FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
(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, 1996
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: 0-9287
JONES INTERCABLE INVESTORS, L.P.
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(Exact name of registrant as specified in its charter)
Colorado 36-3468573
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(State of Organization) (IRS Employer Identification No.)
P.O. Box 3309, Englewood, Colorado 80155-3309 (303) 792-3111
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(Address of principal executive office and (Registrant's telephone no.
Zip Code) 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 registrants, (1) have 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days:
Yes x No
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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 ((S)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
______
DOCUMENTS INCORPORATED BY REFERENCE: None
(27863)
Information contained in this Form 10-K Report contains "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. All statements, other than statements of historical facts,
included in this Form 10-K Report that address activities, events or
developments that the Partnership or the General Partner expects, believes or
anticipates will or may occur in the future are forward-looking statements.
These forward-looking statements are based upon certain assumptions and are
subject to a number of risks and uncertainties. Actual results could differ
materially from the results predicted by these forward-looking statements.
PART I.
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ITEM 1. BUSINESS
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THE PARTNERSHIP. Jones Intercable Investors, L.P. (the "Partnership")
is a Colorado limited partnership that was formed to acquire, own and operate
cable television systems in the United States. Jones Intercable, Inc., a
Colorado corporation, is the general partner of the Partnership (the "General
Partner"). The Partnership was formed for the purpose of acquiring and
operating cable television systems. The Partnership owns the cable television
systems serving the areas in and around the City of Independence, Missouri (the
"Independence System"). See Item 2.
On February 28, 1997, the Partnership entered into an asset purchase
agreement to sell the Independence System to a wholly owned subsidiary of the
General Partner for a sales price of $171,213,667, which represents the average
of three independent appraisals of the fair market value of the Independence
System. The closing of this sale is subject to a number of conditions, including
obtaining necessary governmental and other third party consents, and is expected
to occur during the second half of 1997. Upon the closing of the sale of the
Independence System, the Partnership will repay the then-outstanding balance on
its credit facility, pay a brokerage fee of $4,280,342 to The Jones Group, Ltd.,
a subsidiary of the General Partner, and then the Partnership will distribute
the net proceeds to the Class A Unitholders. Such distribution is expected to
be approximately $16.12 for each Class A Unit held. Because this distribution
plus previous distributions made to Class A Unitholders will not exceed the
preferred return set forth in the Partnership Agreement, there will be no
general partner distribution related to this transaction, but the General
Partner will receive a distribution as a Class A Unitholder. The Independence
System is the Partnership's only remaining asset. Upon the successful
completion of the sale of the Independence System, the Partnership will be
liquidated and dissolved.
CABLE TELEVISION SERVICES. The Independence System offers to
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
national television networks broadcast by their local affiliates, 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 Independence System offers tier services on an optional basis to
its 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
Independence System also offers a package that includes the basic service
channels and the tier services.
The Independence System also offers premium services to 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
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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 Independence 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 Independence System. At December
31, 1996, the Independence System's monthly basic service rate was $8.94,
monthly basic and tier ("basic plus") service rate was $24.92 and monthly
premium services ranged from $5.00 to $12.95 per premium service. In addition,
the Partnership earns revenues from the Independence System's pay-per-view
programs and advertising fees. Related charges may include a nonrecurring
installation fee that ranges from $10.00 to $30.00; however, from time to time
the Independence 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, 1996 of the total fees
received by the Independence System, basic service and tier service fees
accounted for approximately 72% 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 3% of
total revenues and the remaining 8% 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 Independence System.
FRANCHISES. The Independence 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 Independence System's franchises require that franchise fees
generally based on 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.
The Partnership holds 20 franchises relating to the Independence
System. These franchises provide for the payment of fees to the issuing
authorities and generally range from 3% to 5% of the gross revenues of a cable
television system. The 1984 Cable Act prohibits franchising authorities from
imposing annual franchise fees in excess of 5% of gross revenues and also
permits the cable television system operator to seek renegotiation and
modification of franchise requirements if warranted by changed circumstances.
The Partnership has never had a franchise revoked. The Partnership is
currently negotiating the renewal of six franchises that are either operating
under extensions or will expire prior to December 31, 1997. The General Partner
has no reason to believe that such franchises will not be renewed in due course.
The General Partner recently has experienced lengthy negotiations with some
franchising authorities for the granting of franchise renewals. Some of the
issues involved in recent renewal negotiations include rate regulation, customer
service standards, cable plant upgrade or replacement and shorter terms of
franchise agreements.
