ITEM 1. BUSINESS
THE PARTNERSHIP. Jones Intercable Investors, L.P. (the "Partnership") is a Colorado limited partnership that was formed to acquire, own and operate cable television systems in the United States. Jones Intercable, Inc., a Colorado corporation, is the general partner of the Partnership (the "General Partner"). The Partnership was formed for the purpose of acquiring and operating cable television systems. The Partnership owns the cable television systems serving the areas in and around the City of Independence and suburban Kansas City, Missouri communities (the "Independence System). See Item 2.
ITEM 2. PROPERTIES
The Partnership owned only one cable television system at December 31, 1994, the Independence System, which was acquired in May 1987.
The following sets forth (i) the monthly basic plus service rates charged to subscribers, (ii) the number of basic subscribers and pay units and (iii) the range of franchise expiration dates for the Independence System. The monthly basic service rates set forth herein represent, with respect to systems with multiple headends, the basic service rate charged to the majority of the subscribers within the Independence System. While the charge for basic plus service may have increased in 1993 in some cases as a result of the FCC's rate regulations, overall revenues may have decreased due to the elimination of charges for additional outlets and certain equipment. In cable television systems, basic subscribers can subscribe to more than one pay TV service. Thus, the total number of pay services subscribed to by basic subscribers are called pay units. As of December 31, 1994, the Independence System operated approximately 1,400 miles of cable plant, passing approximately 130,000 homes, representing an approximate 61% penetration rate. Figures for numbers of subscribers, miles of cable plant and homes passed are compiled from the General Partner's records and may be subject to adjustments.
Franchise expiration dates range from April 1995 to March 2009. Any franchise expiring in 1995 is in the renewal process.
PROGRAMMING SERVICES
Programming services provided by the Independence System include local affiliates of the national broadcast networks, local independent broadcast channels, the traditional satellite services (e.g., American Movie Classics, Arts & Entertainment, Black Entertainment Network, C-SPAN, The Discovery Channel, Lifetime, Entertainment Sports Network, Home Shopping Network, Mind Extension University, Music Television, Nickelodeon, Turner Network Television, The Nashville Network, Video Hits One, and superstations WOR, WGN and TBS. The Independence System also provides a selection of premium channel programming (e.g., Cinemax, Encore, Home Box Office, Showtime and The Movie Channel).
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
On February 22, 1994, the General Partner and The Jones Group, Ltd. ("Jones Group"), an affiliate of the General Partner engaged in the cable brokerage business, were named as defendants in a lawsuit brought by three individuals who are Class A Unitholders in the Partnership. The litigation, entitled Luva Vaughan et al v. Jones Intercable, Inc. et al, Case No. CV 94-3652 was filed in the Circuit Court for Jackson County, Missouri, and purports to be "for the use and benefit of" the Partnership. The suit seeks rescission of the sale of the Alexandria, Virginia cable television system (the "Alexandria System") by the Partnership to the General Partner, which sale was completed on November 2, 1992. It also seeks a constructive trust on the profits derived from the operation of the Alexandria System since the date of the sale, and seeks an accounting and other equitable relief. The plaintiffs also allege that the $1,800,000 commission paid to Jones Group by the Partnership in connection with such sale was improper, and ask the Court to order that such commission be repaid to the Partnership.
On October 21, 1994, plaintiffs filed a motion to dismiss Jones Group in response to Jones Group's argument that Missouri lacked personal jurisdiction over it. Plaintiffs' motion was granted, and plaintiffs then filed an action in Colorado against Jones Group seeking a return of the brokerage commission.
Under the terms of the partnership agreement of the Partnership, the General Partner has the right to acquire cable television systems from the Partnership at a purchase price equal to the average of three independent appraisals of the cable television system to be acquired. The plaintiffs claim that the appraisals obtained in connection with the sale of the Alexandria System were improperly obtained, were not made by qualified appraisers and were otherwise improper. The purchase price paid by the General Partner upon such sale was approximately $73,200,000.
The amount of damages being sought by the plaintiffs has not yet been specified. The General Partner believes both that the appraisals were properly obtained and that the brokerage commission was properly paid to Jones Group in accordance with the express terms of the partnership agreement. The General Partner further believes that its defenses are meritorious and it intends to vigorously defend the litigation.
The General Partner and Jones Group have filed motions for summary judgment in the Missouri and Colorado cases, respectively, which are pending before the Missouri and Colorado courts. In addition, the General Partner has conducted written discovery in the form of interrogatories and requests for production of documents, and has noticed the depositions of plaintiffs and plaintiffs' expert. A trial date of April 3, 1995 has been set in the Missouri case, but it will likely be continued in accordance with the General Partner's request. No trial date has been set in the Colorado case. Because defendants' motions have not been resolved and because discovery has just commenced, it is premature to present a realistic evaluation of the probability of a favorable or unfavorable outcome.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II.
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The Partnership's Class A Units are traded on the American Stock Exchange ("AMEX") under the symbol JTV.
The following table shows the high and low prices as regularly quoted on AMEX for each quarterly period of 1994 for the Partnership's Class A Units:
At February 15, 1995, there were 1,594 record holders of the Class A Units of the Partnership and 8,322,632 outstanding Class A Units.
