FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1999.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
Commission File Number 333-62077
Jones International Networks, Ltd.
Exact name of registrant as specified in charter
Colorado #84-1250515
State of organization I.R.S. employer I.D.#
9697 East Mineral Avenue, Colorado 80112
Address of principal executive office
(303) 792-3111
Registrant's telephone number
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange Act of
l934 during the preceding l2 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Jones International Networks, Ltd.:
Unaudited Consolidated Statements of Financial Position
as of December 31, 1998 and March 31, 1999 ....................................................... 2
Unaudited Consolidated Statements of Operations
for the Three Months Ended March 31, 1998 and 1999 ............................................... 4
Unaudited Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1998 and 1999 ............................................... 5
Notes to Unaudited Consolidated Financial Statements................................................ 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations ...................................................... 17
PART II. OTHER INFORMATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 22
Item 5. Other Materially Important Events................................................................ 22
Item 6. Exhibits and Reports on Form 8-K................................................................. 22
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
ASSETS
DECEMBER 31, MARCH 31,
1998 1999
------------ ---------
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 10,654,013 $11,202,044
Restricted cash..................................................... 10,000,000 4,664,510
Available for sale securities....................................... 2,768,646 3,243,668
Accounts receivable, net of allowance for doubtful accounts of
$897,487 and $1,164,212, respectively............................ 11,835,108 8,049,862
Receivables from affiliates......................................... 238,777 387,264
Prepaid expenses.................................................... 255,723 161,632
Deferred commissions, current....................................... 221,973 198,358
Other current assets................................................ 178,322 7,744
------------ ------------
Total current assets........................................... 36,152,562 27,915,082
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land ............................................................... 1,395,592 1,395,592
Building............................................................ 2,321,463 2,321,463
Satellite transponders.............................................. 35,680,188 35,680,188
Furniture, fixtures and equipment................................... 12,442,773 12,693,289
Leasehold improvements.............................................. 738,838 762,643
------------ ------------
Total property, plant and equipment............................ 52,578,854 52,853,175
Less accumulated depreciation and amortization...................... (25,681,974) (26,972,335)
------------ ------------
Net property, plant and equipment.............................. 26,896,880 25,880,840
------------ ------------
OTHER ASSETS:
Goodwill, net of accumulated amortization of
$719,588 and $961,441, respectively.............................. 32,397,394 32,155,541
Other intangible assets, net of accumulated amortization of
$1,030,391 and $1,121,332, respectively.......................... 1,914,043 1,823,102
Cable programming distribution agreements, net of
accumulated amortization of $326,969 and $577,764, respectively.. 4,355,170 5,258,606
Investment in programming, net of accumulated amortization of
$177,777 and $293,571, respectively.............................. 2,379,402 2,346,388
Investment in affiliates............................................ 202,942 207,129
Income tax benefit receivable from Jones International, Ltd. (Note 2) 1,338,402 --
Deferred commissions, long-term .................................... 390,336 396,715
Debt offering costs, net of accumulated amortization of
$245,700 and $427,304, respectively.............................. 4,526,428 4,671,472
Other assets........................................................ 340,475 262,523
------------ ------------
Total other assets............................................. 47,844,592 47,121,476
------------ ------------
Total assets................................................... $110,894,034 $100,917,398
------------ ------------
------------ ------------
The accompanying notes to these unaudited consolidated financial statements
are an integral part of these unaudited consolidated financial statements.
2
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
LIABILITIES AND SHAREHOLDERS' DEFICIT
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
CURRENT LIABILITIES:
Accounts payable--trade.......................................... $ 2,796,389 $ 2,521,558
Producers' fees payable.......................................... 5,922,471 4,244,563
Cable programming distribution agreements payable................ 1,617,815 1,301,105
Accrued liabilities.............................................. 2,047,233 1,580,837
Accounts payable--Jones International, Ltd....................... 1,377,731 255,277
Interest payable................................................. 5,581,250 2,937,500
Deferred revenues................................................ 752,263 840,438
Other current liabilities........................................ 9,938 95,180
------------ ------------
Total current liabilities................................... 20,105,090 13,776,458
------------ ------------
LONG-TERM LIABILITIES:
Customer deposits and deferred revenues.......................... 340,842 311,139
Senior secured notes............................................. 100,000,000 100,000,000
------------ ------------
Total long-term liabilities................................. 100,340,842 100,311,139
------------ ------------
MINORITY INTERESTS IN
CONSOLIDATED SUBSIDIARIES..................................... 567,283 617,636
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 5)
COMMON STOCK SUBJECT TO PUT, Class A Common Stock,
$.01 par value: 101,124 shares issued and outstanding,
respectively.................................................. 1,213,488 1,213,488
SHAREHOLDERS' DEFICIT:
Class A Common Stock, $.01 par value: 50,000,000 shares
authorized; 4,202,006 shares issued and outstanding.......... 42,020 42,020
Class B Common Stock, $.01 par value: 1,785,120 shares
authorized, issued and outstanding............................ 17,851 17,851
Additional paid-in capital....................................... 27,446,955 27,446,955
Accumulated other comprehensive income........................... 8,456 2,784
Accumulated deficit.............................................. (38,847,951) (42,510,933)
------------ ------------
Total shareholders' deficit................................. (11,332,669) (15,001,323)
------------ ------------
Total liabilities and shareholders' deficit................. $110,894,034 $100,917,398
------------ ------------
------------ ------------
The accompanying notes to these unaudited consolidated financial statements
are an integral part of these unaudited consolidated financial statements.