COMPETITION. Cable television systems currently experience
competition from several sources.
Broadcast Television. Cable television systems have traditionally
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competed with broadcast television, which consists of television signals that
the viewer is able to receive directly on his television without charge using an
"off-air" antenna. The extent of such competition is dependent in part upon the
quality and quantity of signals available by such antenna reception as compared
to the services provided by the local cable system. Accordingly,
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it has generally been less difficult for cable operators to obtain higher
penetration rates in rural areas where signals available off-air are limited,
than in metropolitan areas where numerous, high quality off-air signals are
often available without the aid of cable television systems.
Traditional Overbuild. Cable television franchises are not exclusive,
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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 General Partner has experienced
overbuilds in connection with certain systems that it has owned or managed for
limited partnerships, and currently there are overbuilds in the systems owned or
managed by the General Partner. Constructing and developing a cable television
system is a capital intensive process, and it is often difficult for a new cable
system operator to create a marketing edge over the existing system. Generally,
an overbuilder would be required to obtain franchises from the local
governmental authorities, although in some instances, the overbuilder could be
the local government itself. In any case, an overbuilder would be required to
obtain programming contracts from entertainment programmers and, in most cases,
would have to build a complete cable system, including headends, trunk lines and
drops to individual subscribers homes, throughout the franchise areas.
DBS. High-powered direct-to-home satellites have made possible the
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wide-scale delivery of programming to individuals throughout the United States
using small roof-top or wall-mounted antennas. Several companies began offering
direct broadcast satellite ("DBS") service over the last few years and
additional entrants are expected. Companies offering DBS service use video
compression technology to increase channel capacity of their systems to 100 or
more channels and to provide packages of movies, satellite network and other
program services which are competitive to those of cable television systems.
DBS cannot currently offer its subscribers local programming, although at least
one future DBS entrant is attempting to offer customers regional delivery of
local broadcast signals. In addition to emerging high-powered DBS competition,
cable television systems face competition from a major medium-powered satellite
distribution provider and several low-powered providers, whose service requires
use of much larger home satellite dishes. Not all subscribers terminate cable
television service upon acquiring a DBS system. The General Partner has
observed that there are DBS subscribers that also elect to subscribe to cable
television service in order to obtain the greatest variety of programming on
multiple television sets, including local programming not available through DBS
service. The ability of DBS service providers to compete successfully with the
cable television industry will depend on, among other factors, the ability of
DBS providers to overcome certain legal and technical hurdles and the
availability of equipment at reasonable prices.
Telephone. Federal cross-ownership restrictions historically limited
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entry by local telephone companies into the cable television business. The 1996
Telecommunications Act (the "1996 Telecom Act") eliminated this cross-ownership
restriction, making it possible for companies with considerable resources to
overbuild existing cable operators and enter the business. Several telephone
companies have begun seeking cable television franchises from local governmental
authorities and constructing cable television systems. Ameritech, one of the
seven regional Bell Operating Companies ("BOCs"), which provides telephone
service in a multi-state region including Illinois, has been the most active BOC
in seeking local cable franchises within its service area. It has already begun
cable service in Naperville, Illinois and has also obtained franchises for Glen
Ellyn and Vernon Hills, Illinois, all of which are currently served by cable
systems owned by three partnerships managed by the General Partner. The General
Partner cannot predict at this time the extent of telephone company competition
that will emerge to owned or managed cable television systems. The entry of
telephone companies as direct competitors, however, is likely to continue over
the next several years and could adversely affect the profitability and market
value of the General Partner's owned and managed systems. The entry of electric
utility companies into the cable television business, as now authorized by the
1996 Telecom Act, could have a similar adverse effect.
Private Cable. Additional competition is provided by private cable
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television systems, known as Satellite Master Antenna Television (SMATV),
serving multi-unit dwellings such as condominiums, apartment complexes, and
private residential communities. These private cable systems may enter into
exclusive agreements with apartment owners and homeowners associations, which
may preclude operators of franchised systems from serving residents of such
private complexes. Private cable systems that do not cross public rights of way
are free from the federal, state and local regulatory requirements imposed on
franchised cable television operators. In
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some cases, the Partnership has been unable to provide cable television service
to buildings in which private operators have secured exclusive contracts to
provide video and telephony services. The Partnership is interested in providing
these same services, but expects that the market to install and provide these
services in multi-unit buildings will continue to be highly competitive.
