AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 6, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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JONES INTERNATIONAL NETWORKS, LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COLORADO 7922 84-1250515
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
(303) 792-3111
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
ELIZABETH M. STEELE, VICE PRESIDENT AND SECRETARY
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
(303) 792-3111
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
PAUL HILTON, ESQ. MARC WEINGARTEN, ESQ.
N. ANTHONY JEFFRIES, ESQ. DEBORAH FREEDMAN, ESQ.
DAVIS, GRAHAM & STUBBS LLP SCHULTE ROTH & ZABEL LLP
370 SEVENTEENTH STREET, SUITE 4700 900 THIRD AVENUE
DENVER, COLORADO 80202 NEW YORK, NEW YORK 10022
(303) 892-9400 (212) 756-2000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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Class A Common Stock,
par value $.01 per
share................ 3,852,500 shares $13.00 $50,082,500 $15,177
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(1) Includes 502,500 shares subject to the Underwriters' over-allotment
option.
(2) Estimated solely for the purpose of determining the registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 6, 1996
PROSPECTUS
3,350,000 SHARES
JONES INTERNATIONAL NETWORKS, LTD.
CLASS A COMMON STOCK
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All shares of Class A Common Stock offered hereby are being offered by Jones
International Networks, Ltd. (the "Company"). Prior to this offering, there has
been no public market for the Class A Common Stock of the Company. It is
anticipated that the initial public offering price of the Class A Common Stock
will be between $11.00 and $13.00 per share. See "Underwriting" for a
discussion of the factors considered in determining the initial public offering
price. Approximately $28.3 million of the $36.0 million net proceeds of this
offering will be used to repay debt owed to affiliates of the Company. See "Use
of Proceeds." The Company has applied for quotation of its Class A Common Stock
on the Nasdaq National Market under the trading symbol "JNET."
Holders of Class A Common Stock are entitled to 1/20th of a vote per share
and holders of Class B Common Stock are entitled to one vote per share on all
matters submitted to a vote of shareholders. Both classes vote together as a
single class on all matters except that the holders of Class A Common Stock,
voting separately as a class, are entitled to elect approximately 25% of the
Company's directors, with the remainder of the directors being elected by the
holders of Class B Common Stock, voting separately as a class. The shares of
Class B Common Stock are not convertible into shares of Class A Common Stock.
Holders of the Class A Common Stock will receive the same per share
consideration (except with respect to voting rights) as the holders of the
Class B Common Stock in any Company merger, reorganization or recapitalization.
The Company will not support a tender offer or exchange offer unless the per
share consideration (except with respect to voting rights) to both classes is
the same. See "Description of Capital Stock" and "Risk Factors--Anti-Takeover
Effects; Potential Unfavorable Treatment in Takeover." Immediately following
the offering (assuming no exercise of the Underwriters' over-allotment option),
Glenn R. Jones, the beneficial owner of all of the Class B Common Stock, will
have approximately 89% of the combined voting power of the Company's total
outstanding common stock. See "Principal Shareholder" and "Risk Factors--Voting
Rights; Control by Principal Shareholder."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON
STOCK.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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Per Share..................................... $ $ $
Total(3)...................................... $ $ $
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information, including the Company's agreement to
grant a warrant to purchase shares of the Class A Common Stock to M. Kane &
Company, Inc. in consideration of certain financial advisory services
provided to the Company.
(2) Before deducting expenses of the offering estimated at $1.4 million payable
by the Company, which includes amounts payable to M. Kane & Company, Inc.
in consideration of certain financial advisory services provided to the
Company. See "Underwriting."
(3) The Company has granted an option to the Underwriters, exercisable within
30 days of the date hereof, to purchase up to 502,500 additional shares of
Class A Common Stock for the purpose of covering over-allotments, if any.
If the Underwriters exercise such option in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
-----------
The shares of Class A Common Stock are offered by the Underwriters when, as
and if delivered to and accepted by them, subject to their right to reject any
order in whole or in part and subject to certain other conditions. It is
expected that delivery of certificates representing the shares will be made
against payment on or about , 1996 at the office of Oppenheimer & Co.,
Inc., Oppenheimer Tower, World Financial Center, New York, New York 10281.
OPPENHEIMER & CO., INC.
HAMBRECHT & QUIST
M. KANE & COMPANY, INC.
The date of this Prospectus is , 1996
[The heading on this page is "Jones International Networks, Ltd." The page
is divided into three sections. The first section is labeled "Radio
Programming" which is placed above eleven color logotypes. Each logotype is
the symbol of one of the Company's radio programs. The second section is
labeled "Television Networks" and contains the color logotypes of the
Company's two television networks. The third section is labeled "Distribution
Facilities" and presents a color photograph of the Company's production
facilities and satellite transmission antennae.]
[ART]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ
NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and the historical and pro forma
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus. Unless the context requires otherwise, references to the Company
herein include Jones International Networks, Ltd. and its direct and indirect
subsidiaries and references to Common Stock herein refer collectively to the
Class A Common Stock and Class B Common Stock. In addition, unless the context
requires otherwise, all information in this Prospectus, including numbers and
percentages of the Company's Common Stock: (i) assumes that the Underwriters'
overallotment option has not been exercised, (ii) reflects the 220-for-one
stock split of the Class A Common Stock and Class B Common Stock and (iii)
reflects the completion of each of the other transactions (collectively, the
"Pre-Offering Transactions") described herein under "Prospectus Summary--Pre-
Offering Transactions," which are to be effected immediately prior to the
consummation of the offering. Investors should consider carefully the
information set forth under the heading "Risk Factors."
THE COMPANY
Jones International Networks, Ltd. (the "Company") creates, develops,
acquires, produces and distributes programming to radio stations, cable
television system operators and other video distributors. The Company: (i)
provides radio programming to radio stations in exchange for advertising time
that it resells to national advertisers, (ii) provides television programming
to cable television system operators and other video distributors, (iii) sells
advertising time on its two television networks and receives license fees for
its country music television network and (iv) owns and operates its own
playback, uplink and satellite transmission facilities that both distribute the
Company's programming and are subleased to others for a fee. The Company
believes that the vertical integration of its activities, from creation,
development and production through distribution, provides a platform from which
it can cost-effectively launch additional programming.
The Company was founded by Glenn R. Jones. Mr. Jones is the Chairman and
Chief Executive Officer of Jones Intercable, Inc. ("Jones Intercable"), one of
the top ten cable television multiple system operators ("MSOs") serving more
than 1.4 million basic subscribers in 48 cable television systems in the United
States. Mr. Jones has been instrumental in leading the Company's early growth
and continues as its majority stockholder and chairman. Mr. Jones has been a
leader in the cable television business for over 35 years and in 1994 he was
inducted into the Broadcasting and Cable Hall of Fame.
The Company launched its first 24-hour satellite delivered radio program in
1989 and now provides 11 radio programs to 1,228 radio station affiliates in
the United States and Canada. Approximately 60 of these affiliates receive more
than one program from the Company. The Company's nine 24-hour music programs
include popular music formats such as country and adult contemporary. The
Company also distributes one long-form country music countdown program and one
short-form country music news program. The Company generally provides its radio
programming to radio stations in exchange for advertising time that the Company
resells to national advertisers. In some cases, the Company also charges radio
stations a license fee for radio programming. The Company, directly and through
a joint venture, also provides audio music and information programming for
distribution via cable television systems and for other applications.
3
The Company's television programming is distributed through two networks:
Product Information Network ("PIN") and Great American Country ("GAC"). The
Product Information Network Venture (the "PIN Venture"), a joint venture among
the Company, a subsidiary of Cox Communications, Inc. ("Cox") and Adelphia
Communications Corporation ("Adelphia"), operates the PIN network, a 24-hour
television network that airs long-form advertising generally known as
"infomercials." The Company introduced the PIN network in October 1993 to
capitalize on the rapidly growing infomercial industry. The PIN network airs
informational programming from major advertisers that include Ford Motor
Company, State Farm Insurance, Schering-Plough Corporation and Sony
Corporation, among others. In addition, the PIN network airs traditional direct
response infomercials. The PIN network is currently available to approximately
7.3 million subscribers through 168 cable systems. Approximately 2.3 million of
these subscribers are located in 12 of the top 25 Designated Market Areas
("DMAs"). The GAC network is a 24-hour country music video network that was
introduced in December 1995 to capitalize on the popularity of country music.
The GAC network is currently available to approximately 0.9 million subscribers
through 51 cable systems.
The Company's satellite delivery and production support services provide
reliable and efficient playback, trafficking, uplinking and satellite
transmission services to the Company's networks. The Company believes that
these distribution services allow it to have strict management and quality
control over the distribution of its programming. The Company also sells its
satellite delivery and production support services to certain related companies
and to a third party. For the delivery of television programming, the Company
has long-term leases for two transponders on strategically positioned
satellites. Through the implementation of new digital compression technologies
that the Company plans to utilize for both of its leased satellite
transponders, the Company will have an increased amount of transponder capacity
for its own television programming and for sublease to third party television
networks. The Company also subleases space on other satellite transponders for
delivery of its radio programming.
To attract advertisers, radio and television media require programming that
is appealing to listeners and viewers. Given radio's wide reach and relatively
low advertising costs, it is one of the most cost-effective means to reach
targeted demographic groups. The Company believes that most radio stations
utilize some syndicated or network programming, similar to that provided by the
Company, due to the talent, time and expense required to develop a full day of
in-house programming. In addition, the Company believes infomercials provide
television advertisers with a cost-effective medium through which to deliver
sales messages, product introductions or demonstrations to a targeted audience.
The Company believes that as the benefits of infomercial programming become
more widely understood, the number of advertisers and the volume of infomercial
programming will continue to grow. The Company's country music television
network also participates in a growing media sector. According to industry
sources, country music is one of America's most popular music formats and one
of the fastest growing segments of the music industry in the United States.
Finally, the Company also believes that there is growing market demand for
satellite delivery and production support services, which the Company can
provide, to distribute television programming via satellite.
The Company's objective is to increase its revenue and operating cash flow by
employing the following strategies: (i) creating, developing, acquiring,
producing and distributing additional high-quality programming, (ii) increasing
the distribution of its radio and television networks by expanding its
marketing and sales activities directed at radio stations, MSOs and
advertisers, (iii) acquiring and/or creating complementary businesses, (iv)
capitalizing on its satellite delivery and production support facilities and
(v) leveraging its integrated infrastructure to cost-effectively launch
additional programming.
4
The Company was incorporated as a Colorado corporation in 1993, and it is the
successor to certain affiliated entities that previously conducted certain of
its businesses. The Company's corporate offices are located at 9697 East
Mineral Avenue, Englewood, Colorado 80112, and its telephone number is (303)
792-3111.
RECENT DEVELOPMENTS
Effective August 15, 1996, the Company acquired its radio programming
business through the purchase of all of the common stock of Jones Galactic
Radio, Inc. ("Galactic Radio") from Jones Global Group, Inc. ("Global Group"),
an affiliate of the Company, for a purchase price of $1.2 million in cash and a
$16.0 million note payable to Global Group.
Effective September 30, 1996, the Company acquired its playback, trafficking
and uplinking facilities through the purchase of all of the common stock of
Jones Earth Segment, Inc. ("Earth Segment") from Glenn R. Jones and Jones
International, Ltd. ("Jones International"), affiliates of the Company, for
110,833 shares and 472,500 shares, respectively, of the Company's Class A
Common Stock. As a result of this transaction, the Company assumed debt of
approximately $6.6 million owed by Earth Segment to Jones Intercable that was
incurred in connection with the construction of Earth Segment's facilities.
These transactions have been treated as a reorganization of entities under
common control (similar to a pooling of interests) and are included in the
Company's historical and pro forma Consolidated Financial Statements for all
periods presented in such statements. The Company intends to utilize a portion
of the proceeds of this offering to repay the debt incurred and assumed in
connection with the foregoing transactions. See "Use of Proceeds" and "Certain
Relationships and Related Transactions."
PRE-OFFERING TRANSACTIONS
Since February 1995, the Company has owned 50% or less of the PIN Venture,
the entity that owns and operates the PIN network. Immediately prior to the
consummation of the offering, the Company will acquire Adelphia's approximately
8% equity interest in the PIN Venture in exchange for approximately 233,333
shares of the Company's Class A Common Stock. As a result of this transaction,
the Company will own approximately 54% of the PIN Venture and, going forward,
will be able to consolidate the operations of the PIN Venture for financial
reporting purposes. Also immediately prior to the consummation of the offering,
the Company will acquire Glenn R. Jones' 19% equity interest in Jones
Infomercial Networks, Inc., the subsidiary through which the Company has
invested in the PIN Venture, and Mr. Jones' 19% equity interest in Great
American Country, Inc., the subsidiary through which the Company operates the
GAC network, in exchange for 333,333 shares of the Company's Class A Common
Stock. Also immediately prior to the consummation of the offering, the Company
will acquire the satellite transponder leases and related subleases owned by
Jones Space Segment, Inc. ("Space Segment"), an affiliate of the Company, in
exchange for 416,667 shares of the Company's Class A Common Stock. The
foregoing transactions are referred to collectively in this document as the
"Pre-Offering Transactions" and are given effect in the Company's pro forma
Consolidated Financial Statements presented elsewhere in this Prospectus.
5
THE OFFERING
Class A Common Stock
offered by the Company:.... 3,350,000 shares
Common Stock to be
outstanding after the
offering:
Class A Common Stock...... 6,301,786 shares
Class B Common Stock...... 1,385,120 shares
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7,686,906 shares(1)
Total................... -------
-------
Use of proceeds............. The Company intends to use the net proceeds from
the offering as follows: (i) approximately $16.0
million to repay the debt incurred in connection
with the acquisition of the Company's radio
network business, (ii) approximately $6.6 million
to repay the debt assumed in connection with the
acquisition of the Company's satellite services
facilities, (iii) approximately $5.7 million to
repay affiliate advances and (iv) approximately
$7.7 million for general corporate purposes,
including working capital and the acquisition
and/or creation of complementary businesses. See
"Use of Proceeds."
Voting rights............... Holders of Class A Common Stock are entitled to
1/20th of a vote per share and holders of Class B
Common Stock are entitled to one vote per share
on all matters submitted to a vote of
shareholders. Both classes vote together as a
single class on all matters not requiring a class
vote. The holders of Class A Common Stock, voting
separately as a class, are entitled to elect
approximately 25% of the Company's directors,
with the remainder of the directors being elected
by the holders of Class B Common Stock, voting
separately as a class. The shares of Class B
Common Stock are not convertible into shares of
Class A Common Stock. See "Description of Capital
Stock." Immediately following the offering, Glenn
R. Jones, the beneficial owner of the Class B
Common Stock, will have approximately 89% of the
combined voting power of the Company's
outstanding Common Stock. See "Principal
Shareholder" and "Risk Factors--Voting Rights;
Control by Principal Shareholder,--Anti-Takeover
Effects; Potential Unfavorable Treatment in
Takeover, --Conflicts of Interest; Transactions
with and Reliance on Affiliates."
Proposed Nasdaq National
Market symbol.............. JNET
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(1) Excludes: (i) 630,000 shares of Class A Common Stock reserved for issuance
pursuant to the Company's Stock Option Plan, none of which were subject to
outstanding options as of November 5, 1996 and (ii) 13,958 shares (16,052
shares if the Underwriters' over-allotment option is exercised in full) of
Class A Common Stock issuable under a warrant the Company has agreed to
grant to M. Kane & Company, Inc. with an exercise price equal to 120% of
the initial public offering price. See "Management--Stock Option Plan" and
"Underwriting."
6
SUMMARY CONSOLIDATED FINANCIAL DATA
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
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1993 1994 1995 1995 1996
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND
AFFILIATE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue...................... $ 5,222 $ 6,572 $ 9,683 $ 7,053 $ 9,074
Operating expense............ 6,112 8,533 10,683 7,753 10,199
Operating loss............... (890) (1,961) (1,000) (700) (1,125)
Net loss before taxes and
minority interests.......... (782) (1,743) (1,720) (1,144) (1,177)
Net loss..................... (828) (1,657) (1,382) (902) (793)
Net loss per common share.... $ (.25) $ (.49) $ (.41) $ (.27) $ (.24)
Weighted average number of
common shares outstanding... 3,354 3,354 3,354 3,354 3,354
OTHER DATA:
EBITDA(1).................... $ (345) $ (1,349) $ -- $ 89 $ 491
Radio station average quarter
hour audience(2)(3)......... 516 670 765 764 1,070
Radio station affiliates(3).. 718 925 929 949 1,212
PIN network subscribers(3)... 275 1,489 4,825 4,303 7,260
GAC network subscribers(3)... -- -- 14 -- 896
SEPTEMBER 30, 1996
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ACTUAL AS ADJUSTED(4)
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(IN THOUSANDS)
BALANCE SHEET DATA:
Cash................................................... $ 3 $ 10,249
Working capital........................................ (1,641) 11,787
Total assets........................................... 12,592 22,838
Long-term debt and capital lease obligation............ 22,562 7
Total shareholders' investment......................... (14,014) 21,968
- --------
(1) EBITDA is earnings before interest income (expense), provision for income
taxes, depreciation and amortization. Although EBITDA is not a measure of
performance calculated in accordance with generally accepted accounting
principles ("GAAP"), it is generally accepted as providing useful
information regarding a company's ability to service and/or incur debt.
EBITDA should not be considered in isolation or as a substitute for net
income, cash flows from operating activities and other income and cash flow
statement data prepared in accordance with GAAP or as a measure of
liquidity or profitability.
(2) Average quarter hour audience ("AQH") represents the average audience
(persons age 12 or older) listening to radio stations broadcasting the
Company's 24-hour radio programming during any 15-minute period from 6 am -
7 pm, Monday through Friday, as measured by the Arbitron rating service.
Radio advertising is generally sold on the basis of the total listening
audience as quantified by the AQH.
(3) Represents amounts at the end of the periods indicated. The GAC network was
launched in December 1995.
(4) Adjusted to give effect to the sale of 3,350,000 shares of Class A Common
Stock offered by the Company hereby, at an assumed offering price of $12.00
per share and after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company, and the application of
the net proceeds therefrom. See "Use of Proceeds."
7
PRO FORMA SUMMARY CONSOLIDATED FINANCIAL DATA
The following table gives effect to the Pre-Offering Transactions as if they
had occurred at the beginning of the period indicated for Statement of
Operations Data and at September 30, 1996 for Balance Sheet Data. See
"Prospectus Summary--Pre-Offering Transactions."
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND AFFILIATE
DATA)
STATEMENT OF OPERATIONS
DATA:
Revenue................ $11,221 $11,292 $16,491 $ 12,003 $ 16,634
Operating expense...... 9,648 10,811 15,661 11,356 15,061
Operating income....... 1,573 481 830 647 1,573
Net loss before taxes
and minority
interests............. (1,628) (2,353) (2,484) (1,753) (881)
Net loss............... (1,458) (2,079) (1,906) (1,306) (853)
Net loss per common
share................. $ (.36) $ (.51) $ (.44) $ (.30) $ (.20)
Weighted average number
of common shares
outstanding........... 4,104 4,104 4,337 4,337 4,337
OTHER DATA:
EBITDA(1).............. $ 5,086 $ 3,996 $ 5,402 $ 4,141 $ 4,862
Radio station average
quarter hour
audience(2)(3)........ 516 670 765 764 1,070
Radio station
affiliates(3)......... 718 925 929 949 1,212
PIN network
subscribers(3)........ 275 1,489 4,825 4,303 7,260
GAC network
subscribers(3)........ -- -- 14 -- 896
SEPTEMBER 30, 1996
------------------------
PRO FORMA,
PRO FORMA AS ADJUSTED(4)
--------- --------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash.................................................. $ 84 $ 10,330
Working capital....................................... (1,026) 12,402
Total assets.......................................... 39,857 50,103
Long-term debt and capital lease obligation........... 53,689 31,134
Total shareholders' investment........................ (19,341) 16,641
- --------
(1) EBITDA is earnings before interest income (expense), provision for income
taxes, depreciation and amortization. Although EBITDA is not a measure of
performance calculated in accordance with GAAP, it is generally accepted as
providing useful information regarding a company's ability to service
and/or incur debt. EBITDA should not be considered in isolation or as a
substitute for net income, cash flows from operating activities and other
income and cash flow statement data prepared in accordance with GAAP or as
a measure of liquidity or profitability.
(2) AQH represents the average audience (persons age 12 or older) listening to
radio stations broadcasting the Company's 24-hour radio programming during
any 15-minute period from 6 am - 7 pm, Monday through Friday, as measured
by the Arbitron rating service. Radio advertising is generally sold on the
basis of the total listening audience as quantified by the AQH.
(3) Represents amounts at the end of the periods indicated. The GAC network was
launched in December 1995.
(4) Adjusted to give effect to the sale of 3,350,000 shares of Class A Common
Stock offered by the Company hereby, at an assumed offering price of $12.00
per share and after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company, and the application of
the net proceeds therefrom. See "Use of Proceeds."
8
RISK FACTORS
An investment in the shares of Class A Common Stock offered hereby involves a
high degree of risk. Prospective investors should consider carefully the
following factors, as well as all of the other information set forth in this
Prospectus, in evaluating an investment in the Class A Common Stock offered
hereby. This Prospectus may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended. Discussions containing such forward-looking statements may be found in
the material set forth under "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "Business," as
well as elsewhere in the Prospectus. Actual events or results may differ
materially from those discussed in the forward-looking statements as a result
of various factors, including, without limitation, the risk factors set forth
below and the matters set forth in the Prospectus generally.
HISTORY OF NET LOSSES; EXPECTED FUTURE NET LOSSES
The Company has sustained net losses of $0.8 million, $1.7 million, $1.4
million and $0.8 million for the years ended December 31, 1993, 1994 and 1995,
and for the nine months ended September 30, 1996, respectively. These losses
have resulted in an accumulated deficit of $14.0 million as of September 30,
1996. Such net losses and accumulated deficit are generally greater on a pro
forma basis. There can be no assurance that the Company will ever generate net
income. In addition, the Company has not generated sufficient cash from
operations to fund its cash needs and has relied on advances and loans from
Jones International and related companies. Jones International and such related
companies are under no obligation to provide, nor does the Company expect them
to provide, additional financial assistance to the Company subsequent to the
consummation of the offering. The Company does not presently have a bank or
other credit facility. Although the Company believes that the net proceeds of
this offering, together with its cash flow from operations, will be sufficient
to satisfy the Company's capital requirements through at least December 31,
1997, there can be no assurance to such effect or that the Company will be able
to meet its longer term capital requirements. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
RISKS ASSOCIATED WITH DISTRIBUTION OF TELEVISION PROGRAMMING
The Company's business is dependent in part upon the distribution of the PIN
and GAC networks through cable television systems and other video distributors.
In terms of cable distribution, the PIN and GAC networks compete for a limited
number of available cable channels with a large number of well-established
programmers supplying a variety of alternative programming, including
entertainment, sports, news, public affairs and educational programming. In
addition, cable programming distribution is controlled by MSOs, some of which
are affiliated with competing program providers. While the PIN Venture has
entered into affiliation agreements with a number of the largest MSOs in the
United States, as well as with a number of smaller MSOs, carriage on each of
the systems operated by an MSO is not guaranteed by such agreements and, in
many cases, these agreements do not guarantee the distribution of the PIN
network's programming for 24 hours per day. A significant portion of the PIN
network's distribution is on cable systems owned and/or managed by affiliates
of the PIN Venture's three partners. The termination or non-renewal of certain
of the PIN Venture's affiliation agreements or the termination or reduction in
the amount of carriage of the PIN network by a significant number of cable
systems would have a material adverse effect on the Company. The GAC network,
which was launched in December 1995, is distributed primarily on cable
television systems owned or managed by Jones Intercable, an affiliate of the
Company. Under the terms of this affiliation agreement, the license fees paid
by Jones Intercable may be reduced in March 1997 if the GAC network has not
entered into an affiliation agreement by that date with another MSO
9
with at least 400,000 basic subscribers on terms, including license fees,
comparable to those between the GAC network and Jones Intercable. There can be
no assurance that the Company will be able to meet this criteria and,
accordingly, that the license fees paid by Jones Intercable will not be
reduced in March 1997. Also, sales of cable systems by MSOs that have
affiliation agreements with the Company could result in a loss of subscribers
to the Company's television networks if the new cable system owners do not
retain the Company's programming. The Company's expansion plans for the PIN
and GAC networks are dependent, in part, upon the ability of the Company to
enter into affiliation agreements with additional MSOs and other video
programming distributors and to renew existing affiliation agreements with
current MSOs when such agreements expire. There can be no assurance that the
Company will be able to successfully negotiate affiliation agreements with any
current or new MSO or other video programming distributor. Because advertising
revenue generated by the PIN and GAC networks is a function of distribution,
the Company's success in the distribution of its television programming will
directly affect advertising revenue generated by the Company's television
networks.
RISKS ASSOCIATED WITH RADIO PROGRAMMING
The Company's ability to maintain and increase the distribution of its radio
networks and to increase the audience for its radio programming is dependent
upon, among other factors, its ability to assess consumer preferences
accurately, its ability to develop, acquire and distribute radio programming
that is attractive to radio listeners, and the amount of radio programming
produced in-house by radio stations. The Company acquires certain of its radio
programming from third party programmers pursuant to license agreements that
provide that the third party programmers bear the costs incurred in developing
and producing the programming. These license agreements are typically for a
term of three to five years. The Company does not generally retain the rights
to the programming upon the termination of these license agreements. There can
be no assurance that the Company will be able to continue to develop or
acquire radio programming on acceptable terms that will be desirable to its
targeted markets. There can similarly be no assurance that the Company will be
able to enter into new affiliation agreements, or maintain its existing
affiliation agreements, with radio stations.
DEPENDENCE ON ADVERTISING REVENUE
The Company is heavily dependent on advertising revenue. For the nine months
ended September 30, 1996, advertising revenue comprised 53% of the Company's
total revenue. Attracting advertisers is dependent upon the Company's ability
to demonstrate that its networks are able to deliver the type and quantity of
radio listeners and television viewers that such advertisers seek to target
with their advertising. The Company's success in this endeavor will be
affected by a number of factors, including, among others, the Company's
ability to expand the distribution of its networks, to deliver high quality,
entertaining programming that is appealing to additional listeners and viewers
and to increase awareness of its networks and measure the type and quantity of
radio listeners and television viewers tuned to its networks. There can be no
assurance that the Company will be successful in this endeavor.
The Company's advertising revenue and operating results also may be
adversely affected by economic downturns. Such economic downturns, if
prolonged, might have an adverse impact on radio and television advertising
and on the Company's financial condition and results of operations. In
addition, advertising revenue may be impacted by many other factors beyond the
Company's control, including, but not limited to: (i) the amount of funds that
advertisers dedicate to radio and television advertising in general and to the
Company's networks in particular, (ii) the popularity of programming and
ratings achieved by third party radio station affiliates that broadcast the
Company's radio programming or utilize its services, (iii) the number of
advertisers who seek audiences within the demographic groups to which the
Company's networks target programming, (iv) competition within national and
regional markets from other media and (v)
10
regulatory restrictions on advertising (e.g., beer, wine, liquor or cigarette
advertising). There can be no assurance that the Company will be able to
maintain its existing advertisers or attract additional advertisers in the
future. The Company could suffer a material adverse effect if it is unable to
maintain or increase its advertising revenue.
DEPENDENCE ON ADVERTISING RELATIONSHIPS
The Company's radio network advertising revenue is highly dependent on the
efforts of its national advertising representation firm, Media America, Inc.
("Media America"). For the nine months ended September 30, 1996, 96% of the
Company's radio advertising revenue was derived from sales made through Media
America. The Company contracts with Media America for the sale of advertising
on its 24-hour radio formats and the Crook & Chase Country CountDown program
pursuant to agreements that expire in May 1998 and January 1997, respectively.
In addition, the Company contracts with Media America for the majority of the
GAC network's advertising sales pursuant to a contract that expires in
December 1998. There can be no assurance that Media America will continue to
be able to sell advertising time on the Company's networks. Nor can there be
any assurance that the Company will be able to renew its contracts with Media
America, or obtain a suitable replacement, on acceptable terms.
The Company's television network advertising revenue is highly dependent on
its relationships with National Media Group ("National Media") and Consumer
Resource Network ("CRN"). The Company sells large blocks of airtime on the PIN
network to National Media and CRN. For the nine months ended September 30,
1996, 59% of the Company's television advertising revenue was derived from
sales of airtime to these firms. The rates per one-half hour of airtime that
CRN and National Media pay to the PIN network fluctuate based on, among other
things, the number of subscribers to the PIN network. The Company's contracts
with National Media and CRN expire in April 1997 and December 1997,
respectively. The Company believes that National Media and CRN may consider
launching their own infomercial networks in the future. There can be no
assurance that National Media and CRN will maintain or increase the amount of
airtime purchased on the PIN network. Nor can there be any assurance that the
Company will be able to renew its contracts with these firms, or obtain
suitable replacements, on acceptable terms.
The termination of the Company's relationships with Media America, National
Media or CRN could have a material adverse effect on the Company.
INABILITY TO SUSTAIN OR MANAGE GROWTH
The Company's revenue has grown in recent years primarily as a result of
increased advertising and licensing revenue generated by its programming
networks. The Company's ability to maintain its growth will depend on a number
of factors, many of which are beyond the Company's control, including
maintaining and expanding distribution of the PIN and GAC networks, both
through MSOs, as well as through alternative distribution systems such as
direct broadcast satellite services ("DBS"), multi-system, multi-point
distribution services ("MMDS") and video distribution systems being
established by various telecommunications companies; maintaining and expanding
distribution of its radio networks; developing and acquiring additional
programming for the Company's radio networks that is consistent with listener
preferences; and attracting and maintaining advertisers that are willing to
pay competitive rates. In addition, the Company is subject to a variety of
business risks generally associated with growing companies. Future growth and
expansion could place significant strain on the Company's management personnel
and likely will require the Company to recruit additional management
personnel. As part of its business strategy, the Company will consider
acquiring and/or creating complementary businesses. The success of this
strategy depends not only upon the Company's ability to identify and acquire
suitable businesses, but also upon its ability to integrate acquired
businesses into its organization effectively and to retain and motivate key
personnel of acquired businesses. In
11
addition, the Company may face competition from other companies for
acquisition candidates. There can be no assurance that the Company will be
able to manage its expanding operations effectively, that it will be able to
maintain or accelerate its growth or that such growth, if achieved, will
result in profitable operations, that it will be able to attract and retain
sufficient management personnel necessary for continued growth, or that it
will be able to successfully make strategic investments or acquisitions. The
failure to accomplish any of the foregoing could have a material adverse
effect on the Company.
DEPENDENCE UPON KEY PERSONNEL
The Company is dependent on the efforts and abilities of its senior
management, including those of Glenn R. Jones, its Chairman of the Board,
Gregory J. Liptak, its President, Jay B. Lewis, its Group Vice President/Chief
Financial Officer and Eric Hauenstein, the Vice President/General Manager of
its radio networks. The Company does not have employment agreements with, and
does not carry key life insurance on, any of its employees. The loss or
interruption of the services of key members of management could have a
material adverse effect on the Company. In addition, the Company's success
depends in part upon its ability to attract and retain talented writers,
performers and other creative personnel. Although the Company believes that
its relations with its creative personnel are good and that it will continue
to be successful in attracting and retaining qualified creative personnel,
there can be no assurance that the Company will be able to continue to do so.
See "Business --Associates and Others" and "Management."
RISKS ASSOCIATED WITH THE PIN VENTURE
The PIN network is operated by the PIN Venture, a joint venture among the
Company, Cox and Adelphia. The Company has a majority-ownership interest in
the PIN Venture and manages the day-to-day operations of the PIN Venture. The
other venture partners, however, have certain voting rights with respect to
major decisions concerning the venture. In addition, the PIN Venture may in
the future issue equity to its existing partners or new partners which would
dilute the Company's interest in the PIN Venture and could result in the
venture's operations no longer being consolidated for financial reporting
purposes. If, for any reason, the Company is unable to consolidate the PIN
Venture's results of operations, the presentation of the Company's financial
statements would change because the PIN Venture's revenue and operating
income, if any, would not be included in the Company's consolidated revenue
and operating income. As a result, the market price for the Class A Common
Stock could decline. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Pre-Offering Transactions and Stock
Split" and "Business--Television Programming Networks--The PIN Venture
Agreement."
RISKS ASSOCIATED WITH SATELLITE DELIVERY AND PRODUCTION SUPPORT SERVICES;
TRANSPONDER LEASES
The Company delivers its television programming through its own satellite
delivery and production support facilities, and subleases transponder space
from third parties to deliver its radio programming. The Company also earns
revenue by providing satellite delivery and production support services to the
Company's affiliates and a third party. The Company's satellite delivery and
production support services cause the Company to incur substantial ongoing
fixed costs, particularly the cost of leasing satellite transponders, and,
therefore, the Company must generate significant revenue from these services
in order to generate net income from these services. In addition, on a pro
forma basis, 53% of this revenue for the nine months ended September 30, 1996
was derived from lease payments by affiliates of the Company. There can be no
assurance that the Company will be able to maintain or increase its revenue
from these services.
The Company's satellite transponder agreements provide various protections
to the Company in the event of satellite failure and the transponders are not
subject to preemption by third parties
12
in most instances. Although these agreements provide that the lessor will
place the Company's programming on a replacement satellite, there can be no
assurance that this would occur. There are a limited number of domestic
communications satellites available for the transmission of cable television
programming to cable system operators. The availability of transponders in the
future is dependent on a number of factors over which the Company has no
control. These factors include, primarily, the limited availability of
desirable orbital slots for commercial communications satellites, the
successful launches of additional commercial communications satellites by
third parties and competition and demand for transponder leases on existing
and new satellites. If satellite transmission were interrupted or terminated
due to the failure or unavailability of a transponder, such interruption or
termination could have a material adverse effect on the Company. See
"Business--Satellite Delivery and Production Support Services."
COMPETITION
Competition in the radio programming market is intense. The Company's radio
networks compete for both advertising dollars and radio station affiliates
with four major network radio distribution companies in the U.S., as well as
with a larger number of smaller independent producers and distributors. In
addition, the three largest competitors in the industry are affiliated with
major station owners, have recognized brand names and have large networks
which include affiliates to which such competitors pay compensation to
broadcast the network's commercials. There can be no assurance that the
Company will be able to compete successfully for radio advertising revenue.
Radio networks also face competition from improving technologies available
to local radio stations that may enable them to pre-record their local
announcers and automate their operations, thereby allowing them to reduce
costs and operate more efficiently. Another potential technological advance,
Digital Audio Radio Service ("DARS"), may permit national radio stations to
broadcast digital quality radio programming nationwide to homes, automobiles
and other locations via satellite. The Company cannot predict what effect the
potential future development of digital automation or DARS will have on the
radio industry or the Company.
Competition in the television programming market is also intense. The
Company's television networks compete for distribution on cable systems, for
viewers and for advertising revenue with hundreds of cable and broadcast
television networks supplying a variety of infomercial and entertainment
programming. The PIN network competes directly with at least three other
infomercial networks and believes that new infomercial networks are currently
being planned or formed that also will compete directly with the PIN network.
The PIN network also competes with at least 30 cable television networks, many
of which have a substantial number of viewers, that air infomercial
programming. The Company expects to encounter additional competition for
viewers as the implementation of technological advances, including the
deployment of digital compression technology, the deployment of fiber optic
cable and the "multiplexing" of cable services, allow cable systems to greatly
expand their channel capacity and, as a result, their ability to add new
networks. There can be no assurance that the infomercial concept will continue
to be acceptable to advertisers and consumers or that it will be able to
compete against other forms of advertising. The GAC network has one principal
direct competitor, a network that distributes its programming to approximately
half of the cable television subscribers in the United States. There can be no
assurance that the Company will be able to expand the distribution of its
television networks or compete successfully against the other networks.
The Company competes in the delivery of domestic satellite services with
microwave carriers, satellite service providers and full service teleports,
many of which have substantially greater financial and other resources than
the Company.
13
As there are generally few barriers to entry into the Company's markets, the
Company could in the future face competition from new competitors offering
services similar to those of the Company. The Company's radio and television
networks also compete with other forms of media for advertising dollars, such
as broadcast television, print, outdoor and other media. Many of the Company's
competitors have greater resources than the Company and there can be no
assurance that the Company will be able to compete successfully in the future.
If the Company is unable to compete successfully for distribution of its
networks and advertising revenue, it could suffer a material adverse effect.
See "Business--Competition."
VOTING RIGHTS; CONTROL BY PRINCIPAL SHAREHOLDER
Holders of Class A Common Stock have limited voting rights. Holders of Class
A Common Stock are entitled to 1/20th of a vote per share, and holders of Class
B Common Stock are entitled to one vote per share, on all matters submitted to
a vote of shareholders. Both classes vote together as a single class on all
matters not requiring a class vote. The holders of Class A Common Stock, voting
separately as a class, are entitled to elect approximately 25% of the Company's
directors, with the remainder of the directors being elected by the holder of
Class B Common Stock, voting separately as a class. The shares of Class B
Common Stock are not convertible into shares of Class A Common Stock. See
"Description of Capital Stock." Thus, the holder of the Class B Common Stock
will have the power to control all matters requiring shareholder approval.
