FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

ý Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2001.

o 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.

Yesý Noo

JONES MEDIA NETWORKS, LTD. AND SUBSIDIARIES

INDEX

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Unaudited Consolidated Statements of Financial Position as of December 31, 2000 and September 30, 2001

	Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2000 and 2001

	Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 2001

	Notes to Unaudited Consolidated Financial Statements

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations

PART II. OTHER INFORMATION

Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 5.	Other Materially Important Events
Item 6.	Exhibits and Reports on Form 8-K

JONES MEDIA NETWORKS, LTD. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

	December 31,			September 30,
	2000			2001
CURRENT ASSETS:
Cash and cash equivalents	$	14,900,333		$	1,996,466
Available for sale securities	3,711,739			—
Accounts receivable, net of allowance for doubtful accounts of $2,017,478 and $1,896,146, respectively	15,991,148			15,411,122
Prepaid expenses	415,769			508,538
Other current assets	915,157			1,175,254
Total current assets	35,934,146			19,091,380
Property and equipment, net	20,750,445			18,280,598
Intangible assets, net	59,822,488			58,145,731
Debt offering costs, net of accumulated amortization of $1,735,429 and $2,296,070, respectively	3,363,347			2,802,706
Net non-current assets of discontinued operations (Note 2)	82,548			106,140
Other non-current assets	1,587,156			1,646,148
Total assets	$	121,540,130		$	100,072,703

LIABILITIES AND SHAREHOLDERS’ DEFICIT

CURRENT LIABILITIES:
Accounts payable—trade	$	6,077,876		$	5,448,527
Producers’ fees payable	5,351,664			6,085,369
Cable programming distribution agreement payments payable	2,238,934			1,602,809
Accrued liabilities and other current liabilities	3,195,484			1,828,451
Accounts payable—Jones International, Ltd.	232,260			337,162
Interest payable	5,875,000			2,937,500
Net current liabilities of discontinued operations (Note 2)	—			107,284
Deferred revenues	657,536			965,543
Total current liabilities	23,628,754			19,312,645
LONG-TERM LIABILITIES:
Customer deposits and deferred revenues	601,026			633,048
Other long-term liabilities	1,026,131			1,089,486
Senior secured notes	100,000,000			100,000,000
Total long-term liabilities	101,627,157			101,722,534
MINORITY INTEREST IN
CONSOLIDATED SUBSIDIARIES	297,874			(647,307		)
COMMITMENTS AND CONTINGENCIES (NOTE 5)
COMMON STOCK SUBJECT TO PUT, Class A Common Stock, $.01 par value: 136,540 shares issued and outstanding, respectively	1,310,784			1,310,784
SHAREHOLDERS’ DEFICIT:
Series A Preferred Stock, $.01 par value: 1,918,000 shares authorized, issued and outstanding	23,975,000			23,975,000
Class A Common Stock, $.01 par value: 100,000,000 shares authorized; 5,329,463 shares issued and outstanding, respectively	53,295			53,295
Class B Common Stock, $.01 par value: 2,231,400 shares authorized, issued and outstanding	22,314			22,314
Additional paid-in capital	28,453,436			28,453,436
Accumulated other comprehensive loss	(2,299		)	—
Accumulated deficit	(57,826,185		)	(74,129,998		)
Total shareholders’ deficit	(5,324,439		)	(21,625,953		)
Total liabilities and shareholders’ deficit	$	121,540,130		$	100,072,703

The accompanying notes are an integral part of these unaudited consolidated financial statements.

JONES MEDIA NETWORKS, LTD. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended September 30,						Nine Months Ended September 30,
	2000			2001			2000			2001