3
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS
ENDED MARCH 31,
1998 1999
----------- ------------
REVENUES:
Radio programming............................................ $ 1,581,420 $ 2,959,185
Radio advertising representation............................. -- 1,575,499
Television programming
Non-affiliated entities................................. 3,555,553 5,515,081
Affiliated entities (Note 2)............................ 286,766 281,824
----------- -------------
Total television programming....................... 3,842,319 5,796,905
Satellite delivery and production support
Non-affiliated entities................................. -- 894,000
Affiliated entities (Note 2)............................ 1,157,081 1,279,748
----------- -------------
Total satellite delivery and production support.... 1,157,081 2,173,748
----------- -------------
Total revenues..................................... 6,580,820 12,505,337
----------- -------------
OPERATING EXPENSES:
Radio programming............................................ 1,604,619 2,498,381
Radio advertising representation............................. -- 947,128
Television programming
Non-affiliated entities................................. 1,798,845 3,427,670
Affiliated entities (Note 2)............................ 1,691,335 1,586,691
----------- -------------
Total television programming....................... 3,490,180 5,014,361
Satellite delivery and production support (Note 2)........... 1,204,641 1,315,398
Selling and marketing........................................ 793,862 1,361,253
General and administrative (Note 2).......................... 1,172,533 2,082,812
----------- -------------
Total operating expenses........................... 8,265,835 13,219,333
----------- -------------
OPERATING INCOME (LOSS).......................................... (1,685,015) (713,996)
----------- -------------
OTHER (INCOME) EXPENSE:
Interest expense (Note 2).................................... 1,341,871 3,156,650
Interest income.............................................. (48,356) (277,473)
Equity in income of subsidiaries............................. (38,412) (4,187)
Other expense................................................ -- 4,179
----------- -------------
Total other expense, net........................... 1,255,103 2,879,169
----------- -------------
LOSS BEFORE INCOME TAXES
AND MINORITY INTERESTS......................................... (2,940,118) (3,593,165)
Income tax provision......................................... 267,575 19,464
----------- -------------
LOSS BEFORE MINORITY INTERESTS................................... (3,207,693) (3,612,629)
Minority interests in net income (loss)
of consolidated subsidiaries.............................. (6,785) 50,353
----------- -------------
NET LOSS......................................................... $(3,200,908) $ (3,662,982)
----------- -------------
----------- -------------
ADJUSTMENTS TO ARRIVE AT COMPREHENSIVE LOSS...................... -- (5,672)
----------- ------------
COMPREHENSIVE LOSS............................................... $(3,200,908) $ (3,668,654)
----------- -------------
----------- -------------
LOSS PER COMMON SHARE (Note 3)................................... $ (0.67) $ (0.60)
----------- -------------
----------- -------------
LOSS PER COMMON SHARE--assuming dilution (Note 3) ............... $ (0.67) $ (0.60)
----------- -------------
----------- -------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING.................................................... 4,766,073 6,088,250
----------- -------------
----------- -------------
The accompanying notes to these unaudited consolidated financial statements
are an integral part of these unaudited consolidated financial statements.
4
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------------
1998 1999
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................. $ (3,200,908) $ (3,662,982)
Adjustment to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization.......................................... 1,359,021 1,989,744
Amortization of debt offering costs.................................... -- 181,604
Equity in income of subsidiaries....................................... (38,412) (4,187)
Distributions received................................................. 200,000 --
Minority interest in net income (loss)................................. (6,785) 50,353
Net change in assets and liabilities:
Decrease (increase) in receivables.................................... (692,496) 3,785,246
Increase in receivables from affiliates............................... -- (148,487)
Decrease (increase) in prepaid expenses and other current assets...... (12,624) 264,669
Decrease (increase) in deferred commissions........................... (26,272) 17,236
Decrease in tax benefit receivable from Jones International, Ltd...... -- 1,338,402
Increase in other assets.............................................. (44,475) (248,696)
Increase (decrease) in accounts payable............................... 384,412 (274,831)
Decrease in producers' fees payable................................... -- (1,677,908)
Decrease in accounts payable to Jones International. Ltd.............. (6,405,768) (1,122,454)
Increase (decrease) in accrued interest............................... 152,631 (2,643,750)
Increase (decrease) in deferred revenues.............................. 371,434 (102,327)
Decrease in accrued and other liabilities............................. (421,462) (381,154)
Increase in customer deposits......................................... 1,500 160,799
------------ ------------
Net cash used in operating activities................................. (8,380,204) (2,478,723)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment................................ (145,100) (274,321)
Purchase of available for sale securities................................ -- (480,694)
Cable programming distribution agreements payments....................... -- (1,470,941)
Purchases of programming................................................. (686,573) (82,780)
------------ ------------
Net cash used in investing activities................................. (831,673) (2,308,736)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in debt offering costs.......................................... (4,033) --
Repayment of borrowings.................................................. (6,554,500) --
Repayment of capital lease obligations................................... (575,842) --
Proceeds from borrowings................................................. 16,704,500 --
------------ ------------
Net cash provided by financing activities............................. 9,570,125 --
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 358,248 (4,787,459)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................. 3,717,169 20,654,013
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................... $ 4,075,417 $ 15,866,554
------------ ------------
------------ ------------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid............................................................ $ 1,428,883 $ 5,581,250
------------ ------------
Income tax benefit....................................................... $ (267,575) $ 19,464
------------ ------------
The accompanying notes to these unaudited consolidated financial statements
are an integral part of these unaudited consolidated financial statements.
5
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This Form 10-Q is being filed by Jones International Networks, Ltd. and
its subsidiaries (the "Company"). The accompanying consolidated statements
of financial position as of December 31, 1998 and March 31, 1999, the
consolidated statements of operations for the three months ended March 31,
1998 and 1999, and the statements of cash flows for the three months ended
March 31, 1998 and 1999, are unaudited. This Form 10-Q is being filed in
conformity with the SEC requirements for unaudited financial statements and
does not contain all of the necessary footnote disclosures required for a
complete presentation of the consolidated statements of financial position,
consolidated statements of operations and consolidated statements of cash
flows in conformity with generally accepted accounting principles. However,
in the opinion of management, these statements include all adjustments,
consisting of normal recurring adjustments, necessary for the fair
presentation of results for these interim periods. The results of operations
for the three months ended March 31, 1999 are not necessarily indicative of
results to be expected for the entire year, or for any other interim period.
COMPREHENSIVE INCOME--Adjustments to comprehensive income represent the
net change in unrealized gains on available for sale securities.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires the Company to make
estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RECLASSIFICATIONS--Cable programming distribution agreements (previously
described as subscriber incentive payments) are amortized using the
straight-line method over the term of the affiliate agreement.
(2) TRANSACTIONS WITH AFFILIATED ENTITIES
The Company is a subsidiary of Jones International, Ltd. ("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 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 Galactic/Tempo, d/b/a Superaudio ("Superaudio"), are described
below.
TELEVISION PROGRAMMING REVENUES--The Company earns up to a three percent
commission on the sale of airtime for informational programming on Knowledge
TV, Inc. ("KTV"). For the three months ended March 31, 1998 and 1999, KTV
paid total commissions to the Company of approximately $52,000 and $45,000,
respectively, for this service.
The Company distributes Great American Country to certain cable
television systems owned or managed by Jones Intercable, Inc. ("Jones
Intercable"). For the three months ended March 31, 1998 and 1999, Jones
Intercable and its affiliated partnerships paid total license fees to the
Company of approximately $235,000 and $237,000, respectively, for this
service.
