10-Q 1 a2048760z10-q.txt 10-Q 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, 2001. [ ] 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 Media Networks, Ltd. Exact name of registrant as specified in charter Colorado #84-1470911 State of organization I.R.S. employer I.D.# 9697 East Mineral Avenue, Colorado 80112 Address of principal executive office (303) 792-3111 Registrant's telephone number Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 during the preceding l2 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No JONES MEDIA NETWORKS, LTD. AND SUBSIDIARIES INDEX

JONES MEDIA NETWORKS, LTD. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

The accompany notes to these unaudited consolidated financial statements are an integral part of these consolidated financial statements. 2 JONES MEDIA NETWORKS, LTD. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

The accompany notes to these unaudited consolidated financial statements are an integral part of these consolidated financial statements. 3 JONES MEDIA NETWORKS, LTD. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompany notes to these unaudited consolidated financial statements are an integral part of these consolidated financial statements. 4 JONES MEDIA 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 Media Networks, Ltd. and its subsidiaries (the "Company"). The accompanying consolidated statements of financial position as of December 31, 2000 and March 31, 2001, the consolidated statements of operations for the three months ended March 31, 2000 and 2001, and the statements of cash flows for the three months ended March 31, 2000 and 2001, are unaudited. This Form 10-Q is being filed in conformity with the SEC requirements for unaudited financial statements and does not contain all of the necessary footnote disclosures required for a complete presentation of the consolidated statements of financial position, consolidated statements of operations and consolidated statements of cash flows in conformity with generally accepted accounting principles. However, in the opinion of management, these statements include all adjustments, consisting of normal recurring accruals, necessary for the fair presentation of results for these interim periods. The results of operations for the three months ended March 31, 2001 are not necessarily indicative of results to be expected for the entire year, or for any other interim period. COMPREHENSIVE LOSS (INCOME)--Adjustments to comprehensive loss (income) represent the net change in unrealized losses (gains) on available for sale securities. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATIONS--Certain prior period amounts have been reclassified to conform to the current presentation. (2) TRANSACTIONS WITH AFFILIATED ENTITIES The Company is a subsidiary of Jones International, Ltd. ("Jones International"), a holding company with ownership in several companies involved in various industries. Jones International is wholly owned by the Company's Chairman, Glenn R. Jones, who is Chairman and Chief Executive Officer of Jones International and various of its subsidiaries. Certain officers or directors of the Company are also officers or directors of these affiliated entities and, from time to time, the Company may have transactions with these entities. Certain expenses are paid by affiliated entities on behalf of the Company and are allocated at cost based on specific identification or other methods which management believes are reasonable. Principal recurring transactions with affiliates are described below. REVENUES--Jones Earth Segment, Inc. ("Earth Segment"), a wholly owned subsidiary of the Company, provides playback, editing, duplication, trafficking and uplinking services to its cable programming network affiliates and to third parties. Earth Segment charges affiliates for its services using rates which are calculated to achieve a specified rate of return on its investment. For the three months ended March 31, 2000 and 2001, Earth Segment charged a related party and its affiliates approximately $746,000 and $143,000 respectively, for these services. In addition, Jones Space Holdings ("Space Holdings"), a subsidiary of the Company, subleases a satellite transponder capacity to a related party and certain of its affiliates. Satellite transponder lease revenues of approximately $385,000 and $201,000, were received from this related party and its affiliates for the three months ended March 31, 2000 and 2001, respectively. OPERATING EXPENSES--The Product Information Network Venture, ("PIN Venture") pays out a significant portion of the revenues generated by its infomercial programming in the form of system rebates to cable systems which enter into agreements to air such programming. For the three months ended March 31, 2000 and 2001, the PIN Venture paid rebates to Cox Communications of approximately $958,000 and $1,143,000, respectively, for system rebates. The Company leases office space in Englewood, Colorado from affiliates of Jones International. For the three months ended March 31, 2000 and 2001, the Company paid these affiliates approximately $108,000 and $96,000, respectively, for rent and associated expenses. 