses remained relatively flat at 102% for the three months ended
September 30, 1999 and 2000.
OPERATING INCOME. Operating income from cable television programming decreased
$0.1 million from an operating loss of $(0.1) million for the three months ended
September 30, 1999 to an operating loss of $(0.2) million for the three months
ended September 30, 2000 as a result of the factors stated above.
SEGMENT EBITDA. Segment EBITDA from cable television programming increased $0.3
million, or 68%, from $0.5 million for the three months ended September 30, 1999
to $0.8 million for the three months ended September 30, 2000 as a result of the
factors stated above.
INTERNET PROGRAMMING CONTENT
Internet programming content expenses commenced in the fourth quarter of
1999 and have increased throughout 2000. We have not generated significant
revenues from our Internet programming content business. Given the lack of
meaningful revenues generated thus far, we are currently evaluating the future
business strategy and prospects of the Internet programming content segment in
order to determine how to generate substantially higher revenues while also
reducing operating expenses. There can be no assurance that we will be
successful in making this business segment profitable in the future or that the
business segment will continue to operate in its current form.
REVENUES. We did not generate significant Internet programming content revenues
for the three months ended September 30, 2000.
EXPENSES. Internet programming content expenses increased $0.5 million, or 280%,
from $0.2 million for the three months ended September 30, 1999 to $0.7 million
for the three months ended September 30, 2000.
OPERATING LOSS. Operating loss from our Internet programming content activities
increased $0.4 million from $(0.2) million for the three months ended September
30, 1999 to $(0.6) million for the three months ended September 30, 2000.
SEGMENT EBITDA. Segment EBITDA deficit from our Internet programming content
activities increased $0.4 million from $(0.2) million for the three months ended
September 30, 1999 to $(0.6) million for the three months ended September 30,
2000.
INTERNET ADVERTISING SALES SERVICES
In the fourth quarter of 1999, we began developing an Internet advertising
sales services business which sells national advertising for third parties.
Currently, we are concentrating on providing these services to streaming media
companies. Operating expenses for Internet advertising services increased
beginning in the fourth quarter of 1999 and will continue to increase throughout
2000. We anticipate salary, selling and marketing and other associated expenses
to increase as we continue to develop the Internet advertising services
business.
REVENUES. We generated Internet advertising sales services revenue of $1.5
million for the three months ended September 30, 2000. We negotiated an early
termination to an agreement with a third party to sell Internet advertising time
and provide other services. The termination of this agreement resulted in a
one-time cash payment of $1.5 million, which we received in July 2000. The
termination payment was recorded as Internet advertising sales services revenue
during the third quarter of 2000.
EXPENSES. We generated Internet advertising sales services expenses of $0.5
million for the three months ended September 30, 2000.
OPERATING INCOME. We generated an operating income from Internet advertising
sales services of $1.0 million for the three months ended September 30, 2000 as
a result of factors discussed herein.
SEGMENT EBITDA. We generated a segment EBITDA from Internet advertising sales
services of $1.1 million for the three months ended September 30, 2000.
19
SATELLITE SERVICES
REVENUES. Satellite services revenues decreased $0.5 million, or 23%, from $2.2
million for the three months ended September 30, 1999 to $1.7 million for the
three months ended September 30, 2000. This decrease was primarily due to:
- $0.5 million decrease in satellite services fees because an affiliated
party ceased its network operations in March 2000;
- the expiration in August 1999 of a third party satellite services
agreement, which generated $0.3 million in satellite services revenues
in the three months ended September 30, 1999; and
- $0.3 million increase in satellite services revenues due to a
three-month agreement to lease two satellite transponder channels as
well as other uplinking and earth station services to a third party.
This agreement commenced on July 15, 2000 and terminated on October
15, 2000.
Historically we have provided satellite services to a related company.
Because the related party began to decrease its programming expenditures in the
second half of 1999 and ceased all programming efforts as of March 31, 2000,
satellite services fees charged to affiliated parties decreased in the first
half of 2000. For the balance of the year, these satellite service fees should
remain at a level consistent with that of the second quarter of 2000.