The Partnership distributed $.15 per Class A Unit for each of the calendar quarters in 1994. See Note 4 of the Notes to Financial Statements for discussion of the Partnership's cash distribution policy.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
*Includes gain on sale of Alexandria System of $47,118,868 during November 1992. ** Results reflect the sale of the Alexandria System during November 1992.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
1994 Compared to 1993
Partnership revenues increased $567,333, or approximately 2 percent, from $26,955,292 in 1993 to $27,522,625 in 1994. This increase is primarily the result of increases in basic subscribers. The Independence System added 4,868 basic subscribers in 1994, an increase of approximately 6 percent. Basic subscribers for the Independence System totalled 75,117 at December 31, 1993 compared to 79,985 at December 31, 1994. The increase in revenues would have been greater but for the reduction in basic rates due to regulations issued by the FCC in April 1993 with which the Partnership complied effective September 1, 1993.
Operating, general and administrative expenses increased $735,071, or approximately 6 percent, from $13,021,954 in 1993 to $13,757,025 in 1994. Operating, general and administrative expense represented 48 percent and 50 percent of revenue in 1993 and 1994, respectively. This increase in operating, general and administrative expenses was primarily due to an increase in programming costs, which accounted for approximately 80 percent of the total increase. No other individual factor was significant to the increase in operating, general and administrative expenses.
Management fees and allocated overhead from the General Partner increased $222,042, or approximately 7 percent, from $3,228,652 in 1993 to $3,450,694 in 1994 due primarily to increases in allocated expenses from the General Partner. The General Partner has experienced increases in expenses, including personnel expenses and reregulation expenses, a portion of which is allocated to the Partnership.
Depreciation and amortization expense decreased $1,452,075, or approximately 15 percent, from $9,793,347 in 1993 to $8,341,272 in 1994. This decrease was due to the maturation of the Independence System's asset base.
Operating income increased $1,062,295, from $911,339 in 1993 to $1,973,634 in 1994. This increase is due to the factors discussed above. Operating income before depreciation and amortization decreased $389,780, or approximately 4 percent, from $10,704,686 in 1993 to $10,314,906 in 1994. This decrease is due to the increases in operating, general and administrative expense and allocated overhead from the General Partner exceeding the increase in revenue. The decrease in operating income before depreciation and amortization reflects the current operating environment of the cable television industry. The FCC rate regulations under the 1992 Cable Act have caused revenues to increase more slowly than otherwise would have been the case. In turn, this has caused certain expenses which are a function of revenue, such as franchise fees, copyright fees and management fees, to increase more slowly than in prior years. However, other operating costs such as programming fees, salaries and benefits, and marketing costs as well as other costs incurred by the General Partner, which are allocated to the Partnership, continue to increase at historical rates. This situation has led to reductions in operating income before depreciation and amortization as a percent of revenue ("Operating Margin"). Such reductions in Operating Margins may continue in the near term as the Partnership and the General Partner incur cost increases due to, among other things, increases in programming fees, compliance costs associated with reregulation and competition, that exceed increases in revenue. The General Partner will attempt to mitigate a portion of these reductions through (a) new service offerings, (b) product re-marketing and re-packaging and (c) marketing efforts targeted at non-subscribers.
Interest expense increased $321,034, or approximately 33 percent, from $978,624 in 1993 to $1,299,658 in 1994 due to higher interest rates and higher average outstanding balances on interest bearing obligations in 1994. The effective interest rates on amounts outstanding as of December 31, 1994 and 1993 were 7.09 percent and 4.80 percent, respectively.
The Partnership reported a net loss of $57,867 in 1993 compared to net income of $578,056 in 1994. The increase was due to the factors discussed above.
1993 Compared to 1992
Partnership revenues decreased $11,382,456, or approximately 30 percent, from $38,337,748 in 1992 to $26,955,292 in 1993. This decrease was primarily the result of the sale of the Alexandria System on November 2, 1992. The sale of the Alexandria System resulted in a decrease in 1993 revenues of approximately $12,828,410, while revenues in the Partnership's Independence System increased approximately $1,445,954. An increase in the number of basic subscribers accounted for approximately 46 percent of the increase in revenues for the Independence System. The Independence System added 2,687 basic subscribers in 1993, an increase of approximately 4 percent. Basic subscribers for the Independence System totalled 72,430 at December 31, 1992 compared to 75,117 at December 31, 1993. Basic service rate adjustments primarily accounted for the remainder of the revenue increase. The increase in revenues in the Independence System would have been greater but for the reduction in basic rates due to basic rate regulations issued by the FCC in April 1993 with which the Partnership complied effective September 1, 1993.
Operating, general and administrative expenses decreased $5,613,741, or approximately 30 percent, from $18,635,695 in 1992 to $13,021,954 in 1993. Operating, general and administrative expense represented 48 percent and 49 percent of revenue in 1993 and 1992, respectively. Comparatively, these expenses decreased by approximately $6,632,968 due to the sale of the Alexandria System and increased by approximately $1,019,227 in the Partnership's Independence System. This increase in operating, general and administrative expenses in the Partnership's Independence System was primarily due to an increase in programming costs, which accounted for approximately 37 percent of the increase. Increases in professional services accounted for approximately 23 percent of the increase. No other individual factor was significant to the increase in operating, general and administrative expenses in the Partnership's Independence System.
Management fees and allocated overhead from the General Partner decreased $1,231,062, or approximately 28 percent, from $4,459,714 in 1992 to $3,228,652 in 1993 due primarily to the decrease in revenues due to the sale of the Alexandria System.
Depreciation and amortization expense decreased $5,258,250, or approximately 35 percent, from $15,051,597 in 1992 to $9,793,347 in 1993. This decrease was due to the sale of the Alexandria System in November 1992 and the maturation of the Independence System's depreciable asset base.