MMDS. Cable television systems also compete with wireless program
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distribution services such as multichannel, multipoint distribution service
("MMDS") systems, commonly called wireless cable, which are licensed to serve
specific areas. MMDS uses low-power microwave frequencies to transmit
television programming over-the-air to paying subscribers. The MMDS industry is
less capital intensive than the cable television industry, and it is therefore
more practical to construct MMDS systems in areas of lower subscriber
penetration. Wireless cable systems are now in direct competition with cable
television systems in several areas of the country, including the system in Pima
County, Arizona owned by the General Partner. Telephone companies have recently
acquired or invested in wireless companies, and may use MMDS systems to provide
services within their service areas in lieu of wired delivery systems.
Enthusiasm for MMDS has waned in recent months, however, as Bell Atlantic and
NYNEX have suspended their investment in two major MMDS companies. To date, the
Partnership has not lost a significant number of subscribers, nor a significant
amount of revenue, to MMDS operators competing with the Partnership's cable
television systems. A series of actions taken by the FCC, however, including
reallocating certain frequencies to the wireless services, are intended to
facilitate the development of wireless cable television systems as an
alternative means of distributing video programming. The FCC recently held
auctions for spectrum that will be used by wireless operators to provide
additional channels of programming over larger distances. In addition, an
emerging technology, Local Multipoint Distribution services ("LMDS"), could also
pose a significant threat to the cable television industry, if and when it
becomes established. LMDS, sometimes referred to as cellular television, could
have the capability of delivering more than 100 channels of video programming to
a subscriber's home. The potential impact, however, of LMDS is difficult to
assess due to the newness of the technology and the absence of any current fully
operational LMDS systems.
Cable television systems are also in competition, in various degrees
with other communications and entertainment media, including motion pictures and
home video cassette recorders.
REGULATION AND LEGISLATION
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The operation of cable television systems is extensively regulated by
the FCC, some state governments and most local governments. The new 1996 Telecom
Act alters the regulatory structure governing the nation's telecommunications
providers. It removes barriers to competition in both the cable television
market and the local telephone market. Among other things, it also reduces the
scope of cable rate regulation.
The 1996 Telecom Act requires the FCC to undertake a host of
implementing rulemakings, the final outcome of which cannot yet be determined.
Moreover, Congress and the FCC have frequently revisited the subject of cable
regulation. Future legislative and regulatory changes could adversely affect
the Partnership's operations. This section briefly summarizes key laws and
regulations affecting the operation of the Partnership's cable systems and does
not purport to describe all present, proposed, or possible laws and regulations
affecting the Partnership.
Cable Rate Regulation. The 1992 Cable Act imposed an extensive rate
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regulation regime on the cable television industry. Under that regime, all
cable systems are subject to rate regulation, unless they face "effective
competition" in their local franchise area. Federal law now defines "effective
competition" on a community-specific basis as requiring either low penetration
(less than 30%) by the incumbent cable operator, appreciable penetration (more
than 15%) by competing multichannel video providers ("MVPs"), or the presence of
a competing MVP affiliated with a local telephone company.
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Although the FCC rules control, local government units (commonly
referred to as local franchising authorities or "LFAs") are primarily
responsible for administering the regulation of the lowest level of cable -- the
basic service tier ("BST"), which typically contains local broadcast stations
and public, educational, and government ("PEG") access channels. Before an LFA
begins BST rate regulation, it must certify to the FCC that it will follow
applicable federal rules, and many LFAs have voluntarily declined to exercise
this authority. LFAs also have primary responsibility for regulating cable
equipment rates. Under federal law, charges for various types of cable
equipment must be unbundled from each other and from monthly charges for
programming services. The 1996 Telecom Act allows operators to aggregate costs
for broad categories of equipment across geographic and functional lines. This
change should facilitate the introduction of new technology.
The FCC itself directly administers rate regulation of any cable
programming service tiers ("CPST"), which typically contain satellite-delivered
programming. Under the 1996 Telecom Act, the FCC can regulate CPST rates only
if an LFA first receives at least two rate complaints from local subscribers and
then files a formal complaint with the FCC. When new CPST rate complaints are
filed, the FCC now considers only whether the incremental increase is justified
and will not reduce the previously established CPST rate.
Under the FCC's rate regulations, most cable systems were required to
reduce their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price cap scheme that allows for the
recovery of inflation and certain increased costs, as well as providing some
incentive for expanding channel carriage. The FCC has modified its rate
adjustment regulations to allow for annual rate increases and to minimize
previous problems associated with regulatory lag. Operators also have the
opportunity of bypassing this "benchmark" regulatory scheme in favor of
traditional "cost-of-service" regulation in cases where the latter methodology
appears favorable. Premium cable services offered on a per-channel or per-
program basis remain unregulated, as do affirmatively marketed packages
consisting entirely of new programming product. Federal law requires that the
BST be offered to all cable subscribers, but limits the ability of operators to
require purchase of any CPST before purchasing premium services offered on a
per-channel or per-program basis.