5 JONES MEDIA NETWORKS, LTD. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) An affiliate of Jones International provides computer hardware and software support services to the Company. For the three months ended March 31, 2000 and 2001, the Company paid the affiliate approximately $354,000 and $199,000, respectively, for such services. The Company and its consolidated subsidiaries reimburse Jones International and its affiliates for certain allocated administrative expenses. These expenses generally consist of salaries, related benefits and other related costs. Allocations of personnel costs are generally based on actual time spent by affiliated associates with respect to the Company. For the three months ended March 31, 2000 and 2001, the Company reimbursed Jones International and its affiliates approximately $200,000 and $210,000, respectively. Galactic Radio, Inc. ("Galactic Radio"), a wholly owned subsidiary of the Company, had a transponder lease agreement with Jones Satellite Holdings, Inc. ("Satellite Holdings"), an affiliate of Jones International, for the use of the sub-carriers on a non-preemptible satellite transponder. Galactic Radio terminated this agreement on January 31, 2000. This agreement allowed Galactic Radio to use a portion of the transponder to distribute its audio programming. The Company paid Satellite Holdings approximately $58,000 for this service. An affiliate of Jones International charged the Company approximately $11,000 during the three months ended March 31, 2000 for the allocated costs of its airplane which was used by the Company in connection with a proposed equity offering. No such costs were incurred during the three months ended March 31, 2001. In the normal course of business, Jones International (1) remits funds on behalf of the Company to third parties and affiliates in payment of products and services purchased by the Company, and (2) receives funds on behalf of the Company in payment for products and services provided by the Company. These amounts are reimbursed from or to Jones International on a monthly basis. The outstanding payable to Jones International and related parties at March 31, 2001 was approximately $461,000. (3) NET LOSS PER COMMON SHARE Basic earnings per share ("EPS") is computed by dividing the net earnings applicable to common shares by the weighted average number of common shares outstanding during the period. Diluted EPS adjusts the basic weighted average of common shares outstanding by the assumed redemption of shares subject to put in the periods in which such effect would have been dilutive. Prior period amounts have been adjusted to reflect the effect of the 5-for-4 stock split which was effective on January 28, 2000. The table below presents a reconciliation of weighted average shares used in the calculation of basic and diluted EPS:

(4) COMMITMENTS AND CONTINGENCIES GAC EQUITY AGREEMENT--In 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 the agreement, the Company agreed to issue shares of Class A Common Stock to this MSO in return for this MSO providing Great American Country's programming to no less than 550,000 of the MSO's 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 issued was based on the number of subscribers provided by this MSO. As of March 31, 2001, 136,540 shares of Class A Common Stock had been issued. No additional shares of Class A Common Stock are required to be issued to this MSO. The value of the Class A Common Stock was recorded as an intangible asset upon execution of the affiliate agreements and upon issuance of the Class A Common Stock. This intangible is being amortized using 6 JONES MEDIA NETWORKS, LTD. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) the straight-line method over the life of the contract (approximately 10 years). Because of a put option granted to this MSO, the shares issued to this MSO are presented above the Shareholders' Deficit section of the Statements of Financial Position. The difference in the value of the shares issued to the put option value at the exercise date is not significant. As noted above, this MSO was granted a put option on the Class A Common Stock issued, whereby, if as of December 31, 2001, the Company or its successor has not completed a public offering of its securities, the MSO would have the option within 60 days of such date to require the Company to buy back its Class A Common Stock at a price equal to all or a portion of the license fees that would have been paid during the period between the date of the agreement and the exercise date of the put option. The purchase price would be based on the total number of MSO subscribers receiving the Great American Country service as of December 31, 1999. Based on the number of subscribers receiving the Great American Country service at December 31, 1999, the estimated purchase price of the Class A Common Stock in the event the put option is exercised would be approximately $951,000. (6) UNAUDITED CONDENSED CONSOLIDATING FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS The Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the following wholly-owned subsidiaries of the Company: JPN, Inc., Jones Direct, Ltd., Jones Space Holdings, Inc., Jones Earth Segment, Inc., Jones Infomercial Networks, Inc., Jones Radio Holdings, Inc., Great American Country, Inc., Jones Galactic Radio, Inc., Jones Infomercial Network Ventures, Inc., Jones Galactic Radio Partners, Inc., Jones Radio Network, Inc., Jones Audio Services, Inc., Jones Radio Network Ventures, Inc., Jones MediaAmerica, Inc., Jones Broadcast Programming, Inc., Jones MatchMedia, Inc., and Jones MAI Radio, Inc. The only existing subsidiary of the Company that did not guarantee the Notes is the PIN Venture (the "Non-Guarantor Subsidiary"). Superaudio and Jones/Capstar were subsidiaries of the Company that did not guarantee the Notes. Superaudio ceased distributing its programming and all other operating activities on January 31, 2000. Jones Radio Network, Inc. purchased all Jones/Capstar assets on April 1, 2000 and now produces and distributes its programming. Assets and liabilities that were transferred to Jones Radio Network, Inc. are now reported under the "Subsidiary Guarantors." The Company has not provided separate complete financial statements and other disclosures of the respective Subsidiary Guarantors because management has determined that such information is not material to investors. There are no significant contractual restrictions on distributions from each of the Subsidiary Guarantors to the Company. Investments in subsidiaries are required to be accounted for by investors on the equity method for purposes of the supplemental condensed consolidating financial statement presentation. Under this method, investments are recorded at cost and adjusted for the investor company's ownership share of the subsidiaries' cumulative results of operations. In addition, investments increase in the amount of contributions to subsidiaries and decrease in the amount of distributions from subsidiaries. The elimination entries necessary for consolidation purposes eliminate the equity method accounting for the investment in subsidiaries and the equity in earnings of subsidiaries, intercompany payables and receivables and other transactions between subsidiaries including contributions and distributions. Sections 13 and 15(d) of the Securities Exchange Act of 1934 require presentation of the following supplemental condensed consolidating financial statements. Presented below is condensed consolidating financial information for the Company and its subsidiaries as of and for the three months ended March 31, 2000 and 2001. 7 JONES MEDIA NETWORKS, LTD. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS - FOR THE THREE MONTHS ENDED MARCH 31, 2000: (IN THOUSANDS)

UNAUDITED CONDENSED CONSOLIDATING CASH FLOWS - FOR THE THREE MONTHS ENDED MARCH 31, 2000: (IN THOUSANDS)

8 JONES MEDIA NETWORKS, LTD. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF FINANCIAL POSITION - AS OF MARCH 31, 2001: (IN THOUSANDS)

9 JONES MEDIA NETWORKS, LTD. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS - FOR THE THREE MONTHS ENDED MARCH 31, 2001: (IN THOUSANDS)

UNAUDITED CONDENSED CONSOLIDATING CASH FLOWS - FOR THE NINE MONTHS ENDED MARCH 31, 2001: (IN THOUSANDS)

10 JONES MEDIA NETWORKS, LTD. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (7) REPORTABLE SEGMENTS During the three months ended March 31, 2000 and 2001, the Company had five reportable segments: network radio, cable television programming, Internet advertising sales services, satellite services and general and administrative-corporate. The Company's reportable segments have been determined in accordance with the Company's internal management structure. The Company evaluates performance based on many factors, one of the primary measures is EBITDA. EBITDA represents operating income (loss) plus depreciation and amortization minus the EBITDA attributable to the minority interests in the PIN Venture, a consolidated 55%-owned subsidiary. The following tables set forth the Company's financial results by operating segments. The presentation of reportable segments has been changed from that presented in the prior periods to combine the results of operations from Internet websites related to the Company's radio programming with the network radio segment and the results of operations from Internet websites related to one of the Company's cable television networks with the cable television programming segment. Because of the complementary nature of the Company's Internet websites to their respective radio program and cable television network counterparts, the Company has decided to include the results of operations of these companion websites in the Company's respective network radio and cable television programming operations. In addition, the Company has combined the presentation of its radio programming content and radio advertising sales services segments into the network radio segment. Management believes that this presentation provides a more meaningful analysis of the Company's business segments.