Operating income increased $720,597 to $911,339 in 1993 from $190,742 in 1992, due to the factors discussed above.
Interest expense decreased $2,160,715, or approximately 69 percent, from $3,139,339 in 1992 to $978,624 in 1993 due to lower interest rates and lower average outstanding balances on interest bearing obligations in 1993. A portion of the proceeds from the sale of the Alexandria System were used to repay a portion of the amounts outstanding on the Partnership's credit facility.
The Partnership recognized a gain on the sale of the Alexandria System in 1992 of $47,118,868. No similar gain was recognized in 1993. The Partnership recorded net income of $44,060,105 in 1992, primarily due to the gain on the Alexandria System, compared to a net loss of $57,867 in 1993.
Financial Condition
The Partnership's capital expenditures for 1994 totalled approximately $8,500,000. Approximately 54 percent of these expenditures related to the extension and rebuild of cable plant. Service drops to homes accounted for approximately 16 percent of such expenditures. The remainder of the capital expenditures related to various enhancements in the Partnership's Independence System. Funding for these expenditures was provided primarily by cash generated from operations and borrowings from the Partnership's revolving credit facility.
Anticipated capital expenditures for 1995 are approximately $8,200,000. The continuation of the rebuild of the Independence System is expected to account for approximately 38 percent of the anticipated capital expenditures. Service drops connecting new subscribers are expected to account for approximately 19 percent. The remainder of the expenditures will relate to various enhancements in the Independence System. Funding for these capital improvements is expected to be provided by cash generated from operations and borrowings from the Partnership's credit facility.
The maximum amount available under the Partnership's revolving credit facility is subject to the terms of the credit agreement and the Partnership's limited partnership agreement's leverage limitations discussed below. Upon completion of the Alexandria System sale, the maximum amount available under the Partnership's revolving credit facility was reduced to $35,000,000. As of December 31, 1994, $23,000,000 was outstanding, leaving $12,000,000 of available borrowings for future needs. Although the revolving credit period was scheduled to expire on December 31, 1994, the General Partner completed negotiations in December 1994 to extend the revolving credit period to December 31, 1996. Interest on outstanding principal balances is at the Partnership's option of the Prime rate plus .25 percent, the CD rate plus 1.25 percent or the Euro-rate plus 1.25 percent. In addition, a fee of 3/8 percent per annum is required on the unused portion of the commitment.
The level of borrowing allowed by the Partnership's limited partnership agreement is limited to 25 percent of the fair market value of the Partnership's assets at the time of borrowing or 25 percent of the cost of the Partnership's assets at the time of borrowing, whichever is higher. This limitation restricts the Partnership's ability to borrow funds for capital expenditures and to make distributions. In addition, such limitations may reduce the financial flexibility and liquidity of the Partnership. Further, the payment of principal and interest on outstanding debt obligations will diminish the level of funds available to the Partnership and reduce the financial flexibility of the Partnership. The Partnership's most recent appraisal of the Independence System was $157,046,000. Based upon this appraised value, the Partnership has a borrowing capacity of approximately $39,000,000, which would allow the Partnership to borrow the maximum amount ($12,000,000) currently available under its credit facility.
The Partnership declared a $.15 per unit distribution for each of the four quarters of 1994. The Partnership intends to distribute all cash flow from operations after payment of expenses, capital additions and creation of cash reserves deemed reasonably necessary to preserve and enhance the value of the Partnership's cable television system. The General Partner will determine the level of distributions on a quarter-by-quarter basis.
Regulatory Matters
On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"), which became effective on December 4, 1992. The 1992 Cable Act generally allows for a greater degree of regulation of the cable television industry. In April 1993, the FCC adopted regulations governing rates for basic and non-basic services. These regulations became effective on September 1, 1993. Such regulations caused reductions in rates for certain regulated services. On February 22, 1994, the FCC adopted several additional rate orders including an order which revised its earlier-announced regulatory scheme with respect to rates. The Partnership has filed cost-of-service showings for its Independence System and thus anticipates no further reductions in rates. The cost-of-service showings have not yet received final approval from franchising authorities, however, and there can be no assurance that the Partnership's cost-of-service showings will prevent further rate reductions until such final approvals are received. See Item I for further discussion of the provisions of the 1992 Cable Act and the FCC regulations promulgated thereunder.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS
JONES INTERCABLE INVESTORS, L.P.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 AND 1993
INDEX
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Jones Intercable Investors, L.P.:
We have audited the accompanying balance sheets of JONES INTERCABLE INVESTORS, L.P. (a Colorado limited partnership) as of December 31, 1994 and 1993, and the related statements of operations, partners' capital (deficit) and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the General Partner's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Jones Intercable Investors, L.P. as of December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado, March 8, 1995.
JONES INTERCABLE INVESTORS, L.P. (A Limited Partnership)
BALANCE SHEETS
The accompanying notes to financial statements are an integral part of these balance sheets.
JONES INTERCABLE INVESTORS, L.P. (A Limited Partnership)
BALANCE SHEETS
The accompanying notes to financial statements are an integral part of these balance sheets.
JONES INTERCABLE INVESTORS, L.P. (A Limited Partnership)
STATEMENTS OF OPERATIONS
The accompanying notes to financial statements are an integral part of these statements.
JONES INTERCABLE INVESTORS, L.P. (A Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
The accompanying notes to financial statements are an integral part of these statements.
