10-K405
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FORM 10-K
1
FORM 10-K 405
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________
Commission file number: 0-19259
JONES GROWTH PARTNERS II L.P.
(Exact name of registrant as specified in its charter)
Colorado 84-1126141
State of Organization (IRS Employer
Identification No.)
P.O. Box 3309, Englewood, Colorado 80155-3309 (303) 792-3111
(Address of principal executive office and Zip Code) (Registrant's telephone no.
including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited Partnership
Interests
Indicate by check mark whether the registrant, (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
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State the aggregate market value of the voting stock held by non-affiliates of
the registrant: N/A
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. x
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DOCUMENTS INCORPORATED BY REFERENCE: None
(15925)
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PART I.
ITEM 1. BUSINESS
THE PARTNERSHIP. Jones Growth Partners II 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 Spacelink Cable Corporation, a
Colorado corporation, is the general partner (the "General Partner") of the
Partnership. Until December 20, 1994, the date Jones Intercable, Inc.
("Intercable") acquired substantially all of the assets of Jones Spacelink, Ltd.
("Spacelink"), the General Partner was a wholly owned subsidiary of Spacelink.
As a result of Intercable's acquisition of Spacelink's assets, the General
Partner became a wholly owned subsidiary of Intercable. Intercable is a Colorado
corporation engaged in the business of owning and operating cable television
systems. The Partnership owns the cable television systems serving Yorba Linda
and certain portions of Anaheim Hills, all in the State of California (the
"Yorba Linda System"). See Item 2.
CABLE TELEVISION SERVICES. The Yorba Linda System offers to its
subscribers various types of programming, which include basic service, tier
service, premium service, pay-per-view programs and packages including several
of these services at combined rates.
Basic cable television service usually consists of signals of all four
national television networks, various independent and educational television
stations (both VHF and UHF) and certain signals received from satellites. Basic
service also usually includes programs originated locally by the system, which
may consist of music, news, weather reports, stock market and financial
information and live or videotaped programs of a public service or entertainment
nature. FM radio signals are also frequently distributed to subscribers as part
of the basic service.
The Yorba Linda System offers tier services on an optional basis to
their subscribers. A tier generally includes most of the cable networks such as
Entertainment and Sports Programming Network (ESPN), Cable News Network (CNN),
Turner Network Television (TNT), Family Channel, Discovery and others, and the
cable television operators buy tier programming from these networks. The Systems
also offer a package that includes the basic service channels and the tier
services.
The Yorba Linda System also offers premium services to its subscribers,
which consist of feature films, sporting events and other special features that
are presented without commercial interruption. The cable television operators
buy premium programming from suppliers such as HBO, Showtime, Cinemax or others
at a cost based on the number of subscribers the cable operator serves. Premium
service programming usually is significantly more expensive than the basic
service or tier service programming, and consequently cable operators price
premium service separately when sold to subscribers.
The Yorba Linda System also offers to subscribers pay-per-view
programming. Pay-per-view is a service that allows subscribers to receive single
programs, frequently consisting of motion pictures that have recently completed
their theatrical exhibitions and major sporting events, and to pay for such
service on a program-by-program basis.
REVENUES. Monthly service fees for basic, tier and premium services
constitute the major source of revenue for the Yorba Linda System. In addition,
advertising sales are becoming a significant source of revenue for the Yorba
Linda System. As a result of the adoption by the FCC of new rules under the
Cable Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act"), and several rate regulation orders, the Yorba Linda Systems' rate
structures for cable programming services and equipment have been revised. See
Regulation and Legislation. At December 31, 1994, the Yorba Linda System's
monthly basic service rates ranged from $13.96 to $14.75, monthly basic and tier
("basic plus") service rates ranged from $19.97 to $22.25 and monthly premium
services ranged from $4.16 to $11.95 per premium service. Charges for additional
outlets have been eliminated, and charges for remote controls and converters
have been "unbundled" from the programming service rates. In addition, the
Partnership earns revenues from the Yorba Linda System's pay-per-view programs
and advertising fees. Related charges may include a nonrecurring installation
fee that ranges from $5.95 to
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$49.95; however, from time to time the Yorba Linda System has followed the
common industry practice of reducing or waiving the installation fee during
promotional periods. Commercial subscribers such as hotels, motels and hospitals
are charged a nonrecurring connection fee that usually covers the cost of
installation. Except under the terms of certain contracts with commercial
subscribers and residential apartment and condominium complexes, the subscribers
are free to discontinue the service at any time without penalty. For the year
ended December 31, 1994, of the total fees received by the Yorba Linda System,
basic service and tier service fees accounted for approximately 67% of total
revenues, premium service fees accounted for approximately 16% of total
revenues, pay-per-view fees were approximately 1% of total revenues, advertising
fees were approximately 5% of total revenues and the remaining 11% of total
revenues came principally from equipment rentals, installation fees and program
guide sales. The Partnership is dependent upon the timely receipt of service
fees to provide for maintenance and replacement of plant and equipment, current
operating expenses and other costs of the Yorba Linda System.
The Partnership's business consists of providing cable television
services to a large number of customers, the loss of any one of which would have
no material effect on the Partnership's business. The Yorba Linda System has had
some subscribers who later terminated the service. Terminations occur primarily
because people move to another home or to another city. In other cases, people
terminate on a seasonal basis or because they no longer can afford or are
dissatisfied with the service. The amount of past due accounts in the Yorba
Linda System is not significant. The General Partner's policy with regard to
past due accounts is basically one of disconnecting service before a past due
account becomes material.
The Partnership does not depend to any material extent on the
availability of raw materials; it carries no significant amounts of inventory
and it has no material backlog of customer orders. The Partnership has no
employees because all properties are managed by employees of Intercable.
Intercable has engaged in research and development activities relating to the
provision of new services but the amount of the Partnership's funds expended
for such research and development has never been material.
Compliance with Federal, state and local provisions that have been
enacted or adopted regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment has had no material
effect upon the capital expenditures, earnings or competitive position of the
Partnership.
FRANCHISES. The Yorba Linda System is constructed and operated under
non-exclusive, fixed-term franchises or other types of operating authorities
(referred to collectively herein as "franchises") granted by local governmental
authorities. The Yorba Linda System's franchises require that franchise fees of
5% of gross revenues of the cable system be paid to the governmental authority
that granted the franchise, that certain channels be dedicated to municipal use,
that municipal facilities, hospitals and schools be provided cable service free
of charge and that any new cable plant be substantially constructed within
specific periods. (See Item 2 for a range of franchise expiration dates of the
Yorba Linda System.)
The responsibility for franchising of cable television systems
generally is left to state and local authorities. There are, however, several
provisions in the Communications Act of 1934, as amended, that govern the terms
and conditions under which cable television systems provide service, including
the standards applicable to cable television operators seeking renewal of a
cable television franchise. In addition, the 1992 Cable Act also made several
procedural changes to the process under which a cable operator has not
substantially complied with the material terms of the franchise, has not
provided reasonable service in light of the community's needs, does not have the
financial, legal and technical ability to provide the services being proposed
for the future, or has not presented a reasonable proposal for future service. A
final decision of non-renewal by the franchising authority is appealable in
court. The General Partner and its affiliates recently have experienced lengthy
negotiations with some franchising authorities for the granting of franchise
renewals and transfers. Some of the issues involved in recent renewal
negotiations include rate reregulation, customer service standards, cable plant
upgrade or replacement and shorter terms of franchise agreements. The inability
of the Partnership to renew a franchise, or lengthy negotiations or litigation
involving the renewal process could have an adverse impact on the business of
the Partnership.
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COMPETITION. Cable television systems currently experience competition
from several sources, but two technologies, Multichannel Multipoint Distribution
Service ("MMDS") systems, commonly called wireless cable systems, and Direct
Broadcast Satellite ("DBS") systems, which distribute programming to home
satellite dishes, currently pose the greatest potential threat to the cable
television industry.
MMDS systems will likely focus on providing service to residents of
rural areas that are not served by cable television systems, but providers of
programming via MMDS systems will generally have the potential to compete
directly with cable television systems in urban areas as well, and in some areas
of the country, MMDS systems are now in direct competition with cable television
systems. To date, the Yorba Linda System has not lost a significant number of
subscribers, nor a significant amount of revenue, to MMDS operators.
DBS operators deliver premium channel services and specialized
programming to subscribers by high-powered DBS satellites on a wide-scale basis,
and two major companies began operations in 1994. Subscribers are able to
receive DBS services virtually anywhere in the United States with a rooftop or
wall-mounted antenna. In some instances, DBS systems may serve as a complement
to cable television operations by enabling cable television operators to offer
additional channels of programming without the construction of additional cable
plant. DBS companies use video compression technology to increase the channel
capacity of their satellite systems to provide a wide variety of program
services that are competitive with those of cable television systems.
Cable television systems also compete with broadcast television,
private cable television systems known as Master Antenna Television ("MATV"),
Satellite Master Antenna Television ("SMATV") and Television Receive-Only Earth
Stations ("TVRO"), which are satellite receiving antenna dishes that are used by
"backyard users" to receive satellite delivered programming directly in their
homes. MATV and SMATV generally serve multi-unit dwellings such as condominiums,
apartment complexes and private residential communities.
There is also potential competition from an emerging technology, Local
Multipoint Distribution Service ("LMDS"). When it is authorized for service, the
LMDS, sometimes referred to as cellular television, could have the capability of
delivering approximately 50 channels, or if two systems were combined 100
channels, of video programming to a subscriber's home, which capacity could be
increased by using video compression technology. The General Partner believes
that there are not any current fully operational LMDS systems.
Although the Yorba Linda System has not yet encountered competition
from a telephone company entering into the business of providing video services
to subscribers, the Yorba Linda System could potentially face competition from
telephone companies doing so. A Federal cross-ownership restriction has
historically limited entry into the cable television business by potentially
strong competitors such as telephone companies. This restriction, which is
contained in the 1984 Cable Act, has generally prohibited telephone companies
from owning or operating cable television systems within their own telephone
service areas, but several recent court decisions have eliminated this
restriction. In addition, the FCC is authorizing telephone companies to provide
video dialtone service within their service areas. Legislation is also pending
in Congress that would permit telephone companies to provide video programming
through separate subsidiaries. The General Partner cannot predict at this time
to what extent current restrictions will be modified to permit telephone
companies to provide cable television services within their own service areas in
competition with cable television systems. See Regulation and Legislation,
Ownership and Market Structure for a description of the potential participation
of the telephone industry in the delivery of cable television services. Entry
into the market by telephone companies as direct competitors of the Yorba
Linda System could adversely impact the profitability of the Yorba Linda
System. If a telephone company were to become a direct competitor of the
Partnership in an area served by the Yorba Linda System, the Partnership could
be at a competitive disadvantage because of the relative financial strength of
a telephone company compared to the Partnership. Depending on a number of
factors, such competition could also result in cable television systems
providing the same types of services now provided by the telephone industry.