SATELLITE DELIVERY AND PRODUCTION SUPPORT REVENUES--Jones Earth Segment,
Inc. ("Earth Segment"), a subsidiary of the Company, 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 of
return on investment to Earth Segment. For the three months ended March 31,
1998 and 1999, Jones International and its affiliates paid satellite delivery
and production supports charges to the Company of approximately $922,000 and
$911,000, respectively, for these services.
6
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In addition, Jones Space Holdings, Inc. ("Space Holdings"), a
subsidiary of the Company, subleases two digitally compressed channels on a
non-preemptible satellite transponder to Jones International and its
affiliates. For the three months ended March 31, 1998 and 1999, Jones
International and its affiliates paid satellite delivery charges to the
Company of approximately $235,000 and $369,000, respectively, for this
service.
TELEVISION PROGRAMMING EXPENSES--The Product Information Network
Venture, Inc. ("PIN Venture") pays a significant portion of the revenues
generated by its infomercial programming in the form of system rebates to all
cable systems which enter into agreements to air such programming. For the
three months ended March 31, 1998, the PIN Venture paid Jones Intercable and
its affiliated partnerships, Cox Communications and Adelphia Communications
approximately $1,410,000 for system rebates. Effective December 31, 1998,
the Company acquired the remaining Adelphia Communications equity interest in
the PIN Venture in exchange for 12,416 shares of the Company's Class A Common
Stock. As a result, Adelphia Communication is no longer an affiliated party
to the PIN Venture as of January 1, 1999. For the three months ended March
31, 1999, the PIN Venture paid Jones Intercable and its affiliated
partnerships and Cox Communications approximately $1,162,000 for system
rebates.
Jones Network Sales ("JNS"), a wholly owned subsidiary of Jones
International, provides affiliate sales and certain marketing services to the
Company. For the three months ended March 31, 1998 and 1999, the Company
paid JNS approximately $282,000 and $425,000, respectively, for these
services.
SATELLITE DELIVERY AND PRODUCTION SUPPORT EXPENSES--Jones Galactic
Radio, Inc. ("Galactic Radio") has a transponder lease agreement with Jones
Satellite Holdings, Inc. ("Satellite Holdings"), an affiliate of the Company,
for the use of the sub-carriers on a non-preemptible 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. The Company agreed to pay Satellite Holdings approximately
$58,000 per month. This agreement will expire May 2004. For each of the
three months ended March 31, 1998 and 1999, the Company paid Satellite
Holdings approximately $174,000 for this service.
GENERAL AND ADMINISTRATIVE EXPENSES--The Company 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. For the three months ended March 31, 1998 and
1999, the Company paid these affiliates approximately $25,000 and $34,000,
respectively, for rent and associated expenses.
An affiliate of Jones International provides computer hardware and
software support services to the Company. For the three months ended March
31, 1998 and 1999, the Company paid the affiliate approximately $145,000 and
$211,000, respectively, for such services.
The Company and its consolidated subsidiaries reimburse Jones
International and its affiliates for certain allocated administrative
expenses. These expenses generally consist of salaries and related benefits.
Allocations of personnel costs are generally based on actual time spent by
affiliated associates with respect to the Company. For the three months ended
March 31, 1998 and 1999, the Company paid Jones International and its
affiliates approximately $274,000 and $268,000, respectively, for these
administrative expenses.
To assist funding its operating and investing activities, the
Company has borrowed funds from Jones International. Jones International's
interest rate is calculated using the published prime rate plus two percent.
Jones International charged interest on its advances to the Company at rates
of approximately 10 percent per annum for the three months ended March 31,
1998 and 1999. For the three months ended March 31, 1998 and 1999, the
Company paid Jones International interest of approximately $266,000 and
$38,000, respectively. In the first quarter of 1999, Jones International
elected to repay the income tax benefit receivable of approximately
$1,335,000 through a reduction of the intercompany balance between the
Company and Jones International. The remaining intercompany balance of
approximately $255,000 was repaid in April 1999.
7
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(3) LOSS PER COMMON SHARE
Basic loss per common share is computed by dividing net loss by the
weighted average number of common shares outstanding during the respective
period. Diluted loss per common share is equal to basic loss per common
share as all potentially dilutive securities are anti-dilutive.
(4) UNAUDITED CONDENSED CONSOLIDATING FINANCIAL INFORMATION FOR SUBSIDIARY
GUARANTORS
In 1998, the Company issued $100 million of Senior Secured Notes
(the "Notes"). The Notes are senior obligations of the Company. The Notes
rank pari passu in right of payment with all existing and future senior
indebtedness of the Company and rank senior to all existing and future
subordinated obligations of the Company. The Notes are secured by the
capital stock of the Company's subsidiary, JPN, Inc., and its direct
subsidiaries. The Notes are fully and unconditionally guaranteed, jointly
and severally, on a senior unsecured basis by the following wholly-owned
subsidiaries of the Company: JPN, Inc., Space Holdings, Earth Segment, Jones
Infomercial Networks, Inc., Jones Radio Holdings, Inc., Great American
Country, Inc., Galactic Radio, Jones Infomercial Network Ventures, Inc.,
Jones Galactic Radio Partners, Inc., Jones Radio Network, Inc., Jones Audio
Services, Inc., Jones Radio Network Ventures, Inc., MediaAmerica, Inc. and
Jones MAI Radio, Inc., and Jones/Owens Radio Programming LLC, ("JORP")
(collectively, the "Subsidiary Guarantors"). The only existing subsidiaries
of the Company that did not guarantee the Notes are the following three
entities: the PIN Venture, a general partnership in which the Company,
through a Subsidiary Guarantor, owns a 55.3% interest; Superaudio, a general
partnership in which the Company, through a Subsidiary Guarantor, owns a 50%
interest and Jones/Capstar Venture Radio Programming LLC, a limited liability
company in which the Company, through a Subsidiary Guarantor, owns a 50%
interest (collectively, the "Non-Guarantor Subsidiaries"). The Company has
not presented separate financial statements and other disclosures concerning
the Subsidiary Guarantors that are wholly owned because management has
determined that such information is not material to investors. In lieu
thereof, the Company is providing, under Section 13 and 15 (d) of the
Securities Exchange Act of 1934, presentation of the following supplemental
unaudited condensed consolidating financial statements. Presented below is
unaudited condensed consolidating financial information for the Company and
its subsidiaries as of and for the three months ended March 31, 1998 and 1999.