JONES INTERCABLE INVESTORS, L.P. (A Limited Partnership)
STATEMENTS OF CASH FLOWS
The accompanying notes to financial statements are an integral part of these statements.
JONES INTERCABLE INVESTORS, L.P. (A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION OF PARTNERSHIP
Formation and Business
Jones Intercable Investors, L.P. (the "Partnership"), a Colorado limited partnership, was formed on September 18, 1986, to acquire, own and operate cable television systems in the United States. On November 28, 1986, the Partnership completed the sale of 3,230,000 Class A Units, representing beneficial ownership of Class A Limited Partnership Interests, to the public at a price of $16.00 per Class A Unit. On May 23, 1987, the Partnership completed the sale of an additional 4,300,000 Class A Units, representing beneficial ownership of Class A Limited Partnership Interests to Jones Intercable, Inc. (800,000 Units) and to the public at a price of $15.00 per Class A Unit. In addition to its 800,000 Class A Units, Jones Intercable, Inc. purchased, through a series of transactions, 792,632 Class B Units. These purchases by Jones Intercable, Inc. represent an approximate 19 percent ownership interest in the Partnership. At December 31, 1989, the Initial Period ended and all Class B Units were converted to Class A Units. Jones Intercable, Inc. is the general partner of the Partnership (the "General Partner"). The General Partner and its subsidiaries also own and operate cable television systems. In addition, the General Partner manages cable television systems for other limited partnerships for which it is general partner and, also, for affiliated entities.
In September 1992, the Partnership entered into an agreement with the General Partner to sell its Alexandria System to the General Partner for $73,234,000. This transaction was completed on November 2, 1992. The Partnership recognized a gain of $47,118,868, on this sale. The Partnership used the net sale proceeds to retire a portion of its debt and to distribute $3 per Class A Unit on November 6, 1992. See Note 8, however, for a discussion of pending litigation that seeks, among other things, to rescind the sale of the Alexandria System.
At December 31, 1994, the Partnership owned the cable television system serving certain communities in and around Independence, Missouri.
Contributed Capital of the Partnership
The capitalization of the Partnership is set forth in the accompanying statements of partners' capital (deficit).
All profits and losses of the Partnership are allocated 99% to the Unitholders and 1 percent to the General Partner.
Partnership Acquisitions
The Partnership's acquisitions were accounted for using the "purchase method" of accounting. The allocation of purchase price (determined by independent appraisal) was distributed as follows: first, to the fair value of net tangible assets acquired; second, to the value of subscriber lists; third, to franchise costs; and fourth, to costs in excess of interests in net assets purchased.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Records
The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. The Partnership's tax returns are also prepared on the accrual basis.
Property, Plant and Equipment
Depreciation of property, plant and equipment is provided primarily using the straight-line method over the following estimated service lives:
Replacements, renewals and improvements are capitalized and maintenance and repairs are charged to expense as incurred.
Intangible Assets
Costs assigned to franchises and costs in excess of interests in net assets purchased are being amortized using the straight-line method over the following remaining estimated useful lives:
Revenue Recognition
Subscriber prepayments are initially deferred and recognized as revenue when earned.
(3) TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
Management Fees, Reimbursements of Allocated Expenses and Distribution Ratios
The General Partner manages the Partnership and receives a fee for its services equal to 5 percent of the gross revenues of the Partnership, excluding revenues from the sale of cable television systems or franchises. Management fees for the years ended December 31, 1994, 1993 and 1992 were $1,376,131, $1,347,765 and $1,916,887, respectively.
The Partnership reimburses the General Partner for certain allocated overhead and administrative expenses. These expenses represent salaries and related benefits for corporate personnel, rent, data processing services and other corporate facilities costs. Such personnel provide engineering, marketing, administrative, accounting, legal and investor relations services to the Partnership. Allocations of personnel costs are based primarily on actual time spent by employees of the General Partner with respect to each partnership managed. Other overhead costs are allocated primarily based on total revenues and/or the cost of partnership assets managed. Effective December 1, 1993, the allocation method was changed to be based only on revenue, which the General Partner believes provides a more accurate method of allocation. Systems owned by the General Partner and all other systems owned by partnerships for which Jones Intercable, Inc. is the general partner are also allocated a proportionate share of these expenses. The General Partner believes that the methodology used in allocating overhead and administrative expenses is reasonable. Amounts charged the Partnership by the General Partner for allocated
overhead and administrative expenses for the years ended December 31, 1994, 1993 and 1992 were $2,074,563, $1,880,887 and $2,542,827, respectively.
The General Partner will receive 40 percent of distributions made upon sale or refinancing of Partnership cable television systems or upon dissolution after holders of the Class A Units have first received distributions equal to the Preferred Return, plus distributions, other than distributions of Cash Flow from Operations, equal to the capital contributions made to the Partnership with respect to the Class A Units. The "Preferred Return" is defined as a return equal to 10 percent per annum, cumulative and non-compounded on an amount equal to the capital contribution made with respect to a Class A Unit, less any portion of such amount which has been returned to the holders of Class A Units from prior sale or refinancing proceeds; provided that such return will be reduced by all prior distributions of Cash Flow from Operations on the Class A Units, and certain prior distributions of proceeds from sales or refinancing of Partnership cable television properties.