Revenues, including revenues from affiliated entities of $812,324, $422,502, $2,756,365 and $1,108,206, respectively (Note 3)	$	20,173,969		$	18,324,267		$	60,834,595		$	58,072,667
Operating expenses, including charges from affiliated entities of $1,633,911, $1,335,111, $4,856,342 and $4,499,657 respectively (Note 3):
Operations	13,023,014			13,811,714			39,126,647			45,081,052
Selling and marketing	2,772,063			2,302,914			7,622,309			7,660,586
General and administrative	609,803			402,567			1,866,431			1,506,055
Depreciation and amortization	3,609,474			4,116,029			10,582,544			11,285,840
Total operating expenses	20,014,354			20,633,224			59,197,931			65,533,533
OPERATING INCOME (LOSS)	159,615			(2,308,957		)	1,636,664			(7,460,866		)
OTHER (INCOME) EXPENSE:
Interest expense (Note 3)	3,124,881			3,124,380			9,411,558			9,373,141
Interest income	(239,328		)	(79,556		)	(713,504		)	(457,489		)
Equity in loss (income) of subsidiaries	—			—			(2,225		)	—
Write-off of equity offering costs	725,128			—			725,128			—
Other expense (income)	(51,219		)	(102,975		)	(179,670		)	37,985
Total other expense, net	3,559,462			2,941,849			9,241,287			8,953,637
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	(3,399,847		)	(5,250,806		)	(7,604,623		)	(16,414,503		)
Income tax provision	3,610			5,534			48,357			33,000
LOSS FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST	(3,403,457		)	(5,256,340		)	(7,652,980		)	(16,447,503		)
Minority interest in net income (loss) of consolidated subsidiaries	70,757			(284,369		)	659,175			(1,392,511		)
NET LOSS FROM CONTINUING OPERATIONS	(3,474,214		)	(4,971,971		)	(8,312,155		)	(15,054,992		)
Discontinued Operations (Note 2):
Income (loss) from operations of discontinued internet advertising sales services segment	1,056,813			(17,051		)	669,095			(1,212,665		)
Loss on disposal of discontinued operations	—			(36,156		)	—			(36,156		)
NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS	1,056,813			(53,207		)	669,095			(1,248,821		)

NET LOSS	$	(2,417,401	)	$	(5,025,178	)	$	(7,643,060	)	$	(16,303,813	)

ADJUSTMENTS TO ARRIVE AT COMPREHENSIVE LOSS	(6,805		)	(4,831		)	(19,379		)	(2,299		)
COMPREHENSIVE LOSS	$	(2,410,596	)	$	(5,020,347	)	$	(7,623,681	)	$	(16,301,514	)

BASIC LOSS PER SHARE:
Loss before discontinued operations	(0.45		)	(0.64		)	(1.08		)	(1.96		)
Income (loss) from discontinued operations	0.14			(0.01		)	0.08			(0.16		)
Net loss	$	(0.31	)	$	(0.65	)	$	(1.00	)	$	(2.12	)

DILUTED LOSS PER SHARE:
Loss before discontinued operations	(0.46		)	(0.65		)	(1.09		)	(1.97		)
Income (loss) from discontinued operations	0.14			(0.01		)	0.09			(0.16		)
Net loss	$	(0.32	)	$	(0.66	)	$	(1.00	)	$	(2.13	)

WEIGHTED AVERAGE COMMON SHARES:
Basic	7,671,117			7,697,403			7,661,163			7,697,403
Fully diluted	7,630,531			7,640,131			7,620,577			7,640,131

The accompanying notes are an integral part of these unaudited consolidated financial statements.

JONES MEDIA NETWORKS, LTD. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Nine Months Ended
	September 30,
	2000			2001

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(7,643,060	)	$	(16,303,813	)
Adjustment to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	10,597,413			11,326,495
Amortization of debt offering costs	588,472			560,641
Distribution received	405,992			—
Equity in income of subsidiaries	(2,225		)	—
Gain on distributions from affiliates	(142,650		)	—
Write-off of deferred equity offering costs	725,128			—
Write-offs of equipment and intangibles assets	65,380			110,235
Minority interest in net income (loss) of consolidated subsidiaries	659,175			(1,392,512		)
Net change in assets and liabilities:
Decrease (increase) in receivables	(393,089		)	537,735
Decrease in receivables from affiliates	473,759			—
Increase in prepaid expenses and other current assets	(461,002		)	(396,698		)
Decrease (increase) in other assets	(37,929		)	4,363
Decrease in accounts payable	(295,362		)	(611,807		)
Increase in producers’ fees payable	375,385			814,975
Increase in accounts payable to Jones International, Ltd.	722,339			104,902
Decrease in interest payable	(2,937,500		)	(2,937,500		)
Increase in deferred revenues	14,677			308,007
Increase (decrease) in accrued and other liabilities	752,342			(1,220,442		)
Increase in customer deposits	31,807			32,022
Net cash provided by (used in) operating activities	3,499,052			(9,063,397		)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(2,226,400		)	(2,158,484		)
Proceeds from sale of available for sale securities	3,790,016			3,714,038
Cable programming distribution agreement payments	(5,281,109		)	(5,609,459		)
Purchases of intangible assets and programming	(812,898		)	(233,896		)
Distributions of capital from affiliates	15,000			—
Net cash used in investing activities	(4,515,391		)	(4,287,801		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions from minority interest	—			447,331
Payments for equity offering costs	(484,269		)	—
Net cash provided by (used in) financing activities	(484,269		)	447,331