In April 2000, we entered into a three-month agreement to lease two
satellite transponder channels as well as other uplinking and earth station
services to a third party. This agreement commenced on July 15, 2000 and
terminated on October 15, 2000.
EXPENSES. Satellite services expenses decreased $0.2 million, or 16%, from $1.3
million for the three months ended September 30, 1999 to $1.1 million for three
months ended September 30, 2000. This decrease is primarily due to cost savings
realized as a result of the affiliated party ceasing all programming operations
as of March 31, 2000 as discuss herein. As a percentage of satellite services
revenues, satellite services expenses increased from 60% for the three months
ended September 30, 1999 to 66% for the three months ended September 30, 2000.
Due to the fixed nature of most of our satellite services expenses, the
percentage of satellite services expenses in relation to the satellite services
revenues will generally increase as our revenues decrease.
OPERATING INCOME. Operating income from satellite services decreased $0.3
million, or 34%, from $0.9 million for the three months ended September 30, 1999
to $0.6 million for the three months ended September 30, 2000 as a result of the
factors stated above.
SEGMENT EBITDA. Segment EBITDA from satellite services decreased $0.3 million,
or 18%, from $1.8 million for the three months ended September 30, 1999 to $1.5
million for the three months ended September 30, 2000 as a result of the factors
stated above.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2000
REVENUES
Total revenues increased $17.7 million, or 40%, from $44.6 million for the
nine months ended September 30, 1999 to $62.3 million for the nine months ended
September 30, 2000. Total revenues adjusted for the acquisition of Broadcast
Programming would have been $49.4 million for the nine months ended September
30, 1999. This increase was due to strong growth in our radio programming
syndication and cable programming operations, an increase in radio revenues
resulting from the Broadcast Programming acquisition, as well as Internet
advertising sales services.
OPERATING EXPENSES
OPERATIONS. Operations expense increased $9.8 million, or 32%, from $30.7
million for the nine months ended September 30, 1999 to $40.5 million for the
nine months ended September 30, 2000. Total operations expenses adjusted for the
acquisition of Broadcast Programming would have been $33.5 million for the nine
months ended September 30, 1999. The increase reflects increased operating
expenses resulting from the Broadcast Programming acquisition, Internet
programming content and the development of our Internet and cable television
advertising sales businesses. As a percentage of total revenues, total
operations expense decreased from 69% for the nine months ended September 30,
1999 to 65% for the nine months ended September 30, 2000.
20
SELLING AND MARKETING. Selling and marketing expenses increased $3.3 million, or
75%, from $4.3 million for the nine months ended September 30, 1999 to $7.6
million for the nine months ended September 30, 2000. Selling and marketing
expenses adjusted for the acquisition of Broadcast Programming would have been
$4.9 million for the nine months ended September 30, 1999. This increase is due
primarily to increased expenditures to attract additional radio and cable
television affiliates and an increase in selling and marketing expenditures
resulting from the Broadcast Programming acquisition.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased $0.3
million, or 29%, from $1.0 million for the nine months ended September 30, 1999
to $1.3 million for the nine months ended September 30, 2000. This increase is
due primarily to an increase in computer software and hardware support services
charged by an affiliate of Jones International and an increase in salary and
related expenses as a result of new associates hired to perform accounting
related functions.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses increased
$4.1 million, or 63%, from $6.5 million for the nine months ended September 30,
1999 to $10.6 million for the nine months ended September 30, 2000. Depreciation
and amortization expenses adjusted for the acquisition of Broadcast Programming
would have been $9.1 million for the nine months ended September 30, 1999. This
increase is due primarily to an increase in amortization expenses related to the
Broadcast Programming acquisition and the amortization of cable programming
distribution agreement payments.
OPERATING INCOME
Operating income increased $0.3 million, or 16%, from an operating income
of $2.0 million for the nine months ended September 30, 1999 to operating income
of $2.3 million for the nine months ended September 30, 2000, as a result of the
factors discussed herein. Operating income adjusted for the acquisition of
Broadcast Programming would have been $0.9 million for the nine months ended
September 30, 1999.