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The FCC has established a new wireless telecommunications service known
as Personal Communications Service ("PCS"). It is envisioned that PCS would
provide portable non-vehicular mobile communications services similar to that
available from cellular telephone companies, but at a lower cost. PCS would be
delivered by placing numerous microcells in a particular area to be covered,
accessible to both residential and business customers. Because of the need to
link the many microcells necessary to deliver this service economically, many
parties are investigating integration of PCS with cable television operations.
Several cable television multiple systems operators and others, including
affiliates of the General Partner, hold or have requested experimental licenses
from the FCC to test PCS technology. The FCC has established spectrum
auctioning procedures for PCS licenses and the licenses are being auctioned in
a series of auction events.
The Yorba Linda System's service area has no MMDS or TVRO operators.
There is one SMATV operator in the Yorba Linda System's service area that
services a mobile home park with approximately 120 units.
Cable television franchises are not exclusive, so that more than one
cable television system may be built in the same area (known as an "overbuild"),
with potential loss of revenues to the operator of the original cable television
system. The portion of the Yorba Linda System that serves subscribers in Anaheim
Hills (representing 1,541 basic subscribers) is in direct competition with
another cable television system. The Partnership's basic penetration rate in
this overbuilt area is approximately 56%.
REGULATION AND LEGISLATION. The cable television industry is regulated
through a combination of the Federal Communications Commission ("FCC"), some
state governments, and most local governments. In addition, the Copyright Act of
1976 imposes copyright liability on all cable television systems. Cable
television operations are subject to local regulation insofar as systems operate
under franchises granted by local authorities.
Cable Television Consumer Protection and Competition Act of 1992. 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. This legislation has caused significant changes to the
regulatory environment in which the cable television industry operates. The 1992
Cable Act generally allows for a greater degree of regulation of the cable
television industry. Under the 1992 Cable Act's definition of effective
competition, nearly all cable television systems in the United States, including
those owned and managed by Intercable, are subject to rate regulation of basic
cable services. In addition, the 1992 Cable Act allows the FCC to regulate
rates for non-basic service tiers other than premium services in response to
complaints filed by franchising authorities and/or cable subscribers. In April
1993, the FCC adopted regulations governing rates for basic and non-basic
services. The FCC's rules became effective on September 1, 1993.
In compliance with these rules, the General Partner reduced rates
charged for certain regulated services effective September 1, 1993. These
reductions resulted in some decrease in revenues and operating income before
depreciation and amortization; however, the decrease was not as severe as
originally anticipated. The General Partner has undertaken actions to mitigate a
portion of these reductions primarily through (a) new service offerings in some
systems, (b) product re-marketing and re-packaging and (c) marketing efforts
directed at non-subscribers.
On February 22, 1994, however, the FCC adopted several additional rate
orders including an order which revised its earlier-announced regulatory scheme
with respect to rates. The FCC's new regulations generally require rate
reductions, absent a successful cost-of-service showing, of 17% of September 30,
1992 rates, adjusted for inflation, channel modifications, equipment costs, and
increases in programming costs. However, the FCC held rate reductions in
abeyance in certain systems. The new regulations became effective on May 15,
1994, but operators could elect to defer rate reductions to July 14, 1994, so
long as they made no changes in their rates and did not restructure service
offerings between May 15 and July 14.
On February 22, 1994, the FCC also adopted interim cost-of-service
regulations. Rate reductions will not be required where it is successfully
demonstrated that rates for basic and other regulated programming services are
justified and reasonable using cost-of-service standards. The FCC established an
interim industry-wide 11.25% permitted rate of return, and requested comments on
whether this standard and other
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interim cost-of-service standards should be made permanent. The FCC also
established a presumption that acquisition costs above a system's book value
should be excluded from the rate base, but the FCC will consider individual
showings to rebut this presumption. The need for special rate relief will also
be considered by the FCC if an operator demonstrates that the rates set by a
cost-of-service proceeding would constitute confiscation of investment, and
that, absent a higher rate, the return necessary to operate and to attract
investment could not be maintained. The FCC will establish a uniform system of
accounts for operators that elect cost-of-service rate regulation, and the FCC
has adopted affiliate transaction regulations. After a rate has been set
pursuant to a cost-of-service showing, rate increases for regulated services
will be indexed for inflation, and operators will also be permitted to increase
rates in response to increases in costs beyond their control, such as taxes and
increased programming costs.
After analyzing the effect of the two methods of rate regulation, the
Partnership elected to file cost-of-service showings for the Yorba Linda System.
The General Partner thus anticipates no further reduction in revenues or
operating income before depreciation and amortization resulting from the FCC's
rate regulations. At this time, however, the regulatory authorities have not yet
approved the cost-of-service showings, and there can be no assurance that the
Partnership's cost-of-service showings will prevent further rate reductions by
the Yorba Linda System until such final approval is received.
Among other issues addressed by the FCC in its February 1994 rate
orders was the treatment of packages of a la carte channels. The FCC in its rate
regulations adopted April 1, 1993, exempted from rate regulation the price of
packages of a la carte channels upon the fulfillment of certain conditions. On
November 10, 1994, the FCC reversed its policy regarding rate regulation of
packages of a la carte services. A la carte services that are offered in a
package will now be subject to rate regulation by the FCC, although the FCC
indicated that it cannot envision circumstances in which any price for a
collective offering of premium channels that have traditionally been offered on
a per-channel basis would be found to be unreasonable.
On November 10, 1994, the FCC also announced a revision to its
regulations governing the manner in which cable operators may charge subscribers
for new cable programming services. In addition to the present formula for
calculating the permissible rate for new services, the FCC instituted a
three-year flat fee mark-up plan for charges relating to new channels of cable
programming services. Commencing on January 1, 1995, operators may charge for
new channels of cable programming services added after May 14, 1994 at a rate of
up to 20 cents per channel, but may not make adjustments to monthly rates
totaling more than $1.20 plus an additional 30 cents for programming license
fees per subscriber over the first two years of the three-year period for these
new services. Operators may charge an additional 20 cents in the third year only
for channels added in that year plus the costs for the programming. Operators
electing to use the 20 cent per channel adjustment may not also take a 7.5%
mark-up on programming cost increases, which is permitted under the FCC's
current rate regulations. The FCC has requested further comment as to whether
cable operators should continue to receive the 7.5% mark-up on increases in
license fees on existing programming services.
The FCC also announced that it will permit operators to offer a "new
product tier" ("NPT"). Operators will be able to price this tier as they elect
so long as, among other conditions, other channels that are subject to rate
regulation are priced in conformity with applicable regulations and operators do
not remove programming services from existing tiers and offer them on the NPT.
There have been several lawsuits filed by cable operators and
programmers in Federal court challenging various aspects of the 1992 Cable Act,
including provisions relating to mandatory broadcast signal carriage,
retransmission consent, access to cable programming, rate regulations,
commercial leased channels and public access channels. On April 8, 1993, a
three-judge Federal district court panel issued a decision upholding the
constitutionality of the mandatory signal carriage requirements of the 1992
Cable Act. That decision was appealed directly to the United States Supreme
Court. The United States Supreme Court vacated the lower court decision on June
27, 1994 and remanded the case to the district court for further development of
a factual record. The Supreme Court's majority determined that the must-carry
rules were content neutral, but that it was not yet proven that the rules were
needed to preserve the economic health of the broadcasting industry. In the
interim, the must-carry rules will remain in place during the pendency of the
proceedings in district court. In 1993, a
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Federal district court for the District of Columbia upheld provisions of the
1992 Cable Act concerning rate regulation, retransmission consent, restrictions
on vertically integrated cable television operators and programmers, mandatory
carriage of programming on commercial leased channels and public, educational
and governmental access channels and the exemption for municipalities from civil
damage liability arising out of local regulation of cable services. The 1992
Cable Act's provisions providing for multiple ownership limits for cable
operators and advance notice of free previews for certain programming services
have been found unconstitutional. In November 1993, the United States Court of
Appeals for the District of Columbia held that the FCC's regulations implemented
pursuant to Section 10 of the 1992 Cable Act, which permit cable operators to
ban indecent programming on public, educational or governmental access channels
or leased access channels, were unconstitutional, but the court has agreed to
reconsider its decision. All of these decisions construing provisions of the
1992 Cable Act and the FCC's implementing regulations have been or are expected
to be appealed.
Ownership and Market Structure. The FCC rules and Federal law generally
prohibit the direct or indirect common ownership, operation, control or interest
in a cable television system, on the one hand, and a local television broadcast
station whose television signal reaches any portion of the community served by
the cable television system, on the other hand. The FCC recently lifted its ban
on the cross-ownership of cable television systems by broadcast networks. The
FCC revised its regulations to permit broadcast networks to acquire cable
television systems serving up to 10% of the homes passed in the nation, and up
to 50% of the homes passed in a local market. Neither the Partnership nor the
General Partner has any direct or indirect ownership, operation, control or
interest in a television broadcast station, or a telephone company, and they are
thus presently unaffected by the cross-ownership rules.
The Cable Communications Policy Act of 1984 (the "1984 Cable Act") and
FCC regulations generally prohibit the common operation of a cable television
system and a telephone company within the same service area. Until recently, a
provision of a Federal court antitrust consent decree also prohibited the
regional Bell operating companies ("RBOCs") from engaging in cable television
operations. This prohibition was recently removed when the court retaining
jurisdiction over the consent decree ruled that the RBOCs could provide
information services over their facilities. This decision permits the RBOCs to
acquire or construct cable television systems outside of their own service
areas.