DECREASE IN CASH AND CASH EQUIVALENTS	(1,500,608		)	(12,903,867		)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	13,270,784			14,900,333

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	11,770,176		$	1,996,466

SUPPLEMENTAL CASH FLOW DISCLOSURES:
Class A Common Stock issued for radio programs	$	671,865		$	—
Interest paid	$	11,750,000		$	11,750,000
Income tax paid	$	48,357		$	33,000

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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 September 30, 2001, the consolidated statements of operations for the three and nine months ended September 30, 2000 and 2001, and the statements of cash flows for the nine months ended September 30, 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 nine months ended September 30, 2001 are not necessarily indicative of results to be expected for the entire year, or for any other interim period.

Other Comprehensive Loss (Income)—Adjustments to other comprehensive loss (income) represent the net change in unrealized losses (gains) on available for sale securities.

Minority Interest—As of September 30, 2001, the Company is reflecting negative minority interest in consolidated subsidiaries on the accompanying balance sheets due to the accumulated net losses generated by the Product Information Network Venture, (“PIN Venture”) in excess of Cox Communications’ net investment in PIN Venture. To the extent the PIN Venture requires additional capital and such capital contributions are approved by the partners of the PIN Venture, Cox Communications is required to contribute their pro rata share of such capital contributions.

New Accounting Pronouncements— In June 2001, the FASB issued SFAS No. 141, “Business Combinations” and SFAS No. 142 “Goodwill and Other Intangible Assets.” These statements prohibit pooling-of-interests accounting for transactions initiated after June 30, 2001, require the use of the purchase method of accounting for all combinations after June 30, 2001, and establish new standards for accounting for goodwill and other intangibles acquired in business combinations. Goodwill will continue to be recognized as an asset, but will not be amortized as previously required by APB Opinion No. 17 “Intangible Assets.” Amortization expenses of approximately $573,000 and $745,000 were recognized relating to goodwill for the nine months ended September 30, 2000 and 2001, respectively. Certain other intangible assets with indefinite lives, if present, may also not be amortized. Instead, goodwill and other intangible assets will be subject to periodic (at least annual) tests for impairment and recognition of impairment losses in the future could be required based on a new methodology for measuring impairments prescribed by these pronouncements. The revised standards include transition rules and requirements for identification, valuation and recognition of a much broader list of intangibles as part of business combinations than prior practice, most of which will continue to be amortized. The Company’s prospective financial statements may be significantly affected by the results of future periodic tests for impairment. In addition, the amount and timing of non-cash charges related to intangibles acquired in business combinations will change significantly from prior practice.

Use of Estimates—The preparation of financial statements in conformity with generally accepted accounting principles in the United States 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) DISCONTINUED OPERATIONS

In August 2001, management approved a plan to close down the Company’s previously reported Internet Advertising Sales Services segment. On September 30, 2001, the Company ceased all operations of the Internet Advertising Sales Services business and anticipates to wrap up all aspects of the segment by December 31, 2001. The historical operating results have been segregated as “Discontinued Operations” on the accompanying Consolidated Statements of Operations for all periods presented. The related assets and liabilities have been separately identified on the consolidated Statements of Financial Position as “Net non-current assets” or “Net current liabilities of discontinued operations.” Discontinued Operations have not been segregated on the Consolidated Statements of Cash Flows. The Company has recorded impairment and exit costs of approximately $36,000 as a loss from Discontinued Operations in the accompanying consolidated financial statements.