The 1996 Telecom Act sunsets FCC regulation of CPST rates for all
systems (regardless of size) on March 31, 1999. It also relaxes existing
uniform rate requirements by specifying that uniform rate requirements do not
apply where the operator faces "effective competition," and by exempting bulk
discounts to multiple dwelling units, although complaints about predatory
pricing still may be made to the FCC.
Cable Entry Into Telecommunications. The 1996 Telecom Act provides
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that no state or local laws or regulations may prohibit or have the effect of
prohibiting any entity from providing any interstate or intrastate
telecommunications service. States are authorized, however, to impose
"competitively neutral" requirements regarding universal service, public safety
and welfare, service quality, and consumer protection. State and local
governments also retain their authority to manage the public rights-of-way and
may require reasonable, competitively neutral compensation for management of the
public rights-of-way when cable operators provide telecommunications service.
The favorable pole attachment rates afforded cable operators under federal law
can be gradually increased by utility companies owning the poles (beginning in
2001) if the operator provides telecommunications service, as well as cable
service, over its plant.
Cable entry into telecommunications will be affected by the regulatory
landscape now being fashioned by the FCC and state regulators. One critical
component of the 1996 Telecom Act to facilitate the entry of new
telecommunications providers (including cable operators) is the interconnection
obligation imposed on all telecommunications carriers. Review of the FCC's
initial interconnection order is now pending before the Eighth Circuit Court of
Appeals.
Telephone Company Entry Into Cable Television. The 1996 Telecom Act
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allows telephone companies to compete directly with cable operators by repealing
the historic telephone company/cable cross-ownership ban. Local exchange
carriers ("LECs"), including the BOCs, can now compete with cable operators both
inside and
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outside their telephone service areas. Because of their resources, LECs could be
formidable competitors to traditional cable operators, and certain LECs have
begun offering cable service. As described above, the General Partner is now
witnessing the beginning of LEC competition in a few of its cable communities.
Under the 1996 Telecom Act, a LEC providing video programming to
subscribers will be regulated as a traditional cable operator (subject to local
franchising and federal regulatory requirements), unless the LEC elects to
provide its programming via an "open video system" ("OVS"). To qualify for OVS
status, the LEC must reserve two-thirds of the system's activated channels for
unaffiliated entities.
Although LECs and cable operators can now expand their offerings
across traditional service boundaries, the general prohibition remains on LEC
buyouts (i.e., any ownership interest exceeding 10 percent) of co-located cable
systems, cable operator buyouts of co-located LEC systems, and joint ventures
between cable operators and LECs in the same market. The 1996 Telecom Act
provides a few limited exceptions to this buyout prohibition, including a
carefully circumscribed "rural exemption." The 1996 Telecom Act also provides
the FCC with the limited authority to grant waivers of the buyout prohibition
(subject to LFA approval).
Electric Utility Entry Into Telecommunications/Cable Television. The
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1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services (including cable
television) notwithstanding the Public Utilities Holding Company Act. Electric
utilities must establish separate subsidiaries, known as "exempt
telecommunications companies" and must apply to the FCC for operating authority.
Again, because of their resources, electric utilities could be formidable
competitors to traditional cable systems.
Additional Ownership Restrictions. The 1996 Telecom Act eliminates
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statutory restrictions on broadcast/cable cross-ownership (including broadcast
network/cable restrictions), but leaves in place existing FCC regulations
prohibiting local cross-ownership between co-located television stations and
cable systems. The 1996 Telecom Act also eliminates the three year holding
period required under the 1992 Cable Act's "anti-trafficking" provision. The
1996 Telecom Act leaves in place existing restrictions on cable cross-ownership
with SMATV and MMDS facilities, but lifts those restrictions where the cable
operator is subject to effective competition. In January 1995, however, the FCC
adopted regulations which permit cable operators to own and operate SMATV
systems within their franchise area, provided that such operation is consistent
with local cable franchise requirements.
Pursuant to the 1992 Cable Act, the FCC adopted rules precluding a
cable system from devoting more than 40% of its activated channel capacity to
the carriage of affiliated national program services. A companion rule
establishing a nationwide ownership cap on any cable operator equal to 30% of
all domestic cable subscribers has been stayed pending further judicial review.