EBITDA
EBITDA increased $4.3 million, or 56%, from $7.9 million for the nine
months ended September 30, 1999, to $12.2 million for the nine months ended
September 30, 2000 as a result of the factors discussed herein. EBITDA adjusted
for the acquisition of Broadcast Programming would have been $9.4 million for
the nine months ended September 30, 1999.
OTHER EXPENSE
Total other expense increased $0.3 million, or 4%, from $8.9 million for
the nine months ended September 30, 1999 to $9.2 million for the nine months
ended September 30, 2000.
NET LOSS
Net loss decreased $0.3 million, or 4%, from $(7.9) million for the nine
months ended September 30, 1999 to $(7.6) million for the nine months ended
September 30, 2000 as a result of the factors discussed herein.
RADIO SYNDICATION PROGRAMMING
REVENUES. Radio syndication programming revenues increased $12.4 million, or
66%, from $18.8 million for the nine months ended September 30, 1999 to $31.2
million for the nine months ended September 30, 2000, due primarily to an
increase in radio advertising revenue and the acquisition of the assets of
Broadcast Programming. Radio syndication programming revenues adjusted for the
acquisition of Broadcast Programming would have been $23.6 million for the nine
months ended September 30, 1999. Following the acquisition, Broadcast
Programming generated advertising and programming license fee revenues of $7.6
million during the nine months ended September 30, 2000. Separate from Broadcast
programming, advertising revenues increased $5.2 million due to an increase in
the number of spots sold, an increase in the rates charged for our advertising
spots and the number of radio programs we offered. This increase was offset by a
decrease of $0.4 million in radio license fees, reflecting our decision to focus
on programming targeted at larger market radio stations that generally are not
charged license fees.
EXPENSES. Radio syndication programming expenses increased $10.0 million, or
55%, from $18.2 million for the nine months ended September 30, 1999 to $28.2
million for the nine months ended September 30, 2000. Radio syndication expenses
adjusted for the acquisition of Broadcast Programming would have been $24.2
million for the nine months ended September 30, 1999. This increase was
primarily due to:
21
- a $6.5 million increase in operating expenses as a result of the
Broadcast Programming acquisition, including depreciation and
amortization expenses of $2.3 million;
- a $1.2 million increase in radio programming and distribution expenses
due to an increase in the number of radio programs we offered, as well
as an increase in the number of radio affiliates;
- a $1.1 million increase in marketing expenses incurred to increase the
number of radio stations receiving our programming;
- a $0.6 million increase in depreciation and amortization expenses
related to new equipment purchased for the upgrades of certain radio
programming studios, purchase of new satellite receivers, purchase of
new computer hardware and software and amortization of intangibles
mostly related to the acquisition of Broadcast Programming;
- a $0.4 million increase in management and support costs; and
- a $0.2 million increase in fees paid to license certain radio
programming.
As a percentage of radio syndication programming revenues, radio
programming syndication expenses decreased from 97% for the nine months ended
September 30, 1999 to 91% for the nine months ended September 30, 2000. Due to
the fixed nature of most of our radio programming expenses, our radio
syndication programming expenses as a percent of radio programming syndication
revenues will generally decline as our radio programming revenues increase.
OPERATING INCOME (LOSS). Operating income (loss) from radio syndication
programming increased $2.4 million from an operating income of $0.6 million for
the nine months ended September 30, 1999 to operating income of $3.0 million for
the nine months ended September 30, 2000 as a result of the factors stated
herein. Operating loss from radio syndication programming adjusted for the
acquisition of Broadcast Programming would have been $(0.6) million for the nine
months ended September 30, 1999.
SEGMENT EBITDA. Segment EBITDA from radio syndication programming increased $5.2
million, or 195%, from $2.7 million for the nine months ended September 30, 1999
to $7.9 million for the nine months ended September 30, 2000 as a result of the
factors stated herein. Segment EBITDA from radio programming adjusted for the
Broadcast Programming acquisition would have been $4.2 million for the nine
months ended September 30, 1999.