11 JONES MEDIA NETWORKS, LTD. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Segment EBITDA excludes intersegment transactions between the satellite services and cable programming segments for the satellite services provided to the PIN Venture and Great American Country for $956,000, and $1,046,000, for the three months ended March 31, 2000 and 2001, respectively. Segment EBITDA differs from operating income (loss) of each of the segments by the amount of depreciation and amortization expenses of each segment. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of results of the Company's financial condition and results of operations contains, in addition to historical information, forward-looking statements that are based upon certain assumptions and are subject to a number of risks and uncertainties. The Company's actual results may differ significantly from the results described in such forward-looking statements. RESULTS OF OPERATIONS The following table sets forth the amount of, and percentage relationship to total net revenues of, certain items included in the Company's historical unaudited consolidated statements of operations for the three months ended March 31, 2000 and 2001:

13 The following table sets forth EBITDA for the three months ended March 31, 2000 and 2001. EBITDA is unaudited and represents operating income (loss) plus depreciation and amortization and adjusted for EBITDA attributable to the minority interest in the PIN Venture, a consolidated 55.3%-owned subsidiary. Management acknowledges that EBITDA is not a measure of performance or liquidity calculated in accordance with generally accepted accounting principles. However, EBITDA is a measure widely used by analysts and investors in the media industry to determine a company's operating performance and ability to service and incur debt. EBITDA should not be considered in isolation or as a substitute for net income (loss), cash flows from operating activities or other consolidated income or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity.

THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001 TOTAL REVENUES. Total revenues decreased $1.4 million, or 7%, from $20.1 million for the three months ended March 31, 2000 to $18.7 million for the three months ended March 31, 2001. This decrease was due to decreased revenues in our cable television programming operation because of lower rates charged for the advertising inventory resulting in an overall softening of the long-form advertising market. In addition, satellite services revenues decreased due to a decrease in fees charged to an affiliated party because of reduced service levels required by the affiliate, which ceased network operations at the end of the first quarter of 2000, as well as the termination of certain of its remaining satellite services in December 2000. TOTAL OPERATING EXPENSES. Total operating expenses increased $2.6 million, or 20%, from $13.0 million for the three months ended March 31, 2000 to $15.6 million for the three months ended March 31, 2001. The increase is from the greater expenditures for new network radio and cable television programs and products offered beginning in mid-year 2000 and early 2001, as well as increased operating expenses to develop our Internet advertising sales business. In addition, cable television programming expenses increased due to an increase in rebates paid by PIN to cable system and Direct Broadcast Satellite ("DBS") operators due to a 41% increase in full-time equivalent subscribers ("FTREs"). As a percentage of total revenues, total operating expenses increased from 65% for the three months ended March 31, 2000 to 84% for the three months ended March 31, 2001. SELLING AND MARKETING. Selling and marketing expenses increased $0.3 million, or 11%, from $2.3 million for the three months ended March 31, 2000 to $2.6 million for the three months ended March 31, 2001. This increase is due primarily to increased expenditures to attract additional radio and cable television affiliates and increased selling and marketing expenses incurred to launch new radio programs. GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased $0.2 million, or 20%, from $0.8 million for the three months ended March 31, 2000 to $0.6 million for the three months ended March 31, 2001. This change was due to decreases in Internet-related support expenses and other expenses. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses increased $0.2 million, or 5%, from $3.4 million for the three months ended March 31, 2000 to $3.6 million for the three months ended March 31, 2001. This increase is due primarily to an increase in amortization of payments made under certain cable programming distribution agreements and an increase in depreciation expenses related to new equipment purchased. 