Following the completion of this offering, Glenn R. Jones will beneficially own
100% of the voting power of the outstanding Class B Common Stock and 89% of the
total voting power of the outstanding Class A Common Stock and Class B Common
Stock combined. See "Certain Relationships and Related Transactions,"
"Principal Shareholder" and "Description of Capital Stock."
ANTI-TAKEOVER EFFECTS; POTENTIAL UNFAVORABLE TREATMENT IN TAKEOVER
The voting control by the holders of the Class B Common Stock and certain
provisions of the Company's articles of incorporation may be deemed to have
certain anti-takeover effects. This voting control may have the effect of
delaying, deferring or preventing a change of control of the Company, including
any business combination with an unaffiliated party, impeding the ability of
the shareholders to replace management even if factors warrant such a change
and affecting the price that investors might be willing to pay in the future
for shares of the Company's Class A Common Stock. Under the Company's articles
of incorporation, a majority of the directors then in office, though less than
a quorum, or the sole remaining director, will be empowered to fill any vacancy
on the Board of Directors. A majority vote of the Common Stock will be required
to alter, amend or repeal the foregoing provisions. This provision for filling
vacancies on the Board of Directors may discourage a third party from
attempting to gain control of the Company and may maintain the incumbency of
the Board of Directors. In addition, the holders of the Class B Common Stock
may also arrange or approve an acquisition of voting control of the Company
that is favorable to them and does not involve the holders of Class A Common
Stock. See "Principal Shareholder" and "Description of Capital Stock."
CONFLICTS OF INTEREST; TRANSACTIONS WITH AND RELIANCE ON AFFILIATES
The Company has engaged in and expects to continue to engage in certain
transactions with its affiliates. To date, these transactions have involved
primarily loans and advances to the Company, affiliation agreements for the
distribution of the Company's television programming, leasing of the Company's
satellite and production support services, lease agreements and service
agreements related to certain technical, computer and administrative services
provided to the
14
Company. For the nine months ended September 30, 1996, approximately $3.4
million, or 20%, of the Company's pro forma total revenue and approximately
$3.7 million, or 25%, of its pro forma total expenses involved related party
transactions. While Mr. Liptak and Mr. Lewis will devote all of their time to
the Company's business, certain of the Company's other officers and directors
are also officers and directors of the Company's affiliates and will devote
substantial amounts of their time to these affiliates. Because certain
officers and directors of the Company are also officers and directors of such
affiliates, the terms of any distribution, programming, production, lease or
other agreements between the Company and such affiliates are not and will not
be the result of arm's-length negotiations. Although the Company has adopted a
policy that requires any new material related party transaction to be approved
by a majority of the disinterested members of the Board of Directors (the
"Board"), there can be no assurance that the terms of any transactions between
the Company and its related companies have been or will be as favorable as the
Company could obtain from unrelated parties. See "--Dependence upon Key
Personnel" and "Certain Relationships and Related Transactions."
SEASONALITY
Advertising revenue in the radio and television industries fluctuates due to
seasonality in such industries. The Company believes that radio network
revenue is typically lowest in the first quarter and television network
revenue is typically lowest in the third quarter. Other than the fees paid by
the Company to third parties for certain of its radio programming and the fees
paid in connection with the distribution of the PIN network, the Company's
costs have not varied significantly with respect to the seasonal fluctuation
of revenue. In the future, the Company's results of operations may fluctuate
from quarter to quarter. See "--Absence of Prior Public Market; Determination
of Offering Price; Possible Volatility of Stock Price," "Selected Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
BROAD DISCRETION AS TO USE OF PROCEEDS
The Company intends to use a portion of the net proceeds of the offering for
general corporate purposes, including the possible acquisition or creation of
complementary businesses. The Company has not entered into any acquisition
agreement and has not yet determined the particular means by which it will
seek to expand its business through acquisitions. As a result, a portion of
the net proceeds will be available for items that are not yet identified and
the Company will have broad discretion with respect to the application of such
proceeds. See "Use of Proceeds."
INTELLECTUAL PROPERTY
The Company regards its original programming as proprietary and relies
primarily on a combination of statutory and common law copyright, trademark
and trade secret laws, customer licensing agreements, nondisclosure agreements
and other methods to protect its proprietary rights. If substantial
unauthorized use of the Company's programming were to occur, the Company's
business and results of operations could be negatively affected. There can be
no assurance that the Company's means of protecting its proprietary rights
will be adequate or that the Company's competitors will not independently
develop similar program content and distribution methods. In addition, there
can be no assurance that third parties will not claim that the Company's
current or future programming infringes on the proprietary rights of others. A
rights infringement claim against the Company could have a material adverse
effect on the Company.
GOVERNMENT REGULATION
Although the Company's radio and television networks are not generally
directly regulated by
15
the Federal Communications Commission ("FCC"), the radio stations, cable
television systems and other video distributors to which the Company sells its
programming are regulated. As a result, the federal laws and FCC regulations
that affect these entities indirectly affect the Company.
The ownership, operation and sale of radio stations are subject to the
jurisdiction of the FCC. Among other things, the FCC adopts and implements
regulations and policies that directly or indirectly affect the ownership,
operations and sale of radio and television stations, and has the power to
impose penalties for violations of its rules or federal statutes. Such
regulation may adversely affect the Company's business. The Telecommunications
Act of 1996 (the "Telecom Act") is significantly changing the radio broadcast
industry by repealing national limits on the number of radio stations that may
be owned by one entity and by relaxing the common ownership rules in a single
market. These measures have led to greater radio industry consolidation. The
effects of the Telecom Act on the broadcasting industry and thus on the
Company's radio networks are uncertain, and there can be no assurance that it
will not negatively impact the Company's operations in the future. There can
be no assurance that material adverse changes in regulations affecting the
radio industry, in general, or the Company, in particular, will not occur in
the future.
The cable television industry is subject to extensive federal, state and
local regulation. Regulation can take the form of rate controls, programming
carriage requirements and programming content restrictions. Such regulation
could affect the availability of time on local cable television systems for
sale by the Company as well as the price at which such time is available.
There can be no assurance that material adverse changes in regulations
affecting the cable television industry, in general, or the Company, in
particular, will not occur in the future.
The Company's satellite delivery and production support services are
directly regulated by the FCC. The Company holds FCC microwave and earth
station uplink licenses that it utilizes to provide delivery and support
services. Because the licenses held by the Company relate primarily to the
technical operation of its microwave and uplink facilities, which are used for
internal purposes and program delivery, the Company believes that there are
limited regulatory burdens associated with maintaining these licenses in good
standing. There can be no assurance, however, that the Company will be able to
maintain these licenses or that additional regulatory burdens will not be
imposed upon the Company in the future. See "Business--Government Regulation."
ABSENCE OF PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE
VOLATILITY OF STOCK PRICE
Prior to the offering, there has been no public market for the Class A Common
Stock and there can be no assurance that an active public market will develop
or continue after the offering. The initial public offering price of the Class
A Common Stock was determined through negotiations between the Company and
representatives of the Underwriters and there can be no assurance that the
Class A Common Stock will not trade at a price less than the offering price.
See "Underwriting." The securities markets have experienced significant price
and volume fluctuations from time to time in recent years that have often been
unrelated or disproportionate to the operating performance of particular
companies. These broad fluctuations may adversely affect the market price of
the Class A Common Stock. In addition, the Company's quarterly and annual
results of operations are affected by a wide variety of factors, many of which
are outside the Company's control, which could have a material adverse effect
on the Company and the market price of the Class A Common Stock. These factors
include the timing and volume of advertising on the Company's radio networks
and television networks, the number and the size of the radio stations that
carry the Company's radio programming, the number and the size of cable
systems and other video distributors that carry the PIN and GAC networks, and
general economic conditions. Further, it is possible that in the future the
Company's revenue or operating results will be below the expectations of
public market analysts and investors. In such event, the price of
16
the Class A Common Stock could be materially adversely affected. In addition,
if for any reason the Company is unable to consolidate the PIN Venture's
results of operations, the presentation of the Company's financial statements
would change because the PIN Venture's revenue and operating income, if any,
would not be included in the Company's consolidated revenue and operating
income. As a result, the market price for the Class A Common Stock could
decline.
SHARES ELIGIBLE FOR FUTURE SALE
The market price for the Class A Common Stock could be adversely affected by
the availability of shares of Class A Common Stock for sale or actual sales of
substantial amounts of Class A Common Stock by existing or future
shareholders. Upon completion of the offering, the 3,350,000 shares of Class A
Common Stock sold in the offering will be freely tradeable without restriction
or further registration under the Securities Act, by persons other than
"affiliates" of the Company. The remaining 2,951,786 shares of Class A Common
Stock will be "restricted securities" within the meaning of Rule 144 under the
Securities Act ("Rule 144") and may not be sold in the absence of registration
under the Securities Act unless an exemption from registration is available,
including the exemption contained in Rule 144. The Company and its current
shareholders, directors and executive officers have agreed that for a period
of 180 days from the date of this prospectus, that they will not offer to
sell, sell, contract to sell, pledge or otherwise dispose of any shares of
Class A Common Stock without the prior written consent of Oppenheimer & Co.,
Inc. Following the expiration of such lock-up agreements, 2,951,786 shares of
Class A Common Stock will become available for resale in the public market,
subject to the volume limitations, holding period and other restrictions of
Rule 144. Additionally, as of November 5, 1996, 630,000 shares of Class A
Common Stock have been reserved for issuance under the Company's Stock Option
Plan, none of which were subject to outstanding options as of that date. The
Company anticipates granting stock options to certain of its officers and
employees prior to the completion of this offering at the initial public
offering price. See "Management." The Company has also, in connection with
this offering, agreed to grant a warrant to M. Kane & Company, Inc. (the "MKC
Warrant") to purchase 13,958 shares (16,052 shares if the Underwriters'
overallotment option is exercised in full) of the Class A Common Stock at an
exercise price equal to 120% of the initial public offering price of the Class
A Common Stock, together with certain registration rights relating to such
shares. In addition, the Company has granted certain registration rights to
Adelphia relating to approximately 233,333 shares of Class A Common Stock that
it issued to Adelphia in exchange for Adelphia's equity interest in the PIN
Venture. Future sales of shares of Class A Common Stock, or the perception
that such sales could occur, could have an adverse effect on the market price
of the Company's Class A Common Stock. See "--Absence of Prior Public Market;
Determination of Offering Price; Possible Volatility of Stock Price,"
"Prospectus Summary--Pre-Offering Transactions," "Description of Capital
Stock," "Shares Eligible for Future Sale" and "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION; ABSENCE OF PAYMENTS OF CASH DIVIDENDS
Purchasers of the Class A Common Stock will experience immediate and
substantial dilution, on a pro forma basis, of $10.20 (at an assumed offering
price of $12.00 per share) in net tangible book value per share. Also, the
Company has not paid any cash dividends since its inception and does not
anticipate paying cash dividends in the future. See "Dilution" and "Dividend
Policy."
17
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,350,000 shares of
Class A Common Stock offered hereby, assuming an initial offering price of
$12.00 per share, are estimated to be approximately $36.0 million ($41.5
million if the Underwriters' overallotment option is exercised in full) after
deduction of the underwriting discounts and commissions and estimated offering
expenses payable by the Company.
The Company intends to use the net proceeds from the offering as follows: (i)
approximately $16.0 million to repay debt owed to Global Group, which is due
December 31, 2003 and bears interest at 8.25% per annum, (ii) approximately
$6.6 million to repay debt owed to Jones Intercable, which is due December 19,
1999 and bears interest at the prime rate plus 1% (which totalled approximately
9.25% as of September 30, 1996), (iii) approximately $5.7 million to repay
advances owed to Jones International, which have no fixed maturity date and
bear interest at the prime rate plus 2% (which totalled approximately 10.25% as
of September 30, 1996) and (iv) approximately $7.7 million for general
corporate purposes, including working capital and the acquisition and/or
creation of complementary businesses. The Company is not currently engaged in
any negotiations concerning such acquisitions. Pending such uses, the Company
intends to invest the net proceeds from the offering in investment-grade,
short-term, interest-bearing securities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on its Common Stock.
The Company intends to retain any earnings for use in the operation and
expansion of its business and therefore does not anticipate paying any cash
dividends in the foreseeable future. The declaration and payment of dividends
in the future will be at the discretion of the Board of Directors and will be
dependent upon the Company's financial condition, results of operations and
capital requirements, terms of future credit or other agreements and such other
factors as the Board of Directors deems relevant. Holders of Class A Common
Stock and Class B Common Stock are entitled to share ratably in dividends
(whether paid in cash, property or shares of the Company), if declared by the
Board of Directors.
18
CAPITALIZATION
The following table sets forth, as of September 30, 1996, the actual
capitalization of the Company, the pro forma capitalization of the Company to
reflect the Pre-Offering Transactions and the pro forma capitalization of the
Company as further adjusted to reflect the sale of 3,350,000 shares of Class A
Common Stock offered by the Company at an assumed initial offering price of
$12.00 per share and the application of the net proceeds therefrom. See "Use
of Proceeds." This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical and pro forma Consolidated Financial Statements
and Notes thereto included elsewhere herein.
SEPTEMBER 30, 1996
--------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
Long-term debt(1).............................. $ 22,562 $ 53,689 $31,134
-------- -------- -------
Shareholders' equity:
Class A Common Stock, $.01 par value;
50,000,000 shares authorized; 1,968,453
shares issued and outstanding actual;
2,951,786 shares issued and outstanding pro
forma; 6,301,786 shares issued and
outstanding pro forma as adjusted(2)........ 20 30 63
Class B Common Stock, $.01 par value;
1,385,120 shares authorized; 1,385,120
shares issued and outstanding actual, pro
forma and pro forma as adjusted............. 14 14 14
Additional paid-in capital..................... -- 2,797 38,746
Accumulated deficit............................ (14,048) (22,182) (22,182)
-------- -------- -------
Total shareholders' investment............... $(14,014) $(19,341) $16,641
-------- -------- -------
Total capitalization....................... $ 8,548 $ 34,348 $47,775
======== ======== =======
- --------
(1) Long-term debt consists of notes to Global Group and Jones Intercable and,
on a pro forma basis, a capitalized lease obligation of Space Segment. See
Notes 3 and 5 of Notes to the Consolidated Financial Statements, Note 4 of
Notes to the Space Segment Financial Statements and "Use of Proceeds."
(2) Excludes: (i) 630,000 shares of Class A Common Stock reserved for issuance
under the Company's Stock Option Plan, none of which were subject to
outstanding options as of November 5, 1996 and (ii) 13,958 shares (16,052
shares if the Underwriters' over-allotment option is exercised in full) of
Class A Common Stock issuable under a warrant the Company has agreed to
grant to M. Kane & Company, Inc. with an exercise price equal to 120% of
the initial public offering price of the Class A Common Stock. See
"Management--Stock Option Plan" and "Underwriting."
19
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1996 was approximately $(22.1) million, or $(5.10) per share of Common Stock.
Net tangible book value per share represents the amount of tangible assets of
the Company, less total liabilities, divided by the number of shares of Common
Stock outstanding. After giving effect to the sale by the Company of the
3,350,000 shares of Class A Common Stock offered hereby (at an assumed initial
offering price of $12.00 per share and after deduction of underwriting
discounts and commissions and estimated offering expenses), the pro forma net
tangible book value of the Company at September 30, 1996 would have been $13.9
million, or $1.80 per share of Common Stock. This represents an immediate
increase in pro forma net tangible book value of $6.90 per share of Common
Stock to existing shareholders and an immediate dilution of $10.20 per share
to purchasers of Class A Common Stock. The following table illustrates the per
share dilution to new investors.
Assumed initial public offering price........................ $12.00
Pro forma net tangible book value as of September 30,
1996...................................................... $(5.10)
Increase in pro forma net tangible book value attributable
to the offering........................................... 6.90
------
Pro forma net tangible book value after the offering......... 1.80
------
Dilution to purchasers of Class A Common Stock............... $10.20
======
The following table summarizes, on a pro forma basis as of September 30,
1996, and as adjusted to reflect the sale of 3,350,000 shares of Class A
Common Stock by the Company at an assumed initial public offering price of
$12.00 per share, the number of shares of Common Stock purchased from the
Company, the total consideration paid to the Company and the average price per
share paid by the existing shareholders and by the new investors purchasing
shares of Class A Common Stock from the Company in this offering (before
deducting underwriting discounts and commissions and estimated offering
expenses):
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
Existing shareholders........... 4,336,906 56% $18,827,694 32% $ 4.34
New investors................... 3,350,000 44% 40,200,000 68% $12.00
--------- --- ----------- ---
Total......................... 7,686,906 100% $59,027,694 100%
========= === =========== ===
The preceding table excludes: (i) 630,000 shares of Class A Common Stock
reserved for issuance under the Company's Stock Option Plan, none of which
were subject to outstanding options as of November 5, 1996 and (ii) 13,958
shares (16,052 shares if the Underwriters' over-allotment option is exercised
in full) of Class A Common Stock issuable under a warrant the Company has
agreed to grant to M. Kane & Company, Inc. with an exercise price equal to
120% of the initial public offering price of the Class A Common Stock. See
"Management--Stock Option Plan" and "Underwriting."
20
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company are
qualified by reference to and should be read in conjunction with the
historical Consolidated Financial Statements and Notes thereto and other
financial data included elsewhere in this Prospectus. The statement of
operations data set forth below for each of the three years in the period
ended December 31, 1995 and for the nine months ended September 30, 1995 and
1996, and the balance sheet data at December 31, 1993, 1994 and 1995 and
September 30, 1996, are derived from the Company's consolidated financial
statements for those years which have been audited by Arthur Andersen LLP,
independent accountants, whose report thereon is included elsewhere in this
Prospectus. The statement of operations data for each of the two years in the
period ended December 31, 1992 and the balance sheet data at December 31, 1991
and 1992 are derived from unaudited financial statements of the Company not
included in this Prospectus. These results are not necessarily indicative of
the results to be expected in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- -------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AND AFFILIATE DATA)
STATEMENT OF
OPERATIONS DATA:
Revenue:
Radio
programming..... $ 678 $ 3,016 $ 3,186 $ 2,541 $ 5,122 $ 3,686 $ 5,140
Television
programming..... -- -- 291 1,946 340 289 802
Satellite
delivery and
production
support......... 561 693 1,745 2,085 4,221 3,078 3,132
------- ------- -------- -------- -------- ------- -------
Total revenue... 1,239 3,709 5,222 6,572 9,683 7,053 9,074
------- ------- -------- -------- -------- ------- -------
Operating expense:
Radio
programming..... 920 1,786 1,974 2,068 3,068 2,278 2,649
Television
programming..... -- -- 355 1,568 408 300 1,304
Satellite
delivery and
production
support......... 493 786 1,532 1,849 3,512 2,496 2,603
Selling and
marketing....... 299 672 955 1,090 1,374 1,071 1,096
General and
administrative.. 406 900 1,296 1,958 2,321 1,608 2,547
------- ------- -------- -------- -------- ------- -------
Total operating
expense......... 2,118 4,144 6,112 8,533 10,683 7,753 10,199
------- ------- -------- -------- -------- ------- -------
Operating loss.... (879) (435) (890) (1,961) (1,000) (700) (1,125)
Other income
(expense)........ (21) 157 108 218 (720) (444) (52)
------- ------- -------- -------- -------- ------- -------
Loss before taxes
and minority
interests........ (900) (278) (782) (1,743) (1,720) (1,144) (1,177)
Income taxes and
minority
interest......... 133 13 (46) 86 338 242 384
------- ------- -------- -------- -------- ------- -------
Net loss.......... $ (767) $ (265) $ (828) $ (1,657) $ (1,382) $ (902) $ (793)
======= ======= ======== ======== ======== ======= =======
Net loss per
common share..... $ (.23) $ (.08) $ (.25) $ (.49) $ (.41) $ (.27) $ (.24)
Weighted average
number of common
shares
outstanding...... 3,354 3,354 3,354 3,354 3,354 3,354 3,354
OTHER DATA:
EBITDA(1)......... $ (468) $ 166 $ (345) $ (1,349) $ -- $ 89 $ 491
Radio station
average quarter
hour
audience(2)(3)... -- -- 516 670 765 764 1,070
Radio station
affiliates(3).... 324 479 718 925 929 949 1,212
PIN network
subscribers(3)... -- -- 275 1,489 4,825 4,303 7,260
GAC network
subscribers(3)... -- -- -- -- 14 -- 896
DECEMBER 31,
----------------------------------------------
SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
------- ------- -------- -------- -------- ----------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital... $ (896) $(2,331) $ (6,042) $ (626) $ (847) $ (1,641)
Total assets...... 2,703 3,505 8,051 9,483 10,460 12,592
Long-term debt and
capital lease
obligation....... 9,201 9,151 10,968 19,233 21,221 22,562
Total
shareholders'
investment....... (8,521) (8,786) (9,986) (11,840) (13,221) (14,014)
- --------
(1) EBITDA is earnings before interest income (expense), provision for income
taxes, depreciation and amortization. Although EBITDA is not a measure of
performance calculated in accordance with GAAP, it is generally accepted
as providing useful information regarding a company's ability to service
and/or incur debt. EBITDA should not be considered in isolation or as a
substitute for net income, cash flows from operating activities and other
income and cash flow statement data prepared in accordance with GAAP or as
a measure of liquidity or profitability.
(2) AQH represents the average audience (persons age 12 or older) listening to
radio stations broadcasting the Company's 24-hour radio programming during
any 15-minute period from 6 am - 7 pm, Monday through Friday, as measured
by the Arbitron rating service. Radio advertising is generally sold on the
basis of the total listening audience as quantified by the AQH. Prior to
1993, the Company did not compile AQH data.
(3) Represents amounts at the end of the periods indicated. The PIN network
was launched in October 1993. The GAC network was launched in December
1995.
21
PRO FORMA SELECTED CONSOLIDATED FINANCIAL DATA
The following pro forma selected consolidated financial data of the Company
reflect the Pre-Offering Transactions and are qualified by reference to and
should be read in conjunction with the pro forma Consolidated Financial
Statements and Notes thereto and other financial data included elsewhere in
this Prospectus. The statement of operations data set forth below for each of
the three years in the period ended December 31, 1995 and for the nine months
ended September 30, 1995 and 1996, and the balance sheet data at December 31,
1993, 1994 and 1995 and September 30, 1996, are derived from the pro forma
Consolidated Financial Statements of the Company. These results are not
necessarily indicative of the results to be expected in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
NINE MONTHSENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- ------------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ------------------------
(IN THOUSANDS, EXCEPT PER SHARE AND AFFILIATE DATA)
STATEMENT OF OPERATIONS
DATA:
Revenue:
Radio Programming..... $ 3,186 $ 2,541 $ 5,122 $ 3,686 $ 5,140
Television
programming.......... 291 1,946 4,450 3,192 6,514
Satellite delivery and
production support... 7,744 6,805 6,919 5,125 4,980
---------- ---------- ---------- ---------- ---------
Total revenue........ 11,221 11,292 16,491 12,003 16,634
---------- ---------- ---------- ---------- ---------
Operating expense:
Radio programming..... 1,974 2,068 3,068 2,278 2,649
Television
programming.......... 355 1,043 3,208 2,286 5,257
Satellite delivery and
production support... 5,045 4,652 4,662 3,371 2,706
Selling and
marketing............ 955 1,090 1,488 1,147 1,211
General and
administrative....... 1,319 1,958 3,235 2,274 3,238
---------- ---------- ---------- ---------- ---------
Total operating
expense............. 9,648 10,811 15,661 11,356 15,061
---------- ---------- ---------- ---------- ---------
Operating income....... 1,573 481 830 647 1,573
Other income
(expense)............. (3,201) (2,834) (3,314) (2,399) (2,454)
---------- ---------- ---------- ---------- ---------
Loss before taxes and
minority interests.... (1,628) (2,353) (2,484) (1,752) (881)
Income taxes and
minority interests.... 170 274 578 446 28
---------- ---------- ---------- ---------- ---------
Net loss............... $ (1,458) $ (2,079) $ (1,906) $ (1,306) $ (853)
========== ========== ========== ========== =========
Net loss per common
share................. $ (.36) $ (.51) $ (.44) $ (.30) $ (.20)
Weighted average number
of common shares
outstanding........... 4,104 4,104 4,337 4,337 4,337
OTHER DATA:
EBITDA(1).............. $ 5,086 $ 3,996 $ 5,402 $ 4,141 $ 4,862
Radio station average
quarter hour
audience(2)(3)........ 516 670 765 764 1,070
Radio station
affiliates(3)......... 718 925 929 949 1,212
PIN network
subscribers(3)........ 275 1,489 4,825 4,303 7,260
GAC network
subscribers(3)........ -- -- 14 -- 896
DECEMBER 31,
---------------------------------- SEPTEMBER 30,
1993 1994 1995 1996
---------- ---------- ---------- ----------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital........ $ (5,150) $ 210 $ (920) $ (1,026)
Total assets........... 40,721 39,070 36,643 39,857
Long-term debt and
capital lease
obligations........... 45,171 52,648 53,468 53,689
Total shareholders'
investment............ (12,483) (16,302) (20,362) (19,341)
- --------
(1) EBITDA is earnings before interest income (expense), provision for income
taxes, depreciation and amortization. Although EBITDA is not a measure of
performance calculated in accordance with GAAP, it is generally accepted
as providing useful information regarding a company's ability to service
and/or incur debt. EBITDA should not be considered in isolation or as a
substitute for net income, cash flows from operating activities and other
income and cash flow statement data prepared in accordance with GAAP or as
a measure of liquidity or profitability.
(2) AQH represents the average audience (persons age 12 or older) listening to
radio stations broadcasting the Company's 24-hour radio programming during
any 15-minute period from 6 am - 7 pm, Monday through Friday, as measured
by the Arbitron rating service. Radio advertising is generally sold on the
basis of the total listening audience as quantified by the AQH.
(3) Represents amounts at the end of the periods indicated. The PIN Network
was launched in October 1993. The GAC network was launched in December
1995.
22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of results of operations and financial condition
should be read in conjunction with the Company's historical and pro forma
Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Prospectus. This Prospectus contains forward-looking statements that
involve risks and uncertainties. See "Risk Factors." The Company's actual
results may differ materially from the results discussed in any forward-
looking statement.
PRE-OFFERING TRANSACTIONS AND STOCK SPLIT
The following transactions, which are to be effective immediately prior to
the consummation of the offering, are collectively referred to in this
document as the "Pre-Offering Transactions." The completion of the Pre-
Offering Transactions will significantly affect the composition of the Company
following the consummation of the offering for financial reporting purposes
and have been given effect in the unaudited pro forma Consolidated Financial
Statements contained herein.
Immediately prior to the consummation of the offering, the Company will
acquire Adelphia's approximately 8% equity interest in the PIN Venture, the
entity that owns and operates the PIN network, in exchange for approximately
233,333 shares of the Company's Class A Common Stock. As a result of this
transaction, the Company will own approximately 54% of the PIN Venture and,
going forward, will be able to consolidate the operations of the PIN Venture
for financial reporting purposes. Also immediately prior to the consummation
of the offering, the Company will acquire Glenn R. Jones' 19% equity interest
in Jones Infomercial Networks, Inc., the subsidiary through which the Company
has invested in the PIN Venture, and Mr. Jones' 19% equity interest in Great
American Country, Inc., the subsidiary through which the Company operates the
GAC network, in exchange for 333,333 shares of the Company's Class A Common
Stock. Also immediately prior to the consummation of the offering, the Company
will acquire the transponder leases and related subleases owned by Space
Segment, an affiliate of the Company, in exchange for 416,667 shares of the
Company's Class A Common Stock. Also, the Company has effected a 220-for-one
stock split of the Class A Common Stock and Class B Common Stock.
The PIN Venture may in the future issue equity to its existing partners or
new partners which would dilute the Company's interest in the PIN Venture and
could result in the venture's operations no longer being consolidated for
financial reporting purposes. If, for any reason, the Company is unable to
consolidate the PIN Venture's results of operations, the presentation of the
Company's financial statements would change because the PIN Venture's revenue
and operating income, if any, would not be included in the Company's
consolidated revenue and operating income. As a result, the market price of
the Class A Common Stock could decline.
Prior to organization of the PIN Venture in 1995, the Company wholly owned
the PIN network, and the Company's historical Consolidated Financial
Statements reflected 100% of the PIN network's results of operations. Between
the start of the PIN Venture in February 1995 and the offering, the Company
owned 50% or less of the PIN Venture and, accordingly, did not consolidate the
results of operations for the PIN Venture. As a result, the Company's 1994
historical financial statements are not comparable to those for 1995. As a
result of the acquisition of Adelphia's interest in the PIN Venture, the
Company will consolidate the results of operations of the PIN Venture for
financial reporting purposes following the consummation of the offering. The
pro forma Consolidated Financial Statements assume the historical
consolidation of the results of operations of the PIN Venture to provide a
basis of comparison consistent with the financial reporting treatment to be
effective upon consummation of the offering. As a result of the acquisition of
the satellite transponder lease agreements from Space Segment, the Company's
historical results will differ significantly from the results of operations
related to the satellite transponder lease and sub-lease agreements upon
consummation of the offering. As a result, the pro forma Consolidated
Financial Statements assume the historical consolidation of the results of
operations of the satellite transponder lease and sub-lease agreements to
provide a basis of comparison consistent with the financial reporting
treatment to be effective upon consummation
23
of this offering. The acquisition of the minority interests of Mr. Jones also
is given effect in the pro forma Consolidated Financial Statements and will not
have a material impact on the Company's financial reporting upon consummation
of the offering.
The pro forma effects of the Pre-Offering Transactions are primarily to: (i)
increase television programming revenue and expense and minority interest as a
result of the increase of equity interest in PIN Venture, (ii) increase
satellite delivery and production support revenue and expense as a result of
the acquisition of satellite transponder lease agreements from Space Segment
and (iii) decrease minority interest as a result of the acquisition of
remaining equity interest in certain subsidiaries from Mr. Jones. These effects
are explained in more detail in the period-to-period comparisons that follow.
OVERVIEW
The Company creates, develops, acquires, produces and distributes programming
to radio stations, cable television system operators and other video
distributors. The Company: (i) provides radio programming to radio stations in
exchange for advertising time that it resells to national advertisers, (ii)
provides television programming to cable television system operators and other
video distributors, (iii) sells advertising time on its two television networks
and receives license fees for its country music television network and (iv)
owns and operates its own playback, uplink and satellite transmission
facilities that both distribute the Company's programming and are subleased to
others for a fee. The Company believes that the vertical integration of its
activities, from creation, development and production through distribution,
provides a platform from which it can cost-effectively launch additional
programming.
The Company's revenue consists of radio programming revenue, television
programming revenue and satellite delivery and production support revenue.
Radio programming revenue consists primarily of advertising revenue and, to a
lesser extent, licensing fees paid by smaller radio station affiliates. License
fees from radio stations decreased in 1994 and have remained flat in later
periods. This reflects the Company's decision to focus on obtaining advertising
time, instead of license fees, from its affiliated radio stations. Television
programming revenue consists primarily of advertising revenue from the sale of
infomercial time on the PIN network and advertising time on the GAC network, as
well as licensing fees relating to the GAC network. Satellite delivery and
production support revenue consists of satellite transponder lease fees,
uplinking fees and other services fees.
Radio programming revenue includes advertising and licensing fees. The
Company generates radio advertising revenue by selling airtime to advertisers
who advertise their products or services on the Company's radio networks. The
Company recognizes advertising revenue upon airing of the advertisements. Any
amounts received from customers for radio advertisements that have not been
aired during the period are recorded as unearned revenue until such time as the
advertisements are aired. The Company delivers its programming to radio
stations for distribution to their listeners. Radio station licensing fees are
earned monthly based on the radio station's contractual agreement.
Television programming revenue includes advertising and licensing fees. The
Company generates television advertising revenue by selling airtime to
advertisers who advertise their products or services on the Company's
television networks. The Company recognizes advertising revenue upon airing of
the advertisements. Any amounts received from customers for television
advertisements that have not been aired during the period are recorded as
unearned revenue until such time as the advertisement is aired. The Company
delivers its programming to cable television systems for distribution to their
viewers. Licensing fees are earned monthly based on a per subscriber rate set
pursuant to the cable operator's agreement with the Company and the number of
subscribers that are receiving the Company's programming during the respective
month.
24
Satellite delivery and production support revenue includes revenue from
satellite delivery, uplinking, trafficking, playback and other services. The
Company generates revenue by providing such services to affiliates and to a
third party. The Company recognizes satellite delivery and production support
revenue upon completion of the services or as provided in contractual
arrangements.
Radio advertising is generally sold on the basis of the total listening
audience as measured by the average number of listeners in the quarter hour,
or AQH, and the time of day when the advertisement is run. The AQH can range
from zero for a small-market radio station to greater than 50,000 for a large-
market radio station, with the majority of large-market stations in the range
of 10,000-20,000. In order to increase advertising rates, it is necessary to
increase the size (or rating) of the audience the program provider delivers to
national advertisers.
The Company's historical and pro forma revenue has grown in recent years due
primarily to increased advertising revenue generated by its radio networks.
The Company's objective is to increase its revenue and operating cash flow by
employing the following strategies: (i) creating, developing, acquiring,
producing and distributing additional high-quality programming, (ii)
increasing the distribution of its radio and television networks by expanding
its marketing and sales activities directed at radio stations, MSOs and
advertisers, (iii) acquiring and/or creating complementary businesses, (iv)
capitalizing on its satellite delivery and production support facilities and
(v) leveraging its integrated infrastructure to cost-effectively launch
additional programming. The Company's ability to successfully implement its
strategy and maintain or accelerate its growth will depend on a number of
factors, many of which are beyond the Company's control, including expanding
distribution for its radio and television programming networks, developing and
licensing additional programming for the Company's radio and television
networks that is consistent with listener and viewer preferences, attracting
additional advertisers and expanding its third party customer base for its
satellite delivery and production services. There can be no assurance that the
Company will be successful in these endeavors.
In 1995 and for the nine months ended September 30, 1996, radio programming
revenue accounted for 53% and 57% of the Company's total revenue,
respectively, television programming revenue accounted for 3% and 9% of total
revenue, respectively, and satellite delivery and production support revenue
accounted for 44% and 34% of total revenue, respectively. On a pro forma basis
in 1995 and for the nine months ended September 30, 1996, radio programming
revenue accounted for 31% of the Company's total revenue for both periods,
television programming revenue accounted for 27% and 39% of total revenue,
respectively, and satellite delivery and production support revenue accounted
for 42% and 30% of total revenue, respectively.
The Company's operating expenses consist of: (i) radio programming expenses,
(ii) television programming expenses, (iii) satellite delivery and production
support expenses, (iv) selling and marketing expenses and (v) general and
administrative expenses.
Radio programming expenses consist of program licensing, programming
development and production costs, distribution and delivery costs and other
costs related to the operation of the Company's radio networks. Program
licensing, programming development and production costs include the costs of
researching, designing, producing, and licensing programs for the Company's
radio networks and other associated programming costs. Radio distribution and
delivery costs include the satellite transponder expense, uplinking charges
and other associated costs.
Television programming expenses consist primarily of distribution and
delivery costs and other costs related to the operation of the Company's
television networks. Since substantially all of the programming is made
available to the Company at no cost by third parties and requires limited
additional production effort by the Company, programming and production costs
are not
25
significant. Television program distribution and delivery costs include
satellite transponder expenses, uplinking charges and other associated costs.
Satellite delivery and production support expenses include a portion of the
satellite transponder expenses, uplinking charges and other associated
operating costs to provide these services to affiliates and third parties.
Selling and marketing expenses include salaries, travel and other associated
expenses related to the Company's sales and marketing activities, as well as
the costs of designing, producing and distributing marketing, advertising and
promotional materials.
General and administrative expenses include personnel and associated costs
for the Company's executive and management staff and operational support.
Many of the costs associated with program distribution and delivery, such as
satellite transponder expense and uplinking charges, are relatively fixed with
respect to each of the Company's radio and television networks; as a result,
an increase in the Company's radio or television programming revenue should
not result in a proportionate increase in program distribution and delivery
costs. The Company charges satellite transponder and uplinking fees to its own
subsidiaries as well as to affiliates and a third party. The portions of these
expenses related to subsidiary activities are included in radio or television
programming expense as appropriate.
To date, the Company has sustained operating and net losses, including
operating losses of $0.9 million, $2.0 million, $1.0 million and $1.1 million
and net losses of $0.8 million, $1.7 million, $1.4 million and $0.8 million
for the years ended December 31, 1993, 1994 and 1995, and for the nine months
ended September 30, 1996, respectively. On a pro forma basis, the Company had
operating income of $1.6 million, $0.5 million, $0.8 million and $1.6 million
and net losses of $1.5 million, $2.1 million, $1.9 million and $0.9 million
for the years ended December 31, 1993, 1994 and 1995, and for the nine months
ended September 30, 1996, respectively.