8
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF FINANCIAL POSITION -
AS OF MARCH 31, 1999:
(IN THOUSANDS)
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
------- ---------- ------------ --------- --------
ASSETS:
Cash and cash equivalents............................ $ 6,576 $ 1,866 $ 2,760 $ -- $ 11,202
Restricted cash...................................... 4,664 -- -- -- 4,664
Available for sale securities........................ 3,244 -- -- -- 3,244
Accounts receivable.................................. -- 7,979 72 (1) 8,050
Other current assets................................. 64 680 11 -- 755
-------- -------- --------- -------- --------
Total current assets....................... 14,548 10,525 2,843 (1) 27,915
-------- -------- --------- -------- --------
Property, plant and equipment........................ 6 25,490 385 -- 25,881
Goodwill ........................................... -- 32,156 -- -- 32,156
Intangible assets.................................... 9,747 4,350 2 -- 14,099
Other long-term assets............................... 23,065 (21,571) 207 (835) 866
-------- -------- --------- -------- --------
Total assets............................... $ 47,366 $ 50,950 $ 3,437 $ (836) $100,917
-------- -------- --------- -------- --------
-------- -------- --------- -------- --------
LIABILITIES AND SHAREHOLDERS'
INVESTMENT (DEFICIT):
Accounts payable..................................... $ 510 $ 2,011 $ -- $ -- $ 2,521
Producers' fees payable.............................. -- 4,245 -- -- 4,245
Accrued liabilities.................................. 3,198 (1,540) 1,225 (1) 2,882
Other current liabilities............................ (42,554) 46,128 554 4,128
-------- -------- --------- -------- --------
Total current liabilities.................. (38,846) 50,844 1,779 (1) 13,776
-------- -------- --------- -------- --------
Senior secured notes................................. 100,000 -- -- -- 100,000
Other long-term liabilities.......................... -- 311 -- -- 311
-------- -------- --------- -------- --------
Total long-term liabilities................ 100,000 311 -- -- 100,311
-------- -------- --------- -------- --------
Minority interests................................... -- -- -- 618 618
Common stock subject to put.......................... 1,213 -- -- -- 1,213
Shareholders' investment (deficit):
Class A Common Stock............................ 42 -- -- -- 42
Class B Common Stock............................ 18 -- -- -- 18
General Partners' Contributions................. -- -- 350 (350) --
Additional paid-in capital...................... 27,447 -- -- -- 27,447
Other comprehensive income...................... 3 -- -- -- 3
Retained earnings (accumulated deficit)......... (42,511) (205) 1,308 (1,103) (42,511)
-------- -------- --------- -------- --------
Total shareholders'investment (deficit).... (15,001) (205) 1,658 (1,453) (15,001)
-------- -------- --------- -------- --------
Total liabilities and shareholders'
investment (deficit)..................... $ 47,366 $ 50,950 $ 3,437 $ (836) $100,917
-------- -------- --------- -------- --------
-------- -------- --------- -------- --------
9
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS - FOR THE THREE
MONTHS ENDED MARCH 31, 1999:
(IN THOUSANDS)
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
------- ---------- ------------ ------- --------
INCOME STATEMENT DATA:
REVENUES:
Radio programming................................... $ -- $ 2,959 $ -- $ -- $ 2,959
Radio advertising representation.................... -- 1,576 -- -- 1,576
Television programming.............................. -- 1,028 4,769 -- 5,797
Satellite delivery and production support........... -- 2,555 -- (382) 2,173
------- ------- ------- ------- --------
Total revenues................................. -- 8,118 4,769 (382) 12,505
------- ------- ------- ------- --------
OPERATING EXPENSES:
Radio programming................................... -- 2,498 -- -- 2,498
Radio advertising representation.................... -- 947 -- -- 947
Television programming.............................. -- 917 4,479 (382) 5,014
Satellite delivery and production support........... -- 1,316 -- -- 1,316
Selling and marketing............................... -- 1,314 47 -- 1,361
General and administrative.......................... 349 1,593 141 -- 2,083
------- ------- ------- ------- --------
Total operating expenses....................... 349 8,585 4,667 (382) 13,219
------- ------- ------- ------- --------
OPERATING INCOME (LOSS)........................ (349) (467) 102 -- (714)
------- ------- ------- ------- --------
OTHER EXPENSE (INCOME):
Interest expense.................................... 3,157 -- -- -- 3,157
Interest income..................................... (236) (20) (21) -- (277)
Equity share of loss (income) of subsidiaries ...... 269 (340) -- 67 (4)
Other expense (income), net......................... -- 2 2 -- 4
------- ------- ------- ------- --------
Total other expense (income)................... 3,190 (358) (19) 67 2,880
------- ------- ------- ------- --------
Income (loss) before income taxes and minority
Interests........................................ (3,539) (109) 121 (67) (3,594)
Income tax provision................................ -- -- 19 -- 19
------- ------- ------- ------- --------
Income (loss) before minority interests............. (3,539) (109) 102 (67) (3,613)
Minority interests in net income of consolidated
subsidiaries .................................... -- -- -- 50 50
------- ------- ------- ------- --------
NET INCOME (LOSS)................................... $(3,539) $ (109) $ 102 $ (117) $ (3,663)
------- ------- ------- ------- --------
------- ------- ------- ------- --------
10
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
UNAUDITED CONDENSED CONSOLIDATING CASH FLOWS -
FOR THE THREE MONTHS ENDED MARCH 31, 1999:
(IN THOUSANDS)
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
-------- ---------- ------------ ------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................... $ (3,539) $ (109) $ 102 $ (117) $ (3,663)
Adjustment to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Non-cash expenses.................................. 211 1,845 44 117 2,217
Net change in assets and liabilities............... (2,832) 909 890 -- (1,033)
-------- -------- ------- ------- --------
Net cash provided by (used in) operating activities (6,160) 2,645 1,036 -- (2,479)
-------- -------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment............ -- (181) (93) -- (274)
Purchase of investments.............................. (481) -- -- -- (481)
Purchase of intangible assets........................ -- (1,554) -- -- (1,554)
-------- -------- ------- ------- --------