14 TOTAL OPERATING INCOME (LOSS). Operating income (loss) decreased $4.4 million, from operating income of $0.7 million for the three months ended March 31, 2000 to operating loss of $(3.7) million for the three months ended March 31, 2001, as a result of the factors stated above. TOTAL EBITDA. EBITDA decreased $3.4 million, or 92%, from $3.7 million for the three months ended March 31, 2000, to $0.3 million for the three months ended March 31, 2001, as a result of the factors stated above. TOTAL OTHER EXPENSE. Total other expense increased $0.2 million, or 6%, from $2.9 million for the three months ended March 31, 2000 to $3.1 million for the three months ended March 31, 2001. The increase is due primarily to $0.2 million increase in other expense related to write-offs of disposed equipment and intangible assets. TOTAL NET LOSS. Net loss increased $3.8 million, or 146%, from $(2.6) million for the three months ended March 31, 2000 to $(6.4) million for the three months ended March 31, 2001, as a result of the factors stated above. NETWORK RADIO REVENUES. Network radio revenues increased $0.1 million, or 1%, from $9.8 million for the three months ended March 31, 2000 to $9.9 million for the three months ended March 31, 2001. This increase was due to revenue generated from programming launched in late 2000 and during first quarter 2001, which was almost entirely offset by the lower advertising rates and sell-out percentages in the first quarter of 2001 as compared to the similar quarter in 2000, and a contraction in audience, and, in certain cases, elimination of some of our program offerings. We are currently experiencing a softer network radio advertising market in 2001 as compared to 2000, due to a slowing economy and a lack of Internet company advertising, which caused lower sell-out percentages. During the first quarter of 2000, we benefited from very strong network radio advertising demand, driven primarily by strong economic conditions, which demand was further enhanced by a significant increase in the volume of network radio advertising by Internet companies. Due to very strong demand for network radio advertising in 2000, our network radio business achieved virtually 100% inventory sell-out percentages. EXPENSES. Network radio expenses increased $1.7 million, or 19%, from $9.0 million for the three months ended March 31, 2000 to $10.7 million for the three months ended March 31, 2001. This increase was primarily due to: o $0.8 million increase in operating expenses due to the increase in the number of radio programs and products we offered including increased license fees for certain programming, as well as an increase in the number of our radio station affiliates; o $0.4 million increase in selling and marketing expenses to increase the number of radio stations receiving our existing programming and to promote the launch of new programs; o $0.2 million increase in producer fees for certain programming added in late 2000; o $0.2 million increase in management, support costs and other; and o $0.1 million increase in depreciation and amortization expenses related to new equipment purchased for the upgrades of certain radio programming studios and purchase of new satellite receivers. As a percentage of network radio revenues, network radio expenses increased from 92% for the three months ended March 31, 2000 to 108% for the three months ended March 31, 2001. The increase in network radio expenses as a percentage of network radio revenues is due primarily to higher costs incurred to license, distribute (to increase the number of) new radio programs we offer, as well as the softer advertising market experienced in 2001 in comparison to 2000 which has resulted in relatively flat revenue growth in the first quarter of 2001. OPERATING INCOME (LOSS). Operating income (loss) decreased $1.6 million from an operating income of $0.8 million for the three months ended March 31, 2000 to an operating loss of $(0.8) million for the three months ended March 31, 2001 as a result of the factors stated above. SEGMENT EBITDA. Segment EBITDA decreased $1.5 million, or 62%, from $2.4 million for the three months ended March 31, 2000, to $0.9 million for the three months ended March 31, 2001 as a result of the factors stated above. 15 CABLE TELEVISION PROGRAMMING REVENUES. Cable television programming revenues decreased $0.7 million, or 8%, from $8.7 million for the three months ended March 31, 2000 to $8.0 million for the three months ended March 31, 2001. This decrease was due primarily to a decrease in PIN's revenues, which were partially offset by an increase in GAC's revenues. o In the first quarter of 2001, PIN added a number of significant cable television systems and advertising markets including Baltimore, Wilkes-Barre, Union, Lebanon, Hillsboro, Colorado Springs, Madison, and Pittsburgh. In addition, PIN was launched on The DISH Network during the first quarter. While PIN's FTRE grew 41%, our revenues decreased $1.1 million, or 16%, as a result of a decrease in rates charged for its infomercial advertising inventory. The decrease in PIN's infomercial rates is due to a lack of new infomercials, a decreasing number of infomercial suppliers and a slowing economy. o GAC's revenues increased $0.4 million, or 22%, as a result of a $0.3 million, or 20%, increase in advertising revenues driven by increases in national advertising revenues and a $0.1 million, or 30%, increase in license fees charged to cable system operators who distribute GAC's programming. While GAC subscribers (as reported by cable operators) decreased by 3.7% at the end of the first quarter of 2001 as compared to 2000, advertising revenues increased due to increases in national advertising revenues in the first quarter of 2001 as compared to 2000. We anticipate that we will continue to experience a soft cable television advertising market through the remainder of 2001. EXPENSES. Cable television programming expenses rose $0.9 million, or 11%, from $8.4 million for the three months ended March 31, 2000 to $9.3 million for the three months ended March 31, 2001. This was primarily due to: o an increase of $0.7 million in rebates paid to cable systems receiving PIN that was driven by a 41% increase