26
RESULTS OF OPERATIONS
The following table sets forth the amount of, and percentage relationship to
total net revenue of, certain items included in the Company's historical
Consolidated Statements of Operations for the years ended December 31, 1993,
1994 and 1995 and for the nine months ended September 30, 1995 and 1996:
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ---------------------------
1993 1994 1995 1995 1996
------------ ------------- ------------- ------------ -------------
(AUDITED AND IN THOUSANDS)
REVENUE:
Radio programming...... $3,186 61% $ 2,541 39% $ 5,122 53% $3,686 52% $ 5,140 57%
Television
programming........... 291 6% 1,946 29% 340 3% 289 4% 802 9%
Satellite delivery and
production support.... 1,745 33% 2,085 32% 4,221 44% 3,078 44% 3,132 34%
------ ---- ------- ---- ------- ---- ------ ---- ------- ----
Total revenue.......... 5,222 100% 6,572 100% 9,683 100% 7,053 100% 9,074 100%
------ ---- ------- ---- ------- ---- ------ ---- ------- ----
OPERATING EXPENSES:
Radio programming...... 1,974 38% 2,068 31% 3,068 32% 2,278 32% 2,649 29%
Television
programming........... 355 7% 1,568 24% 408 4% 300 4% 1,304 14%
Satellite delivery and
production support.... 1,532 29% 1,849 28% 3,512 36% 2,496 36% 2,603 29%
Selling and marketing.. 955 18% 1,090 17% 1,374 14% 1,071 15% 1,096 12%
General and
administrative........ 1,296 25% 1,958 30% 2,321 24% 1,608 23% 2,547 28%
------ ---- ------- ---- ------- ---- ------ ---- ------- ----
Total operating
expenses.............. 6,112 117% 8,533 130% 10,683 110% 7,753 110% 10,199 112%
------ ---- ------- ---- ------- ---- ------ ---- ------- ----
OPERATING LOSS.......... (890) (17%) (1,961) (30%) (1,000) (10%) (700) (10%) (1,125) (12%)
------ ---- ------- ---- ------- ---- ------ ---- ------- ----
OTHER INCOME (EXPENSE).. 108 2% 218 4% (720) (7%) (444) (6%) (52) (1%)
INCOME TAXES AND
MINORITY INTERESTS..... (46) (1%) 86 1% 338 3% 242 3% 384 4%
------ ---- ------- ---- ------- ---- ------ ---- ------- ----
NET LOSS................ $ (828) (16%) $(1,657) (25%) $(1,382) (14%) $ (902) (13%) $ (793) (9%)
====== ==== ======= ==== ======= ==== ====== ==== ======= ====
The following table sets forth the amount of, and percentage relationship to
total net revenue of, certain items included in the Company's pro forma
Consolidated Statements of Operations for the years ended December 31, 1993,
1994 and 1995 and for the nine months ended September 30, 1995 and 1996.
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
------------- ------------- ------------- ------------- -------------
(UNAUDITED AND IN THOUSANDS)
REVENUE:
Radio programming...... $ 3,186 28% $ 2,541 23% $ 5,122 31% $ 3,686 31% $ 5,140 31%
Television
programming........... 291 3% 1,946 17% 4,450 27% 3,192 26% 6,514 39%
Satellite delivery and
production support.... 7,744 69% 6,805 60% 6,919 42% 5,125 43% 4,980 30%
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Total revenue.......... 11,221 100% 11,292 100% 16,491 100% 12,003 100% 16,634 100%
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
OPERATING EXPENSES:
Radio programming...... 1,974 17% 2,068 19% 3,068 19% 2,278 19% 2,649 16%
Television
programming........... 355 3% 1,043 9% 3,208 19% 2,286 19% 5,257 32%
Satellite delivery and
production support.... 5,045 45% 4,652 41% 4,662 28% 3,371 28% 2,706 16%
Selling and marketing.. 955 9% 1,090 10% 1,488 9% 1,147 10% 1,211 7%
General and
administrative........ 1,319 12% 1,958 17% 3,235 20% 2,274 19% 3,238 20%
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Total operating
expenses.............. 9,648 86% 10,811 96% 15,661 95% 11,356 95% 15,061 91%
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
OPERATING INCOME........ 1,573 14% 481 4% 830 5% 647 5% 1,573 9%
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
OTHER INCOME (EXPENSE).. (3,201) (29%) (2,834) (25%) (3,314) (20%) (2,399) (20%) (2,454) (14%)
INCOME TAXES AND
MINORITY INTEREST...... 170 2% 274 2% 578 3% 446 4% 28 0%
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
NET LOSS................ $(1,458) (13%) $(2,079) (19%) $(1,906) (12%) $(1,306) (11%) $ (853) (5%)
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
27
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
TOTAL REVENUE. Total revenue increased $2.0 million, or 29%, from $7.1
million for the nine months ended September 30, 1995 to $9.1 million for the
nine months ended September 30, 1996. This increase was due to an increase in
radio programming revenue and, to a lesser extent, television programming
revenue. On a pro forma basis, total revenue increased $4.6 million, or 39%,
from $12.0 million for the nine months ended September 30, 1995 to $16.6
million for the nine months ended September 30, 1996, due primarily to an
increase in both radio and television programming revenue.
Radio Programming Revenue. Radio programming revenue increased $1.4 million,
or 39%, from $3.7 million for the nine months ended September 30, 1995 to $5.1
million for the nine months ended September 30, 1996, due to a $1.4 million,
or 48%, increase in advertising revenue. Advertising revenue increased due
primarily to: (i) an increase in the rates charged by the Company for its
advertising spots as a result of a 19% increase in the AQH and (ii) the launch
of the Crook & Chase Country CountDown program in January 1996. Licensing
revenue was flat as compared to the prior period reflecting the Company's
strategy to focus on radio station affiliates with significant audiences.
These affiliates are generally not charged a license fee.
Television Programming Revenue. Television programming revenue increased
$0.5 million, or 178%, from $0.3 million for the nine months ended September
30, 1995 to $0.8 million for the nine months ended September 30, 1996, due
primarily to a $0.5 million increase in licensing revenue. Licensing revenue
increased due entirely to the launch of the GAC network on Jones Intercable
systems in December 1995. On a pro forma basis, television programming revenue
increased by $3.3 million, or 104%, from $3.2 million for the nine months
ended September 30, 1995 to $6.5 million for the nine months ended September
30, 1996, due primarily to an increase in advertising rates on the PIN network
as a result of an increase in the number of subscribers receiving the PIN
network's programming.
Satellite Delivery and Production Support Revenue. Satellite delivery and
production support revenue remained relatively flat at $3.1 million for the
nine months ended September 30, 1995 and 1996. On a pro forma basis, satellite
delivery and production support revenue decreased by $0.1 million, or 3%, from
$5.1 million for the nine months ended September 30, 1995 to $5.0 million for
the nine months ended September 30, 1996, due to a decrease in satellite
rental fees to affiliates of the Company.
TOTAL OPERATING EXPENSES. Total operating expenses increased $2.4 million,
or 32%, from $7.8 million for the nine months ended September 30, 1995 to
$10.2 million for the nine months ended September 30, 1996. This increase was
due primarily to an increase in television programming expenses and general
and administrative expenses. As a percentage of total revenue, total operating
expenses increased from 110% for the nine months ended September 30, 1995 to
112% for the nine months ended September 30, 1996. On a pro forma basis, total
operating expenses increased $3.7 million, or 33%, from $11.4 million for the
nine months ended September 30, 1995 to $15.1 million for the nine months
ended September 30, 1996, due primarily to an increase in television
programming expenses and general and administrative expenses. As a percentage
of total pro forma revenue, total pro forma operating expenses decreased from
95% for the nine months ended September 30, 1995 to 91% for the nine months
ended September 30, 1996.
Radio Programming Expenses. Radio programming expenses increased $0.3
million, or 16%, from $2.3 million for the nine months ended September 30,
1995 to $2.6 million for the nine
28
months ended September 30, 1996, due primarily to an increase in both
programming and production and program distribution expenses. Programming
production expenses accounted for most of the increase due primarily to an
increase in the number of formats offered by the Company and the launch of the
Crook & Chase Country CountDown in January 1996. Program distribution expenses
did not increase significantly as a result of the relatively fixed nature of
many of the costs, such as the satellite transponder expense. As a percentage
of radio programming revenue, radio programming expenses decreased from 62%
for the nine months ended September 30, 1995 to 52% for the nine months ended
September 30, 1996.
Television Programming Expenses. Television programming expenses increased
$1.0 million from $0.3 million for the nine months ended September 30, 1995 to
$1.3 million for the nine months ended September 30, 1996, due primarily to an
increase in programming distribution expenses. Programming distribution
expenses increased as a result of the launch of GAC in December 1995. As a
percentage of television programming revenue, television programming expenses
increased from 104% for the nine months ended September 30, 1995 to 163% for
the nine months ended September 30, 1996. On a pro forma basis, television
programming expenses increased by $3.0 million, or 130%, from $2.3 million for
the nine months ended September 30, 1995 to $5.3 million for the nine months
ended September 30, 1996, due primarily to an increase in amounts paid to
distributors of the PIN network as a result of increased revenue. As a
percentage of pro forma television programming revenue, pro forma television
programming expenses increased from 72% for the nine months ended September
30, 1995 to 81% for the nine months ended September 30, 1996.
Satellite Delivery and Production Support Expenses. Satellite delivery and
production support expenses increased $0.1 million, or 4%, from $2.5 million
for the nine months ended September 30, 1995 to 2.6 million for the nine
months ended September 30, 1996. As a percentage of satellite delivery and
production support revenue, satellite delivery and production support expenses
were 81% for the nine months ended September 30, 1995 and 83% for the nine
months ended September 30, 1996. On a pro forma basis, satellite delivery and
production support expenses decreased by $0.7 million, or 20%, from $3.4
million for the nine months ended September 30, 1995 to $2.7 million for the
nine months ended September 30, 1996, due primarily to an increase in the
portion of such costs reflected as television programming expense as a result
of the launch of the GAC network. As a percentage of pro forma satellite
delivery and production support revenue, pro forma satellite delivery and
production support expenses decreased from 66% for the nine months ended
September 30, 1995 to 54% for the nine months ended September 30, 1996.
Selling and Marketing Expenses. Selling and marketing expenses remained flat
at $1.1 million for the nine months ended September 30, 1995 and 1996. As a
percentage of total revenue, selling and marketing expenses decreased from 15%
for the nine months ended September 30, 1995 to 12% for the nine months ended
September 30, 1996. On a pro forma basis, selling and marketing expenses
increased by $0.1 million, or 6%, from $1.1 million for the nine months ended
September 30, 1995 to $1.2 million for the nine months ended September 30,
1996. As a percentage of total pro forma revenue, total pro forma selling and
marketing expenses decreased from 10% for the nine months ended September 30,
1995 to 7% for the nine months ended September 30, 1996.
General and Administrative Expenses. General and administrative expenses
increased $0.9 million, or 58%, from $1.6 million for the nine months ended
September 30, 1995 to $2.5 million for the nine months ended September 30,
1996, due primarily to an increase in management and operational support
expenses as a result of the launch of the GAC network and an increase in the
Company's radio operations. As a percentage of total revenue, general and
administrative expenses increased from 23% for the nine months ended September
30, 1995 to 28% for the nine
29
months ended September 30, 1996. On a pro forma basis, general and
administrative expenses increased by $.9 million, or 42%, from $2.3 million
for the nine months ended September 30, 1995 to $3.2 million for the nine
months ended September 30, 1996, due to the reasons noted above. As a
percentage of total pro forma revenue, total pro forma general and
administrative expenses increased from 19% for the nine months ended September
30, 1995 to 19% for the nine months ended September 30, 1996.
OTHER INCOME (EXPENSE). Other income (expense) decreased $0.3 million from
$(0.4) million for the nine months ended September 30, 1995 to $(0.1) million
for the nine months ended September 30, 1996 due primarily to the increased
profitability of the PIN Venture. On a pro forma basis, other income (expense)
increased by $0.1 million, or 2%, from $(2.4) million for the nine months
ended September 30, 1995 to $(2.5) million for the nine months ended September
30, 1996, due primarily to an increase in interest expense related to debt
associated with the purchase of Galactic Radio.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
TOTAL REVENUE. Total revenue increased $3.1 million, or 47%, from $6.6
million for the year ended December 31, 1994 to $9.7 million for the year
ended December 31, 1995. This increase was due to an increase in both radio
programming revenue and satellite delivery and production support revenue,
which was partially offset by a decrease in television programming revenue. On
a pro forma basis, total revenue increased $5.2 million, or 46%, from $11.3
million for the year ended December 31, 1994 to $16.5 million for the year
ended December 31, 1995, due primarily to increases in radio and television
programming revenue.
Radio Programming Revenue. Radio programming revenue increased $2.6 million,
or 102%, from $2.5 million for the year ended December 31, 1994 to $5.1
million for the year ended December 31, 1995, due primarily to a $2.2 million
increase in advertising revenue and secondarily to a $0.3 million increase in
licensing revenue. Advertising revenue increased due primarily to: (i) growth
in the number of advertising spots sold and (ii) increases in advertising
rates on the Company's radio networks as a result of a 29% increase in the
AQH. Licensing revenue increased $0.3 million, or 79%, from $0.5 million for
the year ended December 31, 1994 to $0.8 million for the year ended December
31, 1995, due primarily to an increase in the number of the Company's radio
affiliates, primarily smaller affiliates upon renewal, paying a license fee.
Television Programming Revenue. Television programming revenue decreased
$1.6 million, or 83%, from $1.9 million for the year ended December 31, 1994
to $0.3 million for the year ended December 31, 1995, due primarily to a $1.6
million, or 83%, decrease in advertising revenue. Advertising revenue
decreased due to the effects of the deconsolidation of the PIN Venture for
financial reporting purposes. This revenue had been consolidated in 1994. The
Company had no licensing revenue in either period. On a pro forma basis,
television programming revenue increased by $2.5 million, or 129%, from $1.9
million for the year ended December 31, 1994 to $4.4 million for the year
ended December 31, 1995, due primarily to an increase in advertising rates on
the PIN network as a result of an increase in the number of subscribers
receiving the PIN network's programming.
Satellite Delivery and Production Support Revenue. Satellite delivery and
production support revenue increased $2.1 million, or 102%, from $2.1 million
for the year ended December 31, 1994 to $4.2 million for the year ended
December 31, 1995, due primarily to: (i) the results of the PIN Venture
transaction and (ii) an increase in uplinking and other revenue primarily as a
result of an increase in the volume of services provided by the Company to
affiliates and secondarily to increases in rates charged by the Company for
trafficking, playback and other services. Approximately $1.3 million of the
increase was a result of the PIN Venture transaction;
30
this revenue had been eliminated in consolidation in 1994. On a pro forma
basis, satellite delivery and production support revenue increased by $0.1
million, or 2%, from $6.8 million for the year ended December 31, 1994 to $6.9
million for the year ended December 31, 1995, due primarily to an increase in
uplinking and other revenue as mentioned above.
TOTAL OPERATING EXPENSES. Total operating expenses increased $2.2 million,
or 25%, from $8.5 million for the year ended December 31, 1994 to $10.7
million for the year ended December 31, 1995. This increase was due primarily
to an increase in radio programming expenses and satellite delivery and
production support expenses, which was partially offset by a decrease in
television programming expenses. As a percentage of total revenue, total
operating expenses decreased from 130% for the year ended December 31, 1994 to
110% for the year ended December 31, 1995. On a pro forma basis, total
operating expenses increased $4.9 million, or 45%, from $10.8 million for the
year ended December 1994 to $15.7 million for the year ended December 1995,
due to an increase in radio programming, television programming and general
and administrative expenses. As a percentage of total pro forma revenue, total
pro forma operating expenses decreased from 96% for the year ended December
31, 1994 to 95% for the year ended December 31, 1995.
Radio Programming Expenses. Radio programming expenses increased $1.0
million, or 48%, from $2.1 million for the year ended December 31, 1994 to
$3.1 million for the year ended December 31, 1995, due to increases in both
programming production and programming distribution expenses. Programming
production expenses increased due primarily to an increase in the number of
formats offered by the Company and an increase in salaries of existing radio
on-air talent in order to attract and retain quality personalities.
Programming distribution expenses increased slightly due primarily to
increased satellite rental and uplinking fees. As a percentage of radio
programming revenue, radio programming expenses decreased from 81% for the
year ended December 31, 1994 to 60% for the year ended December 31, 1995, due
to the relatively fixed nature of many of the program distribution costs.
Television Programming Expenses. Television programming expenses decreased
$1.2 million, or 74%, from $1.6 million for the year ended December 31, 1994
to $0.4 million for the year ended December 31, 1995, due primarily to a
decrease in programming distribution expenses. Programming distribution
expenses decreased primarily as a result of the effects of the PIN Venture
transaction. As a percentage of television programming revenue, television
programming expenses increased from 81% for the year ended December 31, 1994
to 120% for the year ended December 31, 1995. On a pro forma basis, television
programming expenses increased by $2.2 million, from $1.0 million for the year
ended December 31, 1994 to $3.2 million for the year ended December 31, 1995,
due primarily to an increase in amounts paid to distributors of the PIN
network and increased satellite transponder expenses. As a percentage of pro
forma television revenue, pro forma television programming expenses increased
from 54% for the year ended December 31, 1994 to 72% for the year ended
December 31, 1995, due to an increase in the relative amounts paid to
distributors of the PIN network.
Satellite Delivery and Production Support Expenses. Satellite delivery and
production support expenses increased $1.7 million, or 90%, from $1.8 million
for the year ended December 31, 1994 to $3.5 million for the year ended
December 31, 1995. This increase was due to: (i) the effects of the PIN
Venture transaction and (ii) an increase in depreciation expense as a result
of increased capital expenditures for uplinking, playback and other equipment
and an increase in the volume of services provided and rates charged for
playback, production, editing and other services. As a percentage of satellite
delivery and production support revenue, satellite delivery and production
support expenses decreased from 89% for the year ended December 31, 1994 to
83% for the year ended December 31, 1995. On a pro forma basis, satellite
delivery and production support expenses were flat at $4.7 million for the
years ended December 31, 1994 and 1995 in accordance with the small increase
in overall demand. As a percentage of pro forma
31
satellite delivery and production support revenue, pro forma satellite delivery
and production support expenses decreased from 68% for the year ended December
31, 1994 to 67% for the year ended December 31, 1995.
Selling and Marketing Expenses. Selling and marketing expenses increased $0.3
million, or 26%, from $1.1 million for the year ended December 31, 1994 to $1.4
million for the year ended December 31, 1995, due primarily to increased
marketing expenditures related to the Company's radio programming distribution.
As a percentage of total revenue, selling and marketing expenses decreased from
17% for the year ended December 31, 1994 to 14% for the year ended December 31,
1995. On a pro forma basis, selling and marketing expenses increased by $0.4
million, or 37%, from $1.1 million for the year ended December 31, 1994 to $1.5
million for the year ended December 31, 1995, due to the reasons noted above.
As a percentage of total pro forma revenue, pro forma selling and marketing
expenses decreased from 10% for the year ended December 31, 1994 to 9% for the
year ended December 31, 1995.
General and Administrative Expenses. General and administrative expenses
increased $0.3 million, or 19%, from $2.0 million for the year ended December
31, 1994 to $2.3 million for the year ended December 31, 1995, due primarily to
an increase in management and operational support expenses as a result of
growth in the Company's radio operations and new business development
activities by the Company. As a percentage of total revenue, general and
administrative expenses decreased from 30% for the year ended December 31, 1994
to 24% for the year ended December 31, 1995. On a pro forma basis, general and
administrative expenses increased by $1.2 million, or 65%, from $2.0 million
for the year ended December 31, 1994 to $3.2 million for the year ended
December 31, 1995, due primarily to increased management and operational
support as a result of the growth of the PIN network and the Company's radio
operations. As a percentage of total pro forma revenue, pro forma general and
administrative expenses increased from 17% for the year ended December 31, 1994
to 20% for the year ended December 31, 1995.
OTHER INCOME (EXPENSE). Other income (expense) decreased $0.9 million from
$0.2 million for the year ended December 31, 1994 to ($0.7) million for the
year ended December 31, 1995, due primarily to an increase in interest expense
as a result of an increase in debt related to the Company's satellite delivery
and production support operations. On a pro forma basis, other income (expense)
increased by $0.5 million, or 17%, from ($2.8) million for the year ended
December 31, 1994 to ($3.3) million for the year ended December 31, 1995 for
the reasons noted above.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
TOTAL REVENUE. Total revenue increased $1.4 million, or 26%, from $5.2
million for the year ended December 31, 1993 to $6.6 million for the year ended
December 31, 1994. This increase was due primarily to an increase in television
programming revenue and secondarily to an increase in satellite delivery and
production support revenue, which was partially offset by a decrease in radio
programming revenue. On a pro forma basis, total revenue increased $0.1
million, or 1% from $11.2 million for the year ended December 31, 1993 to $11.3
million for the year ended December 31, 1994 due to an increase in television
programming revenue, which was offset by decreases in radio programming revenue
and satellite delivery and production support revenue.
Radio Programming Revenue. Radio programming revenue decreased $0.7 million,
or 20%, from $3.2 million for the year ended December 31, 1993 to $2.5 million
for the year ended December 31, 1994, due to a decrease in licensing revenue,
which was partially offset by an increase in advertising revenue. Licensing
revenue decreased $2.7 million, or 85%, from $3.2 million for the year ended
December 31, 1993 to $0.5 million for the year ended December 31, 1994.
Advertising revenue increased $2.1 million from $0.0 million for the year ended
December 31, 1993 to $2.1 million for the year ended December 31, 1994. The
decrease in licensing revenue
32
and the increase in advertising revenue are both due to the Company switching
from a strategy for the radio networks based primarily on licensing fees from
radio stations to a strategy based primarily on revenue from the sale of
advertising time received for the Company's programming.
Television Programming Revenue. Television programming revenue increased
$1.6 million from $0.3 million for the year ended December 31, 1993 to $1.9
million for the year ended December 31, 1994 due to a $1.6 million increase in
advertising revenue. Advertising revenue increased due to the PIN network
having a full year of operation in 1994 as opposed to three months in 1993.
The Company had no licensing revenue in either period.
Satellite Delivery and Production Support Revenue. Satellite delivery and
production support revenue increased $0.4 million, or 19%, from $1.7 million
for the year ended December 31, 1993 to $2.1 million for the year ended
December 31, 1994, due primarily to an increase in services provided by the
Company to affiliated entities as a result of the launch of a television
network of an affiliate of the Company in 1994 and an increase in rates
charged by the Company for trafficking, playback and other services. On a pro
forma basis, satellite delivery and production support revenue decreased by
$0.9 million, or 12%, from $7.7 million for the year ended December 31, 1993
to $6.8 million for the year ended December 31, 1994 due primarily to a
decrease in the rate charged for satellite transponder rental.
TOTAL OPERATING EXPENSES. Total operating expenses increased $2.4 million,
or 40%, from $6.1 million for the year ended December 31, 1993 to $8.5 million
for the year ended December 31, 1994. This increase was due primarily to an
increase in television programming expenses and secondarily to an increase in
general and administrative expenses. As a percentage of total revenue, total
operating expenses increased from 117% for the year ended December 31, 1993 to
130% for the year ended December 31, 1994. On a pro forma basis, total
operating expenses increased $1.2 million, or 12% from $9.6 million for the
year ended December 31, 1993 to $10.8 million for the year ended December 31,
1994 due primarily to increases in television programming expenses and general
and administrative expenses, which were partially offset by a decrease in
satellite delivery and production support expenses. As a percentage of total
pro forma revenue, total pro forma operating expenses increased from 86% for
the year ended December 31, 1993 to 96% for the year ended December 31, 1994.
Radio Programming Expenses. Radio programming expenses increased $0.1
million, or 5%, from $2.0 million for the year ended December 31, 1993 to $2.1
million for the year ended December 31, 1994, due primarily to an increase in
programming production expenses as a result of efforts to attract and retain
quality programming talent. As a percentage of radio programming revenue,
radio programming expenses increased from 62% for the year ended December 31,
1993 to 81% for the year ended December 31, 1994, as a result of the
relatively fixed nature of many of the program distribution expenses.
Television Programming Expenses. Television programming expenses increased
$1.2 million from $0.4 million for the year ended December 31, 1993 to $1.6
million for the year ended December 31, 1994, due primarily to an increase in
programming distribution expenses as a result of the PIN network having a full
year of operations in 1994 as opposed to three months in 1993. As a percentage
of television programming revenue, television programming expenses decreased
from 122% for the year ended December 31, 1993 to 81% for the year ended
December 31, 1994. On a pro forma basis, television programming expenses
increased by $0.6 million from $0.4 million for the year ended December 31,
1993 to $1.0 million for the year ended December 31, 1994 due primarily to the
reasons noted above. As a percentage of pro forma television programming
revenue, pro forma television programming expenses decreased from 122% for the
year ended December 31, 1993 to 54% for the year ended December 31, 1994, due
to the start-up costs of the PIN network in 1993.
33
Satellite Delivery and Production Support Expenses. Satellite delivery and
production support expenses increased $0.3 million, or 21%, from $1.5 million
for the year ended December 31, 1993 to $1.8 million for the year ended
December 31, 1994, due primarily to increased personnel and related operating
costs to meet increased demand for trafficking, playback and other services.
As a percentage of satellite delivery and production support revenue,
satellite delivery and production support expenses increased from 88% for the
year ended December 31, 1993 to 89% for the year ended December 31, 1994. On a
pro forma basis, satellite delivery and production support expenses decreased
by $0.3 million, or 8%, from $5.0 million for the year ended December 31, 1993
to $4.7 million for the year ended December 31, 1994, due primarily to a
decrease in insurance expense related to the launch of the satellite. As a
percentage of pro forma satellite delivery and production support revenue, pro
forma satellite delivery and production support expenses increased from 65%
for the year ended December 31, 1993 to 68% for the year ended December 31,
1994.
Selling and Marketing Expenses. Selling and marketing expenses increased
$0.1 million, or 14%, from $1.0 million for the year ended December 31, 1993
to $1.1 million for the year ended December 31, 1994, due primarily to
increased marketing expenditures related to the Company's radio operations. As
a percentage of total revenue, selling and marketing expenses decreased from
18% for the year ended December 31, 1993 to 17% for the year ended December
31, 1994.
General and Administrative Expenses. General and administrative expenses
increased $0.7 million, or 51%, from $1.3 million for the year ended December
31, 1993 to $2.0 million for the year ended December 31, 1994, due primarily
to increased management and operational support expenses as a result of the
PIN network having a full year of operations in 1994 as opposed to three
months in 1993. As a percentage of total revenue, general and administrative
expenses increased from 25% for the year ended December 31, 1993 to 30% for
the year ended December 31, 1994. On a pro forma basis, general and
administrative expenses did not change significantly from the historical
amounts noted above.
OTHER INCOME (EXPENSE). Other income (expense) increased $0.1 million from
$0.1 million for the year ended December 31, 1993 to $0.2 million for the year
ended December 31, 1994 due primarily to the increased profitability of
Superaudio. On a pro forma basis, other income (expense) increased by $0.4
million, or 12%, from ($3.2) million for the year ended December 31, 1993 to
($2.8) million for the year ended December 31, 1994, due primarily to a
decrease in interest expense related to a capital leases obligation.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Advertising revenue in the radio and television industries fluctuates due to
seasonality in such industries. The Company believes that radio network
revenue is typically lowest in the first quarter and television network
revenue is typically lowest in the third quarter. Other than the fees paid by
the Company to third parties for certain of its radio programming and the fees
paid in connection with the distribution of the PIN network, the Company's
costs have not varied significantly with respect to the seasonal fluctuation
of revenue. The Company's quarterly and annual results of operations are
affected by a wide variety of factors, many of which are outside the Company's
control, which could materially and adversely affect profitability. These
factors include the timing and volume of advertising on the Company's radio
networks and television networks, the number and size of the radio stations
that carry the Company's radio programming, the number and size of cable
systems and other video distributors that carry the PIN and GAC networks, and
general economic conditions.
The Company's unaudited quarterly operating results for each quarter of
fiscal 1994 and 1995 and the first three quarters of 1996 are shown below. The
historical quarterly results are not necessarily indicative of the results to
be expected in the future.
34
QUARTERS ENDED IN 1994 QUARTERS ENDED IN 1995 QUARTERS ENDED IN 1996
--------------------------------- --------------------------------- -------------------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH 1ST 2ND 3RD
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
Total revenue........... $ 834 $1,823 $2,113 $1,802 $2,267 $2,467 $2,319 $2,629 $2,429 $3,084 $3,561
Total operating
expenses............... 1,557 2,110 2,529 2,337 2,590 2,407 2,756 2,929 2,991 3,176 4,032
Operating income
(loss)................. (723) (287) (416) (535) (323) 60 (437) (300) (562) (92) (471)
Net income (loss)....... (587) (345) (369) (356) (206) 47 (745) (480) (281) (138) (374)
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to successfully implement its growth strategies is
subject to the availability of cash generated from operations and equity
and/or debt financing. The capital resources to fund these strategies are
expected to be provided in the short-term by this offering and the Company's
cash flow from operations. There can be no assurance, however, that the
Company will have sufficient cash flow from operations to support these
strategies. In addition, there can be no assurance that the capital resources
necessary to accomplish the Company's growth strategies over the long-term
will be available on terms and conditions acceptable to the Company, if at
all.
Since its inception, the Company has incurred net losses primarily as a
result of expenses associated with developing and launching its programming
networks. Net cash provided by (used in) operating activities for the years
ended December 31, 1993, 1994 and 1995, and the nine months ended September
30, 1996, was $2.9 million, $(6.9) million, $(0.3) million and $0.5 million,
respectively.
For the years ended December 31, 1993, 1994 and 1995, and the nine months
ended September 30, 1996, net cash used in investing activities was $4.4
million, $1.3 million, $1.5 million and $1.8 million, respectively. The
Company's investing activities in 1993 consisted primarily of the purchase of
land and the construction of the Company's satellite delivery and production
support facility in Englewood, Colorado as well as related equipment. The
Company's investing activities in 1994 consisted primarily of the purchase of
land for future expansion of the Company's facilities to deliver its
programming and additional equipment for this facility. The Company's
investing activities in 1995 consisted primarily of: (i) purchases of
equipment for the Company's satellite delivery and production facility, (ii)
purchases of equipment for the radio programming networks and (iii) the
acquisition of certain radio programming network assets. The
Company's investing activities during the nine months ended September 30, 1996
were principally to convert the delivery system of its radio programming
networks to a digital satellite delivery system, for playback and other
equipment for the GAC network and for other miscellaneous equipment. In
addition, the Company invested $1.0 million in a radio programming venture in
October 1996. The Company's fourth quarter 1996 capital expenditures, which
are expected to be approximately $2.5 million, are primarily related to the
completion of the conversion to a digital satellite delivery system and to the
purchase of the equipment to effect the digital compression of one of the
Company's satellite transponders. The Company's capital expenditures,
excluding any future investments or acquisitions, are expected to be
approximately $2.9 million in 1997.
Net cash provided by financing activities for the years ended December 31,
1993, 1994 and 1995 and for the nine months ended September 30, 1996 were $1.4
million, $8.3 million, $1.8 million and $1.3 million, respectively. The
Company's financing activities have consisted primarily of borrowings from
affiliates. In 1994, $6.6 million of borrowings were used to finance the
construction of Earth Segment's satellite delivery and production support
facilities.
35
Effective August 15, 1996 the Company purchased all of the outstanding
common stock of Galactic Radio from Global Group for $17.2 million. Global
Group had acquired Galactic Radio from Jones Intercable, an affiliate of the
Company, for $17.2 million on June 14, 1996. The purchase price was paid using
$1.2 million in cash, which was advanced to the Company by Jones
International, and with the balance in the form of a $16.0 million note.
The Company intends to use a portion of the net proceeds of this offering to
repay the $16.0 million note to Global Group, the $6.6 million note to Jones
Intercable and all outstanding advances from Jones International, which
advances totaled $3.2 million at September 30, 1996, and are expected to total
approximately $5.7 million by December 1996.
The Company does not currently have a bank or other credit facility. The
Company intends to establish a bank credit facility following the consummation
of this offering, but there can be no assurance that it will be able to secure
such a facility or any financing on acceptable terms, if at all. The Company
has received advances and loans from Jones International and related companies
to fund its operating and investing activities in the past and anticipates
that Jones International will make additional advances to the Company prior to
the consummation of the offering. Jones International and such related
companies are under no obligation to provide, nor does the Company expect them
to provide, additional advances or loans to the Company subsequent to the
consummation of the offering. Management believes that the net proceeds from
this offering and operating cash flow will be sufficient to fund the Company's
capital needs through at least December 31, 1997.
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" ("SFAS 121"), effective January 1, 1996. SFAS 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill. Implementation of SFAS 121 had
no material effect on the Company's financial position or results of
operations.
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") effective January 1,
1996. SFAS 123 recommends a fair-value-based method of accounting for employee
stock compensation, including stock options. However, companies may choose to
account for stock compensation using the intrinsic-value-based method as
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and provide pro forma disclosures of net income and
earnings per share as if the fair-value-based method had been applied. The
Company elected to account for stock compensation using the intrinsic-value-
based method, and thus SFAS 123 will not have any impact on reported operating
results.
36
BUSINESS
OVERVIEW
The Company creates, develops, acquires, produces and distributes
programming to radio stations, cable television system operators and other
video distributors. The Company: (i) provides radio programming to radio
stations in exchange for advertising time that it resells to national
advertisers, (ii) provides television programming to cable television system
operators and other video distributors, (iii) sells advertising time on its
two television networks and receives license fees for its country music
television network and (iv) owns and operates its own playback, uplink and
satellite transmission facilities that both distribute the Company's
programming and are subleased to others for a fee. The Company believes that
the vertical integration of its activities, from creation, development and
production through distribution, provides a platform from which it can cost-
effectively launch additional programming.
The Company was founded by Glenn R. Jones. Mr. Jones is the Chairman and
Chief Executive Officer of Jones Intercable, one of the top ten cable
television MSOs serving more than 1.4 million basic subscribers in 48 cable
television systems in the United States. Mr. Jones has been instrumental in
leading the Company's early growth and continues as its majority stockholder
and chairman. Mr. Jones has been a leader in the cable television business for
over 35 years and in 1994 he was inducted into the Broadcasting and Cable Hall
of Fame.
The Company launched its first 24-hour satellite delivered radio program in
1989 and now provides 11 radio programs to 1,228 radio station affiliates in
the United States and Canada. Approximately 60 of these affiliates receive
more than one program from the Company. The Company's nine 24-hour music
programs include popular music formats such as country and adult contemporary.
The Company also distributes one long-form country music countdown program and
one short-form country music news program. The Company generally provides its
radio programming to radio stations in exchange for advertising time that the
Company resells to national advertisers. In some cases, the Company also
charges radio stations a license fee for radio programming. The Company,
directly and through a joint venture, also provides audio music and
information programming for distribution via cable television systems and for
other applications.
The Company's television programming is distributed through two networks:
PIN and GAC. The PIN Venture, a joint venture among the Company, Cox and
Adelphia, operates the PIN network, a 24-hour television network that airs
long-form advertising generally known as "infomercials." The Company
introduced the PIN network in October 1993 to capitalize on the rapidly
growing infomercial industry. The PIN network airs informational programming
from major advertisers that include Ford Motor Company, State Farm Insurance,
Schering-Plough Corporation and Sony Corporation, among others. In addition,
the PIN network airs traditional direct response infomercials. The PIN network
is currently available to approximately 7.3 million subscribers through 168
cable systems. Approximately 2.3 million of these subscribers are located in
12 of the top 25 DMAs. The GAC network is a 24-hour country music video
network that was introduced in December 1995 to capitalize on the popularity
of country music. The GAC network is currently available to approximately 0.9
million subscribers through 51 cable systems.
37
The Company's satellite delivery and production support services provide
reliable and efficient playback, trafficking, uplinking and satellite
transmission services to the Company's networks. The Company believes that
these distribution services allow it to have strict management and quality
control over the distribution of its programming. The Company also sells its
satellite delivery and production support services to certain related
companies and to a third party. For the delivery of television programming,
the Company has long-term leases for two transponders on strategically
positioned satellites. Through the implementation of new digital compression
technologies that the Company plans to utilize for both of its leased
satellite transponders, the Company will have an increased amount of
transponder capacity for its own television programming and for sublease to
third party television networks. The Company also subleases space on other
satellite transponders for delivery of its radio programming.
STRATEGY
The Company's objective is to increase its revenue and operating cash flow
by employing the following strategies:
Create, Develop, Acquire and Produce Additional High-Quality
Programming. The Company believes that there is market demand for additional
long-form and short-form radio programming in both larger and smaller markets
due to the financial and creative constraints of many radio stations combined
with their need to improve operating efficiencies. In addition, the Company
believes there is a market for various 24-hour music and information programs
that the Company does not currently distribute, such as classic country, talk
radio and urban contemporary formats. The Company intends to develop and
acquire radio programming addressing these market demands. In addition to
creating, developing and producing its own programming, to reduce its
financial exposure and to supplement its creative talent, the Company has
entered into and will continue to seek agreements with third party programmers
who bear the costs associated with developing and producing radio programming
and who have special expertise in these markets.
Increase the Distribution of its Programming by Expanding its Marketing and
Sales Activities Directed at Radio Stations, MSOs and Advertisers. To increase
its revenue, the Company must increase the distribution of and audience for
its programming. The Company plans to market its television networks primarily
to cable television systems in the top 25 DMAs. The Company relies on
financial incentives and its established relationships with MSOs to market
these networks. The Company may also seek to increase the distribution of the
PIN network by offering enhanced financial incentives to MSOs. The Company
intends to promote the benefits of long-form infomercial programming to major
advertisers, with the goal of attracting more advertising from such advertisers
and enhancing the quality of the PIN network's programming. The Company plans
to increase its radio network marketing and sales activities in an effort to
increase the number of its radio station affiliates and the size of its
audience.