The Company’s Internet advertising sales business, which is classified as Discontinued Operations, is summarized as follows:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2000		2001			2000		2001
	(in thousands except per share data)
Net revenues	$	1,505	$	35		$	1,506	$	113

Income (loss) before income taxes	$	1,057	$	(53	)	$	669	$	(1,249	)

Net income (loss)	$	1,057	$	(53	)	$	669	$	(1,249	)

Net income (loss) per share – basic	$	0.14	$	(0.01	)	$	0.08	$	(0.16	)

Net income (loss) per share – diluted	$	0.14	$	(0.01	)	$	0.09	$	(0.16	)

Net assets held for Discontinued Operations are carried at cost, which do not exceed estimated net realizable value, as follows:

	December 31,		September 30,
	2000		2001
	(in thousands)
Discontinued Operations:
Current assets	$	—	$	123
Current liabilities	—		(230		)
Net current liabilities of discontinued operations	$	—	$	(107	)

Non-current assets	$	83	$	106
Non-current liabilities	—		—
Net non-current assets of discontinued operations	$	83	$	106

(3) 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 network radio and 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 September 30, 2000 and 2001, Earth Segment charged its affiliates approximately $427,000 and $155,000 respectively, for these services. For the nine months ended September 30, 2000 and 2001, Earth Segment charged its affiliates approximately $1,601,000 and $439,000 respectively, for these services.

In addition, Jones Space Holdings, Inc. (“Space Holdings”), a wholly owned subsidiary of the Company, subleases satellite transponder capacity to certain of its affiliates. Satellite transponder lease revenues of approximately $385,000 and $267,000, were received from affiliates for the three months ended September 30, 2000 and 2001, respectively. Satellite transponder lease revenues of approximately $1,155,000 and $669,000, were received from affiliates for the nine months ended September 30, 2000 and 2001, respectively.

Operating Expenses—The PIN Venture is owned by the Company and by Cox Communications. The 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 September 30, 2000 and 2001, the PIN Venture paid system rebates to Cox Communications of approximately $937,000 and $873,000, respectively, for system rebates. For the nine months ended September 30, 2000 and 2001, the PIN Venture paid system rebates to Cox Communications of approximately $2,777,000 and $3,053,000 respectively, for system rebates.

The Company leases office space in Englewood, Colorado from an affiliate of Jones International. For the three months ended September 30, 2000 and 2001, the Company paid this affiliate approximately $134,000 and $83,000, respectively, for rent and associated expenses. For the nine months ended September 30, 2000 and 2001, the Company paid this affiliate approximately $373,000 and $275,000, 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 September 30, 2000 and 2001, the Company paid the affiliate approximately $335,000 and $191,000, respectively, for such services. For the nine months ended September 30, 2000 and 2001, the Company paid the affiliate approximately $1,025,000 and $581,000, respectively, for such services.

The Company and its consolidated subsidiaries reimburse Jones International and its affiliates for certain allocated administrative expenses. These expenses generally consist of salaries, related benefits and other related costs. Allocations of personnel costs are generally based on actual time spent by affiliated associates with respect to the Company. For the three months ended September 30, 2000 and 2001, the Company reimbursed Jones International and its affiliates approximately $228,000 and $188,000, respectively. For the nine months ended September 30, 2000 and 2001, the Company reimbursed Jones International and its affiliates approximately $612,000 and $591,000, 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 during 2000 for this service.

An affiliate of Jones International charged the Company approximately $11,000 for the nine months ended September 30, 2000 for the allocated costs of its airplane, which was used by the Company in connection with a proposed equity offering. No such costs were incurred during the three and nine month periods ended September 30, 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 September 30, 2001 was approximately $337,000.