CABLE TELEVISION PROGRAMMING
REVENUES. Cable television programming revenues increased $5.6 million, or 29%,
from $19.2 million for the nine months ended September 30, 1999 to $24.8 million
for the nine months ended September 30, 2000. This increase was due to the
following:
- GAC's revenues increased $2.5 million, or 73%, as a result of a $2.1
million, or 91%, increase in advertising revenues and $0.4 million, or
35%, increase in affiliate license fees. Advertising revenues
increased due to higher advertising rates charged for airtime driven
by a 25% increase in the number of subscribers receiving GAC and an
increase the number of higher paying national advertisers; and
- PIN's revenues increased $3.1 million, or 20%, primarily as a result
of an 12% increase in FTRE's receiving PIN. FTREs represent the number
of full-time revenue equivalent subscribers receiving PIN.
EXPENSES. Cable television programming expenses rose $5.2 million, or 27%, from
$19.2 million for the nine months ended September 30, 1999 to $24.4 million for
the nine months ended September 30, 2000. This was primarily due to:
- increases of $2.7 million in rebates to cable systems receiving PIN,
which was driven by an increase in PIN revenues of $3.1 million from
September 30, 1999 to September 30, 2000;
- an increase of $1.3 million in amortization expenses for GAC cable
programming distribution agreement payments;
- an increase of $1.1 million as a result of new associates hired to
sell GAC traditional spot advertising and a national audience ratings
services subscribed to by GAC beginning in January 2000;
22
- an increase of $0.5 million in cable television programming expenses
resulting from an increase in GAC affiliate sales and other
promotional expenses; and
- a decrease of $0.4 million in GAC's management and other expenses.
As part of our efforts to increase GAC subscriber distribution , GAC
entered into a digital satellite distribution agreement with a third party
which will enable GAC to broadcast its programming on a digital platform to
cable systems who elect to carry GAC on their digital programming tiers. We
estimate that expenses will increase approximately $50,000 per month starting
in November 2000 as a result of this agreement .
For the nine months ended September 30, 1999 and 2000, PIN made rebates of
approximately 75% and 77%, respectively, of its advertising revenues to systems
receiving its programming. Rebates paid to cable systems receiving PIN
programming, as a percent of revenue, have remained relatively constant over the
comparable periods on a per FTRE basis. However, as FTRE's and PIN advertising
revenues grow, total cable television programming expenses will increase as PIN
will have to pay out additional rebates to cable systems. As a percentage of
cable television programming revenues, cable television programming expenses
decreased from 100% for the nine months ended September 30, 1999 to 98% for the
nine months ended September 30, 2000.
OPERATING INCOME. Operating income from cable television programming increased
$0.4 million, or 559%, from operating income of $0.1 million for the nine months
ended September 30, 1999 to operating income of $0.5 million for the nine months
ended September 30, 2000 as a result of the factors stated above.
SEGMENT EBITDA. Segment EBITDA from cable television programming increased $1.7
million, or 117%, from $1.4 million for the nine months ended September 30, 1999
to $3.1 million for the nine months ended September 30, 2000 as a result of the
factors stated above.
INTERNET PROGRAMMING CONTENT
Internet programming content expenses commenced in the fourth quarter of
1999 and have increased throughout 2000. We have not generated significant
revenues from our Internet programming content business. Given the lack of
meaningful revenues generated thus far, we are currently evaluating the future
business strategy and prospects of the Internet programming content segment in
order to determine how to generate substantially higher revenues while also
reducing operating expenses. There can be no assurance that we will be
successful in making this business segment profitable in the future or that the
business segment will continue to operate in its current form.
REVENUES. We generated Internet programming content revenues of $0.1 million for
the nine months ended September 30, 2000.
EXPENSES. Internet programming content expenses increased $1.6 million from $0.2
million for the nine months ended September 30, 1999 to $1.8 million for the
nine months ended September 30, 2000.
OPERATING LOSS. Operating loss from our Internet programming content activities
increased $1.6 million from an operating loss of $(0.2) million for the nine
months ended September 30, 1999 to an operating loss of $(1.8) million for the
nine months ended September 30, 2000.