Net cash used in investing activities............. (481) (1,735) (93) -- (2,309)
-------- -------- ------- ------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... (6,641) 910 943 -- (4,788)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD......... 17,881 956 1,817 -- 20,654
-------- -------- ------- ------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD............... $ 11,240 $ 1,866 $ 2,760 $ -- $ 15,866
-------- -------- ------- ------- --------
-------- -------- ------- ------- --------
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS - FOR THE THREE
MONTHS ENDED MARCH 31, 1998:
(IN THOUSANDS)
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
------- ---------- ------------ ------- --------
INCOME STATEMENT DATA:
REVENUES:
Radio programming................................... $ -- $ 1,582 $ -- $ -- $ 1,582
Television programming.............................. 90 435 3,317 -- 3,842
Satellite delivery and production support........... -- 1,655 -- (498) 1,157
------- ------- ------ ----- -------
Total revenues................................. 90 3,672 3,317 (498) 6,581
------- ------- ------ ----- -------
OPERATING EXPENSES:
Radio programming................................... -- 1,605 -- -- 1,605
Television programming.............................. 43 769 3,176 (498) 3,490
Satellite delivery and production support........... -- 1,205 -- -- 1,205
Selling and marketing............................... 28 678 88 -- 794
General and administrative.......................... 406 663 103 -- 1,172
------- ------- ------ ----- -------
Total operating expenses....................... 477 4,920 3,367 (498) 8,266
------- ------- ------ ----- -------
OPERATING LOSS...................................... (387) (1,248) (50) -- (1,685)
------- ------- ------ ----- -------
OTHER EXPENSE (INCOME):
Interest expense.................................... 472 870 -- -- 1,342
Interest income..................................... (3) (1) (44) -- (48)
Equity share of loss (income) of subsidiaries....... 1,642 (1,642) (39) -- (39)
Other expense (income), net......................... -- -- -- -- --
------- ------- ------ ----- -------
Total other expense (income)................... 2,111 (773) (83) -- 1,255
------- ------- ------ ----- -------
Income (loss) before income taxes
and minority interests........................... (2,498) (475) 33 -- (2,940)
Income tax provision................................ -- 268 -- -- 268
------- ------- ------ ----- -------
Income (loss) before minority interests............. (2,498) (743) 33 -- (3,208)
Minority interests in net loss
of consolidated subsidiaries..................... -- -- -- (7) (7)
------- ------- ------ ----- -------
NET INCOME (LOSS)................................... $(2,498) $ (743) $ 33 $ 7 $(3,201)
------- ------- ------ ----- -------
------- ------- ------ ----- -------
11
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
UNAUDITED CONDENSED CONSOLIDATING CASH FLOWS -
FOR THE THREE MONTHS ENDED MARCH 31, 1998:
(IN THOUSANDS)
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
-------- ---------- ------------ ------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................... $ (2,498) $ (743) $ 33 $ 7 $ (3,201)
-------- -------- --------- --------- ---------
Adjustment to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Non-cash expense (income).......................... 200 1,140 (19) (7) 1,314
Distributions received............................. -- 200 -- -- 200
Net change in assets and liabilities............... 2,775 (9,366) (102) (6,693)
-------- -------- --------- --------- ---------
--
Net cash provided by (used in) operating activities 477 (8,769) (88) -- (8,380)
-------- -------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment............ -- (116) (29) -- (145)
Purchases of intangible assets....................... -- (687) -- -- (687)
-------- -------- --------- --------- ---------
Net cash used in investing activities............. -- (803) (29) -- (832)
-------- -------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deferred offering costs.................. (4) -- -- -- (4)
Proceeds from borrowings............................. -- 16,705 -- -- 16,705
Repayment of borrowings.............................. -- (6,555) -- -- (6,555)
Repayment of capital lease obligations............... -- (576) -- -- (576)
-------- -------- --------- --------- ---------
Net cash provided by (used in) financing activities (4) 9,574 -- -- 9,570
-------- -------- --------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 473 2 (117) -- 358
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD......... (25) 79 3,663 -- 3,717
-------- -------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD............... $ 448 $ 81 $ 3,546 $ -- $ 4,075
-------- -------- --------- --------- ---------
-------- -------- --------- --------- ---------
(5) CONTINGENCIES
GAC EQUITY AGREEMENT--In the first quarter of 1998, Great American
Country and the Company entered into an equity affiliate agreement with a
multiple cable system operator ("MSO"). Pursuant to the terms of such
agreement, the Company agreed to issue shares of Class A Common Stock to this
MSO in return for this MSO delivering Great American Country's programming to
no less than 550,000 subscribers by May 31, 1998 and an additional 150,000
subscribers by December 31, 1999. The total number of shares of Class A
Common Stock to be issued is based on the number of subscribers provided by
the MSO. Based on the number of subscribers receiving Great American
Country's programming as of March 31, 1999, the Company is currently required
to issue a total of 106,603 shares of Class A Common Stock. As of March 31,
1999, 101,124 shares of Class A Common Stock had been issued to this MSO.
(6) REPORTABLE SEGMENTS
The Company has four reportable segments: radio programming and
representation, television programming, satellite delivery and production
support, and corporate. The radio programming and representation segment
produces programming that it distributes to radio stations and sells
advertising on nationally syndicated radio programs. The television
programming segment provides cable television programming to cable television
system operators and other video distributors. The satellite delivery and
production support segment provides satellite delivery, uplinking,
trafficking, playback and other services to affiliates and third parties.
The corporate segment includes personnel and associated costs for the
Company's executive and management staff, operational support and other items
such as accounting and financial reporting and debt offering costs.
The Company evaluates performance based on profit or loss from
operations before income taxes not including nonrecurring gains and losses.