The Partnership is charged interest on accounts payable to the General Partner at a rate which approximates the General Partner's weighted average cost of borrowing. In addition, the Partnership was charged interest on a note payable to the General Partner at a rate equal to the interest rate payable on the Partnership's credit facility. This note was repaid in November 1992. Total interest charged to the Partnership by the General Partner during 1992 was $182,620. There was no interest charged to the Partnership by the General Partner during 1994 and 1993.
Payments to/from Affiliates for Programming Services
The Partnership receives programming from Product Information Network, Superaudio and The Mind Extension University, affiliates of the General Partner. Payments to Superaudio totalled approximately $46,113, $45,763 and $63,485 in 1994, 1993 and 1992, respectively. Payments to The Mind Extension University totalled approximately $41,783, $26,607 and $36,366 in 1994, 1993 and 1992, respectively. The Partnership receives a commission from Product Information Network based on a percentage of advertising revenue and number of subscribers. Product Information Network, which initiated service in 1994, paid commissions to the Partnership totalling $4,073 in 1994.
(4) DISTRIBUTIONS TO UNITHOLDERS
The Partnership declared a $.15 per unit distribution for each of the four quarters of 1994. All declared distributions were paid at December 31, 1994, except for the fourth quarter distribution, which was paid in February 1995. The Partnership intends to distribute all cash flow from operations after payment of expenses, capital additions and creation of cash reserves deemed reasonably necessary to preserve and enhance the value of the Partnership's cable television system.
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 1994 and 1993, consists of the following:
(6) DEBT
Debt consists of the following:
As of December 31, 1994, $23,000,000 was outstanding on the Partnership's $35,000,000 revolving credit facility, leaving $12,000,000 of available borrowings for future needs. Although the revolving credit period was scheduled to expire on December 31, 1994, the General Partner completed negotiations in December 1994 to extend the revolving credit period to December 31, 1996. Interest on outstanding principal balances is at the Partnership's option of the Prime rate plus .25 percent, the CD rate plus 1.25 percent or the Euro-rate plus 1.25 percent. The effective interest rates on outstanding obligations as of December 31, 1994 and 1993 were 7.09 percent and 4.8 percent, respectively. In addition, a fee of 3/8 percent per annum is required on the unused portion of the commitment.
Installments due on debt principal and capital lease obligations for each of the five years in the period ending December 31, 1999 and thereafter, respectively, are $148,152, $148,152, $1,298,152, $2,924,385, $5,750,000 and $13,225,000. At December 31, 1994, substantially all of the Partnership's property, plant and equipment secured the above indebtedness.
(7) INCOME TAXES
Income taxes have not been recorded in the accompanying financial statements because the Partnership will pay no Federal or state income taxes as an entity. Instead, all of the income, gains, losses, deductions and credits of the Partnership will pass through to the General Partner and the Unitholders. The Federal and state income tax returns of the Partnership are prepared and filed by the General Partner.
The Partnership's tax returns, the qualification of the Partnership as such for tax purposes, and the amount of distributable Partnership income or loss are subject to examination by Federal and state taxing authorities. If such examinations result in changes with respect to the Partnership's qualification as such, or in changes with respect to the Partnership's recorded income or loss, the tax liability of the General Partner and Unitholders would likely be changed accordingly.
Taxable income to the General Partner and Unitholders is different from that reported in the statements of operations largely due to the difference in depreciation recognized under generally accepted accounting principles and the expense allowed for tax purposes under the Modified Accelerated Cost Recovery System. Since the Partnership has previously made an IRC Section 754 election, the cost basis of the Partnership assets has been increased or decreased to reflect the difference between the new unitholders' purchase price and their proportionate share of the adjusted tax basis of the Partnership properties. The portion of this adjustment which relates to depreciable or amortizable assets results in difference between book and tax depreciation or amortization. Under IRC Section 197, certain intangibles placed in service after August 10, 1993, including goodwill, are allowed to be amortized over a 15 year period for tax purposes, creating additional book and tax amortization differences. There are no other significant differences between taxable loss and the net loss reported in the statements of operations.
The General Partner does not expect any currently proposed tax legislation to have a significant impact on the business of the Partnership. Current tax law impacts the Unitholders due to limitations on the utilization of passive losses generated by the Partnership. Investors in Publicly Traded Partnerships ("PTP's"), such as Jones Intercable Investors, L.P., are subject to additional limitations under the passive-activity loss rules as amended by the Revenue Act of 1987. Passive losses reported on Schedule K-1, Form 1065, by a PTP can only be used to offset passive income from the same partnership. Passive losses of a PTP which are limited by this rule may be carried forward.
(8) COMMITMENTS AND CONTINGENCIES
On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"), which became effective on December 4, 1992. The 1992 Cable Act generally allows for a greater degree of regulation of the cable television industry. In April 1993, the Federal Communications Commission (the "FCC") adopted regulations governing rates for basic and non-basic services. These regulations became effective on September 1, 1993. Such regulations caused reductions in rates for certain regulated services. On February 22, 1994, the FCC adopted several additional rate orders including an order which revised its earlier-announced regulatory scheme with respect to rates. The Partnership has filed cost-of-service showings for its Independence System and thus anticipates no further reductions in rates. The cost-of-service showings have not received final approval from franchising authorities, however, and there can be no assurance that the Partnership's cost-of-service showings will prevent further rate reductions until such final approvals are received.