SEGMENT EBITDA. Segment EBITDA from our Internet programming content activities
decreased $1.5 million from a deficit of $(0.2) million for the nine months
ended September 30, 1999 to a deficit of $(1.7) million for the nine months
ended September 30, 2000.
INTERNET ADVERTISING SALES SERVICES
In the fourth quarter of 1999, we began developing an Internet advertising
sales services business which sells national advertising for third parties.
Currently, we are concentrating on providing these services to streaming media
companies. Operating expenses for Internet advertising services increased
beginning in the fourth quarter of 1999 and will continue to increase throughout
2000. We anticipate salary, selling and marketing and other associated expenses
to increase as we continue to develop the Internet advertising services
business.
REVENUES. We generated Internet advertising sales services revenues of $1.5
million for the nine months ended September 30, 2000.
23
We negotiated an early termination to an agreement with a third party to sell
Internet advertising time and provide other services. The termination of this
agreement resulted in a one-time cash payment of $1.5 million, which we received
in July 2000. The termination payment was recorded as Internet advertising sales
services revenue during the third quarter of 2000.
EXPENSES. We incurred Internet advertising sales services expenses of $0.8
million for the nine months ended September 30, 2000.
OPERATING INCOME (LOSS). We generated operating income from our Internet
advertising sales services of $0.7 million for the nine months ended September
30, 2000.
SEGMENT EBITDA. We generated a segment EBITDA from Internet advertising sales
services of $0.7 million for the nine months ended September 30, 2000.
SATELLITE SERVICES
REVENUES. Satellite services revenues decreased $1.9 million, or 28%, from $6.6
million for the nine months ended September 30, 1999 to $4.7 million for the
nine months ended September 30, 2000. This decrease was primarily due to:
- the expiration in August 1999 of a third party satellite services
agreement, which generated $1.2 million in satellite services revenues
in the nine months of 1999;
- $1.0 million decrease in satellite services fees charged to an
affiliated party because of reduced service levels required by the
affiliate when it ceased network operations at the end of the first
quarter of 2000; and
- $0.3 million increase in satellite services revenues due to a
three-month agreement to lease two satellite transponder channels as
well as other uplinking and earth station services to a third party.
This agreement commenced on July 15, 2000 and terminated on October
15, 2000.
Historically we have provided satellite services to a related company.
Because the related party began to decrease its programming expenditures in the
second half of 1999 and ceased all programming efforts as of March 31, 2000,
satellite services fees charged to affiliated parties decreased in the first
half of 2000. For the balance of the year, these satellite service fees should
remain at levels consistent with the second quarter of 2000.
In April 2000, we entered into a three-month agreement to lease two
satellite transponder channels as well as other uplinking and earth station
services to a third party. This agreement commenced on July 15, 2000 and
terminated on October 15, 2000.
EXPENSES. Satellite services expenses decreased $0.6 million, or 15%, from $4.0
million for the nine months ended September 30, 1999 to $3.4 million for three
months ended September 30, 2000. This decrease is primarily due to cost savings
realized as a result of the related party ceasing all programming operations as
of March 31, 2000 as discussed herein. As a percentage of satellite services
revenues, satellite services expenses increased from 61% for the nine months
ended September 30, 1999 to 72% for the nine months ended September 30, 2000.
Due to fixed nature of most of our satellite services expenses, our satellite
services expenses as a percentage of satellite services revenues will generally
increase as our satellite services revenues decrease.
OPERATING INCOME. Operating income from satellite services decreased $1.2
million, or 49%, from $2.5 million for the nine months ended September 30, 1999
to $1.3 million for the nine months ended September 30, 2000 as a result of the
factors stated above.
SEGMENT EBITDA. Segment EBITDA from satellite services decreased $1.4 million,
or 25%, from $5.6 million for the nine months ended September 30, 1999 to $4.2
million for the nine months ended September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have incurred net losses, primarily as a result of
expenses associated with developing and launching our programming networks and
financing costs. For the nine months ended September 30, 1999 and 2000, we
incurred net losses of $(7.9) million and $(7.6) million, respectively. Net cash
provided by (used in) operating activities for the nine months ended September
30, 1999 and 2000 was $(0.8) million and $3.5 million, respectively.