The 1984 Cable Act prohibited local exchange carriers, including the
RBOCs, from providing video programming directly to subscribers within their
local exchange telephone service areas, except in rural areas or by specific
waiver of FCC rules. Several Federal district courts have struck down the 1984
Cable Act's telco/cross-ownership provision as facially invalid and
inconsistent with the First Amendment. The United States Court of Appeals for
the Fourth and Ninth Circuits have upheld the appeals of two of these district
court decisions, and the United States Justice Department is expected to
request the United States Supreme Court to review these decisions. This
Federal cross-ownership rule is particularly important to the cable industry
since these telephone companies already own certain facilities needed for
cable television operation, such as poles, ducts and associated rights-of-way.
The FCC amended its rules in 1992 to permit local telephone companies
to offer "video dialtone" service for video programmers, including channel
capacity for the carriage of video programming and certain noncommon carrier
activities such as video processing, billing and collection and joint marketing
arrangements. In its video dialtone order, which was part of a comprehensive
proceeding examining whether and under what circumstances telephone companies
should be allowed to provide cable television services, including video
programming to their customers, the FCC concluded that neither the 1984 Cable
Act nor its rules apply to prohibit the interexchange carriers (i.e., long
distance telephone companies such as AT&T) from providing such services to their
customers. Additionally, the FCC also concluded that where a local exchange
carrier ("LEC") makes its facilities available on a common carrier basis for the
provision of video programming to the public, the 1984 Cable Act does not
require the LEC or its programmer customers to obtain a franchise to provide
such service. This aspect of the FCC's video dialtone order was upheld on appeal
by the United States Court of Appeals for the D.C. Circuit. The FCC recently
issued an order reaffirming its initial decision, and this order has been
appealed. Because cable operators are required to bear the costs of complying
with local franchise requirements, including
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the payment of franchise fees, the FCC's decision could place cable operators at
a competitive disadvantage vis-a-vis services offered on a common carrier basis
over local telephone company provided facilities. In its Reconsideration Order,
the FCC, among other actions, refused to require telephone companies to justify
cost allocations prior to the construction of video dialtone facilities, and
indicated that it would provide guidance on costs that must be included in
proposed video dialtone tariffs. The FCC also established dual Federal/state
jurisdiction over video dialtone services based on the origination point of the
video dialtone programming service. In a separate proceeding, the FCC has
proposed to increase the numerical limit on the population of areas qualifying
as "rural" and in which LECs can provide cable service without a FCC waiver.
On January 12, 1995, the FCC adopted a Fourth Further Notice of
Proposed Rulemaking in its video dialtone docket. The FCC tentatively concluded
that it should not ban telephone companies from providing their own video
programming over their video dialtone platforms in those areas in which the
cable/telephone cross-ownership rules have been found unconstitutional. The FCC
requested comments on this issue and on further refinements of its video
dialtone regulatory framework concerning, among other issues, telephone
programmer affiliation standards, the establishment of structural safeguards to
prevent cross-subsidization of video dialtone and programming activities, and
the continuation of the FCC's ban prohibiting telephone companies from acquiring
cable systems within their telephone service areas for the provision of video
dialtone services. The FCC will also consider whether a LEC offering video
dialtone service must secure a local franchise if that LEC also engages in the
provision of video programming carried on its video dialtone platform. The FCC
has also proposed to broadly interpret its authority to waive the
cable/telephone cross-ownership ban upon a showing by telephone companies that
they comply with the safeguards which the FCC establishes as a condition of
providing video programming.
A number of bills that would have permitted telephone companies to
provide cable television service within their own service areas were considered
during the last Congress, but none were adopted. These bills would have
permitted the provision of cable television service by telephone companies in
their own service areas conditioned on the establishment of safeguards to
prevent cross-subsidization between telephone and cable television operations
and the provision of telecomunication services by cable television systems.
Similar legislation is expected to be considered by Congress during its current
session. The outcome of these FCC, legislative or court proceedings and
proposals or the effect of such outcome on cable system operations cannot be
predicted.
ITEM 2. PROPERTIES
The Partnership owned only one cable television system at December 31,
1994, the Yorba Linda System, which was acquired in April 1992.
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 Yorba Linda 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 Yorba Linda 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 Yorba Linda System operated
approximately 270 miles of cable plant, passing approximately 21,500 homes,
representing an approximate 73% 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.
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At December 31,
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YORBA LINDA, CALIFORNIA 1994 1993 1992
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Monthly basic plus service rate $ 22.25 $ 22.25 $ 21.45
Basic subscribers 15,961 15,472 14,872
Pay units 9,414 9,688 9,071
Franchise expiration dates range from August 2001 to August 2004.
PROGRAMMING SERVICES
Programming services provided by the Yorba Linda 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
Yorba Linda System also provides a selection of premium channel programming
(e.g., Cinemax, Encore, Home Box Office, Showtime and The Movie Channel).
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS
While the Partnership's interests are publicly held, there is no
established public market for the interests, and it is not expected that such a
market will develop in the future. As of February 15, 1995, the approximate
number of equity security holders in the Partnership was 2,307.
9
10
ITEM 6. SELECTED FINANCIAL DATA
From Inception
For the Year Ended December 31, (March 27, 1991)
-------------------------------------------------- to December 31,
1994 1993 1992 1991
-------------- --------------- -------------- ---------------
Revenues $6,345,871 $ 6,198,092 $4,293,195 $ -
Depreciation and Amortization 3,444,027 3,287,050 2,122,103 -
Operating Loss (1,538,783) (1,316,141) (686,403) -
Net Loss (2,264,142) (1,912,873) (1,089,275) 217,779
Net Loss per Limited
Partnership Unit (113.29) (95.72) (62.24) 34.23
Weighted Average Number of Limited
Partner Units Outstanding 19,785 19,785 17,309 6,363
General Partner's Capital (Deficit) (52,813) (30,172) (11,043) 1,000
Limited Partners' Capital 11,752,184 13,993,685 15,887,429 8,742,739
Total Assets 23,964,837 26,502,620 27,812,155 8,794,334
Credit Facility and Other Debt 11,247,350 11,547,919 10,516,485 -
General Partner Advances 71,270 - 141,435 -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
1994 Compared to 1993 --
Revenues of the Partnership for the year ended December 31, 1994
totalled $6,345,871, compared to $6,198,092 in 1993, an increase of $147,779, or
approximately 2 percent. This increase is primarily the result of increases in
advertising revenues, which were offset by decreases in equipment rental and
additional outlet revenue. The increase in revenues would have been greater
if not 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. No other individual factor was significant to the increase in revenues.
See regulatory matters discussed below.
Operating, general and administrative expenses increased $177,926, or
approximately 5 percent, from $3,460,174 in 1993 to $3,638,099 in 1994.
Operating, general and administrative expenses represented approximately 56
percent and 57 percent of revenues in 1993 and 1994, respectively. Of the total
net increase in operating, general and administrative expenses, advertising
related costs increased $158,613, representing approximately 89 percent of the
total increase. No other individual factor significantly affected the increase
in operating, general and administrative expense for the periods discussed.
Management fees and allocated administrative costs from the General
Partner increased $35,519, or approximately 5 percent, from $767,009 in 1993 to
$802,528 in 1994. This increase was primarily the result of increases in
allocated expenses from the General Partner. The General Partner has experienced
increases in expenses, including personnel costs and reregulation costs, a
portion of which are allocated to the Partnership.
Operating loss increased $222,642, or approximately 17 percent, from
$1,316,141 in 1993 to $1,538,783 in 1994. This increase was due to the increases
in operating, general and administrative expenses, management fees and allocated
administrative expenses from the General Partner and depreciation and
amortization exceeding the increase in revenues. Operating income before
depreciation and amortization decreased $65,665, or approximately 3 percent,
from $1,970,909 in 1993 to $1,905,244 in 1994. The decrease was due to the
increases in operating, general and administrative expenses and management fees
and allocated administrative expenses from the General Partner exceeding the
increase in revenues. 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
10
11
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 $128,337, or approximately 22 percent, from
$591,575 in 1993 to $719,912 in 1994. The increase was primarily due to higher
average interest rates and increased amounts due to the General Partner.
Net loss increased $351,269, or approximately 18 percent, from
$1,912,873 in 1993 to $2,264,142 in 1994. The increase was a result of the
factors discussed above.
1993 Compared to 1992 -
The Partnership was formed on March 27, 1991 and it acquired the Yorba
Linda System on April 17, 1992; therefore no meaningful comparison can be made
regarding the Partnership's performance in 1993 as compared to 1992.
Revenues of the Partnership for the year ended December 31, 1993
totalled $6,198,092. Revenues would have been greater if not 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
income before depreciation and amortization for the year ended December 31, 1993
totalled $1,970,909. Operating, general and administrative expenses totalled
$3,460,174 and represented approximately 56 percent of revenues in 1993.
Management fees to the General Partner and allocated administrative costs from
the General Partner totalled $767,009, or 12 percent of revenues.
Interest expense incurred as a result of borrowings required to finance a
portion of the acquisition of the Yorba Linda System totalled $591,575 for the
year ended December 31, 1993. Net loss for the year ended December 31, 1993
totalled $1,893,744. These losses were primarily the result of depreciation,
amortization and interest expenses.
Financial Condition
For the year ended December 31, 1994, the Partnership generated
operating income before depreciation and amortization of $1,905,244 and incurred
interest expense totalling $719,912 leaving $1,185,332 to fund capital
expenditures and non-operating costs. During 1994, the Partnership purchased
approximately $1,326,300 of plant and equipment for the Yorba Linda System.
Approximately 42 percent of these expenditures was for cable plant extensions,
cable, hardware and labor for new subscriber installations and to replace
equipment in the Yorba Linda System. Approximately 22 percent was for
pay-per-view equipment. The remainder of the capital expenditures was for
enhancements to the Yorba Linda System. Capital expenditures for 1995 are
expected to be approximately $3,128,200 and will be financed principally from
cash flow from operations and borrowings under the Partnership's credit
facility. For 1995, approximately 58 percent of the expected capital
expenditures will be for system upgrades, 35 percent of the expected capital
expenditures will be for cable, hardware and labor to extend the cable plant,
to make additional subscriber installations and to replace equipment in the
Yorba Linda System, and the remainder of these expenditures will be for various
other enhancements throughout the Yorba Linda System.
On September 30, 1994, an amendment was signed to extend the revolving
aspect of the Partnership's $13,000,000 credit facility to December 31, 1996, at
which time the outstanding principal balance will convert to a term loan,
payable in quarterly installments with a final maturity date of December 31,
2002. Generally, the interest on the outstanding principle balance is at the
Partnership's option of the Prime rate plus 1/4 percent to 1/2 percent or LIBOR
plus 1-1/4 percent to 1-1/2 percent, depending upon the ratio of the Partnership
debt to operating cash flow. As of
11
12
December 31, 1994, $11,161,375 was outstanding under the Partnership's
$13,000,000 credit facility leaving $1,838,625 for future borrowings.