Acquire or Create Complementary Businesses. The Company intends to expand
its business by acquiring and/or creating businesses complementary to its
business. Such complementary businesses could include competitors of the
Company that create, produce and distribute programming or other companies
that offer related services.
Capitalize on its Satellite Delivery and Production Support Facilities. The
Company's satellite delivery and production support facilities provide
reliable, efficient playback, trafficking, uplinking and satellite
transmission services to the Company. The Company's satellite facilities are
strategically located on the 105th meridian which enables the Company to
uplink its television programming to satellites serving international markets.
The Company believes that through the implementation of new digital
compression technologies, which the Company plans to utilize for both of its
leased satellite transponders, it will be able to sublease an increasing
amount of its transponder capacity to third parties.
Leverage its Integrated Infrastructure to Cost-Effectively Launch Additional
Programming. The Company believes that the vertical integration of its
creative resources,
38
marketing experience, industry contacts and technological capabilities will
enable it to cost-effectively launch additional programming. The Company
believes that launching additional programming will enable the Company to take
greater advantage of its efficiencies and thereby more effectively spread its
fixed costs over a larger revenue base.
Although the Company intends to actively pursue these strategies, there can
be no assurance that it will be successful in these endeavors.
RADIO NETWORKS
The Radio Programming Market
According to the FCC, there are approximately 10,000 commercial radio
stations in the United States. Radio is a popular medium for advertising due
to the short lead time between commercial production and broadcast, the
relative ease and low cost of producing radio commercials and the fact that
more than half of all radio listening occurs away from the home, closer to the
point of purchase. Advertisers consider radio to be one of the most effective
media to reach target audiences. Radio reaches its targeted demographics by
using specific-format programming. According to industry sources, total radio
advertising revenue was $11.3 billion in 1995.
Radio stations compete for advertising revenue in their respective markets.
To be competitive, radio stations are continuously seeking the highest quality
programming at the lowest cost. Radio stations develop formats, such as music,
news/talk or various types of entertainment programming, intended to appeal to
a target listening audience with demographic characteristics that will attract
national, regional and local commercial advertisers. However, limited
financial and creative resources, among other things, prevent most radio
stations from producing national quality programming. Accordingly, radio
stations rely on network programming from independent producers or
"syndicators", such as the Company, to enhance or provide their radio
programming. By placing a program with radio stations throughout the United
States, the syndicator creates a "network" of stations that carry its
programming. A radio network typically provides programming to radio stations
in exchange for a contractual amount of commercial broadcast time, usually
expressed as a number of minutes per hour, which is then resold to
advertisers. The Company believes that most commercial radio stations utilize
radio network or syndicated third party programming. The commercial broadcast
time for such programs may vary from market to market within a specified time
period, depending upon the requirements of the particular radio station
affiliate.
The Telecom Act significantly changed the radio broadcast industry by
repealing national limits on the number of radio stations that may be owned by
one entity and by relaxing the common ownership rules in a single market. As a
result, the Telecom Act has created a wave of radio station acquisitions and
increased consolidation in the industry. This, in turn, has led many ownership
groups to seek ways to cut costs, better manage their operations and improve
their efficiencies. Radio networks, such as the Company's, may address these
needs by providing quality programming to radio stations and reducing their
personnel costs.
Network radio programming is generally grouped into three formats:
24-Hour Programming. This full-time programming is aired live and hosted by
announcers. Examples of this type of programming include popular formats such
as country, adult contemporary and oldies.
Long-Form Programming. This type of programming is less than 24 hours in
duration and is designed to fill, on a daily or weekly basis, one day part,
generally a four to six-hour time period of the day such as mornings--6 a.m.
to 10 a.m., middays--10 a.m. to 3 p.m., afternoons--3 p.m. to 7 p.m.,
evenings--7 p.m. to midnight, and overnights--midnight to 6 a.m. Examples of
this type of programming include shows hosted by Rush Limbaugh and Don Imus
and popular countdown shows hosted by Casey Kasem and Rick Dees.
39
Short-Form Programming. This type of programming generally is less than 15
minutes in duration. Examples of this type of programming include The Paul
Harvey Show, The Wall Street Journal Report and The Osgood File.
Radio advertising is generally sold on the basis of a radio program's AQH.
The AQH can range from zero for a small-market radio station to greater than
50,000 for a large-market radio station, with the majority of large-market
stations in the range of 10,000-20,000. In order to increase advertising
rates, it is necessary to increase the size (or rating) of the audience the
program provider delivers to national advertisers.
The Company's Radio Networks
The Company distributes radio programming to 1,228 radio stations throughout
the United States and Canada. In addition, approximately 60 of these stations
receive more than one program. The Company's high-quality, distinctive
programming is designed to enable radio stations to improve and differentiate
their on-air presentations and increase their ratings, thereby increasing
advertising revenue for both the radio stations and the Company.
The Company currently delivers nine 24-hour music programs, one long-form
program and one short-form program. The Company's long-form program, the Crook
& Chase Country CountDown, is a weekly, four-hour country music countdown
show. The Company's short-form program, The Nashville News Source, is a
package of three country music news features distributed Monday through Friday
via satellite and facsimile. The service includes a ninety-second news report
and a commentary by Nashville entertainment reporter Jimmy Carter. Seven of
the 24-hour formats were developed by the Company and two were acquired from
third parties. The Company's 24-hour formats generally are targeted at
stations in all market sizes, while its long-form and short-form formats
generally are targeted toward radio stations in larger markets.
The following table summarizes the Company's radio programming:
YEAR
NAME OF PROGRAM LAUNCHED
- --------------- --------
24-HOUR
US Country(TM)......................................................... 1989
Adult Hit Radio(TM).................................................... 1989
Soft Hits(TM).......................................................... 1989
Good-Time Oldies(TM)................................................... 1990
CD Country(TM)......................................................... 1993
New Adult Contemporary................................................. 1994
Z-Spanish.............................................................. 1994
Rock Alternative(TM)................................................... 1996
The New Music of Your Life(TM)......................................... 1996
LONG-FORM
The Crook & Chase Country CountDown.................................... 1996
SHORT-FORM
The Nashville News Source.............................................. 1996
The Company's radio network has 70 on-air personalities, the majority of
whom have extensive top 25 market experience. To supplement its in-house
programming expertise, from time to time the Company enters into agreements
with third-party programmers that develop and produce distinctive, high-
quality programming. These programmers have expertise in developing
programming for specific targeted audiences (e.g. ethnic, mature) and
typically employ recognized
40
talent. An example of such a relationship is The New Music Of Your Life
program hosted by Gary Owens, Wink Martindale and other well-known radio
personalities.
The Company's agreements with third party programmers typically provide that
the Company and the third party programmer each receive 50% of the net
advertising and affiliate fee revenue generated by the programming. The
programmer creates and develops the radio program and the Company markets the
program to radio station affiliates, manages the relationship with the radio
station affiliates, manages the sale of national advertising, provides
technical support and provides other services. As a result, the programmer
typically bears the costs associated with developing and producing the
programming. The term of these license agreements is usually three to five
years. The Company does not generally retain the rights to the programming
upon the termination of these license agreements.
The Company markets its radio programming directly to radio stations through
its eight person affiliate sales group. The affiliate sales group utilizes
industry market research and databases to identify prospective radio station
affiliates and advertises in trade publications and attends industry
conventions and trade shows to increase awareness of its radio networks.
The Company's Other Audio Services
The Company provides music and information audio programming designed to
complement the video offerings of cable television system operators. The
Company provides these services directly and through Superaudio. Superaudio is
a partnership owned 50% by the Company and 50% by a third party that also
programs and sells premium music programming directly to cable television
operators and other video distributors. Superaudio offers nine formats of 24-
hour programming: six stereo music formats and three information and
entertainment formats. Superaudio's programming is distributed to cable
systems serving approximately seven million subscribers. The Company also
provides unobtrusive background music to cable operators to program behind a
cable television system's text and classified advertising channels.
TELEVISION PROGRAMMING NETWORKS
Market Overview--Long-Form Advertising
The Company believes that, during recent years, advertisers evaluating the
benefits of television and cable advertising have recognized the effectiveness
and reasonable cost of long-form, informational programming, commonly known as
infomercials. An infomercial is an advertisement, usually approximately one
half-hour in length and often produced in an entertainment format, that is
paid for by the advertiser on the basis of the time of day the infomercial is
aired, market size and in certain cases past results from airing on a
particular television station or cable television network. Regardless of the
presentation format, the viewers are provided information that can be used to
make informed purchasing decisions from their homes.
Increasingly, advertisers are recognizing the benefits of infomercials as an
effective marketing tool. The Company believes that infomercials provide
advertisers with a cost-effective medium through which to deliver sales
messages, product introductions or demonstrations to an interested target
audience. Advertisers are recognizing that infomercials can increase a
company's or product's brand awareness while educating potential new
customers. The viewer or potential consumer is provided information that can
be used to make more informed purchasing decisions. Unlike most traditional
television advertising, the direct response nature of many infomercials
provide advertisers with the ability to evaluate the differences in the
effectiveness of their expenditures on an immediate basis.
The Company believes that the infomercial industry has grown rapidly during
the past several years. Historically, infomercials occupied time slots that
were less profitable for
41
broadcasters. Increasingly, infomercials are being placed in more expensive and
attractive time periods such as daytime, early fringe and prime time, and are
becoming a more widely accepted form of advertising.
The production quality of infomercial programming by major advertisers has
also increased the credibility of the infomercial industry. In addition,
infomercials have recently been successfully utilized to promote newly
introduced network television series and full length feature movies. The
Company believes that as the benefits of infomercial programming become more
widely understood, the number of advertisers and the volume of infomercial
programming will continue to grow. In terms of demand for airtime, major
corporate advertisers who use long-form programming for image building rather
than direct selling messages may ultimately surpass infomercial programmers who
rely on immediate sales to viewers via telephone response. Currently, major
advertisers spend only a relatively small part of their overall advertising
budget on infomercials. The Company believes that such advertising expenditures
will continue to increase. According to industry sources, total infomercial
advertising expenditures totalled $806 million, and infomercial sales totaled
$1.6 billion in 1995, up from $663 million and $1.3 billion, respectively, in
1994.
Product Information Network
The PIN network is a satellite-delivered, long-form informational programming
service. The audience for the programming is television viewers, primarily
consisting of subscribers to cable television systems that air the programming.
The PIN network programming is provided to cable system operators on its own
dedicated channel 24-hours per day, seven-days per week. The PIN network is
distributed on either a full or part-time basis on cable television systems
representing approximately 7.3 million, or 12%, of the nation's cable
television households.
The Company developed and tested the concept of a 24-hour, long-form
advertising network in 1993. The Company launched the PIN network in October
1993 on cable television systems owned and/or managed by Jones Intercable. To
broaden the PIN network's distribution, the Company formed the PIN Venture with
Cox and Adelphia to own and operate the PIN network. Both Cox and Adelphia
distribute the PIN network on a number of their cable television systems.
The PIN network airs a variety of infomercials. From 8:00 a.m. to midnight,
the majority of the infomercials feature the products of major companies such
as Ford Motor Company, State Farm Insurance, Schering-Plough Corporation and
Sony Corporation. The balance of the programming time, most of which occupies
the overnight time periods, is dedicated to traditional direct-response
infomercial programming, usually featuring low cost household or personal use
items.
Advertising Customers. The PIN network's programming is produced and provided
by its advertisers at no cost to the network. The PIN network's primary
customers are major companies and their representative advertising agencies
that advertise their products or services in the long-form format. The PIN
network has developed the acceptance of long-form advertising by major
companies through its agreement with CRN. The CRN relationship has helped to
build the network's reputation as a vehicle for long-form advertising from
Fortune 500 and other large companies. CRN purchases advertising time on the
PIN network to air the long-form advertising of its clients. The PIN network
now televises eight hours per day of programming created by CRN's clients,
including Ford Motor Company, Schering-Plough Corporation and State Farm
Insurance. National Media currently purchases approximately six hours of
airtime a day on the PIN network. The PIN Venture has long-term agreements with
its two largest customers, CRN and National Media, that secure air time
purchases through December 1997 and April 1997, respectively. See "Risk
Factors--Dependence on Advertising Relationships."
42
Distribution. The PIN network's programming is currently available to
approximately 7.3 million households in the United States on either a full or
part-time basis. The PIN network is distributed principally through cable
television systems, with a focus on those systems in the top 25 DMAs. This
focus is generally a requirement for major companies that are considering or
currently using long-form advertising. The PIN network currently provides
programming to 168 cable television systems. The MSOs that carry the network
on a portion of their cable systems include nine of the ten largest MSOs,
including Tele-Communications, Inc., Time Warner, Inc., Comcast Corporation,
Cablevision Systems Corporation, Continental Cablevision, Marcus Cable, Cox,
Jones Intercable and Adelphia. The majority of the PIN network's present
subscriber base is provided by Cox, Jones Intercable and Adelphia. The
standard PIN network affiliation agreement generally requires a two-year
commitment of carriage. In the case of cable systems that are owned or
operated by Jones Intercable, Cox and Adelphia, the affiliation agreements are
for terms of ten years, five years and five years, respectively, and expire on
February 1, 2005, February 1, 2000 and October 1, 2001, respectively. See
"Risk Factors--Risks Associated with Distribution of Television Programming."
Incentive Program. The PIN Venture compensates cable operators for carriage
of the PIN network through an incentive program. The PIN Venture pays to cable
operators 50% of the PIN network's adjusted net advertising revenue (which is
revenue less agency commissions and bad debt expenses) attributable to the
time that the system carries the network's programming. Beginning in the first
quarter 1997, the PIN Venture expects to increase the incentive to 60% in an
effort to expand its distribution. For 1996, the incentive paid to the PIN
Venture's full-time (24 hours per day) affiliates is estimated to be $1.05 per
subscriber per year. In addition to these incentives, under certain
conditions, the PIN Venture will provide co-op advertising support to cable
operators.
The PIN Venture Agreement. The three partners in the PIN Venture are the
Company, Cox, and Adelphia. The Company contributed its existing infomercial
network to the PIN Venture, along with certain other assets, and Cox
contributed its infomercial network. The Company and Cox agreed to use their
best efforts to cause their cable television affiliates to enter into
agreements with the PIN Venture to launch PIN on the cable television systems
owned by such affiliates. The PIN Venture has secured such agreements.
The Company manages the day-to-day operations of the PIN Venture. The PIN
Venture has an Executive Committee consisting of five persons, two appointed
by the Company, two by Cox, and one by Adelphia. The PIN Venture Agreement
contains a number of provisions which either allow or require a partner to
withdraw from the PIN Venture. A partner could be required to withdraw if the
number of subscribers provided by it falls below a certain level. A withdrawal
would cause a dissolution of the partnership if the withdrawing partner were
the Company or Cox. Cox can withdraw from the PIN Venture on December 31,
1999. Adelphia can withdraw at the end of the term of the Adelphia affiliation
agreement. Such a withdrawal would cause the withdrawing partner to lose its
equity interest in the PIN Venture. The PIN Venture Agreement terminates on
December 31, 2004, unless extended by the parties.
Market Overview--Country Music
According to industry sources, country music is one of America's most
popular music formats and one of the fastest-growing segments of the music
industry in the United States. Every week, 34 million Americans listen to
country radio and with 2,532 radio stations now programming country music
approximately 24% of all commercial radio stations, it has become the dominant
radio format in the United States, reaching eight million more listeners a
week than its closest
43
competitor-format, adult contemporary. In 1995, country music was the top-
rated format in 41 of the nation's top 100 markets.
Great American Country
The GAC network is a 24-hour country music video network featuring a mix of
current top country hits and the best of past country hits. The GAC network
was launched in December 1995 and is currently distributed to approximately
0.9 million subscribers on 51 cable television systems, most of which are
owned or managed by Jones Intercable, an affiliate of the Company. The Company
believes that the GAC network offers a programming mix with fewer commercials
and more attractive economic carriage terms for cable system operators,
including more local advertising spots, than its principal competitor. Since
its debut, GAC has concentrated on refining its programming and on-air
presentation in order to broaden its carriage. The Company acquires the music
videos that it airs on the GAC network at no cost from record companies, which
use this medium to promote their performing artists. The Company produces the
other programming on the GAC network. The GAC network targets the largest,
most influential and affluent market segment of the country music audience--
the 25-54 age group. The GAC network's music video mix is geared toward this
segment's preference for familiar country music artists. The Company believes
that the GAC network benefits from the Company's experience in the country
music radio programming business.
SATELLITE DELIVERY AND PRODUCTION SUPPORT SERVICES
The Company transmits its radio and television programming directly to radio
stations, cable system operators and other video distributors. The programming
is distributed via satellite transponders leased from third parties. The
Company provides playback services, trafficking and ground-to-satellite
transmission of its programming services from its uplink facility in
Englewood, Colorado. The Company's satellite facilities are strategically
located on the 105th meridian which enables the Company to uplink programming
to satellites serving international markets. The Company leases one full
satellite transponder on each of two strategically positioned GE Americom
satellites, Satcom C-3 and Satcom C-4, which deliver a variety of popular
cable television programming. The Company utilizes advanced technology in
providing uplink, playback and trafficking services. In the first quarter of
1997, the Company will install General Instrument Corporation's DigiCipher II
(MPEG-2) compression equipment. This new equipment will allow the Company to
compress its leased Satcom C-3 satellite transponder from 4:1 compression to
6:1 compression initially, and possibly higher levels in the future. Any
excess capacity created by this new technology will be used for the
distribution of the Company's programming, its affiliates' programming or
third party programming. The Company subleases transponder space to the
Company's affiliates and a third party. The Company's transponder leases
expire in 2004. The Company's subleases with its affiliate and the third party
expire in 2004 and October 1997, respectively.
COMPETITION
Competition in the radio and television network markets is intense. The
Company's radio network competes for advertising dollars and radio station
affiliates with four major network radio distribution companies in the United
States, as well as with a larger number of smaller independent producers and
distributors. In addition, the dominant competitors in the industry are
affiliated with major station owners, have recognized brand names and have
large networks which include affiliates to which such competitors pay
compensation to broadcast the network's commercials.
44
The Company's largest direct competitors include ABC Radio Networks,
Westwood One Radio Networks, CBS Radio Networks and Premiere Radio Networks.
The Company estimates that these networks received a majority of total network
radio advertising revenue in 1995. The principal competitive factors in the
radio industry are the quality and creativity of programming and the ability
to provide advertisers with a cost-effective method of delivering commercial
advertisements. There can be no assurance that the Company will be able to
compete successfully for radio advertising revenue.
Radio networks also face competition from improving technologies available
to local radio stations that may enable them to pre-record their local
announcers and automate their operations, thereby allowing them to reduce
costs and operate more efficiently. Another potential technological advance,
DARs, may permit national radio stations to broadcast digital quality radio
programming nationwide to homes, automobiles and other locations via
satellite. The Company cannot predict what effect the potential future
development of digital automation or DARS will have on the radio industry or
the Company.
The Company's television networks compete for distribution on cable systems,
viewers and advertising revenue with hundreds of cable and broadcast
television networks supplying a variety of infomercial and entertainment
programming. The PIN network competes directly with at least three other
infomercial networks: Infomall TV, Access Television Network and GRTV, certain
of which have greater distribution than the Company. Infomall TV is an
infomercial network carried by its affiliated broadcast television stations.
Access Television Network delivers infomercial programming for use during
"remnant time." Remnant time is time that is made available by "rolling-over"
infomercials contained in other network programming or time that is not used
by the cable operator such as blacked out programming and unused leased access
time. GRTV, is a new infomercial network that was recently launched. In
addition, the Company believes that new infomercial networks are currently
being planned or formed that will compete directly with the PIN network. The
PIN network also competes with at least 30 cable television networks, many of
which have a substantial number of subscribers, that air infomercial
programming.
The GAC network's principal direct competitor is Country Music Television
("CMT"), an advertiser-supported basic cable network that delivers country
music videos 24-hours per day. The Company believes that CMT's programming is
driven by the most current country music releases and is targeted to a younger
audience than the GAC network. The GAC network also competes with The
Nashville Network, which plays country music videos during a portion of the
broadcast week. Most of its music programming is focused on theater-style
music concert programming such as the Grand Ole Opry.
The Company expects to encounter additional competition for viewers as
technological advances, such as the deployment of digital compression
technology, the deployment of fiber optic cable and the "multiplexing" of
cable services, allow cable systems to greatly expand their channel capacity
and, as a result, their ability to add new networks. In addition, there can be
no assurance that the infomercial concept will continue to be acceptable to
advertisers and consumers or that it will be able to compete against other
forms of advertising.
The Company competes in the delivery of domestic satellite services with
microwave carriers, satellite service providers and full service teleports.
Some of the Company's principal competitors, many of which have substantially
greater financial and other resources, include Vyvx Teleport, MicroNet Inc.,
ID/B Keystone, Rainbow Network Communications, Washington International
Teleport, Inc., and Brewster Teleport. The Company believes that transmission
quality, reliability and price are the key competitive factors in this market.
45
As there are generally few legal barriers or proprietary rights to prevent
entry into the Company's markets, the Company could in the future face
competition from new competitors offering services similar to that of the
Company. The Company's radio and television networks also compete with other
forms of media for advertising dollars, such as broadcast television, print,
outdoor and other media. Many of the Company's competitors have greater
resources than the Company and there can be no assurance that the Company will
be able to compete successfully in the future. If the Company is unable to
compete successfully for distribution of its networks and advertising revenue,
it could suffer a material adverse effect. See "Risk Factors--Competition."
GOVERNMENT REGULATION
Although the Company's radio and television networks are not generally
directly regulated by the FCC, the radio stations and cable television systems
and other video distributors to which the Company sells its programming are
regulated. As a result, the federal laws and FCC regulations that affect these
entities indirectly affect the Company.
The ownership, operation and sale of radio stations are subject to the
jurisdiction of the FCC. Among other things, the FCC adopts and implements
regulations and policies that directly or indirectly affect the ownership,
operations and sale of radio and television stations, and has the power to
impose penalties for violations of its rules or federal statutes. Such
regulation may adversely affect the Company's business. The Telecom Act is
significantly changing the radio broadcast industry by repealing national
limits on the number of radio stations that may be owned by one entity and by
relaxing the common ownership rules in a single market. These measures have
led to greater radio industry consolidation. The effects of the Telecom Act on
the broadcasting industry and thus on the Company's radio networks are
uncertain, and there can be no assurance that it will not negatively impact
the Company in the future.
The cable television industry is subject to extensive federal, state and
local regulation. Regulation can take the form of price controls, programming
carriage requirements and programming content restrictions. Such regulation
could affect the availability of time on local cable television systems for
sale by the Company as well as the price at which such time is available.
There can be no assurance that material adverse changes in regulations
affecting the cable television industry, in general, or the Company, in
particular, will not occur in the future.
The Company's satellite delivery and production support services are
directly regulated by the FCC. The Company holds FCC microwave and earth
station uplink licenses, which it utilizes to provide delivery and support
services. Because the licenses held by the Company relate primarily to the
technical operation of its microwave and uplink facilities, which are used for
internal purposes and program delivery, there are only limited regulatory
burdens associated with maintaining these licenses in good standing. See "Risk
Factors--Government Regulation."
FACILITIES
All of the Company's facilities are located in Englewood, Colorado. The
Company subleases office space from Jones Intercable, an affiliate of the
Company, as well as office space and studio space from third parties. See
"Certain Relationships and Related Transactions." The Company also leases
satellite transponder capacity from a third party. In addition, the Company
owns 8.4 acres of land and a satellite uplink facility. The Company believes
its office space, studio space, satellite uplink facility and transponder
capacity are adequate to meet its current needs.
46
ASSOCIATES AND OTHERS
The Company refers to its employees as associates. As of September 1, 1996,
the Company had 101 full-time associates and 53 part-time associates. In
addition, the Company maintains relationships with independent writers, program
hosts, technical personnel and producers. None of the Company's associates are
covered by a collective bargaining agreement and the Company believes its
employee relations to be good.
LEGAL PROCEEDINGS
The Company is involved in routine legal proceedings incident to the ordinary
course of its business. The Company believes that the outcome of all such
routine legal proceedings in the aggregate will not have a material adverse
effect on the Company.
47
MANAGEMENT
DIRECTORS, PROPOSED DIRECTORS AND EXECUTIVE OFFICERS
The Company currently has three directors: Glenn R. Jones, Chairman of the
Board of Directors, Gregory J. Liptak, President of the Company, and Jay B.
Lewis, Vice President/Chief Financial Officer of the Company. Concurrent with
the consummation of this offering, the Board will be expanded to consist of
five directors and the then-existing Board will fill the vacancies created by
such expansion by appointing the two nominees named below.
Set forth below is certain information concerning each person who is
presently an executive officer or director of the Company. Information is also
provided for certain key employees and director nominees. All directors hold
office for a period of one year or until their respective successors are
elected and qualified, or until their earlier resignation or removal.
NAME POSITION AGE
---- -------- ---
Glenn R. Jones................ Chairman of the Board 66
Gregory J. Liptak............. President and Director 56
Jay B. Lewis.................. Group Vice President/Chief Financial Officer 38
and Director
Elizabeth M. Steele........... Vice President and Secretary 44
Keith D. Thompson............. Chief Accounting Officer 29
Eric Hauenstein............... Vice President/General Manager--Radio 48
Networks (1)
Phillip H. Baykian............ Vice President of Programming and 43
Operations--Radio Networks (1)
Charles Price................. Vice President/General Manager--PIN (1) 43
P. Craig Chambers............. Vice President/General Manager--GAC (1) 50
Gary D. Edens................. Director Nominee 54
Michael L. Pandzik............ Director Nominee 51
- --------
(1)An officer of a subsidiary of the Company, but not of the Company itself.
The Company's bylaws provide that the Company shall have no fewer than one
director and no more than ten directors. Subject to such limitation, the
number of directors may be fixed from time to time by the Board. Executive
officers of the Company hold office until their successors are chosen and
qualified, subject to earlier removal by the Board.
The principal occupations for at least the past five years of each of the
directors, proposed directors, executive officers and certain key employees of
the Company are as follows:
GLENN R. JONES has served as Chairman of the Board of the Company since it
was founded in 1993. Mr. Jones has been involved in the cable television
business in various capacities since 1961 and currently serves as a director
and/or executive officer of many of the Company's affiliates, including Chief
Executive Officer and a director of Jones Intercable, one of the ten largest
MSOs in the United States, Chief Executive Officer and Chairman of the Board
of Directors of Jones Education Company ("Jones Education"), an educational
programming, products and services company and director and vice chairman of
Bell Canada International Inc. Mr. Jones will continue to devote a substantial
amount of his time to the Company's affiliates. Mr. Jones received a B.S. in
Economics from Allegheny College and a J.D. from the University of Colorado
School of Law. In 1994, Mr. Jones was inducted into the Broadcasting and Cable
Hall of Fame.
GREGORY J. LIPTAK has served as the President of the Company since 1993. Mr.
Liptak has been associated with the Jones International group of companies
since March 1985. He has served
48
as Vice President of Operations, Group Vice President of Operations and
President of Jones Intercable from 1985 to 1989, as President of Mind
Extension University, Inc., a subsidiary of Jones Education, and President of
Jones Spacelink, Ltd., from 1989 to 1995. From 1975 to 1985, Mr. Liptak served
as an executive officer of Times Mirror Cable Television, Inc. Mr. Liptak
received a B.S. and M.S. in Marketing and Communications from the University
of Illinois. Mr. Liptak was also the co-founder and first president of CTAM,
the Cable Television Marketing Society, and has also served as Chairman of the
Cable Television Advertising Bureau.
JAY B. LEWIS has served as Vice President/Chief Financial Officer of the
Company since July 1996 and was elected Group Vice President in October 1996.
From January 1995 until October 1996, Mr. Lewis was Vice President of Finance
and Treasurer of Jones International, an affiliate of the Company, and certain
of its subsidiaries. From February 1986 to December 1994, Mr. Lewis was
employed in various capacities, including Controller and Treasurer, by Jones
Spacelink, Ltd., a former affiliate of the Company. Prior to joining the Jones
International group of companies, Mr. Lewis was employed by Arthur Young & Co.
(now Ernst & Young LLP), a public accounting firm. Mr. Lewis received a B.S.
in Accounting from the University of Wyoming in 1980.
ELIZABETH M. STEELE has served as Secretary of the Company since it was
founded in 1993 and as Vice President of the Company since November 1995. Ms.
Steele has also served as Vice President and Secretary of Jones Education
since it was founded in 1990. Ms. Steele has also served as Vice
President/General Counsel and Secretary of Jones Intercable, as well as
general counsel to certain of Jones Intercable's and the Company's affiliates
since 1987. Ms. Steele will continue to devote a significant amount of her
time to these affiliates. From 1980 through 1987, Ms. Steele practiced law
with the Denver law firm of Davis, Graham & Stubbs LLP, where she was elected
a partner in 1985. Ms. Steele received a B.A. in History from Hamilton College
and J.D. from the University of New Mexico.
KEITH D. THOMPSON has served as Chief Accounting Officer of the Company
since September 1996. Mr. Thompson has also served as Chief Accounting Officer
of Jones Education since August 1996, a position he continues to hold. Mr.
Thompson has also been associated with Jones International since October 1994,
serving as a Senior Accountant from October 1994 to April 1995, as an
Accounting Manager from April 1995 to January 1996 and as Director of
Accounting from January 1996 to the present. Mr. Thompson will continue to
devote a substantial amount of his time to Jones International and its
affiliates. From July 1989 to October 1994, Mr. Thompson was an auditor for
Deloitte & Touche LLP. Mr. Thompson received a B.S. in Accounting from Oral
Roberts University and is a Certified Public Accountant in the State of
Colorado.
ERIC HAUENSTEIN has served as Vice President/General Manager--Radio Networks
since 1994. During his twenty-five years of radio station management and
ownership, he has been responsible for the operation of over twenty radio
stations, including KDKB in Phoenix and KBPI in Denver. From 1991 to 1994, he
was the General Manager of three radio stations in Richmond, Virginia. He has
also served on state and national boards of directors for the radio industry
including the National Association of Broadcasters, the National Radio
Broadcasters Association, the Arizona Broadcasters Association and the
Virginia Association Broadcasters. He attended St. Louis University and the
University of Cincinnati.
PHILLIP H. BAYKIAN has served as Vice President of Programming and
Operations--Radio Networks since 1991. Mr. Baykian has nearly 25 years in on-
air and programming experience. He served as Vice President of Programming for
Drake Chenault Radio Consultants in Albuquerque, New Mexico from 1986 to 1991.
Previously, he was Operations Consultant for TM Programming, a radio industry
programming consultant company, from 1981 to 1986. Mr. Baykian attended Delta
College at University Center.
49
CHARLES PRICE joined the PIN Venture in February 1996 as Vice President and
General Manager. Mr. Price was President of Infomall Cable Network, from April
1995 to September 1995 and served as Executive Vice President of "S"--The
Shopping Network from June 1994 to December 1994. Mr. Price was Vice President,
Western Division of QVC, Inc. from 1989 to 1994. Mr. Price served as the Vice
President of Affiliate Relations for the Cable Value Network from 1986 until
1989. Mr. Price began his career in cable programming working in management
posts with MTV, Nickelodeon, Showtime, and The Movie Channel from 1980 to 1984.
Mr. Price received a B.A. in Business Management and Communications from
Southwest Texas State University in 1976.
P. CRAIG CHAMBERS has served as Vice President/General Manager--GAC since
December 1995. Mr. Chambers has been involved in cable network sales, marketing
and management for 12 years. From 1991 to 1995, Mr. Chambers served as General
Manager of the Western United States and Canada region for Group W Satellite
Communication. Group W Satellite Communications' basic cable networks include
TNN--The Nashville Network, and CMT--Country Music Television. Mr. Chambers
received his MBA in Marketing from the University of Portland and his B.S. in
Journalism and Broadcasting from the University of Oregon.
GARY D. EDENS has agreed to serve as a director of the Company upon
consummation of this offering. Mr. Edens has been President of The Hanover
Companies, Inc. since 1994. From 1984 to 1994, he served as Chairman and Chief
Executive Officer of Edens Broadcasting, Inc., the owner of nine radio stations
in four states. Mr. Edens served in various positions in the radio business
from 1964 to 1984, including President of Southern Broadcasting Company from
1981 to 1984. Mr. Edens serves as a director of Inter-Tel, Inc. Mr. Edens
received a B.S. from the University of North Carolina.
MICHAEL L. PANDZIK has agreed to serve as a director of the Company upon
consummation of this offering. Mr. Pandzik has served as President of the
National Cable Television Cooperative since 1985. From 1966 to 1985, Mr.
Pandzik held various positions in the communications industry. Mr. Pandzik
received an M.S. from the University of Kansas and a B.S. from the University
of Nebraska.
COMMITTEES
The Company's Board currently has no committees. The Board intends to
establish an executive committee, a compensation committee and an audit
committee within 90 days after the completion of this offering. The membership
of such committees will be established after the offering.
The executive committee will consist of two directors and will be responsible
for acting in the Board's stead, except where action by the full Board is
required by law or by the Company's articles of incorporation or bylaws. The
compensation committee will consist of three directors, two of whom will be
independent directors. The compensation committee will determine compensation,
excluding awards under the Company's 1996 Stock Option Plan, for the Company's
executive officers and other employees.
The audit committee will consist of three directors, two of whom will be
independent directors. The audit committee will be established to make
recommendations concerning the engagement of independent public accounts,
review with the independent public accountants the plans and results of the
audit engagement, approve professional services provided by the independent
public accountants, review the independence of the independent public
accountants,
50
consider the range of audit and non-audit fees and review the adequacy of the
Company's internal accounting controls.
COMPENSATION OF DIRECTORS
The Company intends to pay its directors who are not officers of the Company
for their services as directors. Directors who are not officers of the Company
will receive $2,500 per quarter for services rendered as a director and $500
for attending each meeting of the Board or one of its committees. Directors
who are also officers of the Company will not be paid any director fees. All
directors will be reimbursed for their expenses in attending Board and
committee meetings.
EXECUTIVE COMPENSATION
None of the officers, directors or other employees of the Company has an
employment contract with the Company. Glenn R. Jones, the Chairman of the
Board, received no compensation from the Company during the year ended
December 31, 1995 or during the nine months ended September 30, 1996. The
Company has no current plans to pay Mr. Jones any compensation.
The following table sets forth certain information regarding the
compensation for services in all capacities to the Company for the year ended
December 31, 1995 for the President of the Company and the other executive
officers of the Company whose annual salary and bonus exceeded $100,000 during
such period (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
1995
ANNUAL COMPENSATION
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1)
--------------------------- ---------- --------- ---------------
Gregory J. Liptak(2)...................... $ 156,134 $ 46,750 $21,843
President and Director
Eric Hauenstein........................... $ 142,713 $ 20,000 $ 7,370
Vice President /General Manager--Radio
Networks
- --------
(1) The Company's employees are entitled to participate in a 401(k) profit
sharing plan and/or a deferred compensation plan. The amounts shown in
this column represent the Company's contributions to the 401(k) profit
sharing plan and/or the deferred compensation plan for the benefit of the
named person's account.
(2) Mr. Liptak's total compensation for services rendered to the Company
during the year ended December 31, 1995 represents an allocation of the
total compensation paid to Mr. Liptak by Jones International for this
period based upon the time allocated to the Company's business. Mr. Liptak
served as an executive officer of certain of the Company's affiliates
during 1995 and 1996. Subsequent to the consummation of this offering, Mr.
Liptak will devote all of his time to the business of the Company. The
Company expects that it will pay Mr. Liptak an annual salary of $284,000
in 1997.
The Company expects to pay annual compensation in excess of $100,000 to each
of Messrs. Lewis, Price and Chambers in 1997.
STOCK OPTION PLAN
The Company has adopted an employee stock option plan (the "Plan") that
provides for the grant of stock options and stock appreciation rights ("SARs")
to employees or individuals providing services to the Company. The Plan is
construed, interpreted and administered by the Board or a committee of two or
more non-employee directors. The committee or the Board determines the
individuals to whom options are granted, the number of shares subject to the
options, the exercise price of the options (which may be below fair market
value of the stock on the date of grant), the period over which the options
become exercisable and the term of the
51
options. The committee or the Board has the discretion to set other terms and
provisions of stock options as it may determine from time to time, subject
only to the provisions of the Plan.
The Plan covers an aggregate of up to 630,000 shares of the Company's Class
A Common Stock. The number of shares available for grant of options under the
Plan and the number of shares included in each outstanding option are subject
to adjustment upon recapitalizations, stock splits or other similar events
that cause changes in the Company's Class A Common Stock. Shares of Class A
Common Stock underlying options that expire unexercised are available for
future option grants under the Plan.
The Plan provides for the grant of incentive stock options ("Incentive
Options") within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and non-statutory stock options that do not
qualify as incentive stock options under Section 422 of the Code ("Non-
Qualified Options"). Options granted may be either Incentive Options or Non-
Qualified Options or a combination of the two. The exercise price of each
Incentive Option granted must be at least equal to the fair market value of
the Class A Common Stock on the date the Incentive Option is granted. The
exercise price of Non-Qualified Options may be less than the fair market value
of the Class A Common Stock on the date the Non-Qualified Option is granted.