The Company's reportable segments are strategic business units that offer
different services and products. They are managed separately because each
business requires different technology and marketing strategies. Reportable
segments are presented as follows in accordance with the requirements of SFAS
131, "Disclosures about Segments of an Enterprise and Related Information":
12
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
REPORTED SEGMENT PROFIT OR LOSS,
AND SEGMENT ASSETS
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1999:
Radio Satellite
Programming Delivery and
and Television Production
Representation Programming Support Corporate Total
--------------- ----------- ------- --------- -----
Revenue from external customers..................... $4,535,000 $ 5,797,000 $ 2,173,000 $ -- $ 12,505,000
Intersegment revenues............................... -- -- 860,000 -- 860,000
Interest income..................................... (21,000) (21,000) -- (235,000) (277,000)
Interest expense.................................... -- -- -- 3,157,000 3,157,000
Depreciation and amortization....................... 573,000 396,000 1,019,000 2,000 1,990,000
Equity in income of subsidiaries.................... (4,000) -- -- -- (4,000)
Segment income (loss)............................... (1,003,000) (234,000) 846,000 (3,272,000) (3,663,000)
Capital expenditures................................ 75,000 119,000 80,000 -- 274,000
Segment assets...................................... 45,186,000 13,899,000 22,253,000 47,621,000 128,959,000
RECONCILIATIONS OF REPORTABLE SEGMENT REVENUE AND
ASSETS:
REVENUES
Total revenues for reportable segments.............. $ 13,365,000
Other revenues...................................... --
Elimination of intersegment revenues................ (860,000)
------------
Total consolidated revenues....................... $ 12,505,000
------------
------------
ASSETS
Total assets for reportable segments................ $128,959,000
Elimination of investment in subsidiaries........... (28,042,000)
------------
Total consolidated assets......................... $100,917,000
------------
------------
13
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
REPORTED SEGMENT PROFIT OR LOSS,
AND SEGMENT ASSETS
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998:
Radio Satellite
Programming Delivery And
and Television Production
Representation Programming Support Corporate Total
-------------- ----------- ------- --------- -----
Revenue from external customers..................... $ 1,582,000 $ 3,842,000 $ 1,157,000 $ -- $ 6,581,000
Intersegment revenues............................... -- -- 998,000 -- 998,000
Interest income..................................... (1,000) (44,000) -- (3,000) (48,000)
Interest expense.................................... -- -- 870,000 472,000 1,342,000
Depreciation and amortization....................... 259,000 74,000 1,025,000 1,000 1,359,000
Equity in income of subsidiaries.................... (39,000) -- -- -- (39,000)
Segment loss........................................ (989,000) (173,000) (913,000) (1,126,000) (3,201,000)
Capital expenditures................................ 88,000 46,000 7,000 4,000 145,000
Segment assets...................................... 6,366,000 8,276,000 24,859,000 2,008,000 41,509,000
RECONCILIATIONS OF REPORTABLE SEGMENT REVENUE AND
ASSETS:
REVENUES
Total revenues for reportable segments.............. $ 7,579,000
Other revenues...................................... --
Elimination of intersegment revenues................ (998,000)
-----------
Total consolidated revenues....................... $ 6,581,000
-----------
-----------
ASSETS
Total assets for reportable segments................ $41,509,000
Elimination of investment in subsidiaries........... (14,000)
-----------
Total consolidated assets......................... $41,495,000
-----------
-----------
14
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(7) SUBSEQUENT EVENTS
As a result of the transfer of a controlling interest in Jones
Intercable from Jones International and its affiliates to Comcast Corporation
in April 1999, Jones Intercable will no longer share in many of the
administrative and related expenses which have historically been shared by
the various entities affiliated with Mr. Jones, including the Company.
Because Jones Intercable was the largest of such sharing entities, its
exclusion from the allocation process may cause the Company to incur material
increases in certain overhead and related costs, including rent, computer
services, insurance, and personnel costs for accounting, legal, risk
management and human resources services.
In April 1999, the Company entered into an agreement with a third
party, subject to certain conditions, to lease a digital channel on one
satellite transponder as well as provide uplinking and playback services
beginning June 15, 1999. The term of this lease will continue through the
end of the life of the satellite, which is currently estimated to be May 1,
2005.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of results of the Company's financial
condition and results of operations contains, in addition to historical
information, forward-looking statements that are based upon certain
assumptions and are subject to a number of risks and uncertainties. The
Company's actual results may differ significantly from the results predicted
in such forward-looking statements.
RESULTS OF OPERATIONS
The following table sets forth the amount of, and percentage
relationship to total net revenues of, certain items included in the
Company's historical unaudited consolidated statements of operations for the
three months ended March 31, 1998 and 1999, respectively:
REPORTED RESULTS:
THREE MONTHS ENDED MARCH 31,
1998 1999
---------------------- -------------------
( IN THOUSANDS)
REVENUES:
Radio programming............................... $ 1,582 24% $ 2,959 24 %
Radio advertising representation................ -- -- 1,576 13
Television programming.......................... 3,842 58 5,797 46
Satellite delivery and production support....... 1,157 18 2,173 17
------- --- ------- ---
Total revenues................................ 6,581 100 12,505 100
------- --- ------- ---
OPERATING EXPENSES:
Radio programming............................... 1,605 24 2,498 20
Radio advertising representation................ -- -- 947 8
Television programming.......................... 3,490 53 5,014 40
Satellite delivery and production support....... 1,205 19 1,316 11
Selling and marketing........................... 794 12 1,361 11
General and administrative...................... 1,172 18 2,083 16
------- --- ------- ---
Total operating expenses...................... 8,266 126 13,219 106
------- --- ------- ---
OPERATING INCOME (LOSS)............................ (1,685) (26) (714) (6)
------- --- ------- ---
OTHER EXPENSE...................................... 1,255 19 2,880 23
INCOME TAX PROVISION (BENEFIT) AND MINORITY
INTERESTS....................................... 261 4 69 1
------- --- ------- ---
NET LOSS........................................... $(3,201) (49%) $(3,663) (30%)
------- --- ------- ---
------- --- ------- ---
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1999
TOTAL REVENUES--Total revenues increased $5.9 million, or 90%, from
$6.6 million for the three months ended March 31, 1998 to $12.5 million for
the three months ended March 31, 1999. This increase was due to strong
growth in all of the Company's operations as well as the acquisition of
MediaAmerica, Inc. ("MediaAmerica"). On July 10, 1998, the Company acquired
substantially all the assets and assumed certain of the liabilities of
MediaAmerica. MediaAmerica provides advertising sales representation
services and also owns syndicated radio programming. As a result of the
acquisition, the Company generated $1.6 million in radio advertising
representation revenues for the three months ended March 31, 1999. The
increase in television programming revenues was due to an increase in the
number of subscribers receiving both Great American Country and Product
Information Network. The increase in satellite delivery and production
support revenue was due to new agreements that the Company entered into in
the second half of 1998.
RADIO PROGRAMMING REVENUES-- Radio programming revenues increased
$1.4 million, or 87%, from $1.6 million for the three months ended March 31,
1998 to $3.0 million for the three months ended March 31, 1999, due primarily
to an increase in radio advertising revenue. Sales of network radio
advertising for the first three months of 1998 were adversely affected by the
January 1998 entry of a significant competitor into the market, which added
approximately 20% more network radio advertising inventory into the
marketplace, thereby increasing competition for network radio advertising
dollars. During late 1998, the Company began to experience improved
advertising rates and sellout conditions and these trends have continued into
early 1999.