On January 12, 1993, the Partnership entered into an interest rate cap
agreement covering outstanding debt obligations of $7,000,000. The Partnership
paid a fee of $67,900 for the rate cap agreement. The agreement protects the
Partnership from LIBOR interest rates that exceed 7 percent for three years from
the date of the agreement.
The General Partner presently believes cash flow from operations and
available borrowings under the credit facility will be sufficient to fund
capital expenditures and other liquidity needs of the Partnership in 1995.
Regulation and Legislation
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 a cost-of-service showing for the Yorba Linda
System and thus anticipates no further reductions in rates. The cost-of-service
showing has not yet received final approval from franchising authorities,
however, and there can be no assurance that the Partnership's cost-of-service
showing will prevent further rate reductions until such final approval is
received. See Item 1 for further discussion of the provisions of the 1992 Cable
Act and the FCC regulations promulgated thereunder.
12
13
ITEM 8. FINANCIAL STATEMENTS
JONES GROWTH PARTNERS II L.P.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 AND 1993
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
INDEX
Page
----
Report of Independent Public Accountants 14
Balance Sheets 15
Statements of Operations 17
Statements of Partners' Capital (Deficit) 18
Statements of Cash Flows 19
Notes to Financial Statements 20
13
14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Jones Growth Partners II L.P.:
We have audited the accompanying balance sheets of Jones Growth Partners II 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
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 Growth Partners II L.P.
as of December 31, 1994 and 1993, and the results of its operations and its cash
flows for 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.
14
15
JONES GROWTH PARTNERS II L.P.
(A Limited Partnership)
BALANCE SHEETS
December 31,
----------------------------
ASSETS 1994 1993
------ ------------ ----------
CASH AND CASH EQUIVALENTS $ 61,131 $ 757,270
TRADE RECEIVABLES, less allowance
for doubtful receivables of $4,291 and $8,463 at
December 31, 1994 and 1993, respectively 338,891 84,512
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 14,011,386 12,685,070
Less - accumulated depreciation (3,158,613) (1,815,444)
----------- ------------
10,852,773 10,869,626
Franchise costs, net of accumulated amortization of $2,791,240
and $1,760,936 at December 31, 1994 and 1993, respectively 7,511,760 8,542,064
Subscriber lists, net of accumulated amortization of $1,489,195 and
$939,339 at December 31, 1994 and 1993, respectively 2,359,804 2,909,660
Noncompete agreement, net of accumulated amortization of $1,185,944
and $748,057 at December 31, 1994 and 1993, respectively 748,056 1,185,943
Costs in excess of interests in net assets purchased,
net of accumulated amortization of $122,089 and $76,983 at
December 31, 1994 and 1993, respectively 1,679,800 1,724,906
----------- ----------
Total investment in cable television properties 23,152,193 25,232,199
DEBT PLACEMENT COSTS, net of accumulated amortization
of $101,216 and $63,844 at December 31, 1994 and 1993, respectively 182,189 219,561
DEPOSITS, PREPAID EXPENSES AND OTHER 230,433 209,078
----------- -----------
Total assets $23,964,837 $26,502,620
=========== ===========
The accompanying notes to financial
statements are an integral part of these
balance sheets.
15
16
JONES GROWTH PARTNERS II L.P.
(A Limited Partnership)
BALANCE SHEETS
December 31,
---------------------------------
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) 1994 1993
------------------------------------------- ----------- -----------
LIABILITIES:
Credit facility and other debt $11,247,350 $11,547,919
Accounts payable to Jones Spacelink, Ltd. 71,270 -
Trade accounts payable and accrued liabilities 622,661 622,845
Subscriber prepayments and deposits 324,185 368,343
---------- ----------
Total liabilities 12,265,466 12,539,107
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS' CAPITAL (DEFICIT):
General Partner-
Contributed capital 1,000 1,000
Accumulated deficit (53,813) (31,172)
------------ -----------
(52,813) (30,172)
------------ -----------
Limited Partners-
Contributed capital, net of related
commissions, syndication costs and
interest distribution (19,785 units outstanding
at December 31, 1994 and 1993, respectively) 16,746,882 16,746,882
Accumulated deficit (4,994,698) (2,753,197)
---------- ----------
11,752,184 13,993,685
---------- ----------
Total partners' capital (deficit) 11,699,371 13,963,513
---------- ----------
Total liabilities and
partners' capital (deficit) $23,964,837 $26,502,620
========== ==========
The accompanying notes to financial
statements are an integral part of these
balance sheets.
16
17
JONES GROWTH PARTNERS II L.P.
(A Limited Partnership)
STATEMENTS OF OPERATIONS
For the Year Ended
December 31,
----------------------------------------------------
1994 1993 1992
-------------- -------------- ---------
REVENUES $ 6,345,871 $ 6,198,092 $ 4,293,195
COSTS AND EXPENSES:
Operating, general and administrative 3,638,099 3,460,174 2,368,247
Management fees to the General Partner
and allocated administrative costs
from Jones Spacelink, Ltd. 802,528 767,009 489,248
Depreciation and amortization 3,444,027 3,287,050 2,122,103
--------- ----------- -----------
OPERATING LOSS (1,538,783) (1,316,141) (686,403)
OTHER INCOME (EXPENSE):
Interest expense (719,912) (591,575) (537,976)
Interest income 10,023 2,646 133,818
Other, net (15,470) (7,803) 1,286
---------- ----------- -----------
NET LOSS $(2,264,142) $(1,912,873) $(1,089,275)
=========== =========== ===========
ALLOCATION OF NET LOSS:
General Partner $ (22,641) $ (19,129) $ (12,043)
=========== =========== ===========
Limited Partners $(2,241,501) $(1,893,744) $(1,077,232)
=========== =========== ==========
NET LOSS PER LIMITED
PARTNERSHIP UNIT $ (113.29) $ (95.72) $ (62.24)
=========== ============ ============
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 19,785 19,785 17,309
=========== =========== ============
The accompanying notes to financial
statements are an integral part of
these statements.
17
18
JONES GROWTH PARTNERS II L.P.
(A Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
For the Year Ended
December 31,
------------------------------------------------
1994 1993 1992
---------- ----------- -----------
GENERAL PARTNER:
Balance, beginning of year $ (30,172) $ (11,043) $ 1,000
Net loss for the year (22,641) (19,129) (12,043)
----------- ----------- -----------
Balance, end of year $ (52,813) $ (30,172) $ (11,043)
=========== =========== ===========
LIMITED PARTNERS:
Balance, beginning of year $13,993,685 $15,887,429 $ 8,742,739
Net contributed capital - - 8,221,922
Net loss for the year (2,241,501) (1,893,744) (1,077,232)
----------- ----------- -----------
Balance, end of year $11,752,184 $13,993,685 $15,887,429
=========== =========== ===========
The accompanying notes to financial
statements are an integral part of
these statements.
18
19
JONES GROWTH PARTNERS II L.P.
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Year Ended
December 31,
-----------------------------------------------
1994 1993 1992
------------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,264,142) $(1,912,873) $ (1,089,275)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 3,444,027 3,287,050 2,122,103
Amortization of interest rate protection contract 22,636 22,636 -
Increase in trade accounts receivable (254,379) (16,694) (67,818)
Increase in deposits, prepaid expenses and other (44,324) (210,237) (11,827)
Increase (decrease) in trade accounts payable,
accrued liabilities and subscriber
prepayments and deposits (44,342) (286,661) 1,185,739
Decrease in interest receivable - - 37,852
Increase (decrease) in accounts payable to
Jones Spacelink, Ltd. 71,270 (141,435) 141,435
----------- ----------- ------------
Net cash provided by operating activities 930,746 741,786 2,318,209
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of cable television systems - - (28,666,729)
Purchase of property and equipment (1,326,316) (1,195,106) (725,323)
----------- ----------- ------------
Net cash used in investing activities (1,326,316) (1,195,106) (29,392,052)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributed capital, net of related commissions,
syndication costs and interest distribution - - 8,221,922
Decrease in subscriptions receivable, net - - 232,013
Increase in accrued due diligence costs - - 41,515
Proceeds from borrowings 55,108 1,344,031 15,517,834
Repayment of borrowings (355,677) (312,597) (5,001,349)
Debt offering costs - - (283,405)
----------- ----------- ------------
Net cash provided by (used in) financing
activities (300,569) 1,031,434 18,728,530
----------- ----------- ------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (696,139) 578,114 (8,345,313)
CASH AND CASH EQUIVALENTS,
AT BEGINNING OF YEAR 757,270 179,156 8,524,469
----------- ----------- ------------
CASH AND CASH EQUIVALENTS,
AT END OF YEAR $ 61,131 $ 757,270 $ 179,156
=========== =========== ============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 675,892 $ 588,174 $ 471,938
=========== =========== ============
The accompanying notes to financial
statements are an integral part of
these statements.
19
20
JONES GROWTH PARTNERS II L.P.
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND PARTNERS' INTERESTS:
Formation and Business
Jones Growth Partners II L.P. (the "Partnership"), a Colorado
limited partnership, was formed on March 27, 1991, pursuant to a public
offering of limited partnership interests sponsored by Jones Spacelink Cable
Corporation. The Partnership was formed to acquire, construct, develop and
operate cable television systems. Jones Spacelink Cable Corporation (the
"General Partner") was a wholly owned subsidiary of Jones Spacelink, Ltd.
("Spacelink") until December 20, 1994. On that date, Jones Intercable, Inc.
("Intercable"), a Colorado corporation that also was a subsidiary of Spacelink,
acquired substantially all of the assets of Spacelink, including all of the
shares of the General Partner. The General Partner is thus now a wholly owned
subsidiary of Intercable. The General Partner and certain of its affiliates
also owned and operated cable television systems for their own account and for
the account of other managed limited partnerships.
Contributed Capital
The capitalization of the Partnership is set forth in the
accompanying statements of partners' capital (deficit). No limited partner is
obligated to make any additional contributions to Partnership capital. The
General Partner purchased its general partner interest in the Partnership by
contributing $1,000 to Partnership capital.