(4) 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:

	For the Three Months ended						For the Nine Months ended
	September 30,						September 30,
	2000			2001			2000			2001

Loss from continuing operations	$	(3,474,214	)	$	(4,971,971	)	$	(8,312,155	)	$	(15,054,992	)
Income (loss) from Discontinued Operations	1,056,813			(53,207		)	669,095			(1,248,821		)
Net loss	$	(2,417,401	)	$	(5,025,178	)	$	(7,643,060	)	$	(16,303,813	)

Basic Per share amount:
Continuing operations	$	(0.45	)	$	(0.64	)	$	(1.08	)	$	(1.96	)
Discontinued Operations	0.14			(0.01		)	0.08			(0.16		)
Total	$	(0.31	)	$	(0.65	)	$	(1.00	)	$	(2.12	)

Shares – Basic	7,671,117			7,697,403			7,661,163			7,697,403

Diluted Per share amount:
Continuing operations	$	(0.46	)	$	(0.65	)	$	(1.09	)	$	(1.97	)
Discontinued Operations	0.14			(0.01		)	0.09			(0.16		)
Total	$	(0.32	)	$	(0.66	)	$	(1.00	)	$	(2.13	)

Shares – Diluted	7,630,531			7,640,131			7,620,577			7,640,131

Weighted average shares for basic EPS	7,671,117			7,697,403			7,661,163			7,697,403
Less: shares subject to put	40,586			57,272			40,586			57,272

Weighted average shares for diluted EPS	7,630,531			7,640,131			7,620,577			7,640,131

(5) 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 September 30, 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 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.

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. In the event the put option is exercised, the purchase price of the Class A Common Stock would be approximately $951,000. This amount represents a portion of the total license fees paid to the Company by the MSO during the period between the date of the agreement and December 1, 2000, and is based on the license fees generated from the total number of MSO subscribers receiving the Great American Country service at December 31, 1999.

(6) UNAUDITED CONDENSED CONSOLIDATING FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS

In July 1998, the Company issued $100 million of 11¾ percent Senior Secured Notes (the “Senior Notes”). The Senior 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 Networks, 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 nine months ended September 30, 2000 and 2001.

Unaudited Condensed Consolidating Statements of Operations – For the Nine Months Ended September 30, 2000:

(in thousands)

							Non-
	The			Subsidiary			Guarantor			Elimination
	Company			Guarantors			Subsidiaries			Entries			Reported

Revenues	$	—		$	43,186		$	18,954		$	(1,305	)	$	60,835
Operating expenses:
Operations	—			23,613			16,819			(1,305		)	39,127
Selling and marketing	—			6,959			663			—			7,622
General and administrative	1,866			—			—			—			1,866
Depreciation and amortization	57			10,422			104			—			10,583
Total operating expenses	1,923			40,994			17,586			(1,305		)	59,198
OPERATING INCOME (LOSS)	(1,923		)	2,192			1,368			—			1,637
OTHER EXPENSE (INCOME):
Interest expense	9,410			2			—			—			9,412
Interest income	(428		)	(117		)	(168		)	—			(713		)
Equity share of loss (income) of subsidiaries	(3,998		)	4,810			—			(814		)	(2		)
Other expense (income), net	736			(253		)	62			—			545
Total other expense (income)	5,720			4,442			(106		)	(814		)	9,242
Income (loss) before income taxes and minority interest	(7,643		)	(2,250		)	1,474			814			(7,605		)
Income tax provision	—			47			1			—			48
Income (loss) before minority interest	(7,643		)	(2,297		)	1,473			814			(7,653		)
Minority interest in net income of consolidated subsidiaries	—			—			—			659			659
NET INCOME (LOSS) FROM CONTINUED OPERATIONS	(7,643		)	(2,297		)	1,473			155			(8,312		)

NET INCOME FROM DISCONTINUED OPERATIONS:
Net income from discontinued operations	—			669			—			—			669

NET INCOME (LOSS)	$	(7,643	)	$	(1,628	)	$	1,473		$	155		$	(7,643	)

Unaudited Condensed Consolidating Cash Flows – For the Nine Months Ended September 30, 2000:

(in thousands)