in the number of FTREs receiving PIN; o an increase of $0.1 million in depreciation and amortization expenses primarily related to the amortization of additional GAC cable programming distribution agreement payments; o an increase of $0.1 million as a result of new associates hired to sell GAC traditional spot advertising; o an increase of $0.1 million relating to programming expenses incurred to enhance GAC's original programming and to secure an additional PIN satellite feed needed temporarily in order to provide programming to a DBS provider; and o a decrease of $0.1 million in PIN's selling and marketing expenses. As a percentage of cable television programming revenues, cable television programming expenses increased from 97% for the three months ended March 31, 2000 to 117% for the three months ended March 31, 2001. The increase in cable television programming expenses as a percentage of cable television programming revenues is due primarily to higher PIN rebate costs paid to cable system and DBS operators, as well as the softer advertising market experienced in 2001 in comparison to 2000 which has resulted in a decrease in rates charged for infomercial advertising inventory in the first quarter of 2001. For the three months ended March 31, 2000 and 2001, PIN made rebates of approximately 74% and 99%, respectively, of its revenues to cable system and DBS operators receiving its programming. This increase in rebates relative to revenues was due to a significant decrease in PIN revenues driven by poor infomercial advertising market conditions existing during the first quarter 2001. In addition, rebates increased due to a 41% increase in total PIN FTREs at the end of the first quarter of 2001 as compared to 2000. While we are currently undertaking certain measures to decrease our PIN rebate costs, including negotiating lower rebates with cable system operators as their carriage agreements come up for renewal, there can be no assurance that we will be able to reduce these costs to the mid 70% range we have achieved in the past. PIN entered into an short-term agreement with Echostar to distribute PIN's programming on Echostar's DISH Network beginning in March 2001. PIN launched on The DISH Network in March 2001 on a secondary satellite feed established to isolate and test the economic potential to PIN of distribution through a DBS provider. Due to the launch of an additional PIN satellite feed needed temporarily to provide programming to Echostar, cable television programming expenses including rebates paid to Echostar increased approximately $200,000 beginning in March 2001. We estimate that cable television expenses relating to this agreement 16 will increase on a monthly basis as additional DBS subscribers are added. However, at such time as the PIN satellite feed for this customer is eliminated, cable programming expense will decrease by approximately $30,000 per month. As part of our efforts to increase GAC subscriber distribution, GAC entered into a digital satellite distribution agreement with AT&T's Headend in the Sky, Inc. ("HITS"), which will enable GAC to broadcast its programming on the HITS digital platform to cable systems who elect to carry GAC on their digital programming tiers. Digital satellite distribution expenses increased approximately $40,000 per month beginning in November 2000 and we estimate that expenses will increase to approximately $70,000 per month by the fourth quarter of 2001. Our efforts to increase GAC subscriber distribution in 2001 is largely dependent upon our ability to attract cable operators to carry GAC on their digital programming tiers and to secure carriage with one or more direct broadcast satellite providers. We anticipate GAC's subscriber distribution will grow modestly in the remainder of 2001, with most growth anticipated in the second half of 2001. In 1999, we developed and enhanced a companion website to the GAC network. Internet programming and content expenses for this companion website commenced in the fourth quarter of 1999 and increased throughout 2000. This website generates e-commerce revenues by selling products to web site visitors; however to date, we have not generated significant e-commerce revenues from this website. Given the lack of meaningful revenues generated thus far, we will continue to pursue measures to reduce costs and re-direct resources to more efficiently promote the GAC network via the Internet. OPERATING INCOME (LOSS). Operating income (loss) decreased $1.6 million from an operating income of $0.2 million for the three months ended March 31, 2000 to an operating loss of $(1.4) million for the three months ended March 31, 2001 as a result of the factors stated above. SEGMENT EBITDA. Segment EBITDA, before adjusting for the EBITDA attributable to the PIN Venture's minority interest, decreased $1.5 million from $1.0 million for the three months ended March 31, 2000, to $(0.5) million for the three months ended March 31, 2001 as a result of the factors stated above. INTERNET ADVERTISING SALES In 2000, we began offering Internet advertising sales services with a focus on streaming media advertising. Operating expenses for Internet advertising services increased beginning in January 2000 and continued to increase throughout 2000, as we built a sales and technology infrastructure. REVENUES. We did not generate significant Internet advertising sales revenues for the three months ended March 31, 2001. EXPENSES. Internet advertising sales expenses increased $0.6 million, or 