If an Incentive Option is granted to an employee who then owns stock
possessing 10% of the total combined voting power of all classes of stock of
the Company, the exercise price of the Incentive Option must be at least equal
to 110% of the fair market value of the Class A Common Stock on the date the
Incentive Option is granted.
The maximum term of options granted under the Plan is generally ten years,
but with respect to an Incentive Option granted to an employee who then owns
stock possessing 10% of the total combined voting power of all classes of
stock of the Company, the maximum term of the option is five years. Subject to
the foregoing limitation, the Committee or the Board determines the term of
the options and the period over which they vest and become exercisable.
SARs may be granted in tandem with options granted under the Plan. Each SAR
entitles the participant, upon the exercise of the SAR, to receive the excess
of the fair market value of a share of Class A Common Stock on the exercise
date over the fair market value of the share on the date the SAR was granted.
An SAR is exercisable only to the extent the associated stock option is
exercisable. To the extent the option is exercised, the accompanying SAR will
cease to be exercisable, and vice versa. An SAR may be exercised only when the
market price of Class A Common Stock subject to the option exceeds the
exercise price of such option.
Options and associated SARs are not transferable, except by will or pursuant
to the laws of descent and distribution, and are exercisable only by the
option holder during his lifetime or, in the event of disability or
incapacity, by the option holder's guardian or legal representative.
The vesting of options and associated SARs is accelerated upon a "Change in
Control" of the Company. A Change in Control is deemed to have occurred if:
(i) a person (as such term is used in Section 13(d) of the Exchange Act)
becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, in one or more transactions, of shares of Class
A Common Stock and/or Class B Common Stock of the Company representing 35% or
more of the total number of votes that may be cast by all shareholders of the
Company voting as a single class, without the approval or consent of the
Company's Board of Directors, (ii) there is a consolidation or merger of the
Company in which the Company is not the surviving corporation or (iii) a plan
or proposal for the liquidation or dissolution of the Company is adopted.
The Board may amend the Plan at any time or may terminate it without the
approval of the shareholders; provided, however, that shareholder approval is
required for any amendment to the
52
Plan that increases the number of shares for which options may be granted,
materially increases the benefits accruing to participants in the plan or
materially modifies the eligibility requirements for participation in the
Plan. However, no action by the Board or shareholders may alter or impair any
option previously granted without the consent of the optionee.
As of November 5, 1996, the Company had not granted any options or SARs. The
Company anticipates granting stock options to certain of its officers and
employees prior to the completion of this offering.
Certain Federal Income Tax Consequences. The following discussion, which is
based on the law as in effect on September 30, 1996, summarizes certain
federal income tax consequences of participation in the Plan. The summary does
not purport to cover federal employment tax or other federal tax consequences
that may be associated with the Plan, nor does it cover state, local or non-
U.S. taxes.
In general, an optionee realizes no taxable income upon the grant or
exercise of an Incentive Option. However, the exercise of an Incentive Option
may result in an alternative minimum tax liability to the optionee. With
certain exceptions, a disposition of shares purchased under an Incentive
Option within two years from the date of grant or within one year after
exercise produces ordinary income to the optionee (and a corresponding
deduction is available to the Company) equal to the value of the shares at the
time of exercise less the exercise price. Any additional gain recognized in
the disposition is treated as a capital gain for which the Company is not
entitled to a deduction. If the optionee does not dispose of the shares until
after the expiration of these one- and two-year holding periods, any gain or
loss recognized upon a subsequent sale is treated as a long-term capital gain
or loss for which the Company is not entitled to a deduction.
In general, in the case of a Non-Qualified Option, the optionee has no
taxable income at the time of grant if the option price is equal to the fair
market value of the Shares at date of grant, but realizes ordinary income in
connection with exercise of the option in an amount equal to the excess (at
the time of exercise) of the fair market value of the shares acquired upon
exercise over the option price, a corresponding deduction is available to the
Company, and upon a subsequent sale or exchange of the shares, appreciation or
depreciation after the date of exercise is treated as capital gain or loss for
which the Company is not entitled to a deduction. In general, an Incentive
Option that is exercised more than three months after termination of
employment (other than termination by reason of death) is treated as a Non-
Qualified Option. Incentive Options are also treated as Non-Qualified Options
to the extent they first become exercisable by an individual in any calendar
year for shares having a fair market value (determined as of the date of
grant) in excess of $100,000.
The grant of SARs has no federal income tax consequences at the time of
grant. Upon the exercise of SARs, the amount received is generally taxable as
ordinary income, and the Company is entitled to a corresponding deduction.
Under the so-called "golden parachute" provisions of the Code, the vesting
or accelerated exercisability of awards in connection with a Change in Control
of the Company may be required to be valued and taken into account in
determining whether participants have received compensatory payments,
contingent on the Change in Control, in excess of certain limits. If these
limits are exceeded, a substantial portion of amounts payable to the
participant, including income recognized by reason of the grant, vesting or
exercise of awards under the Plan, may be subject to an additional 20% federal
tax and may be nondeductible to the Company.
The foregoing constitutes a brief summary of the principal federal income
tax consequences related to the grant and exercise of stock options and SARs
based on current federal income tax
53
laws. This summary is not intended to be exhaustive and does not describe
state, local or foreign tax consequences. Recipients of stock options or SARs
under the Plan are urged to consult their own tax advisors with respect to the
consequences of their participation in the Plan.
EMPLOYEE INVESTMENT 401(K) PLAN
The Company's employees are eligible to participate in an Employee Profit
Sharing/Retirement Savings Plan (the "401(k) Plan"). Under the 401(k) Plan,
eligible employees are permitted to defer receipt of up to 16% of their annual
compensation, subject to a limit prescribed by statute. The Company currently
matches 50% of the employees' deferrals up to a maximum of 6% of their annual
compensation. The Company's contribution vests immediately. Subject to certain
restrictions, contributions to the 401(k) Plan are invested by the trustees of
the 401(k) Plan in accordance with the directions of each participant. All
employees of the Company who earn 1,000 hours of credited service over one
year are eligible to participate in the 401(k) Plan on the first day of the
January or July next following the date that the eligibility requirement has
been met.
Participants or their beneficiaries are entitled to payment of benefits: (i)
upon retirement either at or after age 65, (ii) upon death or disability or
(iii) upon termination of employment, if the participant elects to receive a
distribution of his account balance. In addition, hardship distributions and
loans to participants from the 401(k) Plan are available under certain
circumstances. The amount of benefits ultimately payable to a participant
under the 401(k) Plan will depend on the performance of the investments to
which contributions are made on the participant's behalf. During 1995, the
Company contributed approximately $25,000 to the 401(k) Plan on behalf of its
employees.
DEFERRED COMPENSATION PLAN
Certain of the Company's key employees are eligible to participate in a
Deferred Compensation Plan (the "Deferred Compensation Plan"). Key employees
eligible to participate in the Deferred Compensation Plan constitute a select
group of highly compensated or management personnel and are selected by the
Compensation Committee of the Company. Under the Deferred Compensation Plan,
key employees are permitted to defer receipt of up to 100% of their annual
compensation. The Company currently matches the key employees' deferrals up to
a maximum of 6% of their contributions. The funds are deposited with Norwest
Bank Colorado, NA, as Trustee of the Deferred Compensation Plan's Public
Trust, and they are invested in a number of pre-selected investment funds.
Both the key employees' contributions and the Company's contributions are at
all times subject to the claims of the Company's general creditors.
Key employees who participate in the Deferred Compensation Plan receive a
distribution of their contributions, the Company's contributions, and earnings
attributable to those contributions on their separation from employment with
the Company or their death. The Deferred Compensation Plan also permits
hardship distributions in certain circumstances. The amount of benefits
ultimately payable to a key employee participant depends upon the performance
of the investment funds held by the trust. During 1995, the Company
contributed approximately $51,000 to the Deferred Compensation Plan on behalf
of its key employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, the Company's Board set the compensation of the Company's
executive officers and was comprised of, at various times, Mr. Jones and Mr.
Liptak. Messrs. Jones and Liptak served as executive officers of the Company
and certain of its subsidiaries, and also served as directors and officers of
a number of the Company's affiliates, during 1995. As individuals, the
Company's executive officers and directors had no transactions with the
Company. See "Certain Relationships and Related Transactions" for a discussion
of certain transactions between the Company and its affiliates.
54
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Where applicable, references in this section to amounts paid to or by the
Company include amounts paid to or by the PIN Venture and Superaudio as well
as the Company.
PRE-OFFERING TRANSACTIONS
Immediately prior to the consummation of the offering, the Company will
acquire Glenn R. Jones' 19% equity interest in Jones Infomercial Networks,
Inc., the subsidiary through which the Company has invested in the PIN
Venture, and Mr. Jones' 19% equity interest in Great American Country, Inc.,
the subsidiary through which the Company operates the GAC network, in exchange
for 333,333 shares of the Company's Class A Common Stock. Also immediately
prior to the consummation of the offering, the Company will acquire the
transponder leases and related subleases owned by Space Segment, an affiliate
of the Company, in exchange for 416,667 shares of the Company's Class A Common
Stock.
ADVANCES
Since its inception, the Company has received advances from Jones
International to fund its activities. These advances have no maturity date and
accrue interest at the published prime rate plus 2% (approximately 8%, 9%, 11%
and 10% in 1993, 1994, 1995, and the first nine months of 1996, respectively).
The Company paid interest on these advances of approximately $11,000, $8,000,
$175,000 and $138,000 for the years ended December 31, 1993, 1994 and 1995 and
for the nine months ended September 30, 1996, respectively. The largest total
amount of outstanding advances from Jones International in 1995 was
approximately $2.2 million in December, 1995. These advances totalled
approximately $3.2 million at September 30, 1996 and are expected to total
approximately $5.7 million by December 1996. The Company intends to use a
portion of the net proceeds from this offering to repay these advances in
full. Jones International is under no obligation to provide, nor does the
Company expect it to provide, additional financial assistance to the Company
subsequent to the consummation of this Offering. See "Use of Proceeds."
PURCHASE OF JONES GALACTIC RADIO, INC. AND JONES EARTH SEGMENT, INC.
Effective August 15, 1996, the Company purchased all of the common stock of
Galactic Radio from Global Group, an affiliate of the Company, for $17.2
million. Galactic Radio is a holding company that owns a 100% interest in
Jones Radio Network, Inc. and, indirectly, a 50% interest in Superaudio.
Global Group had acquired Galactic Radio from Jones Intercable, another
affiliate of the Company, for a $17.2 million purchase price on June 14, 1996.
The $17.2 million purchase price paid by the Company for Galactic Radio
consisted of $1.2 million in cash and a $16.0 million note payable to Global
Group. The note payable to Global Group bears interest at 8.25% per annum and
is payable quarterly. Principal payments are due in quarterly installments
beginning May 15, 2000. The note is secured by all of the assets of the
Company's radio network programming business.
Effective September 30, 1996, the Company purchased all of the common stock
of Earth Segment from Mr. Jones and Jones International for 110,833 shares and
472,500 shares, respectively, of the Company's Class A Common Stock. Earth
Segment, now a wholly owned subsidiary of the Company, owns the real and
personal assets through which the Company provides playback, trafficking and
uplinking services.
TAX SHARING AGREEMENT
The Company joins in filing a consolidated tax return as provided for under
the terms of a tax allocation agreement with Jones International and certain
of Jones International's subsidiaries. Pursuant to the terms of the tax
allocation agreement, tax provisions (benefits) are allocated to the members
of the tax sharing group based on their respective pro rata contribution of
taxable income (loss) to Jones International's consolidated taxable income
(loss).
55
The tax allocation agreement gives Jones International the option to either
make a payment of the tax benefits due to the members of the tax sharing group
or to defer such payments until a subsequent taxable period in which the
member generates taxable income and has a tax payment due either to Jones
International or to a federal or state taxing authority. Such payments may be
deferred by Jones International for a period not to exceed five years from the
date the tax benefits were incurred and will accrue interest at the prime rate
in effect at the time the deferred amounts originate.
In 1993, 1994 and 1995, the Company recognized income tax benefits as a
result of the tax sharing arrangement of approximately $6,000, $73,000 and
$303,000, respectively. A current income tax benefit of $450,043 was
recognized by the Company as of September 30, 1996, which assumes Jones
International will utilize substantially all of the Company's tax losses
generated during 1996. Adjustments, if any, will be based upon Jones
International and its subsidiaries actual taxable income for the year ending
December 31, 1996. Upon the consummation of this offering, less than 80% of
the Company's outstanding Common Stock will be owned by Jones International
and, therefore, the Company will no longer be included in the Jones
International tax allocation agreement.
UPLINKING AND OTHER SERVICES
The Company has an agreement to provide playback, trafficking and uplinking
services to Jones Education, an affiliate of the Company, that terminates on
December 31, 2004. The Company has the right to terminate this agreement upon
30-days written notice. The Company received approximately $1.0 million, $1.4
million, $1.9 million and $1.5 million from Jones Education for these services
in 1993, 1994 and 1995, and the nine months ended September 30, 1996,
respectively.
TRANSPONDER AGREEMENTS
The Company subleases to Jones Education a non-preemptible transponder on a
domestic communications satellite that the Company currently leases from a
third party. The Company has the right to terminate the sublease at any time
upon 30-days written notice. The monthly payments under the sublease may be
adjusted periodically through the December 2004 expiration date based on the
number of customers using the transponder. The Company received lease payments
of approximately $0, $267,000, $1.2 million and $639,000 for the years ended
December 31, 1993, 1994 and 1995 and the nine months ended September 30, 1996,
respectively.
The Company subleases from Jones Satellite Holdings, Inc. ("Satellite
Holdings"), an affiliate of the Company, an audio channel on a non-preemptible
satellite transponder on the Galaxy V communications satellite for
approximately $58,000 per month. Satellite Holdings has the right to terminate
the sublease prior to its May 2004 expiration date upon 30-days written
notice. Satellite Holdings leases the transponder from a third party pursuant
to a lease that terminates in 2004. Satellite Holdings charged the Company
lease payments of approximately $633,000, $633,000, $696,000 and $522,000 for
the years ended December 31, 1993, 1994 and 1995 and for the nine months ended
September 30, 1996, respectively.
SALES COMMISSIONS
The Company earns up to a 3% commission on its sale of airtime for
informational programming on certain network subsidiaries of Jones Education.
The Company received commissions from Jones Education of approximately $52,000
and $183,000 for the year ended December 31, 1995 and for the nine months
ended September 30, 1996, respectively.
AFFILIATE FEES
The Company licenses the GAC network to certain cable television systems
owned or managed by Jones Intercable. Jones Intercable and its affiliated
partnerships paid total license
56
fees to the Company of approximately $509,000 for the nine month period ended
September 30, 1996. This affiliation agreement expires on December 31, 2010.
See "Risk Factors--Risks Associated with Distribution of Television
Programming." Superaudio also licenses its audio services to these systems.
Jones Intercable and its affiliated partnerships paid Superaudio approximately
$720,000, $720,000, $720,000 and $540,000 in fees for the years ended December
31, 1993, 1994 and 1995 and for the nine months ended September 30, 1996,
respectively.
The PIN network is distributed to Jones Intercable and its affiliated
parnerships and to Cox and Adelphia, both partners in the PIN Venture. The
current affiliation agreement with Jones Intercable expires on February 1,
2005. Under the terms of the affiliation agreements with these MSOs, the
Company made incentive payments of approximately 33% of its net advertising
revenue to the cable systems that carry its programming. The PIN venture now
makes incentive payments of approximately 50% of its net advertising revenue to
these systems. For the years ended December 31, 1993, 1994 and 1995 and for the
nine months ended September 30, 1996, Jones Intercable and its affilated
partnerships received incentive payments totaling approximately $0, $238,000,
$1,056,000 and $784,000.
COMPUTER SERVICES
A subsidiary of Jones International provides computer hardware and software
services and miscellaneous related support services to the Company and other
Jones International affiliates. This subsidiary charged service fees to the
Company of approximately $28,000, $125,000, $493,000 and $399,000 for the years
ended December 31, 1993, 1994 and 1995 and for the nine months ended September
30, 1996, respectively.
OFFICE LEASE AND SUBLEASE
The Company leases and subleases office space in Englewood, Colorado from
affiliates of Jones International on a month-to-month basis. The Company paid
rent and associated expenses under these leases and subleases of approximately
$0, $0, $31,000 and $39,000 for the years ended December 31, 1993, 1994 and
1995 and for the nine months ended September 30, 1996, respectively.
ADMINISTRATIVE SERVICES
The Company reimburses Jones International and Jones Intercable for certain
administrative services provided by these companies, such as legal, accounting,
purchasing and human resources services. Jones International and Jones
Intercable charge the Company for these services based upon an allocation of
its personnel expense associated with providing these services. These allocated
expenses totaled approximately $243,000, $110,000, $190,000 and $293,000, for
the years ended December 31, 1993, 1994 and 1995 and for the nine months ended
September 30, 1996, respectively.
In the foregoing transactions no third party bids or appraisals were
obtained. In addition, certain of these transactions are by their nature unique
to the companies involved. Although the Company believes that these
transactions were fair to the Company, no assurance can be given that these
transactions were generally as favorable to the Company as could have been
obtained from unaffiliated third parties. The transactions described above,
other than the loans and advances, are expected to continue and additional
agreements and transactions with affiliated parties may occur in the future.
Prior to September 30, 1996, the Company also engaged in certain transactions
not described above with Earth Segment, as well as the entities it acquired in
the Pre-Offering Transactions.
Messrs. Jones and Thompson and Ms. Steele, who are officers and/or directors
of the Company, are also officers or directors of certain affiliated entities
and, from time to time, the Company may enter into transactions with these
entities. Consequently, such officers and
57
directors may have conflicts of interest with respect to matters potentially or
actually involving or affecting the Company and such affiliates. In addition,
such directors and/or officers may have such conflicts of interest with respect
to corporate opportunities suitable for both the Company and such affiliates.
Effective upon, and subject to, the consummation of this offering, any new
material related party transaction will be approved by a majority of the
disinterested members of the Board.
Under the Colorado Business Corporation Act, as amended (the "Colorado Act"),
no conflicting interests transaction shall be void or voidable or give rise to
an award of damages in a proceeding by a shareholder or by or in the right of
the corporation, solely because the conflicting interest transaction involves a
director of the corporation or an entity in which a director of a corporation
is a director or officer or has a financial interest or solely because the
director is present at or participates in the meeting of the corporation's
board of directors or of a committee of the board of directors which
authorizes, approves, or ratifies the conflicting interest transaction or
solely because the directors' vote is counted for such purpose, if: (i) the
material facts as to the directors relationship or interest and as to the
conflicting interest transaction are disclosed or known to the board of
directors or the committee and said board of directors or committee authorizes,
approves, or ratifies in good faith the conflicting interest transaction, (ii)
the material facts as to the director's relationship or interest and as to the
conflicting interest transaction are disclosed or known to the shareholders
entitled to vote thereon and said shareholders specifically authorize, approve
or ratify in good faith the conflicting interest transaction, or (iii) the
conflicting interest transaction is fair as to the corporation.
Conflicts of interest also may arise in managing the operations of more than
one entity with respect to allocating time, personnel and other resources
between entities. To the extent deemed appropriate by the Company, such
conflicts would be resolved by employing additional personnel as necessary. See
"Risk Factors--Conflicts of Interest; Transactions with and Reliance on
Affiliates."
58
PRINCIPAL SHAREHOLDER
The following table sets forth certain information with respect to the
beneficial ownership of the Class A Common Stock and Class B Common Stock as
of November 5, 1996 and as adjusted to reflect the sale of shares offered
hereby by: (i) each person known by the Company to be the beneficial owner of
more than 5% of the Class A Common Stock or Class B Common Stock, (ii) certain
of the Company's directors, and (iii) all directors and executive officers of
the Company as a group. Directors and Named Executive Officers of the Company
who do not beneficially own any shares of Class A Common Stock or Class B
Common Stock have been omitted from the following table. Except as otherwise
indicated, each person named in the table has informed the Company that such
person has sole voting and investment power with respect to all shares
beneficially owned by such person.
CLASS A COMMON STOCK CLASS B
----------------------------------- COMMON STOCK
OWNED BEFORE OWNED AFTER OWNED BEFORE AND
OFFERING OFFERING AFTER OFFERING PERCENT OF
----------------- ----------------- ----------------- VOTE OF ALL CLASSES
NUMBER NUMBER NUMBER OF COMMON STOCK
BENEFICIAL OWNER OF SHARES PERCENT OF SHARES PERCENT OF SHARES PERCENT AFTER OFFERING
---------------- --------- ------- --------- ------- --------- ------- -------------------
Glenn R. Jones(1)....... 2,718,453 92% 2,718,453 43% 1,385,120 100% 89%
All executive officers
and directors as a
group (7 person(s))(2). 2,718,453 92% 2,718,453 43% 1,385,120 100% 89%
- --------
(1) Glenn R. Jones is the Chairman of the Board and Chief Executive Officer of
Jones International and owns all of the outstanding shares of Jones
International which, in turn, owns all the outstanding common stock of
Space Segment. He is therefore deemed to be the beneficial owner of the
1,594,500 shares of Class A Common Stock and 1,122,000 shares of Class B
Common Stock owned by Jones International and the 416,667 shares of Class
A Common Stock owned by Space Segment. Glenn R. Jones', Jones
International's and Space Segment's address is 9697 East Mineral Avenue,
Englewood, Colorado 80112.
(2) Consists solely of shares beneficially owned by Glenn R. Jones.
59
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares of
Class A Common Stock, $.01 par value per share, of which 1,968,453 shares were
outstanding on September 30, 1996, and 1,385,120 shares of Class B Common
Stock, $.01 par value per share, of which 1,385,120 shares were outstanding on
such date.
COMMON STOCK
Under the Company's articles of incorporation, the holders of the Class A
Common Stock and Class B Common Stock are entitled to vote as separate classes
with respect to those matters requiring a class vote under Colorado law, such
as certain amendments to the Company's articles of incorporation which affect
a class and certain mergers or share exchanges. On all matters requiring a
class vote under the Colorado Act, passage will require the affirmative vote
of the holders of two-thirds of the shares of each class, voting separately,
and of the total shares entitled to vote thereon.
Holders of Class A Common Stock and Class B Common Stock are entitled to
share ratably in all dividends (whether paid in cash, property or shares of
the Company), if declared by the Company's Board out of any funds legally
available therefor and in assets available for distribution upon any
liquidation of the Company, subject to the prior rights of creditors. The
Company does not currently anticipate paying any dividends. See "Dividend
Policy."
The shares of Common Stock are not subject to redemption or to any liability
for further calls or assessments, and the holders of such shares do not have
preemptive or other rights to subscribe for additional shares of the Company
or any rights to convert such shares into any other securities of the Company.
The Company's articles of incorporation provide that the holders of the
Class A Common Stock shall be entitled to receive the same consideration on a
per share basis (except with respect to per share voting rights) as the
holders of the Class B Common Stock in any merger, reorganization or
recapitalization of the Company. The Company shall not support any tender
offer or exchange offer for shares of the Company in which the holders of the
Class A Common Stock are not offered the same consideration (except with
respect to per share voting rights) on a per share basis as the holders of the
Class B Common Stock.
CLASS A COMMON STOCK
Each share of Class A Common Stock casts one-twentieth of a vote on all
matters put to a vote of the shareholders. On all matters except for the
election of directors or as otherwise required by law, the holders of Class A
Common Stock and Class B Common Stock vote together as a single class. The
holders of Class A Common Stock, voting as a separate class, are entitled to
elect that number of directors that constitute 25% percent of the total
membership of the Board (if such number of directors is not a whole number,
the holders of the Class A Common Stock are entitled to elect the nearest
higher whole number of directors that constitute at least 25% of the Board).
Holders of the Class A Common Stock are not entitled to cumulate their votes
in the election of directors. Directors elected by the Class A Common Stock
may be removed from office, with or without cause, only by the holders of the
Class A Common Stock. Any vacancies on the Board of Directors may be filled by
the remaining directors, regardless of which class of Common Stock elected the
director whose directorship has been vacated.
Upon the completion of this offering, the outstanding shares of Class A
Common Stock will constitute approximately 82% of the total outstanding shares
of capital stock of the Company and will be entitled to cast approximately 19%
of the votes to be cast in matters to be acted upon by shareholders of the
Company not requiring a class vote.
CLASS B COMMON STOCK
Each share of Class B Common Stock casts one vote on all matters put to a
vote of the shareholders. On all matters except for the election of directors
or as otherwise required by law,
60
the holders of Class A Common Stock and Class B Common Stock vote together as
a single class. In the election of directors, the holders of Class B Common
Stock, voting as a separate class, are entitled to elect all of the directors
not specially entitled to be elected by the holders of the Class A Common
Stock. Holders of the Class B Common Stock are not entitled to cumulate their
votes in the election of directors. Directors elected by the Class B Common
Stock may be removed from office, with or without cause, only by the holders
of the Class B Common Stock. Any vacancies on the Board of Directors may be
filled by the remaining directors, regardless of which class of Common Stock
elected the director whose directorship has been vacated.
Upon the completion of this offering, the outstanding shares of Class B
Common Stock will constitute approximately 18% of the total outstanding shares
of capital stock of the Company and will be entitled to cast approximately 81%
of the votes to be cast in matters to be acted upon by shareholders of the
Company not requiring a class vote.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION
In accordance with the Colorado Act, the Company's articles of incorporation
eliminate in certain circumstances the liability of directors of the Company
for monetary damages for breach of their fiduciary duty as directors. This
provision does not eliminate the liability of a director: (i) for a breach of
the director's duty of loyalty to the Company or its shareholders, (ii) for
acts or omissions by the director not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for a willful or
negligent declaration of an unlawful distribution or (iv) for transactions
from which the director derived an improper personal benefit.
The Company's articles of incorporation also provide that the Company shall
indemnify any person and his or her estate and personal representatives
against all liability and expense incurred by reason of the person being or
having been a director or officer of the Company or, while serving as a
director or officer of the Company, is or was serving at the request of the
Company or any of its subsidiaries as a director, an officer, an agent, an
associate, an employee, a fiduciary, a manager, a member, a partner, a
promoter, or a trustee of, or to hold any similar position with, another
domestic or foreign corporation or other individual or entity or of an
employee benefit plan, to the full extent permitted under the Colorado Act.
The Colorado Act requires a corporation to indemnify its officers and
directors against reasonable expenses incurred in any proceeding to which the
officer or director is a party and was wholly successful, on the merits or
otherwise, in defense of the proceeding. In addition to this mandatory
indemnification, the Colorado Act provides that a corporation may indemnify
its officers and directors against liability and reasonable expenses if the
officer or director acted in good faith and in a manner reasonably believed to
be in the best interests of the corporation in the case of conduct in an
official capacity, in a manner he or she reasonably believed was at least not
opposed to the corporation's best interests in all other cases, or in a manner
he or she had no reasonable cause to believe was unlawful in the case of
criminal proceedings. In actions by or in the name of the corporation, the
Colorado Act provides the same standard but limits indemnification to
reasonable expenses incurred by the director and prohibits any indemnification
if the director was adjudged liable to the corporation. The Colorado Act also
prohibits indemnification of a director in connection with actions charging
improper personal benefit to the director if the director is adjudged liable
on that basis.
Certain provisions of the Company's articles of incorporation and bylaws may
have the effect of preventing, discouraging or delaying any change in the
control of the Company and may maintain the incumbency of the Board and
management. Under the Company's articles of incorporation, a majority of the
directors then in office, though less than a quorum, or the sole remaining
director, will be empowered to fill any vacancy on the Board. A majority vote
of the shares of Common Stock will be required to alter, amend or repeal the
foregoing provisions. This provision for filling vacancies on the Board may
discourage a third party from attempting to gain
61
control of the Company and may maintain the incumbency of the Board. The
Company is not aware of any plans by a third party to seek control of the
Company. See "Risk Factors--Voting Rights; Control by Principal Shareholder;
Anti-Takeover Effects."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A Common Stock will be
American Securities Transfer & Trust, Incorporated, Denver, Colorado.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have outstanding 6,301,786
shares (6,804,286 shares if the Underwriters' over-allotment option is
exercised in full) of Class A Common Stock. Of these shares, all 3,350,000
shares (3,852,500 shares if the Underwriters' over-allotment option is
exercised in full) sold by the Company in this offering will be freely
transferable by persons other than "affiliates" of the Company without
restriction under the Securities Act.
The remaining 2,951,786 shares of Class A Common Stock outstanding are held
by Glenn R. Jones, Chairman of the Company, Jones International, Space
Segment, and Adelphia, and will be "restricted securities" within the meaning
of Rule 144 under the Securities Act and may not be sold in the absence of
registration under the Securities Act unless an exemption from registration is
available, including the exemption contained in Rule 144. Adelphia has
received certain customary registration rights in connection with its
approximately 233,333 shares of Class A Common Stock received in the PIN
Venture transaction. The Company and its shareholders, officers and directors
have agreed not to offer to sell, sell, contract to sell, pledge or otherwise
dispose of such shares for at least 180 days after the date of this Prospectus
without the prior written consent of Oppenheimer & Co., Inc. The Company
understands that Oppenheimer & Co., Inc., may, in its discretion, waive these
agreements at any time. Following the expiration of such lock-up agreements,
2,951,786 shares will become available for resale in the public market, all of
which are subject to the volume limitations, holding period and other
restrictions of Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned his or her shares of
Class A Common Stock for at least two years, including an "affiliate" of the
Company (as that term is defined under the Securities Act), is entitled to
sell, within any three-month period, a number of shares that does not exceed
the greater of: (i) 1% of the then outstanding shares of Class A Common Stock
of the Company or (ii) the average weekly trading volume of the then
outstanding shares of Class A Common Stock during the four calendar weeks
preceding each such sale. A person (or persons whose shares are aggregated)
who is not deemed an "affiliate" of the Company and who has beneficially owned
shares for at least three years is entitled to sell such shares under Rule 144
without regard to the volume limitations described above. Affiliates,
including members of the Company's Board of Directors and executive officers,
continue to be subject to such limitations.
As compensation for services rendered in connection with this offering, the
Company has agreed to grant a warrant to M. Kane & Company, Inc. ("MKC") to
purchase 13,958 shares (16,052 shares if the Underwriters' over-allotment
option is exercised in full) of the Class A Common Stock at an exercise price
equal to 120% of the initial public offering price of the Class A Common
Stock. In connection with the MKC Warrant, MKC also received certain
registration rights relating to the shares of Class A Common Stock underlying
the warrant. See "Underwriting."
62
Additionally, as of November 5, 1996, 630,000 shares of Class A Common Stock
were reserved for issuance under the Company's Stock Option Plan, none of
which were subject to outstanding options as of that date.
Prior to this offering, there has been no market for the Class A Common
Stock of the Company, and the amount, timing and nature of any future sale of
Class A Common Stock will depend upon market conditions, the personal
circumstances of the sellers and other factors. No predictions can be made as
to the effect, if any, that public sales of shares or the availability of
shares for sale will have on the market price prevailing from time to time.
Nevertheless, sales of substantial amounts of the Class A Common Stock in the
public market, pursuant to Rule 144 or otherwise, or the perception that such
sales could occur, could have an adverse impact on the market price of the
Class A Common Stock. See "Risk Factors--Shares Eligible for Future Sale."
63
UNDERWRITING
Subject to the terms and conditions in the Underwriting Agreement among the
Company and the Underwriters named below, for whom Oppenheimer & Co., Inc.,
Hambrecht & Quist LLC and MKC are acting as representatives (the
"Representatives"), each of the Underwriters named below have severally agreed
to purchase from the Company, and the Company has agreed to sell to the
Underwriters, the shares of Class A Common Stock set forth opposite its name:
UNDERWRITER NUMBER OF SHARES
----------- ----------------
Oppenheimer & Co., Inc......................................
Hambrecht & Quist LLC.......................................
M. Kane & Company, Inc......................................
---------
Total..................................................... 3,350,000
=========
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase all of the above
shares of Class A Common Stock if any are purchased.
The Underwriters propose to offer the shares of Class A Common Stock
directly to the public at the public offering price set forth on the cover
page of this Prospectus, and at such price less a concession not in excess of
$ per share to certain securities dealers, of which a concession of not in
excess of $ per share may be reallowed to certain other dealers. After this
offering, the public offering price, allowances, concessions, and other
selling terms may be changed by the Representatives.
The Underwriters have advised the Company that they do not intend to confirm
sales of Class A Common Stock offered hereby to accounts over which they
exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable within 30
days after the date of this Prospectus, to purchase from the Company up to an
aggregate of 502,500 additional shares of Class A Common Stock to cover over-
allotments, if any, at the public offering price less the underwriting
discount set forth on the cover page of this Prospectus. If the Underwriters
exercise their over-allotment option, then each of the Underwriters will have
a firm commitment, subject to certain conditions, to purchase approximately
the same percentage thereof as the number of shares of Class A Common Stock to
be purchased by it, as shown on the above table, bears to the 3,350,000 shares
of Class A Common Stock offered hereby. The Company will be obligated,
pursuant to the over-allotment option, to sell such shares to the Underwriters
to the extent such over-allotment option is exercised. The Underwriters may
exercise such over-allotment option only to cover over-allotments made in
connection with the sale of the shares of Class A Common Stock offered hereby.
The shareholders, executive officers and directors of the Company have
agreed that for a period of 180 days after the date of this Prospectus they
will not offer to sell, sell, contract to sell, pledge or otherwise dispose of
any equity securities of the Company after the date hereof, without the prior
written consent of Oppenheimer & Co., Inc., except for the shares offered
hereby. In addition, the Company has agreed that for a period of 180 days from
the date of this Prospectus it will not, without the prior written consent of
Oppenheimer & Co., Inc., offer to sell, sell, contract to sell, or otherwise
dispose of, any shares of Class A Common Stock or any other equity securities
of the Company, except for the shares offered hereby and the issuance of
shares of Class A Common Stock upon the exercise of outstanding stock options
or warrants.
64
The Company has agreed to indemnify the Underwriters against certain
liabilities, losses and expenses, including liabilities under the Securities
Act and to contribute to payments that the Underwriters may be required to
make in respect thereof.
Prior to the offering, there has been no previous public market for the
Class A Common Stock. The initial public offering price for the Class A Common
Stock is to be determined by negotiation among the Company and the
Representatives.
On August 14, 1996, the Company and MKC entered into an agreement pursuant
to which MKC agreed to provide financial advice and assistance to the Company
about strategic alternatives, including financial structuring and valuation-
related analyses, and in the event that the Company elected to execute an
initial public offering, to assist the Company with its structure and conduct.
In consideration for such services, MKC has received a $110,000 fee and,
beginning as of July 1996, a retainer of $20,000 per month. MKC is also
entitled to advisory fees equal to 1.875% of the gross proceeds of this
offering, which fees are estimated to be $753,750 and will be offset by any
fees previously paid by the Company to MKC, as well as the MKC Warrant. In
addition, the Company is required to reimburse MKC for its reasonable out-of-
pocket fees and expenses. This agreement will terminate, if not extended, on
the later of December 31, 1996 or the consummation of this offering.
The Company has also agreed to issue to MKC the MKC Warrant which grants the
right for five years to purchase 13,958 shares (16,052 shares if the
Underwriters' over-allotment option is exercised) of the Class A Common Stock
at an exercise price equal to 120% of the initial public offering price set
forth on the cover page of this Prospectus. The MKC Warrant will be
exercisable one year after the effective date of the Registration Statement
relating to this offering and carries one demand and unlimited "piggyback"
registration rights. The MKC Warrant is not transferable (except to certain
employees and affiliates of MKC). The exercise price and the number of shares
may, under certain circumstances, be subject to adjustment pursuant to anti-
dilution provisions. MKC was first registered as a broker-dealer in July 1994.
Its president, Michael W. Kane, previously worked as an investment banker on
underwritten public offerings.
Prior to this offering, there has been no public market for the Class A
Common Stock. Consequently, the initial public offering price will be
determined through negotiations between the Company and the Representatives.
Among the factors considered in such negotiations will be the history of, and
prospects for, the Company and the industry in which it competes, an
assessment of the Company's management, the Company's past and present
operations and financial performance, its past and present earnings and the
trend of such earnings, the prospects for future earnings of the Company, the
present state of the Company's development, the general
65
condition of the securities markets at the time of this offering and the
market prices of publicly traded common stocks of comparable companies in
recent periods.
LEGAL MATTERS
The validity of the shares of Class A Common Stock being sold in this
offering will be passed upon for the Company by Davis, Graham & Stubbs LLP,
Denver, Colorado. Certain legal matters in connection with the offering will
be passed upon for the Underwriters by Schulte Roth & Zabel LLP, New York, New
York.