16
The upfront advertising market has been strong with approximately 43% more in
gross network radio advertising booked as of late April 1999, as compared to
the amount booked in the comparable period in the prior year. Gross network
radio advertising includes advertising bookings for both the Company's owned
radio programming as well as its advertising representation customers. Only
a portion of the gross advertising revenues generated from the Company's
advertising representation customers is recognized by the Company as
advertising representation revenues. Although the first quarter is
traditionally weak, the Company believes the effect of the new significant
competitor into network radio in early 1998 has been absorbed in the radio
advertising market and believes the radio segment's financial results will
continue to improve. Additionally, the Company continues to concentrate on
its development of personality driven talk and other programs, which the
Company believes will appeal to both advertisers and listeners of the
Company's radio programs and over the long-term, contribute to improved
financial results.
RADIO REPRESENTATION REVENUES--As a result of the acquisition of
MediaAmerica, the Company generated radio representation revenue of $1.6
million for the three months ended March 31, 1999.
TELEVISION PROGRAMMING REVENUES--Television programming revenues
increased $2.0 million, or 51%, from $3.8 million for the three months ended
March 31, 1998 to $5.8 million for the three months ended March 31, 1999, due
primarily to: (i) an increase of $1.4 million in Product Information Network
advertising revenues and an increase of $0.5 million in Great American
Country advertising revenues due to higher advertising rates being charged
for airtime as a result of an increase in the number of subscribers receiving
the Product Information Network and the Great American Country and (ii) an
increase of $0.1 million in Great American Country affiliate fees due to an
increase in the number of subscribers paying affiliate fees.
SATELLITE DELIVERY AND PRODUCTION SUPPORT REVENUES--Satellite
delivery and production support revenues increased $1.0 million, or 88%, from
$1.2 million for the three months ended March 31, 1998 to $2.2 million for
the three months ended March 31, 1999 due to (i) three new third party
agreements that the Company entered into in the second half of 1998 to
provide satellite transponder and related services resulting in $0.9 million
in revenues and (ii) and an increase in $0.1 million in satellite delivery
and production support fees charged to related parties.
TOTAL OPERATING EXPENSES--Total operating expenses increased $5.0
million, or 60%, from $8.2 million for the three months ended March 31, 1998
to $13.2 million for the three months ended March 31, 1999. As a percentage
of total revenues, total operating expenses decreased from 126% for the three
months ended March 31, 1998 to 106% for the three months ended March 31, 1999.
RADIO PROGRAMMING EXPENSES--Radio programming expenses increased
$0.9 million, or 56%, from $1.6 million for the three months ended March 31,
1998 to $2.5 million for the three months ended March 31, 1999 due primarily
to an increase in the number of syndicated radio programs offered by the
Company as a result of the acquisition of MediaAmerica. As a percentage of
radio programming revenues, radio programming expenses decreased from 101%
for the three months ended March 31, 1998 to 84% for the three months ended
March 31, 1999.
RADIO ADVERTISING REPRESENTATION EXPENSES--As the result of the
acquisition of MediaAmerica, the Company generated radio representation
expenses of $0.9 million for the three months ended March 31, 1999. These
expenses represent 60% of radio advertising representation revenues for the
three months ended March 31,1999.
TELEVISION PROGRAMMING EXPENSES--Television programming expenses
increased $1.5 million, or 44%, from $3.5 million for the three months ended
March 31, 1998 to $5.0 million for the three months ended March 31, 1999, due
primarily to an increase in the amounts paid to cable systems receiving the
Product Information Network. For the three months ended March 31, 1998 and
1999, the PIN Venture made rebates of approximately 75% and 82%,
respectively, of its advertising revenues to these systems. As a percentage
of television programming revenues, television programming expenses decreased
from 91% for the three months ended March 31, 1998 to 87% for the three
months ended March 31, 1999.
SATELLITE DELIVERY AND PRODUCTION SUPPORT EXPENSES--Satellite
delivery and production support expenses increased $0.1 million, or 9%, from
$1.2 million for the three months ended March 31, 1998 to $1.3 million for
the three months ended March 31, 1999. The increase is due primarily to
additional third party and affiliate usage of the Company's uplinking and
playback services. As a percentage of satellite delivery and production
support revenues, satellite delivery and production support expenses
decreased from 104% for the three months ended March 31, 1998 to 61% for the
three months ended
17
March 31, 1999.
SELLING AND MARKETING EXPENSES--Selling and marketing expenses
increased $0.6 million, or 71%, from $0.8 million for the three months ended
March 31, 1998 to $1.4 million for the three months ended March 31, 1999 due
to (i) an increase of $0.5 million in selling and marketing expenses from the
acquisition of MediaAmerica and (ii) an increase of $0.1 million in marketing
expenses due to the increased marketing efforts undertaken to increase the
distribution of Great American Country. As a percentage of total revenues,
selling and marketing expenses decreased from 12% for the three months ended
March 31, 1998 to 11% for the three months ended March 31, 1999.
GENERAL AND ADMINISTRATIVE EXPENSES--General and administrative
expenses increased $0.9 million, or 78%, from $1.2 million for the three
months ended March 31, 1998 to $2.1 million for the three months ended March
31, 1999. The increase is due to (i) an increase of $0.5 million in
amortization expenses related to the amortization of Great American Country
cable programming distribution agreements and goodwill from the acquisition
of MediaAmerica and (ii) an increase of $0.4 million due to the acquisition
of MediaAmerica. As a percentage of total revenues, general and
administrative expenses decreased from 18% for the three months ended March
31, 1998 to 17% for the three months ended March 31, 1999.
TOTAL OTHER EXPENSE--Total other expense increased $1.6 million, or
129%, from $1.3 million for the three months ended March 31, 1998 to $2.9
million for the three months ended March 31, 1999. This increase is due
primarily to (i) an increase of $3.0 million in interest expense related to
the offering by the Company of $100 million of 113/4% Senior Secured Notes in
July 1998 (the "Notes") and an increase of $0.2 million related to the
amortization of deferred debt offering costs. This increase was partially
offset by a decrease of $1.4 million in interest expense from the prepayment
of capital leases and other debt and an increase of $0.2 million in interest
income from cash and cash equivalents and available for sale securities.
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 Company had cash, cash equivalents,
and available for sale securities of $19.1 million as of March 31, 1999,
including $4.7 million of cash escrowed in a reserve account to be used
solely for payment of interest on the Notes and acquisitions. There can be
no assurance that the Company will have sufficient cash flow from operations
after debt service to support its growth 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, or if
available, will be on terms and conditions acceptable to the Company.
Since its inception, the Company has incurred net losses primarily
as a result of expenses associated with developing and launching its
programming networks. For the three months ended March 31, 1999, the Company
incurred a net loss of ($3.7) million. Net cash used in operating activities
for the three months ended March 31, 1999 was ($2.5) million compared with
net cash used in operations of ($8.4) million for the three months ended
March 31, 1998. Net cash used in operating activities for the three months
ended March 31, 1998 included the net repayment of $6.4 million of advances
from Jones International. For the three months ended March 31, 1999, the
Company did not have any financing activities.