On February 22, 1994, the General Partner and The Jones Group, Ltd. ("Jones Group"), a subsidiary of the General Partner engaged in the cable brokerage business, were named as defendants in a lawsuit brought by three individuals who are Class A Unitholders in the Partnership. The litigation, entitled Luva Vaughan et al v. Jones Intercable, Inc. et al, Case No. CV 94-3652 was filed in the Circuit Court for Jackson County, Missouri, and purports to be "for the use and benefit of" the Partnership. The suit seeks rescission of the sale of the Alexandria, Virginia cable television system (the "Alexandria System") by the Partnership to the General Partner, which sale was completed on November 2, 1992. It also seeks a constructive trust on the profits derived from the operation of the Alexandria System since the date of the sale, and seeks an accounting and other equitable relief. The plaintiffs also allege that the $1,800,000 commission paid to Jones Group by the Partnership in connection with such sale was improper, and ask the Court to order that such commission be repaid to the Partnership.
On October 21, 1994, plaintiffs filed a motion to dismiss Jones Group in response to Jones Group's argument that Missouri lacked personal jurisdiction over it. Plaintiffs' motion was granted, and plaintiffs then filed an action in Colorado against Jones Group seeking a return of the brokerage commission.
Under the terms of the partnership agreement of the Partnership, the General Partner has the right to acquire cable television systems from the Partnership at a purchase price equal to the average of three independent appraisals of the cable television system to be acquired. The plaintiffs claim that the appraisals obtained in connection with the sale of the Alexandria System were improperly obtained, were not made by qualified appraisers and were otherwise improper. The purchase price paid by the General Partner upon such sale was approximately $73,200,000.
The amount of damages being sought by the plaintiffs has not yet been specified. The General Partner believes both that the appraisals were properly obtained and that the brokerage commission was properly paid to Jones Group in accordance with the express terms of the partnership agreement. The General Partner further believes that its defenses are meritorious and it intends to vigorously defend the litigation.
The General Partner and Jones Group have filed motions for summary judgment in the Missouri and Colorado cases, respectively, which are pending before the Missouri and Colorado courts. In addition, the General Partner has conducted written discovery in the form of interrogatories and requests for production of documents, and has noticed the depositions of plaintiffs and plaintiffs' expert. A trial date of April 3, 1995 has been set in the Missouri case, but it will likely be continued in accordance with the General Partner's request. No trial date has been set in the Colorado case. Because defendants' motions have not been resolved and because discovery has just commenced, it is premature to present a realistic evaluation of the probability of a favorable or unfavorable outcome.
The Partnership rents office and other facilities under various long-term operating lease arrangements. Rent paid under such lease arrangements totalled $147,185, $63,698 and $282,117, respectively, for the years ended December 31, 1994, 1993 and 1992. Minimum commitments for each of the five years in the period ending December 31, 1999, and thereafter are as follows:
(9) SUPPLEMENTARY PROFIT AND LOSS INFORMATION
Supplementary profit and loss information for the respective years is presented below:
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership itself has no officers or directors. Certain information concerning the directors and executive officers of the General Partner is set forth below.
Mr. Glenn R. Jones has served as Chairman of the Board of Directors and Chief Executive Officer of the General Partner since its formation in 1970, and he was President from June 1984 until April 1988. Mr. Jones was elected a member of the Executive Committee of the Board of Directors in April 1985. Mr. Jones is the sole shareholder, President and Chairman of the Board of Directors of Jones International, Ltd. He is also Chairman of the Board of Directors of the subsidiaries of the General Partner and of certain other affiliates of the General Partner. Mr. Jones has been involved in the cable television business in various capacities since 1961, is a past and present member of the Board of Directors of the National Cable Television Association, and is a former member of its Executive Committee. Mr. Jones is a past director and member of the Executive Committee of C-Span. Mr. Jones has been the recipient of several awards including the Grand Tam Award in 1989, the highest award from the Cable Television Administration and Marketing Society; the Chairman's Award from the Investment Partnership Association, which is an association of sponsors of public syndications; the cable television industry's Public Affairs Association President's Award in 1990, the Donald G. McGannon award for the advancement of minorities and women in cable; the STAR Award from American Women in Radio and Television, Inc. for exhibition of a commitment to the issues and concerns of women in television and radio; and the Women in Cable Accolade in 1990 in recognition of support of this organization. Mr. Jones is also a founding member of the James Madison Council of the Library of Congress and is on the Board of Governors of the American Society of Training and Development.
Mr. Derek H. Burney was appointed a Director of the General Partner in December 1994 and Vice Chairman of the Board of Directors in January 1995. He is also a member of the Executive Committee of the Board of Directors. Mr. Burney joined BCE Inc., Canada's largest telecommunications company, in January 1993 as Executive Vice President, International. He has been the Chairman of Bell Canada International Inc., a
subsidiary of BCE, since January 1993 and, in addition, has been Chief Executive Officer of BCI since July 1993. Prior to joining BCE, Mr. Burney served as Canada's ambassador to the United States from 1989 to 1992. Mr. Burney also served as chief of staff to the Prime Minister of Canada from March 1987 to January 1989 where he was directly involved with the negotiation of the U.S. - Canada Free Trade Agreement. In July 1993, he was named an Officer of the Order of Canada. Mr. Burney is chairman of Bell Cablemedia plc. He is a director of Mercury Communications Limited, Videotron Holdings plc, Tele-Direct (Publications) Inc., Teleglobe Inc., Bimcor Inc., Maritime Telegraph and Telephone Company, Limited, Moore Corporation Limited and Northbridge Programming Inc.