Cable Television System Acquisition
On April 17, 1992, the Partnership purchased the cable
television systems serving the areas in and around the communities of Yorba
Linda, certain portions of Anaheim Hills, and certain portions of unincorporated
Orange County, all in the State of California (the "Yorba Linda System").
(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.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, amounts held
in banks and highly liquid investments with a maturity at purchase of three
months or less.
Property, Plant and Equipment
Depreciation of property, plant and equipment is provided
using the straight-line method over the following estimated service lives:
Cable distribution systems 5 - 15 years
Equipment and tools 5 years
Office furniture and equipment 5 years
Buildings 10 - 20 years
Vehicles 3 years
20
21
Replacements, renewals and improvements are capitalized and
maintenance and repairs are charged to expense as incurred.
Allocation of Cost of Purchased Cable Television Systems
Based on an independent appraisal, the Partnership allocated
the total purchase price of the Yorba Linda System acquired as follows: first,
to the fair value of net tangible assets acquired; second, to franchise costs in
an amount equal to the estimated value of franchise agreements; third, to
subscriber lists; fourth, to the noncompete agreement; and fifth, to costs in
excess of interests in net assets purchased. The brokerage fee paid to an
affiliate of the General Partner upon acquisition of the Yorba Linda System and
other acquisition costs were capitalized and charged to investment in cable
television properties in the accompanying balance sheets.
Intangible Assets
Costs assigned to intangible assets are being amortized using
the straight-line method over the following estimated useful lives:
Franchise costs 4 - 7 years
Subscriber lists 4 years
Noncompete agreement 1 years
Costs in excess of interests in net assets purchased 37 years
Revenue Recognition
Subscriber prepayments are initially deferred and recognized
as revenue when earned.
Reclassifications
Certain prior year amounts have been reclassified to conform
to the 1994 presentation.
(3) TRANSACTIONS WITH THE GENERAL PARTNER AND CERTAIN OF ITS AFFILIATES:
Management Fees, Distribution Ratios and Reimbursements
The General Partner manages the Partnership and receives a fee
for its services equal to five percent of the gross revenues of the Partnership,
excluding revenues from the sale of cable television systems or franchises.
Management fees paid to the General Partner by the Partnership for the years
ended December 31, 1994, 1993 and 1992 were $317,294, $309,905 and $214,660,
respectively.
Any partnership distributions made from cash flow (defined as
cash receipts derived from routine operations, less debt principal and interest
payments and cash expenses) are generally allocated 99 percent to the limited
partners and one percent to the General Partner. Any distributions other than
from cash flow are generally made as follows: first, to the limited partners in
an amount which, together with all prior distributions made from sources other
than cash flow, will equal the amount initially contributed to partnership
capital by the limited partners; second, to the limited partners an amount equal
to eight percent per annum, cumulative and noncompounded, on an amount equal to
their initial capital contributions (less any portion of such initial capital
contributions returned by the distribution to limited partners from prior sale
or refinancing proceeds) provided, however, that the eight percent return will
be reduced by all prior distributions of cash flow from the partnership and
prior distributions of proceeds of sales or refinancings that exceed an amount
equal to the limited partner's initial capital contributions; third, any
remaining income or gain shall be allocated 80 percent to the limited partners
and 20 percent to the General Partner until the limited partners have received
250 percent of their initial capital contribution, after which any remaining
income or gain shall be allocated 75 percent to the limited partners and 25
percent to the General Partner.
21
22
The Partnership reimburses the General Partner and certain of
its affiliates for certain allocated general and administrative costs. These
expenses include salaries and benefits paid to corporate personnel, office rent
and related facilities expense. 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 and certain of its affiliates with
respect to each partnership managed. Remaining expenses will be allocated based
upon the pro rata relationship of the Partnership's revenues to the total
revenues of all cable television systems owned or managed by the General Partner
and certain of its affiliates, and/or the costs of assets managed for the
Partnership. 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. All cable television systems owned or managed by
the General Partner and certain of its affiliates are allocated a proportionate
share of these expenses. Included in the costs allocated from Intercable and
certain of its affiliates are expenses allocated to the General Partner and
certain of its affiliates from affiliated entities for information processing
and administrative services. The General Partner believes that the methodology
used in allocating general and administrative costs is reasonable.
Reimbursements by the Partnership to the General Partner for allocated general
and administrative costs for the years ended December 31, 1994, 1993 and 1992
were $485,234, $457,104 and $274,588, respectively.
Payments to/from Affiliates for Programming Services
The Partnership receives programming from Product
Information Network, The Mind Extension University and Jones Computer Network,
affiliates of Intercable. Payments to The Mind Extension University for the
years ended December 31, 1994, 1993 and 1992 totalled $8,770, $5,578 and
$2,983, respectively. Payments to Jones Computer Network, which initiated
service in 1994, totalled $5,771 in 1994. 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 $2,389 in 1994.
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 1994 and
1993, consisted of the following:
1994 1993
-------------- -------------
Cable distribution systems $13,187,501 $12,077,423
Equipment and tools 466,638 399,220
Office furniture and equipment 157,131 67,545
Buildings 6,468 6,468
Vehicles 193,648 134,414
----------- -----------
14,011,386 12,685,070
Less: accumulated depreciation (3,158,613) (1,815,444)
----------- ----------
$10,852,773 $10,869,626
========== ==========
(5) INCOME TAXES:
Income taxes have not been recorded in the accompanying
financial statements because they accrue directly to the partners. 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 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 limited partners would likely
be changed accordingly.
22
23
Taxable income or loss to the partners is different from that
reported in the statements of operations 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
(MACRS). There are no other significant differences between taxable income or
loss and the net income or loss reported in the statements of operations.
(6) DEBT:
On September 30, 1994, an amendment was signed to extend the
revolving aspect of the Partnership's $13,000,000 credit facility to December
31, 1996, at which time the outstanding principal balance will convert to a term
loan, payable in quarterly installments with a final maturity date of December
31, 2002. Generally, the interest on the outstanding principle balance is at the
Partnership's option of the Prime rate plus 1/4 percent to 1/2 percent or LIBOR
plus 1-1/4 percent to 1-1/2 percent, depending upon the ratio of the Partnership
debt to operating cash flow. As of December 31, 1994, $11,161,375 was
outstanding under the Partnership's $13,000,000 credit facility leaving
$1,838,625 for future borrowings.
On January 12, 1993, the Partnership entered into an interest
rate cap agreement covering outstanding debt obligations of $7,000,000. The
Partnership paid a fee of $67,900 for the rate cap agreement. The agreement
protects the Partnership from LIBOR interest rates that exceed 7 percent for
three years from the date of the agreement.
The Partnership's debt consists of the following:
December 31,
-----------------------------
1994 1993
----------- -----------
Lending institutions-
Revolving credit and
term loan facility $11,161,375 $11,500,000
Capitalized lease obligations 85,975 47,919
----------- -----------
$11,247,350 $11,547,919
=========== ===========
Estimated maturities of the revolving credit and term loan and
capital lease obligations for the five years in the period ended December 31,
1999 and thereafter are as follows:
1995 $ 25,793
1996 25,793
1997 583,862
1998 1,124,734
1999 1,674,206
Thereafter 7,812,962
----------
Total future minimum
lease payments $11,247,350
===========
(7) 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 FCC adopted regulations governing rates for basic and non-basic services.
These regulations became effective on September 1, 1993. Such regulations
caused reductions in
23
24
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 a cost-of-service showing for the Yorba Linda
System and thus anticipates no further reductions in rates. The cost-of-service
showing has not yet received final approval from franchising authorities,
however, and there can be no assurance that the Partnership's cost-of-service
showing will prevent further rate reductions until such final approval is
received. See Item 1 for further discussion of the provisions of the 1992 Cable
Act and the FCC regulations promulgated thereunder.
The Partnership rents office and other facilities under various
long-term lease arrangements. Rent paid under such lease arrangements totalled
$84,194 and $74,079 for the years ended December 31, 1994 and 1993,
respectively. Future minimum lease payments, as of December 31, 1994, under
noncancelable operating leases for the five years in the period ending December
31, 1999, and thereafter are as follows:
1995 $ 73,417
1996 73,417
1997 73,417
1998 51,575
1999 51,575
Thereafter 91,381
-------
Total future minimum
lease payments $414,782
========
(8) SUPPLEMENTARY PROFIT AND LOSS INFORMATION
Supplementary profit and loss information is presented below:
Year Ended December 31,
------------------------------------------------
1994 1993 1992
----------- ---------- ----------
Maintenance and repairs $ 45,174 $ 106,270 $ 73,638
========== ========== ==========
Taxes, other than income and
payroll taxes $ 316,193 $ 322,227 $ 223,085
========== ========== ==========
Advertising costs $ 44,800 $ 92,304 $ 56,792
========== ========== ==========
Depreciation of property,
plant and equipment $1,343,502 $1,186,524 $ 633,470
========== ========== ==========
Amortization of intangible assets $2,100,525 $2,100,526 $1,488,633
========== ========== ==========
24
25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III.
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.
Name Age Positions with the General Partner
---- --- ----------------------------------
Glenn R. Jones 65 Chairman of the Board and Chief
Executive Officer
James B. O'Brien 45 President
Ruth E. Warren 45 Vice President/Operations
Elizabeth M. Steele 43 Vice President and Secretary
Kevin P. Coyle 43 Vice President/Finance
Larry W. Kaschinske 35 Controller
Timothy J. Burke 44 Director
Mr. Glenn R. Jones has served as Chief Executive Officer of the General
Partner since its inception in November 1988. Mr. Glenn R. Jones has served as
Chairman of the Board of Directors and Chief Executive Officer of Intercable
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 Intercable and of
certain other affiliates of Intercable. 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. James B. O'Brien was appointed President of the General Partner in
January 1995. Mr. O'Brien joined Intercable in January 1982. Prior to being
elected President and a Director of Intercable 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 Intercable'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 Intercable. 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.
25
26
Ms. Ruth E. Warren, the General Partner's Vice President/Operations,
joined Intercable 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 Intercable in September
1990.
Ms. Elizabeth M. Steele, the General Partner's Vice President and
Secretary, joined Intercable in August 1987 as Vice President/General Counsel
and Secretary. From August 1980 until joining Intercable, Ms. Steele was an
associate and then a partner at the Denver law firm of Davis, Graham & Stubbs,
which serves as counsel to Intercable.