550%, from $0.1 million for the three months ended March 31, 2000 to $0.7 million for the three months ended March 31, 2001 as a result of new associates hired to sell and support our streaming media advertising efforts. OPERATING LOSS. Operating loss increased $0.5 million from $(0.1) million for the three months ended March 31, 2000 to $(0.6) million for the three months ended March 31, 2001. SEGMENT EBITDA. Segment EBITDA decreased $0.5 million from $(0.1) million for the three months ended March 31, 2000 to $(0.6) million for the three months ended March 31, 2001. In 2000, we began offering Internet advertising sales services with initial focus on streaming media advertising. We developed a sales and technology infrastructure to seek to grow this business as this new advertising medium appeared to gain momentum. The success of this business is highly dependent upon our ability to reach a sufficient audience and to aggregate, target and accurately measure such audience (through still-emerging technologies) in a way that is attractive to national advertisers. In addition there are a number of recent developments which adversely affect streaming media advertising. One such event is recent claims by two important unions that radio stations who stream advertising produced by union talent are liable for royalties separate from those applicable to the radio broadcast of such advertising. These claims have led many major radio station operators to cease streaming of their programming. Other factors include the current economic slowdown, advertisers' reluctance to spend advertising funds in non-traditional media given the existing advertising environment, the continued financial challenges faced by streaming companies and the changing technology needed to aggregate, target and accurately measure streaming audiences. Overall, these factors have 17 prompted from us a decision regarding the future of this part of our business, a decision which we expect to make soon. SATELLITE SERVICES REVENUES. Satellite services revenues decreased $0.9 million, or 52%, from $1.7 million for the three months ended March 31, 2000 to $0.8 million for the three months ended March 31, 2001. This decrease was primarily due to: o $0.8 million decrease in satellite services fees charged to an affiliated party when it ceased network operations at the end of the first quarter of 2000. This affiliate made a one-time termination payment for all of its remaining satellite services commitments in December 2000; and o the termination in January 2000 of a third party satellite services agreement, which generated $0.1 million in satellite services revenues for the three months ended March 31, 2000. EXPENSES. Satellite services expenses decreased $0.1 million, or 13%, from $1.2 million for the three months ended March 31, 2000 to $1.1 million for the three months ended March 31, 2001. This decrease is primarily due to cost savings realized as a result of the related party ceasing all programming operations as of March 31, 2000. As a percentage of satellite services revenues, satellite services expenses increased from 71% for the three months ended March 31, 2000 to 131% for the three months ended March 31, 2001. Because a significant portion of the costs of our satellite services is fixed, when we decrease our utilization of the excess capacity on our Satcom C-3 transponder, the percentage of satellite services expenses in relation to the satellite services revenues increases. The leasing of capacity on our transponder is subject to a numbers of factors, including cable network demand and general availability of transponder space. There can be no assurance that we will be successful in leasing our excess satellite transponder capacity. OPERATING INCOME (LOSS). Operating income (loss) decreased $0.8 million from an operating income of $0.5 million for the three months ended March 31, 2000 to an operating loss of $(0.3) million for the three months ended March 31, 2001 as a result of the factors stated above. SEGMENT EBITDA. Segment EBITDA decreased $0.8 million, or 52%, from $1.5 million for the three months ended March 31, 2000, to $0.7 million for the three months ended March 31, 2001 as a result of the factors stated above. LIQUIDITY AND CAPITAL RESOURCES Since our inception, we have incurred net losses, primarily as a result of expenses associated with developing and launching our programming networks as well as financing costs. For the three months ended March 31, 2000 and 2001, we incurred net losses of $(2.6) million and $(6.4) million, respectively. Net cash used in operating activities for the three months ended March 31, 2000 and 2001 was $(0.5) million and $(5.4) million, respectively. The implementation of our growth strategies depends on a number of factors, including the availability of cash generated from operations and available cash balances, and may require additional equity and/or debt financings, particularly to make significant acquisitions. Our indenture currently permits secured borrowings of up to $20.0 million. Currently, we do not have a credit facility in place. We had cash and cash equivalents and available for sale securities of $11.2 million as of March 31, 2001. We believe that our cash balances, available for sale securities and operating cash flow, including the cash flows of and dividends and distributions from our subsidiaries, will fund our operating cash flow requirements through 2001. We will continue to depend significantly upon the earnings and cash flows of, and dividends and distributions from, our subsidiaries to pay our expenses, meet our obligations and pay interest and principal on our Senior Notes and our other indebtedness as it may exist from time-to-time. While the terms of the PIN Venture generally require the mutual consent of ourselves and our joint venture partner to distribute or advance funds to ourselves, there are no significant contractual restrictions on distributions from our subsidiaries. INVESTING ACTIVITIES For the three months ended March 31, 2000 and 2001, net cash provided by (used in) investing activities was $(1.8) million and $0.2 million, respectively. 