							Non-
	The			Subsidiary			Guarantor			Elimination
	Company			Guarantors			Subsidiaries			Entries			Reported
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(7,643	)	$	(1,628	)	$	1,473		$	155		$	(7,643	)
Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities:
Non-cash expenses	(1,400		)	14,285			167			(155		)	12,897
Net change in assets and liabilities	603			(2,699		)	341			—			(1,755		)
Net cash provided by (used in) operating activities	(8,440		)	9,958			1,981			—			3,499
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(25		)	(2,014		)	(188		)	—			(2,227		)
Proceeds from/purchase of investments	4,673			19			(902		)	—			3,790
Purchase of intangible assets	(9		)	(6,085		)	—			—			(6,094		)
Distributions of capital from affiliates	—			15			—			—			15
Net cash provided by (used in) investing activities	4,639			(8,065		)	(1,090		)	—			(4,516		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for equity offering costs	(484		)	—			—			—			(484		)
Net cash used in financing activities	(484		)	—			—			—			(484		)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(4,285		)	1,893			891			—			(1,501		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	7,889			2,708			2,674			—			13,271
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	3,604		$	4,601		$	3,565		$	—		$	11,770

Unaudited Condensed Consolidating Statements of Financial Position – As of September 30, 2001:

(in thousands)

							Non-
	The			Subsidiary			Guarantor			Elimination
	Company			Guarantors			Subsidiaries			Entries			Reported
ASSETS:
Cash and cash equivalents	$	1,350		$	539		$	107		$	—		$	1,996
Accounts receivable, net	—			14,240			1,171			—			15,411
Other current assets	63			1,621			—			—			1,684
Total current assets	1,413			16,400			1,278			—			19,091
Property and equipment, net	30			17,961			290			—			18,281
Intangible assets, net	2,803			55,343			—			—			58,146
Net non-current assets of discontinued operations	—			106			—			—			106
Other long-term assets	26,587			(21,271		)	—			(867		)	4,449
Total assets	$	30,833		$	68,539		$	1,568		$	(867	)	$	100,073
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT):
Accounts payable	$	464		$	2,078		$	2,907		$	—		$	5,449
Producers’ fees payable	—			6,085			—			—			6,085
Cable programming distribution agreements payments	—			1,603			—			—			1,603
Accrued liabilities	3,191			1,501			76			—			4,768
Net current liabilities of discontinued operations	—			107			—			—			107
Other current liabilities	(53,594		)	54,864			32			—			1,302
Total current liabilities	(49,939		)	66,238			3,015			—			19,314
Senior secured notes	100,000			—			—			—			100,000
Other long-term liabilities	1,089			634			—			—			1,723
Total long-term liabilities	101,089			634			—			—			101,723
Minority interest	—			—			—			(647		)	(647		)
Class A Common Stock subject to put	1,311			—			—			—			1,311
Shareholders’ equity (deficit):
Series A Preferred Stock	23,975			—			—			—			23,975
Class A Common Stock	53			—			—			—			53
Class B Common Stock	22			—			—			—			22
General Partners’ Contributions	—			—			1,350			(1,350		)	—
Additional paid-in capital	28,452			—			—			—			28,452
Accumulated other comprehensive income	—			—			—			—			—
Retained earnings (deficit)	(74,130		)	1,667			(2,797		)	1,130			(74,130		)
Total shareholders’ equity (deficit)	(21,628		)	1,667			(1,447		)	(220		)	(21,628		)
Total liabilities and shareholders’ equity (deficit)	$	30,833		$	68,539		$	1,568		$	(867	)	$	100,073

Unaudited Condensed Consolidating Statements of Operations – For the Nine Months Ended September 30, 2001:

(in thousands)