Mr. Kevin P. Coyle was appointed Vice President/Finance of the General
Partner in March 1995. Mr. 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 Intercable in
August 1987, Vice President/Treasurer in April 1988 and Group Vice
President/Finance and Chief Financial Officer in October 1990.
Mr. Larry Kaschinske was appointed Controller of the General Partner in
March 1995. Mr. Kaschinske joined Intercable in 1984 as a staff accountant in
Intercable's former Wisconsin Division; was promoted to Assistant Controller in
1990 and named Controller in August 1994.
Mr. Timothy J. Burke joined Intercable in August 1982 as corporate tax
manager, was elected Vice President/Taxation in November 1986 and Group Vice
President/Taxation/Administration in October 1990.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no employees; however, various personnel are
required to operate the Yorba Linda 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. 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. 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 Intercable and all other
systems owned by partnerships for which Intercable and its affiliates are the
general partner, are also allocated a proportionate share of these expenses.
26
27
The General Partner also advances funds and charges interest on the
balance payable from the Partnership. The interest rate charged the Partnership
approximates the General Partner's weighted average cost of borrowing.
The Yorba Linda System receives educational video programming from Mind
Extension University, Inc., an affiliate of the General Partner, and computer
video programming from Jones Computer Network, Ltd., 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 Yorba Linda 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 $2,389.
The charges to the Partnership for related party transactions are as
follows for the periods indicated:
At December 31,
--------------------------------------------------
1994 1993 1992
---- ---- ----
Management fees $317,294 $309,905 $214,660
Acquisition expenses -0- -0- 403,681
Sales commissions -0- -0- 966,600
Syndication cost reimbursements -0- -0- 362,475
Allocation of expenses 485,235 457,104 274,588
Interest expense -0- 591,575 537,976
Amount of notes and advances outstanding 71,270 -0- 141,435
Highest amount of notes and advances
outstanding 75,414 257,160 353,947
Programming fees:
Mind Extension University 8,770 5,578 2,983
Jones Computer Network 5,771 -0- -0-
27
28
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. See index to financial statements for the list of financial
statements and exhibits thereto filed as part of this report.
3. The following exhibits are filed herewith.
4.1 Agreement of Limited Partnership. (1)
10.1.1 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the City of
Anaheim, California. (3)
10.1.2 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the County of
Orange, California. (3)
10.1.3 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the City of Yorba
Linda, California. (3)
10.2.1 Credit and Security Agreement dated as of April 15, 1992 among the
Partnership and Credit Lyonnais New York Branch, as agent for
various lenders. (3)
10.2.2 Amendment No. 1 dated as of September 30, 1994 to the Credit and
Security Agreement dated as of April 15, 1992 among Jones Growth
Partners II L.P. and Credit Lyonnais New York Branch, as agent for
various lenders.
10.3.1 Purchase and Sale Agreement dated August 24, 1990, by and among
Empire Partners, a California general partnership, Empire Cable
Television, Inc., a California corporation, Yorba Linda Television
Co., Inc., a California corporation, and Crown Valley Cable
Television, Inc., a California corporation, as sellers, and Jones
Spacelink, Ltd., a Colorado corporation, as buyer. (2)
10.3.2 Letter Agreement dated October 16, 1990, amending Purchase and Sale
Agreement. (2)
10.3.3 Second Amendment to Purchase and Sale Agreement dated May 31, 1991.
(2)
10.3.4 Third Amendment to Purchase and Sale Agreement dated June 14, 1991.
(2)
10.3.5 Fourth Amendment to Purchase and Sale Agreement dated August 9,
1991. (2)
27 Financial Data Schedule.
----------
(1) Incorporated by reference from the Form 8-A Registration Statement
of Jones Growth Partners II L.P. filed with the Securities and
Exchange Commission on May 6, 1991 (Commission File No. 0-19259).
(2) Incorporated by reference from the Form S-1 Registration Statement
of Jones Growth Partners II L.P. filed with the Securities and
Exchange Commission (Registration No. 33-32169).
28
29
(3) Incorporated by reference from Registrant's Report on Form 10-K for
the fiscal year ended December 31, 1992.
(b) Reports on Form 8-K
None.
29
30
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 GROWTH PARTNERS II L.P.
a Colorado limited partnership
By: Jones Spacelink Cable Corporation
By: /s/ Glenn R. Jones
----------------------------------------
Glenn R. Jones
Chairman of the Board and Chief
Dated: March 27, 1995 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
Vice President/Finance
Dated: March 27, 1995 (Principal Accounting and Financial
Officer)
By: /s/ Larry Kaschinske
-----------------------------------------
Larry Kaschinske
Controller
Dated: March 27, 1995 (Principal Accounting Officer)
By: /s/ Timothy J. Burke
----------------------------------------
Timothy J. Burke
Dated: March 27, 1995 Director
30
31
EXHIBIT INDEX
EXHIBIT PAGE
------- ----
4.1 Agreement of Limited Partnership. (1)
10.1.1 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the City of
Anaheim, California. (3)
10.1.2 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the County of
Orange, California. (3)
10.1.3 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the City of Yorba
Linda, California. (3)
10.2.1 Credit and Security Agreement dated as of April 15, 1992 among the
Partnership and Credit Lyonnais New York Branch, as agent for
various lenders. (3)
10.2.2 Amendment No. 1 dated as of September 30, 1994 to the Credit and
Security Agreement dated as of April 15, 1992 among Jones Growth
Partners II L.P. and Credit Lyonnais New York Branch, as agent for
various lenders.
10.3.1 Purchase and Sale Agreement dated August 24, 1990, by and among
Empire Partners, a California general partnership, Empire Cable
Television, Inc., a California corporation, Yorba Linda Television
Co., Inc., a California corporation, and Crown Valley Cable
Television, Inc., a California corporation, as sellers, and Jones
Spacelink, Ltd., a Colorado corporation, as buyer. (2)
10.3.2 Letter Agreement dated October 16, 1990, amending Purchase and Sale
Agreement. (2)
10.3.3 Second Amendment to Purchase and Sale Agreement dated May 31, 1991.
(2)
10.3.4 Third Amendment to Purchase and Sale Agreement dated June 14, 1991.
(2)
10.3.5 Fourth Amendment to Purchase and Sale Agreement dated August 9,
1991. (2)
27 Financial Data Schedule.
----------
(1) Incorporated by reference from the Form 8-A Registration Statement
of Jones Growth Partners II L.P. filed with the Securities and
Exchange Commission on May 6, 1991 (Commission File No. 0-19259).
(2) Incorporated by reference from the Form S-1 Registration Statement
of Jones Growth Partners II L.P. filed with the Securities and
Exchange Commission (Registration No. 33-32169).
(3) Incorporated by reference from Registrant's Report on Form 10-K for
the fiscal year ended December 31, 1992.
EX-10.2.2
2
AMENDMENT #1 TO CREDIT & SECURITY AGREEMENT
1
AMENDMENT NO. 1 (the "Amendment") dated as of
September 30, 1994 to the Credit and Security
Agreement dated as of April 15, 1992 (the
"Agreement"), among JONES GROWTH PARTNERS II L.P.,
a Colorado limited partnership (the "Borrower"),
THE LENDERS REFERRED TO THEREIN (the "Lenders")
and CREDIT LYONNAIS NEW YORK BRANCH, as agent for
the Lenders (the "Agent").
INTRODUCTORY STATEMENT
All capitalized terms not otherwise defined in this Amendment are
used herein as defined in the Agreement.
The Borrower has requested that the Agreement be amended (i) to
increase the amount of the Commitments to $13,000,000 and (ii) to modify
the provisions of the Agreement as hereinafter set forth.
In consideration of the mutual agreements contained herein and other
good and valuable consideration, the parties hereto hereby agree as
follows:
SECTION 1. Amendment to the Agreement. Subject to the provisions of
Section 4 hereof, the Agreement is hereby amended effective as of September
30, 1994 as follows:
(A) The definition of "Conversion Date" appearing in Article 1 of
the Agreement is hereby amended by deleting the year "1993" appearing
therein and inserting the year "1996" in lieu thereof.
(B) The third sentence of Section 2.04(a) of the Agreement is hereby
amended in its entirety to read as follows:
"The principal amount of the Term Loan shall be payable in quarterly
installments commencing on March 31, 1997 and on each June 30, September
30, December 31 and March 31 thereafter through and including December
31, 2002, the four quarterly installments due in each calendar year to
be equal in amount and in accordance with the following amortization
schedule:
2
AGGREGATE AMOUNT OF FOUR
QUARTERLY INSTALLMENTS FOR
EACH YEAR AS A PERCENTAGE
OF ORIGINAL PRINCIPAL AMOUNT
YEAR OF TERM LOAN
---- ----------------------------
1997 5.00%
1998 10.00%
1999 15.00%
2000 20.00%
2001 25.00%
2002 25.00%
provided, however, that the final installment on December 31, 2002 shall
be in the amount required to pay the remaining outstanding principal
balance of the Term Loan in full."
(C) The table appearing in Section 2.05(c) of the Agreement is
hereby amended in its entirety to read as follows:
"WHEN THE RATIO OF
SENIOR DEBT TO LIBO BASE RATE
ANNUALIZED OPERATING APPLICABLE APPLICABLE
CASH FLOW IS: MARGIN MARGIN
------------- ---------- ----------
Less than or equal 1-1/2% 1/2%
to 4.50:1.00 but
greater than or
equal to 4.00:1.00
Less than 4.00:1.00 1-1/4% 1/4%"
(D) Section 3.05 of the Agreement is hereby amended by deleting the
date "September 6, 1991" appearing therein and inserting the date "June 30,
1994" in lieu thereof.
(E) Section 6.13 of the Agreement is hereby amended in its entirety
to read as follows:
"SECTION 6.13. Debt Service Coverage Ratio.
Permit the ratio of Annualized Operating Cash Flow of the Borrower to
Pro-Forma Debt Service of the Borrower to be less than 1.50:1.00 at any
time."
- 2 -
3
(F) Section 6.14 of the Agreement is hereby amended in its entirety
to read as follows:
"SECTION 6.14. Senior Debt to Cash Flow Ratio of the Borrower.