There are no federal restrictions on non-U.S. entities having an
ownership interest in cable television systems or the FCC licenses commonly
employed by such systems. Section 310(b)(4) of the Communications Act does,
however, prohibit foreign ownership of FCC broadcast and telephone licenses,
unless the FCC concludes that such foreign ownership is consistent with the
public interest. BCI's investment in the General Partner could, therefore,
adversely affect any plan to acquire FCC broadcast or common carrier licenses.
The Partnership, however, does not currently plan to acquire such licenses.
Must Carry/Retransmission Consent. The 1992 Cable Act contains
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broadcast signal carriage requirements that allow local commercial television
broadcast stations to elect once every three years between requiring a cable
system to carry the station ("must carry") or negotiating for payments for
granting permission to the cable operator to carry the station ("retransmission
consent"). Less popular stations typically elect "must carry," and more popular
stations typically elect "retransmission consent." Must carry requests can
dilute the appeal of a cable system's programming offerings, and retransmission
consent demands may require substantial payments or other concessions. Either
option has a potentially adverse affect on the Partnership's business.
Additionally, cable systems are required to obtain retransmission consent for
all "distant" commercial television stations (except for satellite-delivered
independent "superstations" such as WTBS). The constitutionality of the must
carry requirements has been challenged and is awaiting a decision from the U.S.
Supreme Court.
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Access Channels. LFAs can include franchise provisions requiring
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cable operators to set aside certain channels for public, educational and
governmental access programming. Federal law also requires cable systems to
designate a portion of their channel capacity (up to 15% in some cases) for
commercial leased access by unaffiliated third parties. The FCC has adopted
rules regulating the terms, conditions and maximum rates a cable operator may
charge for use of the designated channel capacity, but use of commercial leased
access channels has been relatively limited. The FCC released revised rules in
February 1997 which mandate a modest rate reduction and could make commercial
leased access a more attractive option to third party programmers.
Access to Programming. To spur the development of independent cable
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programmers and competition to incumbent cable operators, the 1992 Cable Act
imposed restrictions on the dealings between cable operators and cable
programmers. Of special significance from a competitive business posture, the
1992 Cable Act precludes video programmers affiliated with cable companies from
favoring cable operators over competitors and requires such programmers to sell
their programming to other multichannel video distributors. This provision
limits the ability of vertically integrated cable programmers to offer exclusive
programming arrangements to cable companies.
Other FCC Regulations. In addition to the FCC regulations noted
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above, there are other FCC regulations covering such areas as equal employment
opportunity, subscriber privacy, programming practices (including, among other
things, syndicated program exclusivity, network program nonduplication, local
sports blackouts, indecent programming, lottery programming, political
programming, sponsorship identification, and children's programming
advertisements), registration of cable systems and facilities licensing,
maintenance of various records and public inspection files, frequency usage,
lockbox availability, antenna structure notification, tower marking and
lighting, consumer protection and customer service standards, technical
standards, and consumer electronics equipment compatibility. The FCC is
expected to impose new Emergency Alert System requirements on cable operators
this year. The FCC has the authority to enforce its regulations through the
imposition of substantial fines, the issuance of cease and desist orders and/or
the imposition of other administrative sanctions, such as the revocation of FCC
licenses needed to operate certain transmission facilities used in connection
with cable operations.
Two pending FCC proceedings of particular competitive concern involve
inside wiring and navigational devices. The former rulemaking is considering
ownership of cable wiring located inside multiple dwelling unit complexes. If
the FCC concludes that such wiring belongs to, or can be unilaterally acquired
by the complex owner, it will become easier for complex owners to terminate
service from the incumbent cable operator in favor of a new entrant. The latter
rulemaking is considering whether cable customers must be allowed to purchase
cable converters from third party vendors. If the FCC concludes that such
distribution is required, and does not make appropriate allowances for signal
piracy concerns, it may become more difficult for cable operators to combat
theft of service.
Copyright. Cable television systems are subject to federal copyright
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licensing covering carriage of television and radio broadcast signals. In
exchange for filing certain reports and contributing a percentage of their
revenues to a federal copyright royalty pool (that varies depending on the size
of the system and the number of distant broadcast television signals carried),
cable operators can obtain blanket permission to retransmit copyrighted material
on broadcast signals. The possible modification or elimination of this
compulsory copyright license is the subject of continuing legislative review and
could adversely affect the Partnership's ability to obtain desired broadcast
programming. In addition, the cable industry pays music licensing fees to BMI
and is negotiating a similar arrangement with ASCAP. Copyright clearances for
nonbroadcast programming services are arranged through private negotiations.