EXPERTS
The historical consolidated financial statements of the Company at December
31, 1994 and 1995, and at September 30, 1996, and for each of the three years
in the period ended December 31, 1995, and for the nine months ended September
30, 1995 and 1996; the historical financial statements of the PIN Venture at
December 31, 1995 and September 30, 1996 and for the eleven months ended
December 31, 1995 and the nine months ended September 30, 1996; the historical
financial statements of the Net Assets to Be Acquired from Jones Space
Segment, Inc. at December 31, 1994 and 1995, and September 30, 1996 and the
three years in the period ended December 31, 1995 and the nine months ended
September 30, 1995 and 1996; appearing in this Prospectus and the Registration
Statement to the extent and for the periods indicated in their reports have
been audited by Arthur Andersen LLP, independent public accountants, as set
forth in their reports thereon appearing elsewhere herein and in the
Registration Statement, and are included herein in reliance upon the authority
of said firm as experts in accounting and auditing in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (including all amendments
thereto) under the Securities Act with respect to the shares of Class A Common
Stock offered hereby. As permitted by the rules and regulations of the
Commission, this Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any agreement or other
document to which reference is made are not necessarily complete. With respect
to each such agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in all respects by such reference.
The Registration Statement, including the exhibits and schedules thereto,
may be inspected at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the following regional offices of the Commission: Seven
World Trade Center, New York, New York 10048, and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials may be obtained
from the public reference section of the Commission at its Washington, D.C.
address upon payment of the prescribed fees. The Commission also maintains a
World Wide Web site that contains reports, proxy statements and information
statements of registrants (including the Company) that file electronically
with the Commission at http://www.sec.gov.
66
Upon completion of this offering, the Company will be subject to the
informational reporting requirements of the Securities Exchange Act of 1934, as
amended, and in accordance therewith will file reports, proxy statements and
other information with the Commission.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and a report of independent certified
public accountants. The Company will make available quarterly reports for each
of the first three quarters of each fiscal year containing unaudited summary
financial information.
67
INDEX TO PRO FORMA FINANCIAL STATEMENTS
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
Overview................................................................... P-2
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1996........................................................ P-3
Unaudited Pro Forma Consolidated Statements of Operations for the Nine
Months ended September 30, 1996........................................... P-4
Unaudited Pro Forma Consolidated Statements of Operations for the Nine
Months ended September 30, 1995........................................... P-5
Unaudited Pro Forma Consolidated Statements of Operations for the Year
ended December 31, 1995................................................... P-6
Unaudited Pro Forma Consolidated Statements of Operations for the Year
ended December 31, 1994................................................... P-7
Unaudited Pro Forma Consolidated Statements of Operations for the Year
ended December 31, 1993................................................... P-8
Notes to Unaudited Pro Forma Consolidated Financial Statements............. P-9
P-1
JONES INTERNATIONAL NETWORKS, LTD.
PRO FORMA FINANCIAL STATEMENTS
OVERVIEW
The following unaudited pro forma condensed consolidated balance sheet as of
September 30, 1996, and pro forma consolidated statements of operations for
the years ended December 31, 1993, 1994 and 1995 and the nine month periods
ended September 30, 1995 and 1996, adjust the historical financial information
of the Company to reflect the Company's acquisition of 1) Adelphia's
approximately 8% interest in the PIN Venture (the "PIN Venture Transaction"),
2) Mr. Jones' 19% interest in each of Jones Infomercial Networks, Inc. and
Great American Country, Inc. (the "GRJ Transaction"), and 3) the transponder
leases and related subleases owned by Jones Space Segment, Inc. (the "Space
Segment Acquisition," and, together with the PIN Venture Transaction and the
GRJ Transaction, collectively, the "Acquisitions"). See "Prospectus Summary--
Pre-Offering Transactions." The pro forma balance sheet as of September 30,
1996 was prepared as if the Acquisitions were consummated on September 30,
1996. The pro forma statements of operations were prepared as if the GRJ
Transaction and the Space Segment Transaction were consummated on January 1 of
each period presented and as if the PIN Venture Transaction was consummated on
February 1, 1995.
Due to the affiliated relationship of the Company to Jones Infomercial
Networks, Inc., Great American Country, Inc. and Jones Space Segment, Inc.,
for pro forma purposes the GRJ Transaction and the Space Segment Acquisition
have been treated as a reorganization of entities under common control
(similar to a pooling of interests) and as such are reflected in the following
unaudited pro forma condensed consolidated financial statements for all
periods.
As of September 30, 1996, the Company owned a 46% interest in the PIN
Venture and as such accounted for its share of the revenues and expenses of
the PIN Venture on the equity method. Upon consummation of the PIN Venture
Transaction the Company will own approximately 54% of the PIN Venture and,
going forward, will be able to consolidate the operations of the PIN Venture
for financial reporting purposes. The purchase of the additional 8% interest
from Adelphia is estimated to have a value of approximately $2,800,000. The
impact of this purchase is reflected in the accompanying pro forma financial
statements for the twelve months ended December 31, 1995 and the nine months
ended September 30, 1996.
The unaudited pro forma financial statements should be read in conjunction
with the related historical financial statements and related notes thereto.
The pro forma information presented is not necessarily indicative of the
financial position or results that would have actually occurred had the
Acquisitions been consummated on the dates indicated or which may occur in the
future.
P-2
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
JONES COMPANY
COMPANY AS PIN SPACE PRO FORMA PRO FORMA
REPORTED VENTURE (1) SEGMENT (2) ADJUSTMENTS (3) COMBINED
----------- ----------- ----------- --------------- -----------
ASSETS
Current assets......................... $ 2,286,011 $1,354,607 $ -- $ (343,909)(f) $ 3,296,709
Property, plant and equipment, net..... 8,470,442 163,431 23,704,439 -- 32,338,312
Intangible assets, net................. 398,572 3,339 -- 2,748,457 (g) 3,150,368
Other assets........................... 1,437,343 -- -- (365,238)(h) 1,072,105
----------- ---------- ----------- ---------- -----------
Total assets........................... $12,592,368 $1,521,377 $23,704,439 $2,039,310 $39,857,494
=========== ========== =========== ========== ===========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities.................... $ 3,926,856 $ 739,361 $ -- $ (343,909)(f) $ 4,322,308
Long-term debt......................... 22,561,700 -- 31,127,255 -- 53,688,955
Other liabilities...................... 47,785 -- 780,000 -- 827,785
Minority interests..................... 70,132 -- 289,595 (h) 359,727
Shareholders' investment............... (14,014,105) 782,016 (8,202,816) 2,093,624 (h) (19,341,281)
----------- ---------- ----------- ---------- -----------
Total liabilities and shareholders'
investment............................ $12,592,368 $1,521,377 $23,704,439 $2,039,310 $39,857,494
=========== ========== =========== ========== ===========
The accompanying notes to unaudited pro forma consolidated financial statements
are an integral part of these pro forma consolidated financial statements.
P-3
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
JONES COMPANY
COMPANY AS PIN SPACE PRO FORMA PRO FORMA
REPORTED VENTURE(1) SEGMENT(2) ADJUSTMENTS(3) COMBINED
----------- ---------- ----------- -------------- -----------
REVENUES:
Radio programming....... $ 5,140,671 -- -- -- $ 5,140,671
Television programming:
Non-affiliated
entities.............. 110,329 5,712,484 -- -- 5,822,813
Affiliated entities.... 691,349 -- -- -- 691,349
----------- ---------- ----------- ---------- -----------
Total television
programming........... 801,678 5,712,484 -- -- 6,514,162
----------- ---------- ----------- ---------- -----------
Satellite delivery and
production support:
Non-affiliated
entities.............. -- -- 2,340,000 -- 2,340,000
Affiliated entities.... 3,132,146 -- 1,917,351 (2,409,768)(a) 2,639,729
----------- ---------- ----------- ---------- -----------
Total satellite
delivery and product
support............... 3,132,146 -- 4,257,351 (2,409,768) 4,979,729
----------- ---------- ----------- ---------- -----------
Total revenue.......... 9,074,495 5,712,484 4,257,351 (2,409,768) 16,634,562
----------- ---------- ----------- ---------- -----------
OPERATING EXPENSES:
Radio programming....... 2,648,786 -- -- -- 2,648,786
Television programming
expenses:
Non-affiliated
entities.............. 1,303,805 1,159,556 -- -- 2,463,361
Affiliated entities.... -- 3,065,727 -- (271,811)(a) 2,793,916
Satellite delivery and
production support..... 2,603,318 -- 2,240,602 (2,137,957)(a) 2,705,963
Selling and marketing
expenses............... 1,096,158 114,493 -- -- 1,210,651
General and
administrative
expenses............... 2,547,181 479,183 6,169 206,134 (e) 3,238,667
----------- ---------- ----------- ---------- -----------
Total operating
expenses.............. 10,199,248 4,818,959 2,246,771 (2,203,634) 15,061,344
----------- ---------- ----------- ---------- -----------
OPERATING INCOME
(LOSS)................. (1,124,753) 893,525 2,010,580 (206,134) 1,573,218
----------- ---------- ----------- ---------- -----------
OTHER INCOME (EXPENSE):
Interest income......... 63,724 -- 413,980 (137,924)(b) 339,780
Interest expense........ (742,112) (23,678) (2,382,061) 137,924 (b) (3,009,927)
Other expense........... (521) (25,151) -- -- (25,672)
Equity share of income
(loss) of
subsidiaries........... 627,081 -- -- (385,653)(d) 241,428
----------- ---------- ----------- ---------- -----------
Total other income
(expense)............. (51,828) (48,829) (1,968,081) (385,653) (2,454,391)
----------- ---------- ----------- ---------- -----------
Income (loss) before
income taxes and
minority interests..... (1,176,581) 844,696 42,499 (591,787) (881,173)
Income tax benefit
(expense).............. 450,043 -- (16,256) -- 433,787
----------- ---------- ----------- ---------- -----------
Net income (loss) before
minority interest...... (726,538) 844,696 26,243 (591,787) (447,386)
Minority interests in
net income (loss) of
consolidated
subsidiaries........... -- -- (405,455)(d) (405,455)
(66,415) -- -- 66,415 (c) --
----------- ---------- ----------- ---------- -----------
NET INCOME (LOSS)....... $ (792,953) $ 844,696 $ 26,243 $ (930,827) $ (852,841)
=========== ========== =========== ========== ===========
NET LOSS PER COMMON
SHARE.................. $ (.24) $ (.20)
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING..... 3,353,573 4,336,906 (i)
=========== ===========
The accompanying notes to unaudited pro forma consolidated financial
statements are an integral part of these pro forma consolidated financial
statements.
P-4
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
COMPANY
COMPANY AS PIN JONES PRO FORMA PRO FORMA
REPORTED VENTURE(1) SPACE SEGMENT(2) ADJUSTMENTS(3) COMBINED
----------- ---------- ---------------- -------------- -----------
REVENUES:
Radio programming....... $ 3,686,360 -- -- -- $ 3,686,360
Television programming:
Non-affiliated
entities.............. 288,591 2,903,805 -- -- 3,192,396
Affiliated entities.... -- -- -- -- --
----------- --------- ---------- ---------- -----------
Total televsion
programming........... 288,591 2,903,805 -- -- 3,192,396
----------- --------- ---------- ---------- -----------
Satellite delivery and
production support:
Non-affiliated
entities.............. 8,354 -- 2,339,945 -- 2,348,299
Affiliated entities.... 3,069,967 -- 1,819,008 (2,112,633)(a) 2,776,342
----------- --------- ---------- ---------- -----------
Total satellite
delivery and product
support............... 3,078,321 -- 4,158,953 (2,112,633) 5,124,641
----------- --------- ---------- ---------- -----------
Total revenue.......... 7,053,272 2,903,805 4,158,953 (2,112,633) 12,003,397
----------- --------- ---------- ---------- -----------
OPERATING EXPENSES:
Radio programming....... 2,278,208 -- -- -- 2,278,208
Television programming
expenses:
Non-affiliated
entities.............. 190,955 294,589 -- -- 485,544
Affiliated entities.... 109,333 2,378,694 -- (687,561)(a) 1,800,466
Satellite delivery and
production support..... 2,495,461 -- 2,300,519 (1,425,072)(a) 3,370,908
Selling and marketing
expenses............... 1,070,920 76,463 -- -- 1,147,383
General and
administrative
expenses............... 1,608,046 482,183 532 183,230 (e) 2,273,991
----------- --------- ---------- ---------- -----------
Total operating
expenses.............. 7,752,923 3,231,929 2,301,051 (1,929,403) 11,356,500
----------- --------- ---------- ---------- -----------
OPERATING INCOME
(LOSS)................. (699,651) (328,124) 1,857,902 (183,230) 646,897
----------- --------- ---------- ---------- -----------
OTHER INCOME (EXPENSE):
Interest income......... 40,366 -- 362,542 (75,163)(b) 327,745
Interest expense........ (545,237) (17,690) (2,479,564) 75,163 (b) (2,967,328)
Other expense........... (16,276) -- -- -- (16,276)
Equity share of income
(loss) of
subsidiaries........... 76,481 -- -- 179,746 (d) 256,227
----------- --------- ---------- ---------- -----------
Total other income
(expense)............. (444,666) (17,690) (2,117,022) 179,746 (2,399,632)
----------- --------- ---------- ---------- -----------
Income (loss) before
income taxes and
minority interests..... (1,144,317) (345,814) (259,120) (3,484) (1,752,735)
Income tax benefit ..... 210,212 -- 70,147 -- 280,359
----------- --------- ---------- ---------- -----------
Net income (loss) before
minority interests..... (934,105) (345,814) (188,973) (3,484) (1,472,376)
Minority interests in
net loss of
consolidated
subsidiaries........... -- -- 165,991 (d) 165,991
31,907 -- -- (31,907)(c) --
----------- --------- ---------- ---------- -----------
NET LOSS................ $ (902,198) $(345,814) $ (188,973) $ 130,600 $(1,306,385)
=========== ========= ========== ========== ===========
NET LOSS PER COMMON
SHARE.................. $ (.27) $ (.30)
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING .... 3,353,573 4,336,906 (i)
=========== ===========
The accompanying notes to unaudited pro forma consolidated financial statements
are an integral part of these pro forma consolidated financial statements.
P-5
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
COMPANY
COMPANY AS PIN JONES PRO FORMA PRO FORMA
REPORTED VENTURE (1) SPACE SEGMENT (2) ADJUSTMENTS(3) COMBINED
----------- ----------- ----------------- -------------- -----------
REVENUES:
Radio programming....... $ 5,121,310 -- -- -- $ 5,121,310
Television programming:
Non-affiliated
entities.............. 288,591 4,110,025 -- -- 4,398,616
Affiliated entities.... 51,574 -- -- -- 51,574
----------- ---------- ----------- ----------- -----------
Total television
programming........... 340,165 4,110,025 -- -- 4,450,190
----------- ---------- ----------- ----------- -----------
Satellite delivery and
production support:
Non-affiliated
entities.............. 9,844 -- 3,119,945 -- 3,129,789
Affiliated entities.... 4,211,454 -- 2,425,344 (2,846,672)(a) 3,790,126
----------- ---------- ----------- ----------- -----------
Total satellite
delivery and product
support............... 4,221,298 -- 5,545,289 (2,846,672) 6,919,915
----------- ---------- ----------- ----------- -----------
Total revenue.......... 9,682,773 4,110,025 5,545,289 (2,846,672) 16,491,415
----------- ---------- ----------- ----------- -----------
OPERATING EXPENSES:
Radio programming....... 3,067,745 -- -- -- 3,067,745
Television programming
expenses:
Non-affiliated
entities.............. 298,158 380,288 -- -- 678,446
Affiliated entities.... 109,333 3,339,011 -- (919,084)(a) 2,529,260
Satellite delivery and
production support..... 3,512,001 -- 3,077,386 (1,927,588)(a) 4,661,799
Selling and marketing
expenses............... 1,374,368 113,775 -- -- 1,488,143
General and
administrative
expenses............... 2,320,760 661,768 1,020 251,942 (e) 3,235,490
----------- ---------- ----------- ----------- -----------
Total operating
expenses.............. 10,682,365 4,494,842 3,078,406 (2,594,730) 15,660,883
----------- ---------- ----------- ----------- -----------
OPERATING INCOME
(LOSS)................. (999,592) (384,817) 2,466,883 (251,942) 830,532
----------- ---------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income......... 63,792 -- 513,634 (141,729)(b) 435,697
Interest expense........ (778,246) (33,043) (3,291,591) 141,729 (b) (3,961,151)
Other income (expense),
net.................... (16,276) 5,528 -- -- (10,748)
Equity share of income
(loss) of
subsidiaries........... 10,886 -- -- 210,877 (d) 221,763
----------- ---------- ----------- ----------- -----------
Total other income
(expense)............. (719,844) (27,515) (2,777,957) 210,877 (3,314,439)
----------- ---------- ----------- ----------- -----------
Income (loss) before
income taxes benefit
and minority
interests.............. (1,719,436) (412,332) (311,074) (41,065) (2,483,907)
Income tax benefit
(expense).............. 302,632 -- 77,742 -- 380,374
----------- ---------- ----------- ----------- -----------
Net loss before minority
interests.............. (1,416,804) (412,332) (233,332) (41,065) (2,103,533)
Minority interests in
net income (loss) of
consolidated
subsidiaries........... -- -- 197,919 (d) 197,919
35,237 -- -- (35,237)(c) --
----------- ---------- ----------- ----------- -----------
NET LOSS................ $(1,381,567) $ (412,332) $ (233,332) $ 121,617 $(1,905,614)
=========== ========== =========== =========== ===========
NET LOSS PER COMMON
SHARES................. $ (.41) $ (.44)
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING .... 3,353,573 4,336,906 (i)
=========== ===========
The accompanying notes to unaudited pro forma consolidated financial statements
are an integral part of these pro forma consolidated financial statements.
P-6
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
JONES COMPANY
COMPANY AS SPACE PRO FORMA PRO FORMA
REPORTED SEGMENT (2) ADJUSTMENTS(3) COMBINED
----------- ----------- -------------- -----------
REVENUES:
Radio programming...... $ 2,541,221 $ -- $ -- $ 2,541,221
Television programming:
Non-affiliated
entities.............. 1,945,790 -- -- 1,945,790
Affiliated entities.... -- -- -- --
----------- ---------- --------- -----------
Total television
programming........... 1,945,790 -- -- 1,945,790
----------- ---------- --------- -----------
Satellite delivery and
production support:
Non-affiliated
entities.............. 15,392 3,120,000 -- 3,135,392
Affiliated entities.... 2,069,942 2,399,965 (800,001)(a) 3,669,906
----------- ---------- --------- -----------
Total satellite
delivery and product
support............... 2,085,334 5,519,965 (800,001) 6,805,298
----------- ---------- --------- -----------
Total revenue.......... 6,572,345 5,519,965 (800,001) 11,292,309
----------- ---------- --------- -----------
OPERATING EXPENSES:
Radio programming....... 2,068,239 -- -- 2,068,239
Television programming
expenses
Non-affiliated
entities.............. 530,129 -- -- 530,129
Affiliated entities.... 1,037,817 -- (525,486)(a) 512,331
Satellite, delivery and
production............. 1,849,291 3,077,469 (274,515)(a) 4,652,245
Selling and marketing
expenses............... 1,090,254 -- -- 1,090,254
General and
administrative
expenses............... 1,957,716 667 -- 1,958,383
----------- ---------- --------- -----------
Total operating
expenses.............. 8,533,446 3,078,136 (800,001) 10,811,581
----------- ---------- --------- -----------
OPERATING INCOME
(LOSS)................. (1,961,101) 2,441,829 -- 480,728
----------- ---------- --------- -----------
OTHER INCOME (EXPENSE):
Interest income......... 57,947 338,882 (68,082)(b) 328,747
Interest expense........ (68,082) (3,390,780) 68,082 (b) (3,390,780)
Other income (expense),
net.................... (8,963) -- -- (8,963)
Equity share of income
(loss) of
subsidiaries........... 236,811 -- -- 236,811
----------- ---------- --------- -----------
Total other income
(expense)............. 217,713 (3,051,898) -- (2,834,185)
----------- ---------- --------- -----------
Loss before income taxes
and minority
interests.............. (1,743,388) (610,069) -- (2,353,457)
Income tax benefit
(expense).............. 73,408 201,114 -- 274,522
----------- ---------- --------- -----------
Net loss before minority
interests.............. (1,669,980) (408,955) -- (2,078,935)
Minority interests in
net income (loss) of
consolidated
subsidiaries........... 12,900 -- (12,900) (c) --
----------- ---------- --------- -----------
NET LOSS................ $(1,657,080) $ (408,955) $ (12,900) $(2,078,935)
=========== ========== ========= ===========
NET LOSS PER COMMON
SHARE.................. $ (.49) $ (.51)
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING..... 3,353,573 4,103,573 (i)
=========== ===========
The accompanying notes to unaudited pro forma consolidated financial statements
are an integral part of these pro forma consolidated financial statements.
P-7
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
JONES COMPANY
COMPANY AS SPACE PRO FORMA PRO FORMA
REPORTED SEGMENT(2) ADJUSTMENTS(3) COMBINED
---------- ---------- -------------- -----------
REVENUES:
Radio programming....... $3,185,762 $ -- $ -- $ 3,185,762
Television programming:
Non-affiliated
entities.............. 290,570 -- -- 290,570
Affiliated entities.... -- -- -- --
---------- ---------- -------- -----------
Total television
programming........... 290,570 -- -- 290,570
---------- ---------- -------- -----------
Satellite, delivery and
production support:
Non-affiliated
entities.............. 55,237 3,349,410 -- 3,404,647
Affiliated entities.... 1,690,197 2,650,000 -- 4,340,197
---------- ---------- -------- -----------
Total satellite,
delivery and product
support............... 1,745,434 5,999,410 -- 7,744,844
---------- ---------- -------- -----------
Total revenue.......... 5,221,766 5,999,410 -- 11,221,176
---------- ---------- -------- -----------
OPERATING EXPENSES:
Radio programming....... 1,973,561 -- -- 1,973,561
Television programming
expenses:
Non-affiliated
entities.............. 355,397 -- -- 355,397
Affiliated entities.... -- -- -- --
Satellite, delivery and
production............. 1,531,883 3,513,546 -- 5,045,429
Selling and marketing
expenses............... 955,223 -- -- 955,223
General and
administrative
expenses............... 1,296,061 22,942 -- 1,319,003
---------- ---------- -------- -----------
Total operating
expenses.............. 6,112,125 3,536,488 -- 9,648,613
---------- ---------- -------- -----------
OPERATING INCOME
(LOSS)................. (890,359) 2,462,922 -- 1,572,563
---------- ---------- -------- -----------
OTHER INCOME (EXPENSE):
Interest income......... 46,015 148,338 -- 194,353
Interest expense........ (64,521) (3,457,818) -- (3,522,339)
Other expense........... (33,872) -- -- (33,872)
Equity share of income
(loss) of
subsidiaries........... 160,882 -- -- 160,882
---------- ---------- -------- -----------
Total other income
(expense)............. 108,504 (3,309,480) -- (3,200,976)
---------- ---------- -------- -----------
Loss before income taxes
and minority
interests.............. (781,855) (846,558) -- (1,628,413)
Income tax benefit
(expense).............. 5,552 165,157 -- 170,709
---------- ---------- -------- -----------
Net loss before minority
interests.............. (776,303) (681,401) -- (1,457,704)
Minority interests in
net loss of
consolidated
subsidiaries........... (51,830) -- 51,830 (c) --
---------- ---------- -------- -----------
NET LOSS................ $ (828,133) $ (681,401) $ 51,830 $(1,457,704)
========== ========== ======== ===========
NET LOSS PER COMMON
SHARE.................. $ (.25) $ (.36)
========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING..... 3,353,573 4,103,573 (i)
========== ===========
The accompanying notes to unaudited pro forma consolidated financial statements
are an integral part of these pro forma consolidated financial statements.
P-8
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(1) To reflect the historical operating results and balance sheet information
on a consolidated basis of the PIN Venture as a result of the ownership of
a majority interest.
(2) To reflect the operating results and balance sheet information on a
consolidated basis as a result of the Space Segment Transaction.
(3) To reflect the following pro forma adjustments:
(a) To eliminate intercompany satellite delivery and production support
charges as a result of the ownership of a majority interest in PIN
Venture and the Space Segment Transaction.
(b) To eliminate intercompany interest income and expense relating to the
ownership of a majority interest in PIN Venture and the Space Segment
Transaction.
(c) To reflect the elimination of minority interests as a result of the GRJ
Transaction.
(d) Adjustment to: (i) eliminate the Company's equity share of income
(loss) of the PIN Venture prior to the Pre-Offering Transactions and
(ii) reflect the minority interest (i.e., Cox) in the PIN Venture when
consolidated on a pro forma basis.
(e) To reflect amortization of goodwill pertaining to the PIN Venture.
(f) To eliminate intercompany receivables and payables.
(g) To establish goodwill associated with the PIN Venture Transaction.
(h) To: (i) eliminate the Company's equity investment in the PIN Venture,
(ii) reflect the minority interest (i.e., Cox Consumer Information
Networks, Inc.) in the net assets of the PIN Venture and (iii) reflect
equity issued by the Company in exchange for Adelphia's interest in the
PIN Venture.
(i) To reflect the issuance of Class A Common Stock in connection with the
Pre-Offering Transactions.
P-9
INDEX TO HISTORICAL FINANCIAL STATEMENTS
PAGE
----
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES CONSOLIDATED FINAN-
CIAL STATEMENTS
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and
September 30, 1996...................................................... F-3
Consolidated Statements of Operations for the Three Years Ended December
31, 1995, and the Nine Month Periods Ended September 30, 1995 and 1996.. F-4
Consolidated Statements of Shareholders' Investment for the Three Years
Ended December 31, 1995, and the Nine Month Period Ended September 30,
1996.................................................................... F-5
Consolidated Statements of Cash Flows for the Three Years Ended December
31, 1995, and the Nine Month Periods Ended September 30, 1995 and 1996.. F-6
Notes to Consolidated Financial Statements............................... F-7
PRODUCT INFORMATION NETWORK VENTURE
Report of Independent Public Accountants................................. F-18
Balance Sheets as of December 31, 1995 and September 30, 1996............ F-19
Statements of Operations for the Eleven Months ended December 31, 1995
and for the Nine Months ended September 30, 1996........................ F-20
Statements of Partners' Capital (Deficit)................................ F-21
Statements of Cash Flows for the Eleven Months ended December 31, 1995
and for the Nine Months ended September 30, 1996........................ F-22
Notes to Financial Statements............................................ F-23
JONES SPACE SEGMENT
Report of Independent Public Accountants................................. F-27
Statements of Net Assets to Be Acquired from Jones Space Segment, Inc. as
of December 31, 1994 and 1995 and September 30, 1996.................... F-28
Statements of Revenues and Direct Costs for the years ended December 31,
1993, 1994 and 1995 and for the Nine Months ended September 30, 1995 and
1996.................................................................... F-29
Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and for the Nine Months ended September 30, 1995 and 1996.......... F-30
Notes to Financial Statements............................................ F-31
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Jones International Networks, Ltd.:
We have audited the accompanying consolidated balance sheets of Jones
International Networks, Ltd. (a Colorado corporation) and subsidiaries
(collectively, "the Company") as of December 31, 1994 and 1995 and September
30, 1996, and the related consolidated statements of operations, shareholders'
investment and cash flows for each of the three years in the period ended
December 31, 1995 and for the nine months ended September 30, 1995 and 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1994 and 1995 and September 30, 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December
31, 1995 and for the nine months ended September 30, 1995 and 1996 in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Denver, Colorado
October 25, 1996
F-2
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
CURRENT ASSETS:
Cash............................... $ 63,081 $ 5,400 $ 3,488
Accounts receivable, net of
allowance for doubtful accounts of
$156,818, $224,808,and $107,539,
respectively...................... 825,115 857,183 1,591,539
Receivable from affiliates......... 125,301 441,353 363,695
Deferred commission, current (Note
2)................................ 230,010 148,770 225,395
Other current assets............... 114,469 116,002 101,894
------------ ------------ ------------
Total current assets............... 1,357,976 1,568,708 2,286,011
------------ ------------ ------------
PROPERTY, PLANT AND EQUIPMENT (Note
2):
Land and building.................. 2,988,558 3,714,715 3,717,055
Furniture, fixtures and equipment.. 6,108,543 6,621,293 8,444,074
Leasehold improvements............. 162,782 185,544 244,794
------------ ------------ ------------
Total property, plant and
equipment......................... 9,259,883 10,521,552 12,405,923
Less accumulated depreciation...... (2,013,614) (2,935,987) (3,935,481)
------------ ------------ ------------
Net property, plant and equipment.. 7,246,269 7,585,565 8,470,442
------------ ------------ ------------
OTHER ASSETS (Note 2):
Intangible assets.................. 349,994 786,513 848,161
Less amortization.................. (345,209) (393,517) (449,589)
------------ ------------ ------------
Net intangible assets.............. 4,785 392,996 398,572
------------ ------------ ------------
Investment in affiliates........... 382,431 393,143 870,224
Deferred commission, long-term
(Note 2).......................... 460,021 491,884 450,829
Other assets....................... 31,899 27,437 116,290
------------ ------------ ------------
Total other assets................. 874,351 912,464 1,437,343
------------ ------------ ------------
Total assets...................... $ 9,483,381 $ 10,459,733 $ 12,592,368
============ ============ ============
CURRENT LIABILITIES:
Accounts payable................... $ 8,425 $ 16,479 $ 87,319
Accrued liabilities................ 285,548 613,422 402,748
Accounts payable--Jones
International (Note 4)............ 1,687,117 1,755,723 3,181,789
Interest payable (Note 3).......... -- -- 165,000
Other liabilities.................. 2,736 29,911 90,000
------------ ------------ ------------
Total current liabilities.......... 1,983,826 2,415,535 3,926,856
------------ ------------ ------------
LONG-TERM LIABILITIES:
Customer deposits (Note 2)......... 66,937 41,110 47,785
Long-term debt--third parties...... 18,633 7,991 7,200
Long-term debt--affiliated entities
(Notes 3 and 5)................... 19,214,616 21,212,532 22,554,500
------------ ------------ ------------
Total long-term liabilities........ 19,300,186 21,261,633 22,609,485
------------ ------------ ------------
MINORITY INTEREST................... 38,954 3,717 70,132
------------ ------------ ------------
SHAREHOLDERS' INVESTMENT:
Class A Common Stock; $.01 par
value; 50,000,000 shares
authorized;
1,385,120, 1,385,120 and 1,968,453
shares issued and outstanding,
respectively...................... 13,851 13,851 19,685
Class B Common Stock; $.01 par
value; 1,385,120 shares
authorized;
1,385,120 shares issued and
outstanding....................... 13,851 13,851 13,851
Accumulated deficit................ (11,867,287) (13,248,854) (14,047,641)
------------ ------------ ------------
Total shareholders' investment..... (11,839,585) (13,221,152) (14,014,105)
------------ ------------ ------------
Total liabilities and
shareholders' investment......... $ 9,483,381 $ 10,459,733 $ 12,592,368
============ ============ ============
The accompanying notes to these consolidated financial statements are
an integral part of these consolidated financial statements.
F-3
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
REVENUES: (Notes 2 and
4]
Radio programming....... $ 3,185,762 $ 2,541,221 $ 5,121,310 $ 3,686,360 $ 5,140,671
Television programming:
Non-affiliated
entities.............. 290,570 1,945,790 288,591 288,591 110,329
Affiliated entities.... -- -- 51,574 -- 691,349
----------- ----------- ----------- ----------- -----------
Total television
programming........... 290,570 1,945,790 340,165 288,591 801,678
----------- ----------- ----------- ----------- -----------
Satellite delivery and
production support:
Non-affiliated
entities.............. 55,237 15,392 9,844 8,354 --
Affiliated entities.... 1,690,197 2,069,942 4,211,454 3,069,967 3,132,146
----------- ----------- ----------- ----------- -----------
Total satellite
delivery and
production support.... 1,745,434 2,085,334 4,221,298 3,078,321 3,132,146
----------- ----------- ----------- ----------- -----------
Total revenue.......... 5,221,766 6,572,345 9,682,773 7,053,272 9,074,495
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
Radio programming....... 1,973,561 2,068,239 3,067,745 2,278,208 2,648,786
Television programming:
Non-affiliated
entities.............. 355,397 530,129 298,158 190,955 1,303,805
Affiliated entities
(Note 4).............. -- 1,037,817 109,333 109,333 --
Satellite delivery and
production support
(Note 4)............... 1,531,883 1,849,291 3,512,001 2,495,461 2,603,318
Selling and marketing... 955,223 1,090,254 1,374,368 1,070,920 1,096,158
General and
administrative (Note
4)..................... 1,296,061 1,957,716 2,320,760 1,608,046 2,547,181
----------- ----------- ----------- ----------- -----------
Total operating
expenses.............. 6,112,125 8,533,446 10,682,365 7,752,923 10,199,248
----------- ----------- ----------- ----------- -----------
OPERATING LOSS.......... (890,359) (1,961,101) (999,592) (699,651) (1,124,753)
----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income ........ 46,015 57,947 63,792 40,366 63,724
Interest expense (Note
4)..................... (64,521) (68,082) (778,246) (545,237) (742,112)
Other income (expense),
net.................... (33,872) (8,963) (16,276) (16,276) (521)
Equity share of income
of subsidiaries........ 160,882 236,811 10,886 76,481 627,081
----------- ----------- ----------- ----------- -----------
Total other income
(expense)............. 108,504 217,713 (719,844) (444,666) (51,828)
----------- ----------- ----------- ----------- -----------
Loss before income tax
benefit (expense) and
minority interests..... (781,855) (1,743,388) (1,719,436) (1,144,317) (1,176,581)
Income tax benefit
(expense) (Notes 2 and
8)..................... 5,552 73,408 302,632 210,212 450,043
----------- ----------- ----------- ----------- -----------
Loss before minority
interests.............. (776,303) (1,669,980) (1,416,804) (934,105) (726,538)
Minority interests in
net income (loss) of
consolidated
subsidiaries........... (51,830) 12,900 35,237 31,907 (66,415)
----------- ----------- ----------- ----------- -----------
NET LOSS................ $ (828,133) $(1,657,080) $(1,381,567) $ (902,198) $ (792,953)
=========== =========== =========== =========== ===========
NET LOSS PER COMMON
SHARE.................. $ (.25) $ (.49) $ (.41) $ (.27) $ (.24)
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING..... 3,353,573 3,353,573 3,353,573 3,353,573 3,353,573
=========== =========== =========== =========== ===========
PRO FORMA INCOME TAX
BENEFIT (EXPENSE) (Note
8) $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== ===========
PRO FORMA NET LOSS (Note
8)..................... $ (833,685) $(1,730,488) $(1,684,199) $(1,112,410) $(1,242,996)
=========== =========== =========== =========== ===========
PRO FORMA NET LOSS PER
COMMON SHARE (Note 8).. $ (.25) $ (.52) $ (.50) $ (.33) $ (.37)
=========== =========== =========== =========== ===========
The accompanying notes to these consolidated financial statements are
an integral part of the consolidated financial statements.
F-4
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT
COMMON STOCK
-----------------------------------
CLASS A CLASS B ADDITIONAL TOTAL
----------------- ----------------- PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT INVESTMENT
--------- ------- --------- ------- ---------- ------------ -------------
Balance, January 1,
1993................... 1,385,120 $13,851 1,385,120 $13,851 $ -- $ (9,382,074) $ (9,354,372)
Net Loss............... -- -- -- -- -- (828,133) (828,133)
--------- ------- --------- ------- ----- ------------ ------------
Balance, December 31,
1993................... 1,385,120 13,851 1,385,120 13,851 -- (10,210,207) (10,182,505)
Net Loss............... -- -- -- -- -- (1,657,080) (1,657,080)
--------- ------- --------- ------- ----- ------------ ------------
Balance, December 31,
1994................... 1,385,120 13,851 1,385,120 13,851 -- (11,867,287) (11,839,585)
Net Loss............... -- -- -- -- -- (1,381,567) (1,381,567)
--------- ------- --------- ------- ----- ------------ ------------
Balance, December 31,
1995................... 1,385,120 13,851 1,385,120 13,851 -- (13,248,854) (13,221,152)
Issuance of Common Stock
in exchange for Earth
Segment................ 583,333 5,834 -- -- -- (5,834) --
Net Loss............... -- -- -- -- -- (792,953) (792,953)
--------- ------- --------- ------- ----- ------------ ------------
Balance, September 30,
1996................... 1,968,453 $19,685 1,385,120 $13,851 $ -- $(14,047,641) $(14,014,105)
========= ======= ========= ======= ===== ============ ============
The accompanying notes to these consolidated financial statements are
an integral part of the consolidated financial statements.