Permit the ratio of Senior Debt of the Borrower to Annualized
Operating Cash Flow of the Borrower to exceed the ratios indicated below
at any time during the periods indicated below:
Period Ratio
------ -----
September 30, 1994
through March 31, 1997 4.50:1.00
April 1, 1997
through March 31, 1998 4.00:1.00
Thereafter 3.50:1.00"
(G) Section 6.17 of the Agreement is hereby amended by adding the
following proviso at the end of the exiting text:
"; and provided, further, however, that a Restricted Payment of the
type described in clause (i) above shall not be permitted to be made at
any time after December 31, 1997, although any such Restricted Payment
may be deferred and paid after the Commitments shall have terminated in
their entirety and all the Obligations have been fully paid."
(H) The Schedules to the Agreement are hereby amended in their
entirety by replacing them with the Schedules which are annexed hereto.
SECTION 2. Fees.
(A) The Borrower hereby agrees to pay to the Agent (for the benefit
of the Lenders), a fee in an amount equal to $28,153. The foregoing fee
referred to in this paragraph shall be hereinafter referred to as the
"Amendment Fee".
(B) The Borrower hereby agrees to pay to the Agent (for the benefit
of each of the Lenders whose Commitment under the Agreement shall increase
upon the effectiveness of this Amendment), a fee in an amount equal to 3/4
of 1% of the amount of the increase in each Lender's Commitment (i.e. a
- 3 -
4
fee of $13,040). The foregoing fee referred to in this paragraph shall be
hereinafter referred to as the "Additional Facility Fee".
(C) The Borrower hereby agrees that the Amendment Fee and the
Additional Facility Fee shall be paid in immediately available funds and
once paid, shall not be refundable under any circumstances.
SECTION 3. Existing Term Loans. Subject to the provisions of
Section 4 hereof, the parties hereto hereby agree that as of September 30,
1994, all Term Loans existing on September 30, 1994 shall be deemed to be
Revolving Credit Loans under the Agreement.
SECTION 4. Conditions to Effectiveness. The effectiveness of this
Amendment is subject to the satisfaction in full of the following
conditions precedent:
(A) the Agent shall have received executed counterparts of this
Amendment, which, when taken together, bear the signatures of the Borrower
and those Lenders required by Section 10.09 of the Agreement;
(B) the Agent shall have received new promissory notes
substantially in the form of Exhibit A to the Agreement, duly executed on
behalf of the Borrower and payable to the order of each Lender in the
principal amount equal to such Lender's respective Commitment after giving
effect to this Amendment (each such note shall be referred to herein
individually as a "New Note" and collectively as the "New Notes");
(C) the Agent shall have received the favorable written opinion of
Elizabeth M. Steele, General Counsel to Jones Spacelink, Ltd., addressed to
the Agent and the Lenders, covering such matters as are specified by
counsel to the Agent and in form and substance satisfactory to counsel for
the Agent;
(D) the Agent shall have received a certificate of the Secretary of
the General Partner certifying (i) that attached thereto is a true and
complete copy of resolutions adopted by the Board of Directors of the
General Partner authorizing the execution and delivery of this Amendment,
the New Notes and any other documents required or contemplated hereby, the
performance in accordance with its terms of the Agreement (as amended by
this Amendment) and the New Notes, and the borrowings thereunder; (ii)
that the copies of the Partnership Agreement and the articles of
incorporation and
- 4 -
5
by-laws of the General Partner heretofore delivered to the Agent are
complete and correct and that the Partnership Agreement and such articles
of incorporation and by-laws have not been amended since the respective
dates of the last amendments thereto included or reflected in such copies,
or, if the Partnership Agreement or the articles of incorporation or
by-laws of the General Partner shall have been amended since such
respective dates, certifying that attached thereto are copies of all of the
amendments and that such copies are complete and correct and that such
copies, taken together with the copies of the Partnership Agreement and the
certificate of incorporation and by-laws of the General Partner previously
delivered to the Agent constitute complete and correct copies of the
Partnership Agreement and the articles of incorporation and by-laws of the
General Partner all as in effect on the date of such certificate, there
having been no further amendments to the Partnership Agreement or such
articles of incorporation or by-laws, and (iii) as to the incumbency and
specimen signature of each officer of the General Partner executing this
Amendment, the New Notes or any other document required or contemplated
hereby (such certificate to contain a certification by another officer of
the General Partner as to the incumbency and signature of the officer
signing the certificate referred to in this Section 3(D));
(E) the Agent shall have received the Amendment Fee and the
Additional Facility Fee; and
(F) all legal matters in connection with this Amendment shall be
reasonably satisfactory to counsel for the Agent.
SECTION 5. Representations and Warranties. The Borrower represents
and warrants to the Lenders that, after giving effect to this Amendment:
(A) the representations and warranties contained in the Agreement
and in the other Fundamental Documents are true and correct in all material
respects on and as of the date hereof as if such representations and
warranties had been made on and as of the date hereof (except to the extent
such representations and warranties expressly relate to an earlier date);
and
(B) the Borrower is in compliance with all the terms and provisions
set forth in the Agreement and no Default or Event of Default has occurred
or is continuing under the Agreement.
- 5 -
6
SECTION 6. Full Force and Effect.
(A) Except as expressly set forth herein, this Amendment does not
constitute a waiver or modification of any provision of the Agreement or a
waiver of any Default or Event of Default under the Agreement, in either
case whether or not known to the Agent. Except as expressly amended
hereby, the Agreement shall continue in full force and effect in accordance
with the provisions thereof on the date hereof. As used in the Agreement,
the terms "Credit Agreement", "this Agreement", "herein", "hereafter",
"hereto", "hereof", and words of similar import, shall, unless the
context otherwise requires, mean the Agreement as amended by this
Amendment. References to the terms "Agreement" or "Credit Agreement"
appearing in the Exhibits or Schedules to the Agreement, shall, unless the
context otherwise requires, mean the Agreement as amended by this
Amendment.
(B) References to any of the Schedules to the Agreement, appearing
in the Agreement or in the Exhibits or Schedules to the Agreement, shall,
unless the context otherwise requires, mean the respective Schedule which
is attached to this Amendment.
(C) References to the terms "Note" or "Notes" appearing in the
Agreement or in the Exhibits or Schedules to the Agreement, shall, unless
the context otherwise requires, mean the New Notes.
SECTION 7. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN THE STATE OF
NEW YORK.
SECTION 8. Counterparts. This Amendment may be executed in two or
more counterparts, each of which shall constitute an original, but all of
which when taken together shall constitute but one instrument.
SECTION 9. Expenses. The Borrower agrees to pay all reasonable
out-of-pocket expenses incurred by the Agent in connection with the
preparation, execution and delivery of this Amendment and any other
documentation contemplated hereby, including, but not limited to, the
reasonable fees and disbursements of counsel for the Agent.
SECTION 10. Headings. The headings of this Amendment are for the
purposes of reference only and shall not affect the construction of or be
taken into consideration in interpreting this Amendment.
- 6 -
7
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their duly authorized officers, all as of the date and
year first written above.
BORROWER:
JONES GROWTH PARTNERS II L.P.
By: Jones Spacelink Cable
Corporation,
its General Partner
By: /s/ JAY B. LEWIS
Name: Jay B. Lewis
Title: Treasurer
CREDIT LYONNAIS NEW YORK BRANCH,
individually and as Agent
By: /s/ BRUCE M. YEAGER
Name: Bruce M. Yeager
Title: First Vice President
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH, individually
By: /s/ BRUCE M. YEAGER
Name: Bruce M. Yeager
Title:
- 7 -
8
SCHEDULE 1
SCHEDULE OF COMMITMENTS
Revolving Term
Credit Loan Total
Lender Commitment Commitment Commitments Percentage
------ ---------- ---------- ----------- -----------
Credit Lyonnais $13,000,000 $13,000,000 $13,000,000 100%
New York Branch
in the case of
Alternate Base
Rate Loans, or
Credit Lyonnais
Cayman Island
Branch in the
case of Eurodollar
Loans (but not to
exceed $13,000,000
in the aggregate)
- 8 -
9
Jones Growth Partners II, L.P.
12875
09/29/94
Page 1
SCHEDULE 3.03
Governmental Approvals
----------------------
None
10
Jones Growth Partners II, L.P.
12875
09/29/94
Page 2
SCHEDULE 3.06
Fictitious Names
----------------
Jones Spacelink, Ltd.
Jones Spacelink
11
Jones Growth Partners II, L.P.
12875
09/29/94
Page 3
SCHEDULE 3.08
Principal Offices of the Borrower
---------------------------------
Chief Executive Office:
9697 East Mineral Avenue
Englewood, Colorado 80112
Other Offices:
(a) 20409 Yorba Linda Boulevard
Yorba Linda, California
(greeter office)
(b) 4622 E. La Palma
Anaheim, California
(office, warehouse and headend)
(c) 20965 Lycoming Street
Walnut, California
(office)
Borrower's Deposit Accounts:
1. Mellon Bank
One Mellon Bank Center
Pittsburgh, PA 15258
Account #1508623
2. Bank of America
1850 Gateway Blvd.
Concord, CA 94520
Account #12357-02677
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SCHEDULE 3.09
Litigation
----------
None
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SCHEDULE 3.15
Agreements
----------
FRANCHISES:
1. City of Anaheim, California
o Ordinance No. 5057 approved and adopted August 1, 1989, granting a
franchise to Empire Cable Television, Inc.
o Resolution No. 90R-424 approved and adopted December 4, 1990,
establishing procedures for the processing of applications for transfers
of franchises.
o Ordinance No. 5244 approved and adopted August 6, 1991, approving the
transfer of the franchise to Jones Spacelink Acquisition Corporation or
Jones Growth Partners II, L.P.; approving a subsequent transfer of the
franchise to Jones Growth Partners II, L.P.; and consenting to the grant
by Jones Spacelink Acquisition Corporation or by Jones Growth Partners
II, L.P., of a security interest in the franchise.