							Non-
	The			Subsidiary			Guarantor			Elimination
	Company			Guarantors			Subsidiaries			Entries			Reported
Revenues	$	—		$	41,359		$	18,291		$	(1,577	)	$	58,073
Operating expenses:
Operations	—			25,820			20,838			(1,577		)	45,081
Selling and marketing	—			7,161			500			—			7,661
General and administrative	1,506			—			—			—			1,506
Depreciation and amortization	101			11,068			117			—			11,286
Total operating expenses	1,607			44,049			21,455			(1,577		)	65,534
OPERATING INCOME (LOSS)	(1,607		)	(2,690		)	(3,164		)	—			(7,461		)
OTHER EXPENSE (INCOME):
Interest expense	9,373			—			—			—			9,373
Interest income	(330		)	(76		)	(51		)	—			(457		)
Equity share of loss (income) of subsidiaries	5,654			(3,934		)	—			(1,720		)	—
Other expense, net	—			38			—			—			38
Total other expense (income)	14,697			(3,972		)	(51		)	(1,720		)	8,954
Income (loss) before income taxes and minority interest	(16,304		)	1,282			(3,113		)	1,720			(16,415		)
Income tax provision	—			33			—			—			33
Income (loss) before minority interest	(16,304		)	1,249			(3,113		)	1,720			(16,448		)
Minority interest in net loss of consolidated subsidiaries	—			—			—			(1,393		)	(1,393		)
NET INCOME (LOSS) FROM CONTINUED OPERATIONS	(16,304		)	1,249			(3,113		)	3,113			(15,055		)
NET LOSS FROM DISCONTINUED OPERATIONS:
Loss from discontinued operations	—			(1,213		)	—			—			(1,213		)
Loss on disposal of discontinued operations	—			(36		)	—			—			(36		)
NET LOSS FROM DISCONTINUED OPERATIONS	—			(1,249		)	—			—			(1,249		)

NET INCOME (LOSS)	$	(16,304	)	$	—		$	(3,113	)	$	3,113		$	(16,304	)

Unaudited Condensed Consolidating Cash Flows – For the Nine Months Ended September 30, 2001:

(in thousands)

							Non-
	The			Subsidiary			Guarantor			Elimination
	Company			Guarantors			Subsidiaries			Entries			Reported
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(16,304	)	$	-		$	(3,113	)	$	3,113		$	(16,304	)
Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities:
Non-cash expenses	6,701			6,899			118			(3,113		)	10,605
Net change in assets and liabilities	(4,525		)	1,010			151			—			(3,364		)
Net cash provided by (used in) operating activities	(14,128		)	7,909			(2,844		)	—			(9,063		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(12		)	(2,102		)	(44		)	—			(2,158		)
Proceeds from the sale of available for sale securities	3,312			2			400			—			3,714
Cable programming distribution agreements payments	—			(5,610		)	—			—			(5,610		)
Purchase of intangible assets	—			(234		)	—			—			(234		)
Net cash provided by (used in) investing activities	3,300			(7,944		)	356			—			(4,288		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions to partnership	—			(553		)				553			—
Contributions from minority interest	—			—			1,000			(553		)	447
Net cash provided by (used in) investing activities	—			(553		)	1,000			—			447
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(10,828		)	(588		)	(1,488		)	—			(12,904		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	12,178			1,127			1,595			—			14,900
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1,350		$	539		$	107		$	—		$	1,996

(7) REPORTABLE SEGMENTS

The Company currently has four reportable segments: network radio, cable television programming, satellite services and general and administrative-corporate. In August 2001, Management decided to discontinue the Company’s previously reported Internet Advertising Sales Services segment. On September 30, 2001, the Company ceased all operations of the Internet Advertising Sales Services business. The historical operating results have been segregated as “Discontinued Operations” below.

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 being EBITDA. Consolidated EBITDA represents operating income (loss) plus depreciation and amortization minus the EBITDA attributable to the minority interest in the PIN Venture, a consolidated 55.3%-owned subsidiary.

The following tables set forth the Company's financial results by 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.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2000			2001			2000			2001
	(in thousands)
Revenues:
Network radio	$	10,635		$	8,609		$	31,282		$	30,224
Cable television programming	7,864			8,822			24,856			25,328
Satellite services	1,676			893			4,697			2,521

Total revenues	$	20,175		$	18,324		$	60,835		$	58,073

EBITDA:
Network radio	$	2,449		$	998		$	7,795		$	4,399
Cable television programming	403			374			2,102			(1,388		)
Satellite services	1,528			838			4,189			2,320
Segment EBITDA	4,380			2,210			14,086			5,331
Reconciliation to operating income:
General and administrative – Corporate	(609		)	(402		)	(1,866		)	(1,506		)
Depreciation and amortization	(3,610		)	(4,117		)	(10,583		)	(11,286		)
Total operating income (loss)	$	161		$	(2,309	)	$	1,637		$	(7,461	)