18 Our investing activities for the three months ended March 31, 2001 consisted primarily of the following: o $2.2 million proceeds from the sale of available for sale securities; o $(1.3) million in cable programming distribution agreement payments for GAC; o $(0.6) million for the purchase of property and equipment; and o $(0.1) million to purchase certain radio programs and other intangible assets. Our investing activities for the three months ended March 31, 2000 consisted primarily of the following: o $1.6 million proceeds from the sale of available for sale securities; o $(2.2) million in cable programming distribution agreement payments for GAC; o $(0.7) million to purchase certain radio programs; and o $(0.5) million for the purchase of property and equipment. Total capital expenditures for the balance of 2001 are estimated to be approximately $2.8 million, which will be used primarily to upgrade certain cable television and radio related earth station equipment, satellite receivers and to purchase computer hardware and software. Total cable programming distribution agreement payments for GAC for the balance of 2001 are estimated to be approximately $3.8 million. FINANCING ACTIVITIES For the three months ended March 31, 2000 and 2001, net cash used in financing activities was $(0.3) million and $0 million, respectively. In October 2000, we withdrew our registration for an initial public offering due to unfavorable market conditions. At such time as market conditions improve, we will reconsider an initial public offering of our Class A Common Stock. Further, we are considering a number of financing alternatives to provide us with additional liquidity to implement our growth strategies. There can be no assurance we will be successful in these efforts or that financing will be available on terms we view as acceptable. REVISED GUIDANCE FOR 2001 The following information provided below represents guidance on anticipated operating results of the Company and its businesses for the second quarter ending June 30, 2001. Current advertising marketplace conditions as well as certain meaningful developments and transactions that we are currently pursuing to improve our operating results have created a lack of visibility in accessing our expected results for the second half of 2001. Accordingly, we have withdrawn our previous guidance provided in our earnings call on February 8, 2001, and therefore advise investors to not rely on the full-year guidance given during said call. The following guidance represents "forward-looking statements" within the meaning of the federal securities laws and is subject to the safe harbor under those laws. Forward-looking statements are not statements of historical facts, but rather reflect our current expectations as to our future business plans, results of operations and/or financial condition. Our expectations for the Company's future necessarily involve a number of assumptions and estimates, and various risk factors, many of which are beyond our ability to control or predict and that could cause actual results to differ materially from these expectations. These risk factors include distribution of our radio and television programming, intense competition in our industry, our dependence upon earnings and cash flow of our subsidiaries, dependence on advertising relationships and revenues, our outstanding debt and the restrictions imposed by an indenture governing our existing debt, business expansion issues, and the other risks described in the most recent Annual Report on Form 10-K filed with the SEC. Accordingly, forward-looking statements are not guarantees of future performance, and should not be unduly relied upon. The forward-looking statements made herein are based on expectations existing on the date of this report, and we assume no obligation to update these forward-looking statements following the date of such report. 19 ($ IN 000S)

20 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk represents the risk of loss that may impact our financial position, results of operations, or cash flows due to adverse changes in financial market prices. We are exposed to market risk through interest rates. This exposure is directly related to our normal funding and investing activities. As of March 31, 2001, none of our current liabilities was subject to changes in interest rates. ITEM 5: OTHER MATERIALLY IMPORTANT EVENTS None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits None b) Reports on Form 8-K None 21 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 MEDIA NETWORKS, LTD. By: /s/ Jeffery C. Wayne ---------------------------------------- Jeffery C. Wayne President Dated: May 11, 2001 By: /s/ Jay B. Lewis ---------------------------------------- Jay B. Lewis Group Vice President/Finance (Principal Financial Officer) Dated: May 11, 2001 22

JONES MEDIA NETWORKS LTD 10-Q