State and Local Regulation. Cable television systems generally are
--------------------------
operated pursuant to nonexclusive franchises granted by a municipality or other
state or local government entity in order to cross public rights-of-way.
Federal law now prohibits franchise authorities from granting exclusive
franchises or from unreasonably refusing to award additional franchises. Cable
franchises generally are granted for fixed terms and in many cases
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include monetary penalties for non-compliance and may be terminable if the
franchisee fails to comply with material provisions.
The terms and conditions of franchises vary materially from
jurisdiction to jurisdiction. Each franchise generally contains provisions
governing cable operations, service rates, franchise fees, system construction
and maintenance obligations, system channel capacity, design and technical
performance, customer service standards, and indemnification protections. A
number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. Although LFAs have considerable
discretion in establishing franchise terms, there are certain federal
limitations. For example, LFAs cannot insist on franchise fees exceeding 5% of
the system's gross revenues, cannot dictate the particular technology used by
the system, and cannot specify video programming other than identifying broad
categories of programming.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the franchise authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees as a condition of renewal. Similarly, if a franchise
authority's consent is required for the purchase or sale of a cable system or
franchise, such authority may attempt to impose more burdensome or onerous
franchise requirements in connection with a request for consent. Historically,
franchises have been renewed for cable operators that have provided satisfactory
services and have complied with the terms of their franchises.
GENERAL. 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 Independence
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 Independence 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.
ITEM 2. PROPERTIES
-------------------
The Partnership acquired the Independence System in May 1987. The
following sets forth (i) the monthly basic plus service rates charged to
subscribers and (ii) the number of basic subscribers and pay units for the
Independence System. The monthly basic service rates set forth herein represent,
with respect to systems with multiple headends, the basic service rate charged
to the majority of the subscribers within the Independence System. 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, 1996 the Independence
System operated cable plant passing approximately 131,800 homes, with an
approximate 64% penetration rate. Figures for numbers of subscribers and
homes passed are compiled from the General Partner's records and may be subject
to adjustments.
9
At December 31,
---------------------------------
1996 1995 1994
--------- ------- -------
Monthly basic plus service rate $ 24.92 $ 23.57 $ 22.32
Basic subscribers 85,434 83,722 79,985
Pay units 57,774 57,235 52,630
ITEM 3. LEGAL PROCEEDINGS
--------------------------
On February 22, 1994, the General Partner and The Jones Group, Ltd.
("Jones Group"), a subsidiary of the General Partner engaged in the cable
television brokerage business, were named as defendants in a lawsuit brought by
three individuals who are Class A Unitholders in the Partnership. The
litigation, entitled Luva Vaughan et al v. Jones Intercable, Inc., et al, Case
---------------------------------------------------
No. CV 94-3652, was filed in the Circuit Court for Jackson County, Missouri.
The litigation related to the purchase by the General Partner of the Alexandria,
Virginia cable television system from the Partnership and the payment of a
brokerage commission in connection with such transaction to Jones Group.
A trial to the court was held in April and May 1996. On September 20,
1996, the Court entered judgment in favor of the General Partner and taxed costs
to the plaintiffs. In the Judgment, the Court (a) denied plaintiffs' motion for
reconsideration of the Court's prior decision granting summary judgment in favor
of the General Partner on the claim in the litigation relating to the payment by
the Partnership of a brokerage commission; (b) held that plaintiffs did not
establish that demand was made on the General Partner for the relief sought or
that such a demand would have been futile; and (c) advised that the proper
procedure for the selection of appraisers under the Limited Partnership
Agreement of the Partnership is that the General Partner selects one appraiser
on its behalf and one appraiser on behalf of the Partnership and these two
appraisers then select the third appraiser.
Following the entry of judgment in favor of the General Partner and
against the plaintiffs and the Partnership, the parties agreed to a settlement
of the litigation. The settlement has been approved by the Court. The material
terms of the settlement are as follows:
(a) The General Partner paid $995,000, as follows: $636,250 was paid
to the Partnership, which used the funds to reduce the Partnership's outstanding
indebtedness; $110,000 was paid to the named plaintiffs individually as
reimbursement for their costs, expenses and time spent in pursuing the
litigation; and $248,750 was paid to counsel for the plaintiffs in the
litigation. Approximately $582,400 of the $995,000 was paid by the General
Partner's insurance carrier.