Reconciliation of segment EBITDA to total EBITDA:
Segment total	$	4,380		$	2,210		$	14,086		$	5,331
General and administrative – Corporate	(609		)	(402		)	(1,866		)	(1,506		)
Adjustment related to minority interest EBITDA	(56		)	269			(658		)	1,363
Total EBITDA from continuing operations	3,715			2,077			11,562			5,188
EBITDA from Discontinued Operations	1,065			(39		)	684			(1,208		)
Total EBITDA	$	4,780		$	2,038		$	12,246		$	3,980

	Three Months Ended					Nine Month Ended
	September 30,					September 30,
	2000		2001			2000		2001
	(in thousands)
Depreciation and amortization:
Network radio	$	1,672	$	2,087		$	4,970	$	5,598
Cable television programming	955		1,062			2,663		2,758
Satellite services	953		936			2,893		2,829
Segment total	3,580		4,085			10,526		11,185
General and administrative – Corporate	30		32			57		101
Total depreciation and amortization for continuing operations	3,610		4,117			10,583		11,286
Discontinued Operations	8		14			15		41
Total depreciation and amortization	$	3,618	$	4,131		$	10,598	$	11,327

Capital expenditures:
Network radio	$	475	$	596		$	1,239	$	1,598
Cable television programming	244		12			530		136
Satellite services	248		11			298		380
Segment total	967		619			2,067		2,114
General and administrative – Corporate	23		4			25		12
Total capital expenditures for continuing operations	990		623			2,092		2,126
Discontinued Operations	16		–			135		32
Total capital expenditures	$	1,006	$	623		$	2,227	$	2,158

Cable programming distribution agreements payments:

Cable television programming	$	431	$	4,241		$	5,281	$	5,609

Discontinued Operations:
Revenue	$	1,505	$	35		$	1,506	113
EBITDA	1,065		(39		)	684		(1,208		)

	As of September 30,
	2000		2001
	(in thousands)
Total assets:
Network radio	$	35,256	$	34,723
Cable television programming	24,177		20,673
Satellite services	16,895		13,615
Segment total	76,328		69,011
General and administrative – Corporate	43,541		30,833
Total assets from continuing operations	119,869		99,844
Discontinued Operations	83		229
Total assets	$	119,952	$	100,073

Segment EBITDA excludes intersegment transactions between the satellite services and cable television programming segments for the satellite services provided to the PIN Venture and Great American Country for approximately $940,000, and $907,000, for the three months ended September 30, 2000 and 2001, respectively. For the nine months ended September 30, 2000 and 2001, intersegment charges to the PIN Venture and Great American Country totaled approximately $1,897,000, and $3,133,000, respectively.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of results of the Company’s financial condition and results of operations contains, in addition to historical information, forward-looking statements that are based upon certain assumptions and are subject to a number of risks and uncertainties. The Company’s actual results may differ significantly from the results described in such forward-looking statements.

Results of Operations

The following table sets forth the amount of, and percentage relationship to total net revenues of, certain items included in the Company’s historical unaudited consolidated statements of operations for the three and nine months ended September 30, 2000 and 2001:

	Three Months Ended September 30,									Nine Months Ended September 30,
	2000					2001				2000					2001
	(in thousands)
Revenues:
Network radio	$	10,635	53	%	$		8,609	47	%		$	31,282	51	%		$	30,224	52	%
Cable television programming	7,864		39		8,822			48			24,856		41			25,328		44
Satellite services	1,676		8		893			5			4,697		8			2,521		4

Total revenues	20,175		100		18,324			100			60,835		100			58,073		100

Operating expenses:
Network radio	9,858		49		9,698			53			28,457		47			31,423		54
Cable television programming	8,416		42		9,510			52			25,417		42			29,474		51
Satellite services	1,101		5		991			5			3,401		5			3,030		5

Total segment expenses	19,375		96		20,199			110			57,275		94			63,927		110
General and administrative	639		3		434			3			1,923		3			1,607		3

Total operating expenses	20,014		99		20,633			113			59,198		97			65,534		113

JONES MEDIA NETWORKS LTD 10-Q