Mr. James B. O'Brien, the General Partner's President, joined the General Partner in January 1982. Prior to being elected President and a Director of the General Partner in December 1989, Mr. O'Brien served as a Division Manager, Director of Operations Planning/Assistant to the CEO, Fund Vice President and Group Vice President/Operations. Mr. O'Brien was appointed to the General Partner's Executive Committee in August 1993. As President, he is responsible for the day-to-day operations of the cable television systems managed and owned by the General Partner. Mr. O'Brien is also President and a Director of Jones Cable Group, Ltd., Jones Global Funds, Inc. and Jones Global Management, Inc., all affiliates of the General Partner. Mr. O'Brien is a board member of Cable Labs, Inc., the research arm of the U.S. cable television industry. He also serves as a director of the Cable Television Administration and Marketing Association and as a director of the Walter Kaitz Foundation, a foundation that places people of any ethnic minority group in positions with cable television systems, networks and vendor companies.
Ms. Ruth E. Warren joined the General Partner in August 1980 and has served in various operational capacities, including system manager and Fund Vice President, since then. Ms. Warren was elected Group Vice President/Operations of the General Partner in September 1990.
Mr. Kevin P. Coyle joined The Jones Group, Ltd. in July 1981 as Vice President/Financial Services. In September 1985, he was appointed Senior Vice President/Financial Services. He was elected Treasurer of the General Partner in August 1987, Vice President/Treasurer in April 1988 and Group Vice President/Finance and Chief Financial Officer in October 1990.
Mr. Christopher J. Bowick joined the General Partner in September 1991 as Group Vice President/Technology and Chief Technical Officer. Previous to joining the General Partner, Mr. Bowick worked for Scientific Atlanta's Transmission Systems Business Division in various technical management capacities since 1981, and as Vice President of Engineering since 1989.
Mr. Timothy J. Burke joined the General Partner in August 1982 as corporate tax manager, was elected Vice President/Taxation in November 1986 and Group Vice President/Taxation/Administration in October 1990.
Mr. Raymond L. Vigil joined the General Partner in June 1993 as Group Vice President/Human Resources. Previous to joining the General Partner, Mr. Vigil served as Executive Director of Learning with USWest. Prior to USWest, Mr. Vigil worked in various human resources posts over a 14-year term with the IBM Corporation.
Ms. Cynthia A. Winning joined the General Partner as Group Vice President/Marketing in December 1994. Previous to joining the General Partner, Ms. Winning served since 1994 as the President of PRS Inc., Denver, Colorado, a sports and event marketing company. From 1979 to 1981 and from 1986 to 1994, Ms. Winning served as the Vice President and Director of Marketing for Citicorp Retail Services, Inc., a provider of private-label credit cards for ten national retail department store chains. From 1981 to 1986, Ms. Winning was the Director of Marketing Services for Daniels & Associates cable television operations, as well as the Western Division Marketing Director for Capital Cities Cable. Ms. Winning also serves as a board Member of Cities in Schools, a dropout intervention/prevention program.
Ms. Elizabeth M. Steele joined the General Partner in August 1987 as Vice President/General Counsel and Secretary. From August 1980 until joining the General Partner, Ms. Steele was an associate and then a partner at the Denver law firm of Davis, Graham & Stubbs, which serves as counsel to the General Partner.
Mr. Larry Kaschinske joined the General Partner in 1984 as a staff accountant in the General Partner's former Wisconsin Division; was promoted to Assistant Controller in 1990 and named Controller in August 1994.
Mr. James J. Krejci was President of the International Division of International Gaming Technology International headquartered in Reno, Nevada, until March 1995. Prior to joining IGT in May 1994, Mr. Krejci was Group Vice President of Jones International, Ltd. and a Group Vice President of the General Partner. Prior to May 1994, he also served as Group Vice President of Jones Futurex, Inc., an affiliate of the General Partner engaged in manufacturing and marketing data encryption devices, Jones Interactive, Inc., a subsidiary of Jones International, Ltd. providing computer data and billing processing facilities and Jones Lightwave, Ltd., a company owned by Jones International, Ltd. and Mr. Jones, which is engaged in the provision of telecommunications services. Mr. Krejci has been a Director of the General Partner since August 1987.
Ms. Christine Jones Marocco was appointed a Director of the General Partner in December 1994. She is the daughter of Glenn R. Jones. Ms. Marocco is also a director of Jones International, Ltd.
Mr. Daniel E. Somers was appointed a Director of the General Partner in December 1994 and also serves on the General Partner's Audit Committee. From January 1992 to January 1995, Mr. Somers worked as Senior Vice President and Chief Financial Officer of Bell Canada International Inc. and was appointed Executive Vice President and Chief Financial Officer on February 1, 1995. He is also a Director of certain of its affiliates. Prior to joining Bell Canada International Inc. and since January 1989, Mr. Somers was the President and Chief Executive Officer of Radio Atlantic Holdings Limited. Mr. Somers is a member of the North American Society of Corporate Planning, the Financial Executives Institution and the Financial Analysts Federation.
Mr. Robert S. Zinn was appointed a Director of the General Partner in December 1994. Mr. Zinn joined the General Partner in January 1991 and is a member of its Legal Department. He is also Vice President/Legal Affairs of Jones International, Ltd. Prior to joining the General Partner, Mr. Zinn was in private law practice in Denver, Colorado for over 25 years.