(b) The Partnership and the named plaintiffs acknowledged that the
General Partner has an option under the terms of the Partnership Agreement to
purchase the Independence System at a price that is the average of three
appraisals. They further acknowledged that the three appraisers are to be
selected as follows: the General Partner selects one appraiser on its own
behalf, the General Partner selects a second appraiser on behalf of the
Partnership and those two appraisers select the third appraiser, and the firms
of Bond & Pecaro. Inc. and Kane Reece Associates, Inc., both of which served as
experts in the litigation, would not be selected by the General Partner as an
appraiser of the Independence System (the "Appraiser Selection Procedure"). The
Partnership and the named plaintiffs agreed that they have no objection to, and
waived any claim against the General Partner and Jones Group relating to, the
Appraiser Selection Procedure. As disclosed in Item 1. Business above, in
February 1997, the General Partner exercised its option to purchase the
Independence System and the sales price was determined in accordance with the
Appraisal Selection Procedure.
(c) The Partnership and the named plaintiffs acknowledged that they
would have no objection to the payment by the Partnership of a brokerage fee in
the amount of 2.5% of the gross sales price of the Independence System if the
General Partner exercises its option to purchase such system.
10
(d) All parties provided general releases to the other parties with
respect to any facts surrounding the sale of the Alexandria, Virginia cable
television system by the Partnership to the General Partner that could have been
raised in either the Missouri or Colorado litigation, the Appraiser Selection
Procedure and the payment of a brokerage fee to Jones Group in the event that
the General Partner exercises its option to purchase the Independence System.
(e) The Missouri litigation and a related case, pending in the
District Court for the City and County of Denver, Colorado, have been dismissed
with prejudice.
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
-----------------------------------
The Partnership's Class A Units are traded on the American Stock
Exchange ("AMEX") under the symbol JTV.
The following table shows the high and low prices as regularly quoted
on AMEX for each quarterly period of 1996 for the Partnership's Class A Units:
Year Ended 12/31/96 High Low
- --------------------- ------- -------
First Quarter 13 1/4 12
Second Quarter 14 1/2 12 1/8
Third Quarter 13 1/8 11 3/8
Fourth Quarter 14 3/4 12 1/4
At February 15, 1997, there were 1,284 record holders of the Class A
Units of the Partnership and 8,322,632 outstanding Class A Units.
The Partnership distributed $.15 per Class A Unit for each of the
calendar quarters in 1996 See Note 4 of the Notes to Financial Statements for
discussion of the Partnership's cash distribution policy.
11
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------
For the Year Ended December 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ------------ ------------ ------------ ------------
Revenues $32,281,131 $29,865,310 $27,522,625 $26,955,292 $38,337,748
Operating Expenses 15,875,256 15,044,764 13,757,025 13,021,954 18,635,695
Management Fees and Allocated
Overhead from General Partner 3,766,038 3,631,737 3,450,694 3,228,652 4,459,714
Depreciation and Amortization 8,668,624 7,881,118 8,351,439 9,793,347 15,051,597
Operating Income 3,971,213 3,307,691 1,963,467 911,339 190,742
Net Income (Loss) 1,746,408 794,431 578,056 (57,867) 44,060,105(a)
Net Income (Loss) per Class A Unit .21 .09 .07 (.01) 5.24
Distributions per Class A Unit .60 .60 .60 .60 3.60
Weighted Average Number of
Class A Units Outstanding 8,322,632 8,322,632 8,322,632 8,322,632 8,322,632
General Partner's Capital (Deficit) 8,720 (8,744) (16,688) (22,469) (21,890)
Class A Unitholders' Capital 14,544,382 17,809,017 22,016,109 26,437,414 31,488,281
Total Assets 49,549,980 48,075,513 48,557,818 48,163,431 52,648,591
Total Debt 30,996,647 26,761,696 23,493,841 19,029,472 18,570,003
(a) Includes gain on sale of Alexandria System of $47,118,868 during November
1992.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations
- -------------
The following discussion of Jones Intercable Investors, L.P. (the
"Partnership") financial condition and results of operations contains, in
addition to historical information, forward-looking statements that are based
upon certain assumptions and are subject to a number of risks and uncertainties.
The Partnership's actual results may differ significantly from the results
predicted in such forward-looking statements.