The implementation of our growth strategies depends on a number of factors,
including the availability of cash generated from
24
operations and available cash balances, and may require additional equity and/or
debt financings, particularly to make significant acquisitions. Our indenture
currently permits secured borrowings of up to $20.0 million. Currently, we do
not have a credit facility in place which would make available such borrowings.
We had cash and cash equivalents and available for sale securities of $14.9
million as of September 30, 2000. We believe that our cash balances, available
for sale securities and operating cash flow, including the cash flows of and
dividends and distributions from our subsidiaries, will fund our cash flow
requirements through 2001.
In October 2000, we withdrew our registration for an initial public
offering due to unfavorable market conditions. At such time market conditions
improve, we will reconsider an initial public offering of our Class A Common
Stock. We are considering a number of financing alternatives to provide us with
additional liquidity to implement our growth strategies. However, current equity
market conditions for media companies are unfavorable and it is unlikely we
would raise additional equity capital until market conditions improve. There can
be no assurance we will be successful in these efforts or that cash financings
will be available on terms we view as acceptable.
We will continue to depend significantly upon the earnings and cash flows
of, and dividends and distributions from, our subsidiaries to pay our expenses,
meet our obligations and pay interest and principal on our Senior Notes and our
other indebtedness as it may exist from time-to-time. While the terms of our
joint ventures (including the PIN Venture) generally require the mutual consent
of ourselves and our joint venture partners to distribute or advance funds to
ourselves, there are no significant contractual restrictions on distributions
from our subsidiaries.
INVESTING ACTIVITIES
For the nine months ended September 30, 1999 and 2000, net cash used in
investing activities was $(27.3) million and $(4.5) million, respectively. Our
investing activities for the nine months ended September 30, 2000 consisted
primarily of the following:
- $3.8 million proceeds from the sale of available for sale securities;
- $(5.3) million in cable programming distribution agreement payments
for GAC;
- $(0.8) million to purchase certain radio programs and other intangible
assets; and
- $(2.2) million for the purchase of property and equipment.
Total capital expenditures for the balance of 2000 are estimated to be
approximately $0.8 million, which will be used primarily to upgrade certain
cable television and radio related earth station equipment and to purchase
computer hardware and software for the Internet segment. Total cable programming
distribution agreement payments for GAC for the balance of 2000 are estimated to
be approximately $1.8 million.
FINANCING ACTIVITIES
In July 1999, we entered into a $20.0 million credit facility with a
commercial bank to finance the purchase of Broadcast Programming. In order to
allow us to obtain more favorable terms, Jones International guaranteed the loan
and provided certain collateral as security for the guaranty. The credit
facility bore interest either at the commercial bank's prime rate minus 2% or a
fixed rate (which is approximately equal to LIBOR) plus 0.5%. The interest rate
was 6.65 percent per annum at June 30, 2000. This credit facility expired on
June 30, 2000.
Net cash used in financing activities for the nine months ended
September 30, 2000 was $(0.5) million. Net cash used in financing activities
consisted of costs related to an attempted initial public offering of our
Class A Common Stock. Such costs included financial printing, legal counsel,
independent public accountants, regulatory and stock exchange registration
fees, and other various costs associated with the offering. As a result of
our withdraw of this proposed equity offering, we have expensed all deferred
offering costs relating to this equity offering. All of such costs were
expensed in the third quarter of 2000.
25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our financial
position, results of operations, or cash flows due to adverse changes in
financial market prices. We are exposed to market risk through interest rates.
This exposure is directly related to our normal funding and investing
activities.
As of September 30, 2000, none of our current liabilities was subject to
changes in interest rates.
ITEM 5: OTHER MATERIALLY IMPORTANT EVENTS
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
None
b) Reports on Form 8-K
None
26
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 INTERNATIONAL NETWORKS, LTD.
By: /s/ Jeffery C. Wayne
-------------------------------
Jeffery C. Wayne
President
Dated: November 10, 2000
By: /s/ Jay B. Lewis
-------------------------------
Jay B. Lewis
Group Vice President/Finance
(Principal Financial Officer)
Dated: November 10, 2000