Mr. David K. Zonker was appointed a Director of the General Partner in December 1994. Mr. Zonker has been the President of Jones International Securities, Ltd., a subsidiary of Jones International, Ltd. since January 1984 and he has been its Chief Executive Officer since January 1988. From October 1980 until joining Jones International Securities, Ltd. in January 1984, Mr. Zonker was employed by the General Partner. Mr. Zonker is a member of the Board of Directors of various affiliates of the General Partner, including Jones International Securities, Ltd. Mr. Zonker is licensed by the National Association of Securities Dealers, Inc. and he is a past chairman of the Investment Program Association, a trade organization based in Washington, D.C. that promotes direct investments. He is a member of the Board of Trustees of Graceland College, Lamoni, Iowa; the International Association of Financial Planners and the American and Colorado Institutes of Certified Public Accountants.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no employees; however, various personnel are required to operate the Independence System. Such personnel are employed by the General Partner and, pursuant to the terms of the limited partnership agreement of the Partnership, the cost of such employment is charged by the General Partner to the Partnership as a direct reimbursement item. See Item 13.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS
No person or entity owns more than 5 percent of the limited partnership interests of the Partnership.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The General Partner and its affiliates engage in certain transactions with the Partnership as contemplated by the limited partnership agreement of the Partnership. The General Partner believes that the terms of such transactions are generally as favorable as could be obtained by the Partnership from unaffiliated parties. This determination has been made by the General Partner in good faith, but none of the terms were or will be negotiated at arm's-length and there can be no assurance that the terms of such transactions have been or will be as favorable as those that could have been obtained by the Partnership from unaffiliated parties.
The General Partner charges the Partnership a management fee, and the Partnership reimburses the General Partner for certain allocated overhead and administrative expenses in accordance with the terms of the limited partnership agreement of the Partnership. These expenses consist primarily of salaries and benefits paid to corporate personnel, rent, data processing services and other facilities costs. Such personnel provide engineering, marketing, administrative, accounting, legal and investor relations services to the Partnership. Allocations of personnel costs are based primarily on actual time spent by employees of the General Partner with respect to the Partnership managed. Remaining overhead costs are allocated based on revenues and/or the costs of assets managed for the Partnership. Systems owned by the General Partner and all other systems owned by partnerships for which Jones Intercable, Inc. is the general partner, are also allocated a proportionate share of these expenses.
From time to time, The Jones Group, Ltd., an affiliate of the General Partner, performs brokerage services for the Partnership in connection with Partnership acquisitions and sales.
The Independence System receives stereo audio programming from Superaudio, a joint venture owned 50% by an affiliate of the General Partner and 50% by an unaffiliated party and educational video programming from Mind Extension University, Inc., an affiliate of the General Partner for fees based upon the number of subscribers receiving the programming.
Product Information Network ("PIN"), an affiliate of the General Partner, provides advertising time for third parties on the Independence System. In consideration, the revenues generated from the third parties are shared two-thirds and one-third between PIN and the Partnership. During the year ended December 31, 1994, the Partnership received revenues from PIN of $4,073.
The charges to the Partnership for related party transactions are as follows for the periods indicated:
*The decreases appearing in 1993 in the fees and expense allocations reflect the sale in 1992 of the Alexandria, Virginia cable television system.
PART IV.
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
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(1) Incorporated by reference from Registrant's Annual Report on Form 10-K for fiscal year ended December 31, 1986.
(2) Incorporated by reference from Registrant's Annual Report on Form 10-K for fiscal year ended December 31, 1987.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 INTERCABLE INVESTORS, L.P., a Colorado limited partnership By: Jones Intercable, Inc.
By: /s/ Glenn R. Jones ------------------------------- Glenn R. Jones Chairman of the Board Dated: March 27, 1995 and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ Glenn R. Jones ------------------------------- Glenn R. Jones Chairman of the Board and Chief Executive Officer Dated: March 27, 1995 (Principal Executive Officer)
By: /s/ Kevin P. Coyle ------------------------------- Kevin P. Coyle Group Vice President/Finance Dated: March 27, 1995 (Principal Financial Officer)
By: /s/ Larry Kaschinske ------------------------------- Larry Kaschinske Controller Dated: March 27, 1995 (Principal Accounting Officer)
By: /s/ James B. O'Brien ------------------------------- James B. O'Brien Dated: March 27, 1995 President and Director
By: /s/ Raymond L. Vigil ------------------------------- Raymond L. Vigil Dated: March 27, 1995 Group Vice President and Director
By: /s/ Robert S. Zinn ------------------------------- Robert S. Zinn Dated: March 27, 1995 Director
By: /s/ David K. Zonker ------------------------------- David K. Zonker Dated: March 27, 1995 Director
By: ------------------------------- Derek H. Burney Dated: Director
By: ------------------------------- James J. Krejci Dated: Director
By: ------------------------------- Christine Jones Marocco Dated: Director
By: ------------------------------- Daniel E. Somers Dated: Director
EXHIBIT INDEX
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(1) Incorporated by reference from Registrant's Annual Report on Form 10-K for fiscal year ended December 31, 1986.
(2) Incorporated by reference from Registrant's Annual Report on Form 10-K for fiscal year ended December 31, 1987.
(3) Incorporated by reference from Registrant's Annual Report on Form 10-K for fiscal year ended December 31, 1988.
(4) Incorporated by reference from Registrant's Annual Report on Form 10-K for fiscal year ended December 31, 1992.
(5) Incorporated by reference from Registrant's Annual Report on Form 10-K for fiscal year ended December 31, 1993.