F-5
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------ -----------------------
1993 1994 1995 1995 1996
---------- ----------- ----------- ---------- -----------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss................ $ (828,133) $(1,657,080) $(1,381,567) $ (902,198) $ (792,953)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation and
amortization.......... 469,859 370,943 970,681 695,547 1,055,566
Equity in income of
subsidiary............ (160,882) (236,811) (10,886) (76,481) (627,081)
Minority interest in
net loss (income)..... 51,830 (12,900) (35,237) (31,907) 66,415
Net change in assets
and liabilities:
Increase in
receivables........... (44,881) (105,566) (32,068) (501,676) (734,356)
Decrease (increase) in
other current assets.. (162,149) 53,344 (1,533) 106,770 14,108
Decrease (increase) in
receivables from
affiliates............ (29,510) (95,791) (316,052) (439,488) 77,658
Decrease (increase) in
deferred commission... (147,241) (171,877) 49,377 (14,545) (35,570)
Decrease (increase) in
other assets.......... (89,605) 85,599 4,462 4,458 (88,853)
Increase (decrease) in
accounts payable...... 8,279 (16,231) 8,054 (5,756) 70,840
Increase (decrease) in
accrued liabilities... 155,255 37,148 327,874 117,229 (210,674)
Increase (decrease) in
accounts payable to
Jones International,
Ltd................... 3,731,428 (5,029,881) 68,606 60,063 1,426,066
Increase in interest
payable............... -- -- -- -- 165,000
Increase (decrease) in
other liabilities..... 33,997 (31,261) 27,175 (2,736) 60,089
Increase (decrease) in
customer deposits..... (49,983) (123,104) (25,827) 776 6,675
---------- ----------- ----------- ---------- -----------
Net cash provided by
(used in) operating
activities............ 2,938,264 (6,933,468) (346,941) (989,944) 452,930
---------- ----------- ----------- ---------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchases of property
and equipment.......... (4,383,708) (1,641,039) (1,261,669) (632,185) (1,884,371)
Purchases of intangible
assets................. -- (5,160) (436,519) (424,374) (61,648)
Distributions received.. -- 375,000 175,000 175,000 150,000
---------- ----------- ----------- ---------- -----------
Net cash used in
investing activities.. (4,383,708) (1,271,199) (1,523,188) (881,559) (1,796,019)
---------- ----------- ----------- ---------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Investment in joint
venture................ -- -- (174,826) (174,826) --
Proceeds from
borrowings............. 1,490,656 8,316,448 1,997,916 1,995,815 1,341,968
Repayment of
borrowings............. (46,982) (50,850) (10,642) (8,899) (791)
---------- ----------- ----------- ---------- -----------
Net cash provided by
financing activities.. 1,443,674 8,265,598 1,812,448 1,812,090 1,341,177
---------- ----------- ----------- ---------- -----------
INCREASE (DECREASE) IN
CASH................... (1,770) 60,931 (57,681) (59,413) (1,912)
---------- ----------- ----------- ---------- -----------
CASH, BEGINNING OF
PERIOD................. 3,920 2,150 63,081 63,081 5,400
---------- ----------- ----------- ---------- -----------
CASH, END OF PERIOD..... $ 2,150 $ 63,081 $ 5,400 $ 3,668 $ 3,488
========== =========== =========== ========== ===========
SUPPLEMENTAL CASH FLOW
DISCLOSURES:
Interest paid.......... $ 64,521 $ 68,082 $ 778,246 $ 545,237 $ 742,112
========== =========== =========== ========== ===========
Allocated income tax
benefit .............. $ 5,552 $ 73,408 $ 302,632 $ 210,212 $ 450,043
========== =========== =========== ========== ===========
The accompanying notes to consolidated financial statements are
an integral part of these consolidated financial statements.
F-6
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(1) ORGANIZATION AND BUSINESS
Jones International Networks, Ltd. (the "Company") was incorporated in
November, 1993 as a subsidiary of Jones International, Ltd. ("Jones
International"). In connection with a contemplated initial public offering of
the Company's Class A Common Stock, the Company acquired certain other
subsidiaries of Jones International whose businesses are complementary to the
Company's business. The accompanying financial statements have been prepared
on a basis of reorganization accounting (similar to pooling of interests) as
though the Company has made the acquisitions of Jones International
subsidiaries at inception.
The Company creates, develops, acquires, produces and distributes
programming to radio stations, cable television system operators and other
video distributors. The Company: (i) provides radio programming to radio
stations in exchange for advertising time that it resells to national
advertisers, (ii) provides television programming to cable television system
operators and other video distributors, (iii) sells advertising time on its
two television networks and receives license fees for its country music
television network and (iv) owns and operates its own playback, uplink and
satellite transmission facilities that both distribute the Company's
programming and are subleased to others for a fee.
The Company does not currently have a bank or other credit facility. The
Company intends to establish a bank credit facility following the consummation
of this offering, but there can be no assurance that it will be able to secure
such a facility or any financing on acceptable terms, if at all. The Company
has received advances and loans from Jones International and related companies
to fund its operating and investing activities in the past and anticipates
that Jones International will make additional advances to the Company prior to
the consummation of the offering. Jones International and such related
companies are under no obligation to provide, nor does the Company expect them
to provide, additional advances or loans to the Company subsequent to the
consummation of the offering. Management believes that the net proceeds from
this offering and operating cash flow will be sufficient to fund the Company's
capital needs through at least December 31, 1997. However, if the offering is
not completed, other equity and/or debt financing is not obtained and if the
Company's operating cash flow is not sufficient to meet its needs, Jones
International anticipates that it will continue to make advances to the
Company as necessary, through December 31, 1997.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The consolidated financial statements include
the accounts of all majority-owned and controlled subsidiaries. Investments in
entities which are not majority-owned and controlled by the Company are
accounted for under the equity method. All significant intercompany balances
and transactions have been eliminated in consolidation.
Minority Interest--The minority interest in the net income or loss of the
Company's consolidated subsidiaries is reflected in the statement of
operations. To the extent the minority interest in the net losses of the
Company's consolidated subsidiaries exceeds the minority investment in those
subsidiaries, such excess losses are charged to the Company. These excess
losses are recovered against any future earnings. The Company recorded losses
of approximately $0, $0, and $71,000 in excess of the Company's ownership
interest in its consolidated subsidiaries during the years ended December 31,
1993, 1994 and 1995, respectively, and losses of approximately $40,000 and
$246,000 during the nine months ended September 30, 1995 and 1996,
respectively.
F-7
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property, Plant and Equipment--Property, plant and equipment is depreciated
using the straight-line method over the estimated useful lives of 5 to 15
years. Leasehold improvements are depreciated over the lesser of five years or
the term of the lease.
Intangible Assets--Intangible assets consist primarily of affiliate
agreements obtained from a third party in May 1995. Intangible assets are
amortized over the lesser of 7 years or the term of the affiliate agreements.
Deferred Commissions--Sales commissions are amortized over the life of the
corresponding affiliate agreements from which the sale commission was paid.
The current amount represents the portion to be amortized within the next 12
months. The remaining portion is classified as long-term.
Customer Deposits--Customer deposits consist of unearned revenue associated
with affiliate fees and refundable advance payments received from radio
stations.
Income Taxes--The Company joins in filing a consolidated tax return as
provided for under the terms of a tax sharing agreement with Jones
International and Jones International's other subsidiaries. Pursuant to the
terms of the tax allocation agreement, tax provisions (benefits) are allocated
to the members of the tax sharing group based on their respective pro rata
contribution of taxable income (loss) to Jones International's consolidated
taxable income (loss).
The tax allocation agreement with Jones International gives Jones
International the option to either make a payment of the tax benefits due to
the subsidiary members of the tax sharing group or to defer such payments
until a subsequent taxable period in which the subsidiary member generates
taxable income and has a tax payment due either to Jones International or to a
federal or state taxing authority. Such payments may be deferred by Jones
International for a period not to exceed five years from the date the tax
benefits were incurred and will accrue interest at the prime rate in effect at
the time the deferred amounts originate.
The Company accounts for deferred tax liabilities or assets based on the
temporary differences between the financial reporting and tax bases of assets
and liabilities as measured by the enacted tax rates which are expected to be
in effect when these differences reverse. Deferred tax assets are reduced, if
deemed necessary, by a valuation allowance for the amount of any tax benefits
which, based upon current circumstances, are not expected to be realized.
Revenue Recognition--The Company's revenue consists of radio programming
revenue, television programming revenue and satellite delivery and production
support revenue.
Radio programming revenue includes advertising and licensing fees. The
Company generates radio advertising revenue by selling airtime to advertisers
who advertise their products or services on the networks. The Company
recognizes advertising revenue upon airing of the advertisements. Any amounts
received from customers for radio advertisements that have not been aired
during the period are recorded as unearned revenue until such time as the
advertisement is aired. The Company delivers its programming to radio stations
for distribution to their listeners. Radio station licensing fees are earned
monthly based on the radio station's contractual agreement.
Television programming revenue includes advertising and licensing fees. The
Company generates television advertising revenue by selling airtime to
advertisers who advertise their products or services on the networks. The
Company recognizes advertising revenue upon the
F-8
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
airing of the advertisements. Any amounts received from customers for
television advertisements that have not been aired during the period are
recorded as unearned revenue until such time as the advertisement is aired.
The Company delivers its programming to cable television systems for
distribution to their viewers. Cable television system licensing fees are
earned monthly based on a per subscriber fee set under the terms of the cable
operator's contractual agreement and the number of subscribers that are
receiving the Company's programming during the respective month.
Satellite delivery and production support revenue includes revenue from
satellite delivery, uplinking, trafficking, playback and other services. The
Company generates revenue by providing such services to affiliates and a third
party. The Company recognizes satellite delivery and production support
revenue upon completion of the services or upon contractual arrangements.
Net Loss per Share--Net loss per share of Class A and Class B Common Stock
is based on the weighted average number of shares outstanding during the
respective periods. Pro forma net loss per share reflects the impact of the
Company not recording any tax benefits as if it had filed its income tax
return on a separate company basis and was not a part of the tax allocation
agreement with affiliated entities.
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 assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements--The Company adopted Statement of Financial
Accounting Standards No. 121, (Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed Of, "SFAS 121"), effective
January 1, 1996. SFAS 121 establishes accounting standards for the impairment
of long-lived assets, certain identifiable intangibles and goodwill.
Implementation of SFAS 121 had no material effect on the Company's financial
position or results of operations.
The Company adopted Statement of Financial Accounting Standards No. 123,
(Accounting for Stock-Based Compensation, "SFAS 123") effective January 1,
1996. SFAS 123 recommends a fair value based method of accounting for employee
stock compensation, including stock options. However, companies may choose to
account for stock compensation using the intrinsic value based method as
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and provide pro forma disclosures of net income and
earnings per share as if the fair value based method had been applied. The
Company elected to account for stock compensation using the intrinsic value
based method, and thus SFAS 123 will not have any impact on reported operating
results.
(3) ACQUISITION OF JONES GALACTIC RADIO, INC. AND JONES EARTH SEGMENT, INC.
Effective August 15, 1996, the Company purchased all of the common stock of
Jones Galactic Radio ("Galactic Radio") from Jones Global Group, Inc. ("Global
Group"), an affiliate of the Company, for $17,200,000. Galactic Radio is a
holding company which owns 100% of the Company's radio network programming
business and through a subsidiary, a 50% interest in the Galactic/ Tempo
Venture ("Superaudio," See Note 7). The purchase price was paid using
$1,200,000 in cash with the balance in the form of a $16,000,000 note that
bears interest at 8.25
F-9
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
percent per annum and is payable quarterly. Principal payments are due in
quarterly installments beginning May 15, 2000. The note is included in long-
term debt to affiliated entities in the accompanying financial statements. It
matures December 31, 2003. The note is secured by all of the assets of the
Company's radio network programming business. This transaction was treated as
a reorganization of entities under common control and is included in the
Company's historical financial statements for all periods presented. The
Company intends to repay the note in full from the proceeds of the offering.
Effective September 30, 1996, the Company acquired all of the common stock
of Jones Earth Segment, Inc. ("Earth Segment") from Mr. Jones and Jones
International for 110,833 shares and 472,500 shares, respectively, of the
Company's Class A Common Stock. Earth Segment, now a wholly owned subsidiary
of the Company, owns the real and personal assets through which the Company
provides playback, trafficking and uplinking services. This transaction was
treated as a reorganization of entities under common control and is included
in the Company's historical financial statements for all periods presented.
(4) TRANSACTIONS WITH AFFILIATED ENTITIES
The Company is a subsidiary of Jones International, a holding company with
ownership interests in several companies involved in various aspects of the
telecommunications industry. Jones International is wholly owned by Mr. Jones,
Chairman and Chief Executive Officer of Jones Intercable, Inc. ("Jones
Intercable") and various other subsidiaries of Jones International. Certain
members of management 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 the PIN Venture
and Superaudio, are described below. See Note 7 for transactions with
affiliates related to the PIN Venture and Superaudio.
Television Programming Revenue--The Company earns up to a three percent
commission on the sale of airtime for informational programming on Mind
Extension University and Jones Computer Network, which are subsidiaries of
Jones Education Company ("Jones Education") and affiliates of the Company.
Prior to October 1, 1995, the Company did not provide this service to Jones
Education. For the year ended December 31, 1995 and the nine months ended
September 30, 1996, the Company received $51,574 and $182,648, respectively,
for this service.
The Company distributes its Great American Country ("GAC") network primarily
to cable television systems owned or managed by Jones Intercable. The GAC
network, a 24-hour country music video network, was launched on December 31,
1995. Jones Intercable and its affiliated partnerships paid total license fees
to the Company of $508,701 for the nine months ended September 30, 1996.
Television Programming Expense--Jones Infomercial Networks, Inc.
("Infomercial Networks"), a subsidiary of the Company, provided programming to
Jones Intercable prior to the PIN Venture and, as required under the terms of
the affiliate agreement, paid a fee of approximately 33% of the net revenue
generated to the affiliates which aired the infomercial programming. For the
years ended December 31, 1993, 1994 and 1995 and for the nine months ended
September 30, 1995 and 1996, Infomercial Networks paid affiliate fees to Jones
Intercable or its systems totaling $-0-, $237,816, $109,333, $109,333 and $-0-,
respectively.
Satellite Delivery and Production Support Expense--Earth Segment provides
playback, editing, duplication and uplinking services primarily to its cable
programming network affiliates. Earth Segment charges affiliates for its
services using rates which are calculated to achieve a specified rate
F-10
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of return on investment to Earth Segment. For the years ended December 31,
1993, 1994 and 1995 and for the nine months ended September 30, 1995 and 1996,
Earth Segment charged Jones Education and its affiliates $1,041,894,
$1,409,136, $1,884,481, $1,366,347 and $1,487,198, respectively, for these
services.
Galactic Radio has a transponder lease agreement with Jones Satellite
Holdings ("Satellite Holdings"), a subsidiary of Mind Extension University,
for the use of the sub-carriers on a non-preemtible satellite transponder.
This agreement allows Galactic Radio to use a portion of the transponder to
distribute its audio programming. Satellite Holdings has the right to
terminate the license agreement at any time upon 30 days written notice to
Galactic Radio. Satellite Holdings charged $633,000, $633,000, $696,300,
$522,225 and $522,225 for the years ended December 31, 1993, 1994 and 1995 and
for the nine months ended September 30, 1995 and 1996, respectively, for this
service.
General and Administrative Expenses--The Company leases and subleases office
space in Englewood, Colorado from affiliates of Jones International. Rent and
associated expenses are allocated to the Company based on the amount of square
footage it occupies. Jones International and its affiliates charged the
Company $-0-, $-0-, $13,507, $10,292, and $22,140, for the years ended
December 31, 1993, 1994 and 1995 and the nine months ended September 30, 1995
and 1996, respectively.
A subsidiary of Jones International provides computer hardware and software
support services to the Company. This subsidiary charged the Company $12,426,
$118,488, $306,400, $232,188 and $258,254, for the years ended December 31,
1993, 1994 and 1995 and the nine months ended September 30, 1995 and 1996,
respectively, for computer services.
The Company and its consolidated subsidiaries reimburse Jones International
for certain allocated administrative expenses. These expenses generally
consist of salaries and related benefits. Allocations of personnel costs are
generally based on actual time spent by affiliated associates with respect to
the Company. Jones International and its affiliates charged the Company
$217,213, $91,119, $162,605, $137,792 and $195,543, for the years ended
December 31, 1993, 1994 and 1995 and the nine months ended September 30, 1995
and 1996, respectively, for these administrative expenses.
To assist funding its operating and investing activities, the Company has
borrowed funds from Jones International. Jones International charged interest
on its advances to the Company at rates of approximately eight, nine, and 11
percent per annum in 1993, 1994 and 1995, respectively, and approximately 10
percent per annum during the nine months ended September 30, 1996. Jones
International's interest rate is calculated using the published prime rate
plus two percent. Jones International charged the Company interest of $11,399,
$7,892, $141,644, $124,660 and $114,245, for the years ended December 31,
1993, 1994 and 1995 and the nine months ended September 30, 1995, and 1996,
respectively.
Periodically, Jones International remits funds on behalf of the Company and
its subsidiaries to third parties and affiliates in payment of products and
services purchased by the Company and its subsidiaries in their normal course
of business. These advances are then subsequently reimbursed to Jones
International on a timely basis as revenue proceeds are received by the
Company. Due to their short-term nature, such amounts payable to Jones
International are classified as a current liability in the accompanying
financial statements.
In addition, the Company incurred certain expenses related to its satellite
transponder leases with Jones Space Segment, Inc. ("Space Segment"). These
transactions are summarized below. Upon consummation of the offering, these
transactions will no longer be affiliated in nature
F-11
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
because the Company is acquiring the satellite transponder leases and
subleases as one of the Pre-Offering Transactions.
Satellite Delivery and Production Support Expense--The Company entered into
a renewable transponder lease agreement with Space Segment to use a portion of
a satellite transponder to distribute television programming. Space Segment
has the right to terminate the license agreement at anytime upon 30 days
written notice to the Company. Space Segment charged the Company $800,001,
$1,212,672, $909,504, and $1,278,234, for the years ended December 31, 1994
and 1995 and the nine months ended September 30, 1995 and 1996, respectively,
for this service.
(5) NOTE PAYABLE
In December 1994, Earth Segment entered into a promissory note with Jones
Intercable. As of September 30, 1996 the principal amount of the note was
$6,554,500. The note is secured by all of Earth Segment's present and future
tangible and intangible property and bears interest at one percent over the
published prime rate. Interest expense, which is payable quarterly, totaled $-
0-, $669,560, $487,764 and $462,866 for the years ended December 31, 1994 and
1995 and the nine months ended September 30, 1995 and 1996, respectively. The
note matures on December 19, 1999. The Company intends to repay this note in
full from the proceeds of the offering.
(6) COMMON STOCK
Voting Rights--The Class A Common Stock has voting rights that are generally
one-twentieth of those held by the Class B Common Stock. In the election of
directors, the holders of Class A Common Stock, voting as a separate class,
are entitled to elect that number of directors that constitute at least 25
percent of the total membership of the Board of Directors of the Company.
Holders of the Class B Common Stock, also voting as a separate class, are
entitled to elect the remaining directors. Mr. Jones directly or beneficially
owns all of the Class B Common Stock.
Stock Split--The Board of Directors has approved a stock split whereby each
share of the Company's Class A Common Stock will be exchanged into 220 shares
of Class A Common Stock and each share Class B Common Stock will be exchanged
into 220 shares of Class B Common Stock. These stock splits have been
reflected retroactively in the accompanying financial statements.
Stock Option Plan--The Company has adopted an employee stock option plan
(the "Plan") that provides for the grant of stock options and stock
appreciation rights ("SARs") to employees or individuals providing service to
the Company. The Plan covers an aggregate of up to 630,000 shares of the
Company's Class A Common Stock. No options or SARs have been granted under the
Plan.
(7) JOINT VENTURES
The Company is a partner in two joint ventures, the PIN Venture and
Superaudio. The PIN Venture was organized in January 1995 and commenced
operations on February 1, 1995. The PIN Venture owns and operates a 24-hour-a-
day cable television network for the airing of long-form advertising
("infomercials"). Superaudio commenced operations in July 1990 and is a joint
venture which is owned 50 percent by the Company and 50 percent by a third
party. Superaudio provides audio programming services to cable television
system operators and direct broadcast satellite services companies.
F-12
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Certain condensed financial information for PIN is as follows:
SEPTEMBER 30,
DECEMBER 31, ----------------------
1995 1995 1996
------------ ---------- ----------
Total assets............................... $ 703,179 $ 725,109 $1,521,377
Liabilities................................ 765,859 721,271 739,361
Partners' capital (net of accumulated defi-
cit)...................................... (62,680) 3,838 782,016
Revenues................................... 4,110,025 2,903,844 5,712,484
Operating expenses......................... 4,494,842 3,231,968 4,818,959
Operating income (loss).................... (384,817) (328,124) 893,525
Net income (loss).......................... (412,332) (345,814) 844,696
Certain condensed financial information for Superaudio is as follows:
DECEMBER 31, SEPTEMBER 30,
-------------------------------- ---------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
Total assets............ $1,228,721 $1,081,144 $1,156,253 $1,015,551 $1,034,430
Liabilities............. 187,481 316,282 309,949 101,694 26,021
Partners' capital (net
of accumulated
deficit)............... 1,041,240 764,862 846,304 913,857 1,008,409
Revenues................ 1,767,379 1,795,968 1,898,304 1,441,043 1,654,171
Operating expenses...... 1,451,108 1,334,704 1,479,730 954,931 1,187,532
Operating income........ 316,271 461,264 418,574 486,112 466,639
Net income.............. 321,942 473,622 431,442 498,995 462,105
The PIN Venture and Superaudio reimburse the Company and its affiliates for
certain allocated overhead and administrative expenses. These expenses
generally consist of salaries and related benefits, rent, data processing
services and other corporate facilities costs. The Company and its affiliates
provide engineering, marketing, administrative, accounting, information
management, and legal services to the PIN Venture and Superaudio. Allocations
of personnel costs have been based primarily on actual time spent by the
Company and its affiliates' employees.
Significant transactions for the PIN Venture and Superaudio with affiliated
entities are described below:
Audio Programming Revenue--Superaudio delivers its audio programming to
cable television systems owned by Jones Intercable and its affiliated
partnerships for a monthly fee of $60,000. For the years ended December 31,
1993, 1994 and 1995 and the nine months ended September 30, 1995 and 1996,
Jones Intercable and its affiliates paid Superaudio $720,000, $720,000,
$720,000, $540,000 and $540,000 respectively, for audio programming.
Audio Programming Expense--The Company sells certain audio programming to
Superaudio. For the years ended December 31, 1993, 1994 and 1995, and the nine
months ended September 30, 1995 and 1996, the Company charged Superaudio
$13,000, $48,000, $55,000, $40,000 and $36,000, respectively, for audio
programming.
Television Programming Expense--The Company charges the PIN Venture a
commission on the sale of airtime for informational programming. For the nine
months ended September 30, 1996, the Company charged the PIN Venture $24,113
for this service.
F-13
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The PIN Venture generally pays one-half of the revenues generated by its
infomercial programming in the form of cable system rebates to all Systems
which enter into agreements to air such programming. Amounts paid by the PIN
Venture to Jones Intercable and its affiliated partnerships were $946,391,
$706,125 and $784,148 for the year ended December 31, 1995 and for the nine
months ended September 30, 1995 and 1996, respectively.
Satellite Delivery and Production Support Expense--Earth Segment provides
playback, editing, duplication and uplinking services to the PIN Venture.
Earth Segment charged the PIN Venture $522,384, $379,122 and $492,417 for the
year ended December 31, 1995 and for the nine months ended September 30, 1995
and 1996, respectively, for these services.
The Company has satellite transponder lease agreements with Space Segment
and Satellite Holdings and in turn sub-leases these satellite transponders to
the PIN Venture and Superaudio. The Company charged the PIN Venture
$1,111,616, $808,448 and $639,117 for the year ended December 31, 1995 and for
the nine months ended September 30, 1995 and 1996, respectively, for this
service. The Company charged Superaudio $633,000, $633,000, $633,000, $474,750
and $474,750 for the years ended December 31, 1993, 1994 and 1995 and for the
nine months ended September 30, 1995 and 1996, respectively, for this service.
General and Administrative Expenses--The Company leases office space in
Englewood, Colorado from affiliates of Jones International. Rent and
associated expenses are allocated to the PIN Venture based on the amount of
square footage it occupies. Jones International and its affiliates charged the
PIN Venture $17,662, $7,311, and $16,432, for the year ended December 31, 1995
and the nine months ended September 30, 1995 and 1996, respectively.
A subsidiary of Jones International provides computer hardware and software
support services to the PIN Venture and Superaudio. The subsidiary charged the
PIN Venture $145,562, $117,486 and $110,986, the year ended December 31, 1995
and the nine months ended September 30, 1995 and 1996, respectively, for
computer services. Superaudio was charged $15,512, $6,987, $41,116, $30,632,
and $30,259, the years ended December 31, 1993, 1994 and 1995 and the nine
months ended September 30, 1995 and 1996, respectively, for computer services.
The Company and its subsidiaries reimburse Jones International for certain
allocated administrative expenses. These expenses generally consist of
salaries and related benefits. Allocations of personnel costs are generally
based on actual time spent by affiliated associates with respect to the
Company. Jones International and its affiliates charged the PIN Venture
$20,924, $9,322 and $89,238, for the year ended December 31, 1995 and the nine
months ended September 30, 1995 and 1996, respectively, for these
administrative expenses. Jones International and its affiliates charged the
Superaudio $25,996, $18,484, $6,378, $5,186, and $8,270, for the years ended
December 31, 1993, 1994 and 1995 and the nine months ended September 30, 1995
and 1996, respectively, for these administrative expenses.
To assist funding its operating and investing activities, the PIN Venture
has borrowed funds from Jones International and its affiliates. Jones
International charged interest on its advances to the Company at rates of
approximately 8, 9, and 11 percent per annum in 1993, 1994 and 1995,
respectively, and approximately 10 percent per annum during the nine months
ended September 30, 1996. Jones International's interest rate is calculated
using the published prime rate plus 2 percent. Jones International charged the
PIN Venture interest of $33,042, $17,689 and $23,678 for the year ended
December 31, 1995 and the nine months ended September 30, 1995, and 1996,
respectively.
F-14
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) INCOME TAXES
The Company and certain of its subsidiaries joined in filing a consolidated
tax return as provided for under the terms of a tax sharing agreement with
Jones International and Jones International's other subsidiaries. Pursuant to
the terms of the agreement, tax (provisions) benefits are allocated to members
of the tax sharing group based on their respective pro rata contribution of
taxable income (loss) to Jones International's consolidated taxable income
(loss). Income tax benefits (provisions) recognized as a result of the tax
sharing arrangement were $5,552, $73,408, $302,632, $210,212 and $450,043 for
the years ended December 31, 1993, 1994 and 1995 and the nine months ended
September 30, 1995 and 1996. A current income tax benefit of $450,043 was
recognized by the Company as of September 30, 1996, which assumes Jones
International will utilize substantially all of the Company's tax losses
generated during 1996. Adjustments, if any, will be based upon Jones
International and its subsidiaries actual taxable income for the year ending
December 31, 1996. Pro forma information is presented on the face of the
Statement of Operations as if the Company had filed its tax returns on a
separate company basis.
The difference between the statutory federal income tax rate and effective
rate is summarized as follows:
DECEMBER 31, SEPTEMBER 30,
------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ------- ------
(IN THOUSANDS)
Computed "expected tax benefit"............ $ 274 $ 610 $ 602 $ 401 $ 412
State taxes, net of federal benefit........ 25 57 56 37 38
Other...................................... 5 10 10 8 --
----- ----- ----- ------- ------
304 677 668 446 450
Valuation allowance........................ (298) (604) (365) (236) --
----- ----- ----- ------- ------
Total income tax benefit................... $ 6 $ 73 $ 303 $ 210 $ 450
===== ===== ===== ======= ======
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are as follows:
DECEMBER 31,
---------------- SEPTEMBER 30,
1994 1995 1996
------- ------- -------------
IN THOUSANDS (UNAUDITED)
DEFERRED TAX ASSETS:
Net operating loss carryforwards............... $ -- $ 312 $ 928
Future deductible amounts associated with other
assets and liabilities........................ 3,964 4,314 5,001
------- ------- -------
3,964 4,626 5,929
DEFERRED TAX LIABILITIES:
Investments in productions, property and equip-
ment.......................................... (264) (327) (340)
VALUATION ALLOWANCE............................ (3,700) (4,299) (5,589)
------- ------- -------
Net deferred tax asset......................... $ -- $ -- $ --
======= ======= =======
At December 31, 1995, the Company had net tax operating loss carryforwards
of approximately $816,000, which expire between 2004 and 2010. Although
management expects future results of operations to improve, it emphasizes the
Company's past performance rather than growth projections when determining the
valuation allowance. Any subsequent adjustment to the valuation allowance, if
deemed appropriate due to changed circumstances, will be recognized as a
separate component of the provision for income taxes.
F-15
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
If the Company successfully completes its proposed offering of Class A Common
Stock, a change of greater than 50 percent of the ownership interest of the
Company's shares may occur. Tax statutes limit the utilization of existing tax
NOLs when a change greater than 50 percent occurs to a specified amount each
year. The Company believes that the application of the limitation will not
likely cause taxable income to occur in the near term due to unavailability of
limited NOLs.
(9) EMPLOYEE INVESTMENT AND DEFERRED COMPENSATION PLANS
The Company's employees are eligible to participate in an Employee Profit
Sharing/Retirement Savings Plan (the "401(k) Plan"). Under the 401(k) Plan,
eligible employees are permitted to defer up to 16% of their annual
compensation. The Company currently matches 50% of the employees' deferrals up
to a maximum of 6% of their annual compensation, with the Company's
contribution vesting immediately. Contributions to the 401(k) Plan are invested
by the trustees of the 401(k) Plan in accordance with the directions of each
participant. Participants or their beneficiaries are entitled to payment of
benefits (i) upon retirement either at or after age 65, (ii) upon death or
disability or (iii) upon termination of employment, unless the participant
elects to receive payment prior to one of the events previously listed. For the
years ended December 31, 1993, 1994 and 1995 and for the nine months ended
September 30, 1995 and 1996, the Company contributed approximately $-0-, $-0-,
$24,621, $11,463 and $15,774, respectively, to the 401(k) Plan on behalf of its
employees.
Certain of the Company's key management personnel are eligible to participate
in a Deferred Compensation Plan (the "Deferred Compensation Plan"). Under the
Deferred Compensation Plan, key employees are permitted to defer receipt of
100% of their annual compensation. The Company currently matches the key
employees' deferrals up to a maximum of 6% of their contributions. The
contributed funds are deposited with an independent trustee and are invested in
a number of pre-selected investment funds. Both the key employees' and the
Company's contributions are subject to the claims of the Company's creditors.
Participants in the Deferred Compensation Plan or their beneficiaries receive a
distribution of their contributions, the Company's contributions, and earnings
attributable to those contributions on their separation from employment with
the
Company or their death. Contributions made by the Company to the Deferred
Compensation Plan on behalf of key employees totaled approximately $33,409,
$33,447, $50,861, $39,836 and $49,469 for the years ended December 31, 1993,
1994, and 1995 and for the nine months ended September 30, 1995 and 1996,
respectively.
(10) COMMITMENTS
On August 14, 1996, the Company and M. Kane & Company, Inc. ("MKC") entered
into an agreement pursuant to which MKC agreed to provide financial advice and
assistance to the Company about strategic alternatives, including financial
structuring and valuation-related analyses, and in the event that the Company
elected to execute an initial public offering, to assist the Company with its
structure and conduct. In consideration for such services, MKC has received a
$110,000 fee and, beginning as of July 1996, a retainer of $20,000 per month.
MKC is also entitled to advisory fees equal to 1.875% of the gross proceeds of
the Company's initial public offering, which fees are estimated to be $753,750
and will be offset by any fees previously paid by the Company to MKC, as well
as a warrant (the"MKC Warrant") to purchase shares of Class A Common Stock, as
described below. In addition, the Company is required to reimburse MKC for its
reasonable out-of-pocket fees and expenses. This agreement will terminate, if
not extended, on the later of December 31, 1996 or the consummation of the
Company's initial public offering.
F-16
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has also agreed to issue to MKC the MKC Warrant, which grants
the right for five years to purchase 13,958 shares (16,052 shares if the
Underwriters' over-allotment option is exercised) of the Class A Common Stock
at an exercise price equal to 120% of the initial public offering price. The
MKC Warrant will be exercisable one year after the effective date of the
registration statement relating to the Company's initial public offering. The
exercise price and the number of shares may, under certain circumstances, be
subject to adjustment pursuant to anti-dilution provisions.
(11) SUBSEQUENT EVENTS
The Company has filed a registration statement with the Securities and
Exchange Commission. Currently, the Company owns less than 50 percent of PIN.
Immediately prior to the consummation of the offering, the Company will
acquire Adelphia's 8 percent equity interest in PIN in exchange for
approximately 233,333 shares of the Company's Class A Common Stock. As a
result of this transaction, the Company will own a majority equity interest in
the PIN Venture and will consolidate the PIN Venture for financial reporting
purposes. Also, immediately prior to the consummation of the offering, the
Company will acquire Mr. Jones' 19% equity interest in JINI, the subsidiary
through which the Company has invested in the PIN Venture and Mr. Jones' 19%
equity interest in GAC, the subsidiary through which the Company operates the
GAC network, in exchange for 333,333 shares of the Company's Class A Common
Stock. Also, immediately prior to the consummation of the offering, the
Company will acquire the transponder leases and related subleases owned by
Space Segment, an affiliate of the Company, in exchange for 416,667 of the
Company's Class A Common Stock.
F-17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Jones International Networks, Ltd.
We have audited the accompanying balance sheets of Product Information
Network Venture (the "Partnership") as of December 31, 1995 and September 30,
1996, and the related statements of operations, partners' capital (deficit)
and cash flows for the eleven months ended December 31, 1995, and the nine
months ended September 30, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Partnership as of
December 31, 1995 and September 30, 1996, and the results of its operations
and its cash flows for the eleven months ended December 31, 1995, and the nine
months ended September 30, 1996, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Denver, Colorado
October 25, 1996
F-18
PRODUCT INFORMATION NETWORK VENTURE
BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
CURRENT ASSETS:
Cash.............................................. $ 16,248 $ 80,158
Accounts receivable............................... 545,522 1,226,298
Allowance for doubtful accounts................... (55,861) (34,131)
-------- ----------
Net accounts receivable......................... 489,661 1,192,167
Prepaid expenses.................................. 8,540 8,399
Other current assets.............................. -- 73,883
-------- ----------
Total current assets............................ 514,449 1,354,607
-------- ----------
FIXED ASSETS (Notes 2 and 5):
Property, plant and equipment..................... 202,258 208,071
Accumulated depreciation.......................... (17,768) (44,640)
-------- ----------
Net fixed assets................................ 184,490 163,431
-------- ----------
OTHER ASSETS........................................ 4,240 3,339
-------- ----------
Total assets.................................... $703,179 $1,521,377
======== ==========
CURRENT LIABILITIES:
Accounts payable--trade........................... $ 10,940 $ 8,819
Advances from Jones Infomercial Network Ventures
(Note 3)......................................... 388,733 343,909
Accounts payable--cable system rebates (Note 2)... 130,032 301,265
Unearned revenue (Note 2)......................... 218,976 14,745
Accrued liabilities............................... 17,178 70,623
-------- ----------
Total current liabilities....................... 765,859 739,361
-------- ----------
PARTNERS' CAPITAL (DEFICIT) (Note 4):
General partners' contribution.................... 349,652 349,652
Retained earnings (accumulated deficit)........... (412,332) 432,364
-------- ----------
Total general partners' capital (deficit)....... (62,680) 782,016
-------- ----------
Total liabilities and partners' capital
(deficit)........................................ $703,179 $1,521,377
======== ==========
The accompanying notes to these financial statements
are an integral part of these financial statements.
F-19
PRODUCT INFORMATION NETWORK VENTURE
STATEMENTS OF OPERATIONS
FOR THE ELEVEN MONTHS FOR THE NINE MONTHS
ENDED DECEMBER 31, ENDED SEPTEMBER 30,
1995 1996
--------------------- -------------------
REVENUES:
Television programming revenue..... $4,110,025 $5,712,484
OPERATING EXPENSES:
Television programming expenses
Non-affiliated entities........... 380,288 1,159,556
Affiliated entities............... 3,339,011 3,065,727
---------- ----------
Total video programming ex-
penses.......................... 3,719,299 4,225,283
General and administrative expenses
(Note 3).......................... 661,768 479,183
Selling and marketing.............. 113,775 114,493
---------- ----------
Total operating expenses......... 4,494,842 4,818,959
---------- ----------
OPERATING INCOME (LOSS).............. (384,817) 893,525
---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (Note 3).......... (33,043) (23,678)
Other income (loss)................ 5,528 (25,151)
---------- ----------
Total other income (expense)..... (27,515) (48,829)
---------- ----------
NET INCOME (LOSS).................... $ (412,332) $ 844,696
========== ==========
The accompanying notes to the financial statements are an integral part of
these financial statements.
F-20
PRODUCT INFORMATION NETWORK VENTURE
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
RETAINED TOTAL
EARNINGS PARTNERS'
CAPITAL (ACCUMULATED CAPITAL
CONTRIBUTIONS DEFICIT) (DEFICIT)
------------- ------------ ---------
BALANCE, FEBRUARY 1, 1995................. $ -- $ -- $ --
Contributions........................... 349,652 -- 349,652
Net loss................................ -- (412,332) (412,332)
-------- -------- --------
BALANCE, DECEMBER 31, 1995................ 349,652 (412,332) (62,680)
Net income.............................. -- 844,696 844,696
-------- -------- --------
BALANCE, SEPTEMBER 30, 1996............... $349,652 $432,364 $782,016
======== ======== ========
The accompanying notes to the financial statements
are an integral part of these financial statements.