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2. Orange County, California
o Orange County Cable Television Ordinance, Division 4, Orange County
Code
o Resolution No. 80-32 of the Board of Supervisors of Orange County,
California, adopted January 4, 1980, granting (i) a franchise to Empire
Cable Television, Inc., d/b/a Yorba Linda Cable Television Co., Inc. and
(ii) granting a franchise to Empire Cable Television, Inc. d/b/a Crown
Valley Cable Television, Inc. (Note: The second franchise ultimately
became the Laguna Niguel franchise.)
o Letter dated April 15, 1986, from Crown Valley Cable Television, Inc. to
the County of Orange, requesting a waiver of certain sections of the
Orange County Code
o Letter dated April 30, 1986, from the County of Orange to Crown Valley
Cable Television, Inc., approving certain actions of Crown Valley Cable
Television, Inc. and waiving certain requirements as set forth in the
enabling ordinance.
o Resolution of the Board of Supervisors approved and adopted August 6,
1991, consenting to the transfer and assignment of the franchise from
Empire Cable Television, Inc. d/b/a Yorba Linda Cable Television Co.,
Inc. to Jones Spacelink Acquisition Corporation and further consenting
to the grant by Jones Spacelink Acquisition Corporation of a security
interest in the franchise.
o Resolution of the Board of Supervisors of Orange County California,
dated June 2, 1992, approving the change of ownership of the cable
television franchise from Jones Spacelink Acquisition Corporation to
Jones Growth Partners II, L.P., and approving the granting of a security
interest in the franchise by Jones Growth Partners II, L.P.
3. City of Yorba Linda. California
o Franchise Agreement dated June 18, 1991, between Empire Cable
Television, Inc. and the City of Yorba Linda.
o Ordinance No. 91-689, Cable Communications Franchise Ordinance, adopted
July 2, 1991.
o Ordinance No. 91-694 adopted July 2, 1991, granting and approving
renewal of the franchise granted to Empire Cable Television, Inc.,
pursuant to Ordinance No. 91-689.
o Resolution No. 91-2620 passed and adopted June 18, 1991, consenting to
the transfer of the renewed franchise to Jones Spacelink Acquisition
Corporation or Jones Growth Partners II, L.P., approving a subsequent
transfer of the franchise to Jones Growth Partners II, L.P.; and further
consenting to the grant of a security interest in the franchise by Jones
Spacelink Acquisition Corporation or by Jones Growth Partners II, L.P.
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POLE ATTACHMENT/CONDUIT AGREEMENTS:
1. Pole and Conduit License Agreement dated January 28, 1992, between
Pacific Bell and Jones Spacelink Acquisition Corporation within
the areas in or near the Cities of Yorba Linda, Anaheim, Laguna
Niguel and the County of Orange, California. (Pacific Bell has
never responded to requests for theft consent to the transfer of
the Agreement from Jones Spacelink Acquisition Corporation to
Jones Growth Partners II, L.P. and to the grant by Jones of a
security interest in the Agreement.)
2. Agreement (Pole Contact - Community Antenna Television Companies)
dated April 3, 1992, between Southern California Edison Company
and Jones Growth Partners II, L.P., successor to Jones Spacelink
Acquisition Corporation.
REAL PROPERTY LEASES:
1. Shopping Center Lease Agreement dated January 14, 1992, between
Eastlake Commercial and Jones Growth Partners II L.P., successor
to Jones Spacelink Acquisition Corporation, for office space in
Yorba Linda, California. (Consent to grant security interest
denied.)
2. Standard Industrial/Commercial Single-Tenant Lease - Gross dated
August 30, 1991, between Adler Family Trust of 1977 and Jones
Growth Partners II L.P., successor to Jones Space Link Acquisition
Corporation, for headend, office and warehouse space in Anaheim,
California.
3. License Agreement dated November 7, 1989, between the City of
Anaheim and Jones Growth Partners II, L.P., successor to Jones
Spacelink, Ltd. and Empire Cable Television, Inc., for a tower
site in the Serrano/Twin Peaks area of Anaheim, California.
FCC LICENSES:
1. Business Radio: WNXV 936
2. CARS: WHZ-929
3. Earth Station: E940015
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SERVICE/WIRING AGREEMENTS:
1. Agreement and Guaranty dated November 28, 1990, by and between
Fairmont Hill Community Association and Jones Growth Partners II,
L.P., successor to Yorba Linda Cable Television Co., Inc.,
regarding cable television service provided to subscribers in
Fairmont Hill, Yorba Linda, California.
2. Agreement dated August 1, 1990, by and between The Eastlake
Village Shores Community Association and Jones Growth Partners II,
L.P., successor to Yorba Linda Cable Television Co., Inc.,
regarding cable television service provided to subscribers in
Eastlake Village Shores, Yorba Linda, California.
3. Master Cable Television Service Agreement dated May 15, 1990, by
and between Empire Partners and Jones Growth Partners II, L.P.,
successor to Wallace 450 Associates, regarding cable television
service provided to subscribers in Sycamore Canyon Apartments.
OTHER AGREEMENTS:
1. License for Television Cable Across or Along Railway Property
(Overhead or Underground) dated October 16, 1991, between The
Atchison, Topeka and Santa Fe Railway Company and Jones Growth
Partners II L.P., successor to Jones Spacelink Acquisition
Corporation, for a crossing at or near the station of Atwood,
Orange County, California.
2. Orange County Newschannel Affiliation Agreement dated September
12, 1991, between Orange County Newschannel, Inc. and Jones Growth
Partners II L.P., successor to Jones Spacelink Acquisition
Corporation, for the OCN program service.
3. Letter Agreement dated November 8, 1992, for joint underground
construction of facilities located at Yorba Linda Boulevard
between Mountain View Avenue and Lakeview Avenue in Yorba Linda,
California. (Southern California Edison Company procured
contractor and work.)
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SCHEDULE 3.16
Existing Indebtedness
---------------------
General Electric Lease Company $38,021.00 (as of 8/31/94)
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SCHEDULE 3.17
UCC Filings
-----------
1. California Secretary of State (including transmitting utility filings)
2. Orange County Clerk (fixture filings)
3. Colorado Secretary of State (including transmitting utility filings)
4. New York Secretary of State
5. City Register - New York County
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SCHEDULE 3.19
Environmental Liabilities
-------------------------
None
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SCHEDULE 3.21A
Complaints
----------
NONE
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SCHEDULE 3.21B
Licenses
--------
FCC Licenses:
(a) Business Radio License: WNXV 936
Expiration Date: May 13, 1997
(b) CARS License: WHZ-929
Expiration Date: November 1, 1994
(c) Earth Station License: E940015
Expiration Date: October 8, 2003
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SCHEDULE 3.24A
Pole Agreements
---------------
1.* Pole and Conduit License Agreement dated January 28, 1992, between
Pacific Bell and Jones Spacelink Acquisition Corporation within the
areas in or near the Cities of Yorba Linda, Anaheim, Laguna Niguel
and the County of Orange, California.
2. Agreement (Pole Contact - Community Antenna Television Companies)
dated April 3, 1992, between Southern California Edison Company and
Jones Growth Partners II, L.P., successor to Jones Spacelink
Acquisition Corporation.
______________
*Pacific Bell has never responded to requests for their consent to the
transfer of the Agreement from Jones Spacelink Acquisition Corporation to
Jones Growth Partners II, L.P. and to the grant by Jones of a security
interest in the Agreement.
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SCHEDULE 3.24B
Franchises
----------
1. City of Anaheim, California
o Ordinance No. 5057 approved and adopted August 1, 1989, granting a
franchise to Empire Cable Television, Inc.
o Resolution No. 90R-424 approved and adopted December 4, 1990,
establishing procedures for the processing of applications for transfers
of franchises.
o Ordinance No. 5244 approved and adopted August 6, 1991, approving the
transfer of the franchise to Jones Spacelink Acquisition Corporation or
Jones Growth Partners II, L.P.; approving a subsequent transfer of the
franchise to Jones Growth Partners II, L.P.; and consenting to the grant
by Jones Spacelink Acquisition Corporation or by Jones Growth Partners
II, L.P., of a security interest in the franchise.
Expiration Date: Approximately August 31, 2004
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Page 16
2. Orange County, California
o Orange County Cable Television Ordinance, Division 4, Orange County Code
o Resolution No. 80-32 of the Board of Supervisors of Orange County,
California, adopted January 4, 1980, granting (i) a franchise to Empire
Cable Television, Inc., d/b/a Yorba Linda Cable Television Co., Inc. and
(ii) granting a franchise to Empire Cable Television, Inc. d/b/a Crown
Valley Cable Television, Inc. (Note: The second franchise ultimately
became the Laguna Niguel franchise.)
o Letter dated April 15, 1986, from Crown Valley Cable Television, Inc. to
the County of Orange, requesting a waiver of certain sections of the
Orange County Code
o Letter dated April 30, 1986, from the County of Orange to Crown Valley
Cable Television, Inc., approving certain actions of Crown Valley Cable
Television, Inc. and waiving certain requirements as set forth in the
enabling ordinance.
o Resolution of the Board of Supervisors approved and adopted August 6,
1991, consenting to the transfer and assignment of the franchise from
Empire Cable Television, Inc. d/b/a Yorba Linda Cable Television Co.,
Inc. to Jones Spacelink Acquisition Corporation and further consenting
to the grant by Jones Spacelink Acquisition Corporation of a security
interest in the franchise.
o Resolution of the Board of Supervisors of Orange County California,
dated June 2, 1992, approving the change of ownership of the cable
television franchise from Jones Spacelink Acquisition Corporation to
Jones Growth Partners II, L.P., and approving the granting of a security
interest in the franchise by Jones Growth Partners II, L.P.
Expiration Date: Approximately August 1, 2001
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3. City of Yorba Linda, California
o Franchise Agreement dated June 18, 1991, between Empire Cable
Television, Inc. and the City of Yorba Linda.
o Ordinance No. 91-689, Cable Communications Franchise Ordinance,
adopted July 2, 1991.
o Ordinance No. 91-694 adopted July 2, 1991, granting and approving
renewal of the franchise granted to Empire Cable Television, Inc.,
pursuant to Ordinance No. 91-689.
o Resolution No. 91-2620 passed and adopted June 18, 1991, consenting to
the transfer of the renewed franchise to Jones Spacelink Acquisition
Corporation or Jones Growth Partners II, L.P., approving a subsequent
transfer of the franchise to Jones Growth Partners II, L.P.; and further
consenting to the grant of a security interest in the franchise by Jones
Spacelink Acquisition Corporation or by Jones Growth Partners II, L.P.
Expiration Date: Approximately August 1, 2001
EX-27
3
FINANCIAL DATA SCHEDULE
5
1
12-MOS
DEC-31-1994
JAN-01-1994
DEC-31-1994
61,131
0
338,891
(4,291)
0
0
14,011,386
(3,158,613)
23,964,837
1,018,116
11,247,350
0
0
0
11,699,371
23,964,837
0
6,345,871
0
7,884,654
5,447
0
719,912
(2,264,142)
0
(2,264,142)
0
0
0
(2,264,142)
(113.29)
(113.29)