The Company's investing activities in the first quarter of 1999
totaled $2.3 million and consisted primarily of $1.5 million of cable
programming distribution agreements payments for Great American Country and
$0.3 million of capital expenditures. Total capital expenditures for the
balance of 1999 are estimated to be $1.3 million, which will be used
primarily to purchase equipment to further digitally compress the Satcom C-3
satellite transponder, upgrades of certain radio programming studios and to
purchase satellite receivers. Total cable programming affiliate payments for
Great American Country for the balance of 1999 are estimated to be $4.0
million to $4.5 million.
The Company has received advances and loans from Jones
International and related companies to fund its operating and investing
activities in the past. Outstanding advances from Jones International and
related parties at March 31, 1999 were approximately $0.3 million. In the
first quarter of 1999, Jones International elected to pay the income tax
benefit receivable of approximately $1.3 million through a reduction of the
intercompany balance between the Company and Jones International. The
remaining intercompany balance of approximately $0.3 million was repaid in
April 1999. Jones International and such related companies are under no
obligation to provide additional advances or loans to the Company.
18
The Company depends, and will continue to depend, significantly
upon the earnings and cash flows of, and dividends and distributions from,
its subsidiaries to pay its expenses, meet its obligations and pay interest
and principal on the Notes and its other indebtedness. While the terms of
the Company's joint ventures (including the PIN Venture) generally require
the mutual consent of the Company and its joint venture partners to
distribute or advance funds to the Company, there are no significant
contractual restrictions on distributions from each of the Subsidiary
Guarantors (as defined in the Indenture) to the Company. Management believes
that the remaining proceeds from the Notes and operating cash flow, including
the cash flows of, and dividends and distributions from its subsidiaries,
will be sufficient to fund the Company's cash flow requirements at least
through 1999. The Company deposited $10.0 million of the proceeds of the
offering of the Notes in a reserve account, from which approximately $5.6
million was used to pay interest on the Notes in January 1999. The Company
intends to use the remaining proceeds in the reserve account for either the
payment of interest on the Notes or for acquisitions, as allowed under the
terms of the Indenture.
As a result of the transfer of a controlling interest in Jones
Intercable from Jones International and its affiliates to Comcast Corporation
in April 1999, Jones Intercable will no longer share in many of the
administrative and related expenses which have historically been shared by
the various entities affiliated with Mr. Jones, including the Company.
Because Jones Intercable was the largest of such sharing entities, its
exclusion from the allocation process may cause the Company to incur material
increases subsequent to the closing of the accelerated exercise of the option
in certain overhead and related costs, including rent, computer services,
insurance, and personnel costs for accounting, legal, risk management and
human resources services.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is the result of many computer programs being
written such that they will malfunction when reading a year of "00." This
problem could cause system failure or miscalculations causing disruptions of
business processes.
The Company initiated an assessment of how the Year 2000 problem
could affect its operations in the summer of 1997 and, in conjunction with
related parties, established a Year 2000 Program Office (the "Y2K Office") to
manage the process. The Y2K Office meets periodically with the Company's
management to inform them of its assessment activities, the Year 2000
priorities it has identified, remediation recommendations and testing and
compliance issues. In addition, the Y2K Office organized and meets regularly
with a review committee comprised of representatives from various departments
within the Company to ensure that management from the affected areas
participate in the decision process.
The Y2K Office is currently implementing the steps needed to
address the Year 2000 problem based upon its set priorities and is testing
the implemented solutions. The Y2K Office's schedule for implementing and
testing its Year 2000 solutions for systems that have been determined to be
first priority for the Company is as follows:
EXPECTED
PROJECT DESCRIPTION COMPLETION DATE
- ------- ----------- ---------------
Financials Y2K testing completed
Contingency planning 3Q99
Unix Hardware Y2K Upgrade/testing completed
Y2K contingency planning 3Q99
LAN/WAN Remediation/testing 2Q99
Contingency planning 3Q99
Telephony Systems Y2K testing completed
Contingency planning 3Q99
GAC/PIN Y2K testing completed
Contingency planning 3Q99
Uplink Y2K testing 2Q99
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In 1999, the Y2K Office will also focus on Year 2000 compliance
issues with respect to other systems, such as desktop hardware and software,
data archiving systems, traffic and billing reconciliation applications and
other record management systems. The Company has not used, and does not plan
to employ, unaffiliated third party verification and validation processes to
assure the reliability of its risk and cost estimates. The Company has not
deferred any other significant information technology projects due to Year
2000 efforts.
The Y2K Office commenced contacting vendors of application and
operation system software in 1997 and continues to work with vendors through
industry groups focused on Year 2000 issues. The Company has not yet
determined the extent to which it is vulnerable to the failure by vendors and
customers that have a material relationship with the Company to remediate
Year 2000 compliance issues. Management believes, but makes no assurance,
that the Company does not supply to third parties systems or equipment that
may cause a Year 2000 problem.
The Company has not incurred any material Year 2000 costs to date.
Management does not have an estimate for future Year 2000 project costs will
not have a material adverse effect on its financial condition and results of
operations.
The Company has not yet formulated contingency plans in the event
that systems are not Year 2000 compliant. The Company recognizes the need
for contingency plans and plans to develop them by the second quarter of
1999. There can be no assurance that the Company's systems will be Year 2000
compliant in time. The Year 2000 issue poses many risks for the Company and
could materially adversely affect its financial condition and results of
operations.
20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the financial
position, results of operations, or cash flows of the Company due to adverse
changes in financial market prices. The Company is exposed to market risk
through interest rates. This exposure is directly related to its normal
funding and investing activities.
Approximately $0.3 million of the Company's current liabilities is subject to
changes in interest rates; however, the Company does not use derivatives to
manage this risk. This exposure is linked primarily to the prime rate. The
Company believes that a moderate change in the prime rate would not
materially affect operating results of financial condition of the Company.
ITEM 5. OTHER MATERIALLY IMPORTANT EVENTS
Gregory J. Liptak, formerly President/Director of the Company, resigned all
of his positions within the Company on April 30, 1999. Glenn R. Jones will
assume his responsibilities as President of the Company.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
None
b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JONES INTERNATIONAL NETWORKS, LTD.
By: /s/ Jay B. Lewis
Jay B. Lewis
Group Vice President/Finance
(Principal Financial Officer)
Dated: May 7, 1999