F-21
PRODUCT INFORMATION NETWORK VENTURE
STATEMENTS OF CASH FLOWS
FOR THE ELEVEN MONTHS FOR THE NINE MONTHS
ENDED DECEMBER 31, ENDED SEPTEMBER 30,
1995 1996
--------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................. $(412,332) $844,696
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Gain on sale of assets............ (5,528) (2,349)
Depreciation and amortization..... 23,187 29,510
Net change in assets and liabili-
ties:
Increase (decrease) in accounts
payable to Jones Infomercial Net-
work Ventures.................... 388,733 (44,824)
Increase in accounts receivable... (489,661) (702,506)
Increase in prepaid expenses and
other assets..................... (12,780) (72,841)
Increase in accounts payable--
cable system rebates............. 130,032 171,233
Increase (decrease) in deferred
revenue and income............... 218,976 (204,231)
Increase in accounts payable and
accrued liabilities.............. 28,118 51,324
--------- --------
Net cash provided by (used in)
operating activities............ (131,255) 70,012
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment.............. (326,203) (29,198)
Proceeds from the sale of equip-
ment.............................. 124,054 23,096
--------- --------
Net cash used in investing activ-
ities........................... (202,149) (6,102)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributed capital from general
partners.......................... 349,652 --
--------- --------
Net cash provided by financing
activities...................... 349,652 --
--------- --------
INCREASE IN CASH..................... 16,248 63,910
CASH, BEGINNING OF PERIOD............ -- 16,248
--------- --------
CASH, END OF PERIOD.................. $ 16,248 $ 80,158
========= ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid...................... $ 33,043 $ 23,678
========= ========
The accompanying notes to the financial statements
are an integral part of these financial statements.
F-22
PRODUCT INFORMATION NETWORK VENTURE
NOTES TO FINANCIAL STATEMENTS
FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(1) ORGANIZATION AND BUSINESS
Product Information Network Venture (the "Partnership"), a partnership formed
under Colorado law, was organized in January 1995 and commenced operations on
February 1, 1995. Jones Infomercial Network Ventures, Inc., a Colorado
corporation ("Network Ventures"), Cox Consumer Information Networks Inc., a
Delaware corporation ("Cox"), and Adelphia Communications Corporation, a
Delaware corporation ("Adelphia") are the partners of the Partnership.
The Partnership owns and operates a 24-hour-a-day cable television network
for the promotion and exhibition of informational advertising ("Infomercials").
Short-form Infomercials range from 30 seconds to 2 minutes in length and long-
form Infomercials are approximately 30 minutes in length.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property, Plant and Equipment--Property, plant and equipment is depreciated
using the straight-line method over the estimated useful life of five years.
Leasehold improvements are depreciated over the lesser of 5 years or the term
of the lease.
Accounts Payable--Cable System Rebates--The Partnership generally pays one-
half of its net revenues generated by the Infomercial programming in the form
of cable system rebates to the cable television systems ("Systems") which have
entered into agreements to air the Partnership's programming. Cable system
rebates are calculated based on the following factors: numbers of subscriber
hours, channel position, and peak and non-peak carriage. Cable system rebates
are payable to the Systems, except for Jones Intercable Systems, on or before
the fifteenth day following each month in which the revenues were earned. Cable
system rebates payable to the Jones Intercable Systems are paid in the same
month they are earned. Cable system rebates are accrued as revenues are earned
by the Company.
Revenue Recognition--The Partnership generates advertising revenue by selling
airtime to Infomercial providers, advertising agencies and other organizations
who advertise their products or services on the network. The Partnership
recognizes revenue upon airing of the advertisements. The airtime is sold
generally for a fixed amount for a certain block of airtime or on a per-inquiry
basis. Any amounts paid by a customer for an Infomercial that has not aired
during the period is recorded as unearned revenue until such time as the
Infomercial is aired.
The Partnership had three major customers during the eleven months ended
December 31, 1995 and the nine months ended September 30, 1996. The related
percentages and total gross revenue are as follows:
FOR THE ELEVEN MONTHS ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
-------------------------------- -------------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
---------------- --------------- ---------------- --------------
Customer A.... $ 997,286 22% $ 2,625,367 43%
Customer B.... 687,918 15% 1,022,590 17%
Customer C.... 599,335 13% 708,635 12%
F-23
PRODUCT INFORMATION NETWORK VENTURE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In November 1995, the Partnership entered into an agreement to provide a
block of airtime to a new customer (CRN) starting January 1, 1996. The
Partnership agreed to provide, under certain conditions, up to 12 hours a day
of airtime to this new customer for the year ending December 31, 1996, though
initially providing only 6 hours. At September 30, 1996, the Partnership was
providing this customer 8 hours a day of airtime. In August 1996, the
Partnership and this customer entered into a new agreement which specifies the
rates to be charged for 1997. Under this new agreement, if the Partnership has
available airtime and the customer provides 90 days notice, the Partnership
will air up to 12 hours per day of the customer's programming during 1997.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements--The Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of"
(SFAS 121), which establishes accounting standards for the impairment of long-
lived assets, certain identifiable intangibles and goodwill. The Company
adopted SFAS 121 effective January 1, 1996. Implementation of SFAS 121 had no
material effect on the Company's financial position or results of operations.
(3) TRANSACTIONS WITH AFFILIATED ENTITIES
Network Ventures is an indirectly owned subsidiary of Jones International
Networks, Ltd. ("Jones International Networks"). Certain members of management
of the Partnership are also officers or directors of other affiliated entities
and, from time to time, the Partnership may have transactions with these
entities. Certain expenses are paid by affiliated entities on behalf of the
Partnership and are allocated at cost based on specific identification or other
reasonable methods. Significant transactions with affiliated entities are
described below.
Television Programming Revenue--The Partnership pays an up to three percent
commission to a subsidiary of Jones International Networks for the sale of
airtime for informational programming. For the eleven months ended December 31,
1995 and the nine months ended September 30, 1996, the Partnership paid
commissions of $0 and $24,113, respectively, to this subsidiary.
Television Programming Expenses--Jones Earth Segment, Inc. ("Earth Segment"),
a subsidiary of Jones International Networks, provides playback, editing,
duplication, trafficking and uplinking services primarily to its programming
affiliates. Earth Segment charges affiliates for its services using rates which
are calculated to achieve a specified rate of return on investment to Earth
Segment. For the eleven months ended December 31, 1995 and the nine months
ended September 30, 1996, Earth Segment charged the Partnership $522,384 and
$492,417, respectively, for these services.
Effective February 1, 1995, the Partnership agreed to pay Jones International
Networks a monthly fee of $101,056 for the use of a non-preemptible transponder
on a domestic communications satellite. The monthly rate decreased to $71,013
in 1996. For the eleven months ended December 31, 1995 and the nine months
ended September 30, 1996, the Partnership was charged $1,111,616 and $639,117,
respectively, for the transponder.
F-24
PRODUCT INFORMATION NETWORK VENTURE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Partnership generally pays one-half of the revenues generated by its
infomercial programming in the form of cable system rebates to all Systems
which enter into agreements to air such programming. Total cable system
rebates paid by the Partnership to Jones Intercable and its affiliated
partnerships, Cox and Adelphia systems were $946,391, $669,440 and $89,180,
respectively, for the eleven months ended December 31, 1995. For the nine
months ended September 30, 1996, the Partnership paid Jones Intercable and its
affiliated partnerships, Cox and Adelphia Systems $784,148, $763,644 and
$386,401, respectively.
General and Administrative--An affiliate of Jones International provides
computer support services to the Partnership. Computer expenses of $145,562
and $110,986 were charged to the Partnership for the eleven months ended
December 31, 1995 and the nine months ended September 30, 1996, respectively.
Jones Intercable owns an office building in Englewood, Colorado which it
leases to Jones International and its affiliates. Jones Intercable allocates
rent to Jones International and its affiliates based on square footage
occupied by each affiliated entity. Rent expense of $17,662 and $16,432 was
charged to the Partnership for the eleven months ended December 31, 1995 and
the nine months ended September 30, 1996, respectively.
The Partnership reimburses Network Ventures for certain allocated
administrative expenses. These expenses consist primarily of salaries and
related benefits. Allocations of personnel costs are based on actual time
spent by affiliated associates with respect to the Partnership. Such allocated
expenses totaled $20,924 and $89,238 for the eleven months ended December 31,
1995 and the nine months ended September 30, 1996, respectively.
To assist in funding its continuing operations, the Partnership has borrowed
funds from Network Ventures. Network Ventures charged interest in 1995 and
1996 on its advances to the Partnership at a rate of approximately 11 and 10
percent per annum, respectively, based on the preceding month's balance. Such
rate is calculated using the published prime rate plus 2 percent. Interest
charged by Network Ventures totaled $33,042 and $23,678 for the eleven months
ended December 31, 1995 and the nine months ended September 30, 1996,
respectively.
(4) CONTRIBUTED CAPITAL
The capitalization of the Partnership is set forth in the accompanying
Statement of Partners' Capital (Deficit). The Partnership was initially formed
with Network Ventures and Cox as partners. Network Ventures and Cox purchased
their interests in the Partnership by each contributing $174,826 and certain
cable television affiliate agreements to the Partnership.
In October 1995, Adelphia joined the Partnership and entered into an
affiliate agreement with the Partnership. Initially, Adelphia launched the
Partnership's programming on cable systems representing approximately 400,000
subscribers. In exchange, Adelphia received a 4 percent interest in the
Partnership, thereby reducing Network Ventures' and Cox's interests to 48
percent each, and is entitled to receive an increasing ownership interest in
the Partnership. Under the terms of the affiliate agreement, when additional
Adelphia cable systems launch the Partnership's programming prior to October
1, 1996, Adelphia will receive an additional one percent for each 100,000
subscribers, up to a total of 10 percent. At September 30, 1996, Adelphia's,
Network Ventures' and Cox's ownership interests were approximately 8 percent,
46 percent and 46 percent, respectively. Adelphia
F-25
PRODUCT INFORMATION NETWORK VENTURE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
is also entitled to an additional one-half of one percent ownership interest
in the Partnership for each 100,000 subscribers over and above 1,000,000
subscribers, but not to exceed 15 percent in the aggregate.
Profits, losses and distributions of the Partnership will be allocated in
accordance with their respective ownership interests.
(5) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following:
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
Leasehold improvements............................ $ 5,052 $ 5,052
Office furniture, fixtures and equipment.......... 9,023 9,023
Computer hardware and software.................... 49,247 56,131
Satellite receivers and other equipment........... 138,936 137,865
-------- --------
Total property, plant and equipment............... 202,258 208,071
Accumulated depreciation and amortization......... (17,768) (44,640)
-------- --------
Net property, plant and equipment................. $184,490 $163,431
======== ========
(6) INCOME TAXES
Income taxes are not reflected in the accompanying financial statements as
such amounts accrue directly to the partners. The federal and state income tax
returns of the Partnership will be prepared and filed by the General Partners.
The Partnership's tax returns and the amount of distributable Partnership
income or loss are subject to examination by federal and state taxing
authorities. If such examinations result in changes with respect to the
Partnership's tax status, or the Partnership's recorded income or loss, the
tax liability of the General Partners would be adjusted accordingly.
F-26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Jones International Networks, Ltd.:
We have audited the accompanying statements of net assets to be acquired
from Jones Space Segment, Inc., (the "Space Segment Assets"), as of December
31, 1994 and 1995 and September 30, 1996, and the related statements of
revenues and direct costs and cash flows for each of the three years in the
period ended December 31, 1995 and for the nine months ended September 30,
1996. These financial statements are the responsibility of Jones International
Networks, Ltd.'s management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the Space Segment Assets as of December 31, 1994 and
1995 and September 30, 1996, and their revenues and direct costs and their
cash flows for each of the three years in the period ended December 31, 1995
and for the nine months ended September 30, 1996, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Denver, Colorado
October 25, 1996
F-27
STATEMENTS OF NET ASSETS TO BE ACQUIRED FROM
JONES SPACE SEGMENT, INC.
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
CURRENT ASSETS:
Cash................................. $ 642,368 $ -- $ --
Accounts receivable.................. 260,000 -- --
----------- ----------- ------------
Total Current Assets............... 902,368 -- --
----------- ----------- ------------
FIXED ASSETS (Notes 2 & 4)
Leased satellite transponders........ 35,010,454 35,010,454 35,010,454
Less accumulated depreciation....... (6,200,444) (9,117,914) (11,306,015)
----------- ----------- ------------
Total net fixed assets............. 28,810,010 25,892,540 23,704,439
----------- ----------- ------------
RECEIVABLE FROM JONES INTERNATIONAL,
LTD. (Note 3)......................... 3,813,429 6,221,526 7,307,932
----------- ----------- ------------
Total Assets....................... $33,525,807 $32,114,066 $ 31,012,371
=========== =========== ============
LONG-TERM LIABILITIES:
Capital lease obligations (Note 4)... $33,433,602 $32,255,193 $ 31,127,255
Unearned revenue (Note 2)............ 780,000 780,000 780,000
----------- ----------- ------------
Total long-term liabilities........ 34,213,602 33,035,193 31,907,255
NET ASSETS: (687,795) (921,127) (894,884)
----------- ----------- ------------
Total Liabilities and net assets... $33,525,807 $32,114,066 $ 31,012,371
=========== =========== ============
The accompanying notes to the financial statements are an integral part of
these financial statements.
F-28
STATEMENTS OF REVENUES AND DIRECT COSTS ASSOCIATED WITH THE NET ASSETS TO BE
ACQUIRED FROM JONES SPACE SEGMENT, INC.
FOR THE YEAR ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
REVENUES
Satellite, delivery
and production
support
Non-affiliated
entities (Note 3)... $ 3,349,410 $ 3,120,000 $ 3,119,945 $ 2,339,945 $ 2,340,000
Affiliated entities
(Note 3)............ 2,650,000 2,399,965 2,425,344 1,819,008 1,917,351
----------- ----------- ----------- ----------- -----------
Total revenues...... 5,999,410 5,519,965 5,545,289 4,158,953 4,257,351
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES
Satellite, delivery
and production
support expenses..... 3,513,546 3,077,469 3,077,386 2,300,519 2,240,602
General and
administrative
expenses (Note 3).... 22,942 667 1,020 532 6,169
----------- ----------- ----------- ----------- -----------
Total operating
expenses........... 3,536,488 3,078,136 3,078,406 2,301,051 2,246,771
----------- ----------- ----------- ----------- -----------
OPERATING INCOME........ 2,462,922 2,441,829 2,466,883 1,857,902 2,010,580
----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income....... 148,338 338,882 513,634 362,542 413,980
Interest expense...... (3,457,818) (3,390,780) (3,291,591) (2,479,564) (2,382,061)
----------- ----------- ----------- ----------- -----------
Total other expense,
net................ (3,309,480) (3,051,898) (2,777,957) (2,117,022) (1,968,081)
----------- ----------- ----------- ----------- -----------
Income (loss) before
income tax expense..... (846,558) (610,069) (311,074) (259,120) 42,499
Income tax benefit
(expense).............. 165,157 201,114 77,742 70,147 (16,256)
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS)....... $ (681,401) $ (408,955) $ (233,332) $ (188,973) $ 26,243
=========== =========== =========== =========== ===========
The accompanying notes to the financial statements are an integral part of
these financial statements.
F-29
STATEMENTS OF CASH FLOWS ASSOCIATED WITH THE NET ASSETS TO BE ACQUIRED FROM
JONES SPACE SEGMENT, INC.
FOR THE YEAR ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)..... $ (681,401) $ (408,955) $ (233,332) $ (188,973) $ 26,243
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Depreciation
expense............. 2,917,469 2,917,469 2,917,470 2,188,102 2,188,101
Net change in assets
and liabilities:
Decrease (increase)
in accounts
receivable......... (260,000) -- 260,000 262,224 --
Decrease in other
assets............. 21,823 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by
operating
activities......... 1,997,891 2,508,514 2,944,138 2,261,353 2,214,344
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Repayment of capital
lease obligations.... (532,182) (839,220) (1,178,408) (850,436) (1,127,938)
Increase in advances
to Jones
International, Ltd... (975,145) (1,739,342) (2,408,098) (2,053,285) (1,086,406)
----------- ----------- ----------- ----------- -----------
Net cash used in
financing
activities......... (1,507,327) (2,578,562) (3,586,506) (2,903,721) (2,214,344)
----------- ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN
CASH................... 490,564 (70,048) (642,368) (642,368) --
----------- ----------- ----------- ----------- -----------
CASH, BEGINNING OF
PERIOD................. 221,852 712,416 642,368 642,368 --
----------- ----------- ----------- ----------- -----------
CASH, END OF PERIOD..... $ 712,416 $ 642,368 $ -- $ -- $ --
=========== =========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW
DISCLOSURES:
Allocated income tax
benefit (expense).... $ 165,157 $ 201,114 $ 77,742 $ 70,147 $ (16,256)
=========== =========== =========== =========== ===========
The accompanying notes to the financial statements are
an integral part of these financial statements.
F-30
NET ASSETS TO BE ACQUIRED FROM
JONES SPACE SEGMENT, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(1) ORGANIZATION AND BUSINESS
Jones Space Segment, Inc., a wholly-owned subsidiary of Jones International,
Ltd. ("Jones International"), was incorporated on October 16, 1987. Jones
Space Segment, Inc. leases two domestic communications satellite transponders
from a third party and in turn subleases the satellite transponders to several
affiliated entities and to a third party. In connection with an initial public
offering of its Common Stock, Jones International Networks, Ltd. ("Jones
International Networks"), a wholly-owned subsidiary of Jones International,
intends to acquire the satellite transponder leases and related subleases
(Such leases and subleases are referred to as the "Space Segment Assets")
owned by Jones Space Segment Inc. The accompanying financial statements have
been derived from the historical financial statements of Jones Space Segment,
Inc.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment--Property and equipment is depreciated using the
straight-line method over the estimated useful lives of the assets. Leased
transponders are capitalized and amortized over the term of the leases which
are 12 years.
Unearned Revenue--Unearned revenue consists of advance payments and a
security deposit on the leased transponders.
Revenue Recognition--Space Segment generates revenue by leasing space on two
domestic satellite transponders to several affiliated entities and to a third
party.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements--Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-
lived Assets to be Disposed Of " (SFAS 121), was adopted effective January 1,
1996 as to the Space Segment Assets. SFAS 121 establishes accounting standards
for the impairment of long-lived assets, certain identifiable intangibles and
goodwill. Implementation of SFAS 121 had no material effect on the financial
position or results of operations of the Space Segment Assets.
(3) TRANSACTIONS WITH AFFILIATED ENTITIES
Jones Space Segment, Inc. is a subsidiary of Jones International, a holding
company with ownership interests in several companies involved in various
aspects of the telecommunications industry. Jones International is wholly
owned by Glenn R. Jones, Chairman and Chief Executive Officer of Jones
International. Jones International and Glenn R. Jones own a controlling
interest in Jones Intercable, Inc. ("Jones Intercable") and in a number of
other subsidiaries. Certain members of management of Jones Space Segment, Inc.
are also officers or directors of these affiliated entities and, from time to
time, Jones Space Segment, Inc. may have transactions with these entities.
Certain expenses are paid by affiliated entities on behalf of Jones Space
Segment, Inc., and are allocated at cost based on specific identification or
other methods which management believes are reasonable. Principal recurring
transactions are described below:
F-31
NET ASSETS TO BE ACQUIRED FROM
JONES SPACE SEGMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Satellite Rental, Uplinking and Other Revenue--Jones International Networks
and Jones Computer Network, Ltd. sublease a non-preemptible transponder, which
sublease is part of the Space Segment Assets. Transponder lease revenue of
$2,650,000, $2,399,965, $2,425,344, $1,819,008, and $1,917,351, was received
from affiliates for the years ended December 31, 1993, 1994, and 1995 and the
nine months ended September 30, 1995 and 1996, respectively.
Interest Income--Jones International was charged interest on its advances
with respect to the Space Segment Assets at rates of approximately 8, 9, and
11 percent per annum in 1993, 1994 and 1995, respectively, and approximately
11 and 10 percent per annum during the nine months ended September 30, 1995
and 1996, respectively. The interest rate on such advances is calculated using
the published prime rate plus two percent. Total interest related to such
advances for the years ended December 31, 1993, 1994 and 1995 and the nine
month periods ended September 30, 1995 and 1996, was $148,338, $338,882,
$513,634, $362,542 and $413,980, respectively.
(4) CAPITAL LEASE
The Space Segment Assets are comprised, in part, of a lease agreement which
provides two non-preemptible satellite transponders, one on each of two
satellites launched in 1992. The lease provides for full time usage of two
transponders for 12 years. These satellite transponders are subleased to
several affiliated entities and to a third party.
Future minimum payments under this capital lease, together with the present
value of the minimum lease payments, are as follows:
October to December, 1996..................................... $ 1,180,000
1997.......................................................... 4,950,000
1998.......................................................... 5,190,000
1999.......................................................... 5,430,000
2000.......................................................... 5,670,000
Thereafter.................................................... 24,225,000
-----------
Future minimum payments....................................... 46,645,000
Less amount representing interest............................. 15,517,745
-----------
Present value of minimum lease payments....................... $31,127,255
===========
(5) INCOME TAXES
The Space Segment Assets are included as part of a consolidated tax return,
as provided for under the terms of a tax sharing agreement with Jones
International and Jones International's other subsidiaries. Pursuant to the
terms of the agreement, tax (provisions) benefits are allocated to members of
the tax sharing group based on their respective pro rata contribution of
taxable income (loss) to Jones International's consolidated taxable income
(loss). Income tax benefit (expense) recognized as a result of the tax sharing
arrangement was $165,157, $201,114, $77,742, $70,147 and $(16,256) for the
years ended December 31, 1993, 1994 and 1995, and the nine months ended
September 30, 1995 and 1996, respectively.
F-32
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- -------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURI-
TIES OTHER THAN THE SHARES OF CLASS A COMMON STOCK TO WHICH IT RELATES OR AN
OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPEC-
TUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IM-
PLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Capitalization............................................................ 19
Dilution.................................................................. 20
Selected Consolidated Financial Data...................................... 21
Pro Forma Selected Consolidated Financial Data ........................... 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 37
Management................................................................ 48
Certain Relationships and Related Transactions............................ 55
Principal Shareholder..................................................... 59
Description of Capital Stock.............................................. 60
Shares Eligible for Future Sale........................................... 62
Underwriting.............................................................. 64
Legal Matters............................................................. 66
Experts................................................................... 66
Additional Information.................................................... 66
Index to Pro Forma Financial Statements................................... P-1
Index to Historical Financial Statements.................................. F-1
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT PARTICIPAT-
ING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,350,000 SHARES
[LOGO OF JONES INTERNATIONAL NETWORKS, LTD. APPEARS HERE]
JONES INTERNATIONAL
NETWORKS, LTD.
CLASS A COMMON STOCK
----------------
PROSPECTUS
----------------
OPPENHEIMER & CO., INC.
HAMBRECHT & QUIST
M. KANE & COMPANY, INC.
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions and the $753,750 payable to M. Kane &
Company, Inc. for financial advisory services, payable by the Company in
connection with the sale of Class A Common Stock being registered (all amounts
are estimated except the SEC Registration Fee and the NASD Filing Fee).
SEC Registration Fee............................................. $ 15,177
National Association of Securities Dealers, Inc. Filing Fee...... 5,509
Nasdaq Listing Application Fee................................... 33,500
Blue Sky Fees and Expenses (including legal fees)................ 25,000
Printing Expenses................................................ 125,000
Legal Fees and Expenses.......................................... 150,000
Accountants' Fees and Expenses................................... 100,000
Transfer Agent and Registrar Fees................................ 20,000
Miscellaneous Expenses........................................... 175,814
--------
Total.......................................................... 650,000
========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with the Colorado Act, the Company's articles of incorporation
eliminate in certain circumstances the liability of directors of the Company
for monetary damages for breach of their fiduciary duty as directors. This
provision does not eliminate the liability of a director for: (i) a breach of
the director's duty of loyalty to the Company or its shareholders, (ii) acts
or omissions by the director not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) a willful or negligent
declaration of an unlawful distribution or (iv) transactions from which the
director derived an improper personal benefit.
The Company's articles of incorporation also provide that the Company shall
indemnify any person and his or her estate and personal representatives
against all liability and expenses incurred by reason of the person being or
having been a director or officer of the Company or, while serving as a
director or officer of the Company, is or was serving at the request of the
Company or any of its subsidiaries as a director, an officer, an agent, an
associate, an employee, a fiduciary, a manager, a member, a partner, a
promoter, or a trustee of, or to hold any similar position with, another
domestic or foreign corporation or other individual or entity or of an
employee benefit plan, to the full extent permitted under the Colorado Act.
The Colorado Act requires a corporation to indemnify its officers and
directors against reasonable expenses incurred in any proceeding to which the
officer or director is a party and was wholly successful, on the merits or
otherwise, in defense of the proceeding. In addition to this mandatory
indemnification, the Colorado Act provides that a corporation may indemnify
its officers and directors against liability and reasonable expenses if the
officer or director acted in good faith and in a manner reasonably relieved to
be in the best interests of the corporation in the case of conduct in an
official capacity, in a manner he or she reasonably believed was at least not
opposed to the corporation's best interests in all other cases, or in a manner
he or she had no reasonable cause to believe was unlawful in the case of
criminal proceedings. In actions by or in the name of the corporation, the
Colorado Act provides the same standard but limits indemnification to
reasonable expenses incurred by the director and prohibits any indemnification
if the director was adjudged liable to the corporation. The Colorado Act also
prohibits indemnification of a director in connection with actions charging
improper personal benefit to the director if the director is adjudged liable
on that basis.
II-1
Section 7 of the Underwriting Agreement (to be filed as Exhibit 1.1 hereto)
provides that the Underwriters will indemnify and hold harmless the Company
and its directors, officers and controlling persons from and against certain
liabilities, including any liability caused by any statement or omission in
the Registration Statement or Prospectus based on certain information
furnished to the Company by the Underwriters for use in the preparation
thereof.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement, the
Company has issued the following securities that were not registered under the
Securities Act of 1933, as amended (the "Securities Act") (all share amounts
reflect the proposed 220-for-1 stock-split):
Effective September 30, 1996, the Company acquired its playback, trafficking
and uplinking facilities through the purchase of all of the outstanding common
stock of Jones Earth Segment, Inc. from Glenn R. Jones and Jones
International, Ltd. for 110,833 shares and 472,500 shares, respectively, of
Class A Common Stock.
In August 1996, the Company agreed to grant a warrant to M. Kane & Company,
Inc. ("MKC") to purchase 13,958 shares (16,052 shares if the Underwriters'
over-allotment option is exercised in full) of the Class A Common Stock at an
exercise price equal to 120% of the initial public offering price of the Class
A Common Stock. In connection with the warrant, MKC will receive certain
registration rights that provide, among other things, that MKC will have one
demand registration right and unlimited piggy-back registration rights
relating to the shares of Class A Common Stock underlying the warrant.
Immediately prior to the consummation of this offering, the Company will
acquire: (i) Adelphia Communications Corporation's approximately 8% equity
interest in the PIN Venture in exchange for approximately 233,333 shares of
Class A Common Stock, (ii) Glenn R. Jones' 19% equity interests in Jones
Infomercial Networks, Inc. and Great American Country, Inc. in exchange for
333,333 shares of Class A Common Stock and (iii) certain transponder leases
and related subleases owned by Space Segment in exchange for 416,667 shares of
Class A Common Stock.
The Company issued (or will issue) all of the foregoing shares of Class A
Common Stock in reliance on the exemption from registration provided by
Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
1.1* Form of Underwriting Agreement
3.1 Articles of Incorporation of the Company
3.2 Bylaws of the Company
3.3* Articles of Incorporation of the Company, as amended
4.1 Form of Class A Common Stock Certificate
4.2* Warrant Purchase Agreement, dated , 1996, between the Company
and M. Kane & Company, Inc.
5.1* Form of Opinion of Davis, Graham & Stubbs LLP as to the legality of
issuance of the Company's Class A Common Stock
10.1* Promissory Note dated December 19, 1994 in the amount of $6,554,500
from Jones Earth Segment, Inc. to Jones Spacelink, Ltd. (assumed by
the Company on September 30, 1996)
10.2* Letter Agreement dated August 14, 1996, between the Company and M.
Kane & Company, Inc.
10.3 The Company's 1996 Stock Option Plan
10.4* Cable Sales Representation Agreement dated April 15, 1996, between
MediaAmerica, Inc. and Great American Country, Inc.
10.5* Sales Representation Agreement dated November 1, 1995, between
MediaAmerica, Inc. and the Company
10.6* Sales Representation Agreement dated December 1, 1995, between
MediaAmerica, Inc. and Jones Satellite Networks, Inc.
II-2
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.7* Purchase and Sale Agreement dated August 9, 1996, between Jones
Global Group, Inc. and the Company
10.8* Partnership Agreement of Galactic/Tempo dated May 7, 1990, between
Tempo Sound, Inc. and Galactic Radio Partners, Inc.
10.9* Amended and Restated Partnership Agreement of Product Information
Network Venture dated October 1, 1995, among Jones Infomercial
Network Ventures, Inc., Cox Consumer Information Network, Inc. and
Adelphia Communications Corporation
10.10* Affiliate Agreement dated January 1, 1996, among Great American
Country, Inc., Jones Programming Services, Inc. and Jones
Intercable, Inc.
10.11* Affiliate Agreement dated January 1, 1996, between Great American
Country, Inc. and National Cable Television Cooperative, Inc.
10.12* Amended and Restated Affiliate Agreement dated August 1, 1994,
between Jones Infomercial Networks, Inc. and Jones Intercable,
Inc.
10.13* Affiliate Agreement dated January 31, 1995, between Product
Information Network Venture and Cox Communications, Inc.
10.14* Letter Agreement dated July 26, 1995, between Positive Response
TV, Inc. and Product Information Network
10.15* Letter Agreement dated November 3, 1995, between Product
Information Network and Seventh Medium, Inc.
10.16* License Agreement dated January 31, 1995, between Jones
International, Ltd. and Product Information Network Venture
10.17* Uplink Services Agreement dated January 1, 1995, among Jones Earth
Segment, Inc., Jones Infomercial Networks, Inc., Jones Computer
Network, Ltd., Mind Extension University, Inc. and Jones Galactic
Radio, Inc.
10.18* Transponder License Agreement dated January 1, 1995, among Jones
Space Segment, Inc., Jones Infomercial Networks, Inc. and Jones
Computer Network, Ltd.
10.19* Satellite Transponder Service Agreement dated July 28, 1989,
entered into by Jones Space Segment, Inc.
10.20* Transponder License Agreement dated October 28, 1992, between
Jones Space Segment, Inc. and Deutsche Welle
10.21* Tax Allocation Agreement dated August 28, 1992, among Jones
International, Ltd. and certain of its subsidiaries
10.22* Exchange Agreement relating to Jones Earth Segment, Inc. dated
September 30, 1996, between Glenn R. Jones, Jones International,
Ltd. and the Company.
10.23* Agreement dated November , 1996, between Jones Space Segment,
Inc. and the Company
10.24* Agreement dated November , 1996, between Glenn R. Jones and the
Company
10.25* Agreement dated November , 1996, between Adelphia Communications
Corporation and the Company
21 Subsidiaries
23.1 Consent of Arthur Andersen LLP
23.2* Consent of Davis, Graham & Stubbs LLP (See Exhibit 5.1)
23.3 Consent of Gary D. Edens
23.4 Consent of Michael L. Pandzik
24 Power of Attorney (included on Page II-5)
27 Financial Data Schedule
- --------
* To be filed by amendment.
Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions, are inapplicable and therefore have been omitted or
the information required by the applicable schedule is included in the notes
to the financial statements.
II-3
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act,
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the Company's bylaws, articles of incorporation or the
Underwriting Agreement, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
ENGLEWOOD, STATE OF COLORADO, ON NOVEMBER 5, 1996.
Jones International Networks, Ltd.
/s/ Gregory J. Liptak
By: _________________________________
GREGORY J. LIPTAK
PRESIDENT
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
HEREIN CONSTITUTES AND APPOINTS GLENN R. JONES, GREGORY J. LIPTAK, ELIZABETH
M. STEELE AND JAY B. LEWIS AND EACH OF THEM, AS HIS OR HER TRUE AND LAWFUL
ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS TO THIS REGISTRATION STATEMENT
(INCLUDING POST-EFFECTIVE AMENDMENTS), INCLUDING A REGISTRATION STATEMENT
FILED PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN
CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING
UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND
AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND
NECESSARY TO BE DONE IN CONNECTION THEREWITH, AS FULLY TO ALL INTENTS AND
PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING
ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS, OR ANY OF THEM, OR THEIR OR HIS
SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE
HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
/s/ Glenn R. Jones Chairman of the November 5, 1996
- ------------------------------------- Board of Directors
GLENN R. JONES
/s/ Gregory J. Liptak President and November 5, 1996
- ------------------------------------- Director (Principal
GREGORY J. LIPTAK Executive Officer)
/s/ Jay B. Lewis Group Vice November 5, 1996
- ------------------------------------- President/Chief
JAY B. LEWIS Financial Officer
and Director
(Principal
Financial Officer)
/s/ Keith D. Thompson Chief Accounting November 5, 1996
- ------------------------------------- Officer (Principal
KEITH D. THOMPSON Accounting Officer)
II-5
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------ ----------------------
1.1* Form of Underwriting Agreement
3.1 Articles of Incorporation of the Company
3.2 Bylaws of the Company
3.3* Articles of Incorporation of the Company, as amended
4.1 Form of Class A Common Stock Certificate
4.2* Warrant Purchase Agreement, dated , 1996, between the Company
and M. Kane & Company, Inc.
5.1* Form of Opinion of Davis, Graham & Stubbs LLP as to the legality of
issuance of the Company's Class A Common Stock
10.1* Promissory Note dated December 19, 1994 in the amount of $6,554,500
from Jones Earth Segment, Inc. to Jones Spacelink, Ltd. (assumed by
the Company on September 30, 1996)
10.2* Letter Agreement dated August 14, 1996, between the Company and M.
Kane & Company, Inc.
10.3 The Company's 1996 Stock Option Plan
10.4* Cable Sales Representation Agreement dated April 15, 1996, between
MediaAmerica, Inc. and Great American Country, Inc.
10.5* Sales Representation Agreement dated November 1, 1995, between
MediaAmerica, Inc. and the Company
10.6* Sales Representation Agreement dated December 1, 1995, between
MediaAmerica, Inc. and Jones Satellite Networks, Inc.
10.7* Purchase and Sale Agreement dated August 9, 1996, between Jones
Global Group, Inc. and the Company
10.8* Partnership Agreement of Galactic/Tempo dated May 7, 1990, between
Tempo Sound, Inc. and Galactic Radio Partners, Inc.
10.9* Amended and Restated Partnership Agreement of Product Information
Network Venture dated October 1, 1995, among Jones Infomercial
Network Ventures, Inc., Cox Consumer Information Network, Inc. and
Adelphia Communications Corporation
10.10* Affiliate Agreement dated January 1, 1996, among Great American
Country, Inc., Jones Programming Services, Inc. and Jones
Intercable, Inc.
10.11* Affiliate Agreement dated January 1, 1996, between Great American
Country, Inc. and National Cable Television Cooperative, Inc.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.12* Amended and Restated Affiliate Agreement dated August 1, 1994,
between Jones Infomercial Networks, Inc. and Jones Intercable,
Inc.
10.13* Affiliate Agreement dated January 31, 1995, between Product
Information Network Venture and Cox Communications, Inc.
10.14* Letter Agreement dated July 26, 1995, between Positive Response
TV, Inc. and Product Information Network
10.15* Letter Agreement dated November 3, 1995, between Product
Information Network and Seventh Medium, Inc.
10.16* License Agreement dated January 31, 1995, between Jones
International, Ltd. and Product Information Network Venture
10.17* Uplink Services Agreement dated January 1, 1995, among Jones Earth
Segment, Inc., Jones Infomercial Networks, Inc., Jones Computer
Network, Ltd., Mind Extension University, Inc. and Jones Galactic
Radio, Inc.
10.18* Transponder License Agreement dated January 1, 1995, among Jones
Space Segment, Inc., Jones Infomercial Networks, Inc. and Jones
Computer Network, Ltd.
10.19* Satellite Transponder Service Agreement dated July 28, 1989,
entered into by Jones Space Segment, Inc.
10.20* Transponder License Agreement dated October 28, 1992, between
Jones Space Segment, Inc. and Deutsche Welle
10.21* Tax Allocation Agreement dated August 28, 1992, among Jones
International, Ltd. and certain of its subsidiaries
10.22* Exchange Agreement relating to Jones Earth Segment, Inc. dated
September 30, 1996, between Glenn R. Jones, Jones International,
Ltd. and the Company.
10.23* Agreement dated November , 1996, between Jones Space Segment,
Inc. and the Company
10.24* Agreement dated November , 1996, between Glenn R. Jones and the
Company
10.25* Agreement dated November , 1996, between Adelphia Communications
Corporation and the Company
21 Subsidiaries
23.1 Consent of Arthur Andersen LLP
23.2* Consent of Davis, Graham & Stubbs LLP (See Exhibit 5.1)
23.3 Consent of Gary D. Edens
23.4 Consent of Michael L. Pandzik
24 Power of Attorney (included on Page II-5)
27 Financial Data Schedule
- ----------
* To be filed by amendment.