FINANCIAL CONDITION
- -------------------
On February 28, 1997, the Partnership entered into an asset purchase
agreement to sell the cable television system serving the communities in
and around Independence, Missouri (the "Independence System") to Jones Cable
Holdings II, Inc., a wholly owned subsidiary of the General Partner, for a sales
price of $171,213,667, which represents the average of three independent
appraisals of the fair market value of the Independence System. Upon the closing
of the sale of the Independence System, the Partnership will repay the then-
outstanding balance on its credit facility, pay a brokerage fee of $4,280,342 to
The Jones Group, Ltd., a subsidiary of the General Partner, and then the
Partnership will distribute the net proceeds to the Class A Unitholders. Such
distribution is expected to be approximately $16.12 for each Class A Unit held.
Because this distribution plus previous distributions made to Class A
Unitholders will not exceed the preferred return set forth in the Partnership
Agreement, there will be no general partner distribution related to this
transaction; however, the General Partner will receive a distribution as a Class
A Unitholder. The Independence System is the Partnership's only remaining asset.
Upon the successful completion of the sale of the Independence System, the
Partnership will be liquidated and dissolved.
For the year ended December 31, 1996, the Partnership generated net cash
from operating activities totaling $10,728,384, which is available to fund
distributions, capital expenditures and non-operating costs.
The Partnership's capital expenditures for 1996 totaled approximately
$9,445,000. Service drops to homes accounted for approximately 30 percent of
such expenditures. Approximately 20 percent of these expenditures related to the
extension of cable plant. Approximately 12 percent of these expenditures related
to the rebuild of cable plant required by one of the Partnership's franchise
agreements. The remainder of the capital expenditures related to various
enhancements in the Independence System. Funding for these expenditures was
provided primarily by cash generated from operations and borrowings from the
Partnership's revolving credit facility. Anticipated capital expenditures for
1997 total approximately $10,476,000 and are necessary to maintain the
Independence System until it is sold. Approximately 31 percent of the budgeted
expenditures is expected to be used for rebuild of cable plant and approximately
27 percent is expected to be used for service drops to homes. The Partnership is
also required to maintain a certain level of capital expenditures to maintain
the Independence System pursuant to its franchise agreements. Funding for these
capital improvements is expected to be provided by cash generated from
operations and, if necessary, borrowings from the Partnership's revolving credit
facility. Depending upon the timing of the closing of the sale of the
Independence System to the General Partner as discussed above, the Partnership
likely will make only the portion of the budgeted capital expenditures scheduled
to be made during the Partnership's continued ownership of the Independence
System.
12
The maximum amount available under the Partnership's revolving credit
facility is $35,000,000. As of December 31, 1996, $30,700,000 was outstanding,
leaving $4,300,000 of available borrowings for future needs. Under the terms of
the credit agreement, as amended, the revolving credit facility expires on
December 31, 1998. The credit facility will be repaid in full upon the sale of
the Independence System in the third or fourth quarter of 1997. Interest on
outstanding principal balances is at the Partnership's option of the Prime Rate
plus .25 percent, the Certificate of Deposit Rate plus 1.25 percent or the Euro-
rate plus 1.25 percent. The effective interest rates on amounts outstanding as
of December 31, 1996 and 1995 were 6.84 percent and 7.25 percent, respectively.
The Partnership declared a $.15 per unit distribution for each of the
four quarters of 1996. The Partnership expects that cash distributions will
continue to be paid quarterly until the sale of the Independence System is
closed; however, the level of such distributions will be determined on a
quarter-by-quarter basis. The General Partner believes that the Partnership has
sufficient sources of capital to service its anticipated needs from cash on
hand, cash generated from operations and borrowings available under its
revolving credit facility until the Independence System is sold.
RESULTS OF OPERATIONS
- ---------------------
1996 compared to 1995
---------------------
Revenues of the Partnership increased $2,415,821, or approximately 8
percent, to $32,281,131 in 1996 from $29,865,310 in 1995. The increase in
revenues in the Independence System was primarily a result of increases in the
number of basic service subscribers and basic service rate increases. Basic
service rate increases accounted for approximately 60 percent of the increase in
revenues for 1996. An increase in the number of basic service subscribers
accounted for approximately 37 percent of the increase in revenues for 1996.
Basic subscribers increased by 1,712 subscribers, or approximately 2 percent, to
85,434 at December 31, 1996 from 83,722 at December 31, 1995. No other
individual factor was significant to the increase in revenues.
Operating expenses consist primarily of costs associated with the
operation and administration of the Partnership's cable television system. The
principal cost components are salaries paid to system personnel, programming
expenses, professional fees, subscriber billing costs, rent for leased
facilities, cable system maintenance expenses and marketing expenses.
Operating expenses increased $830,492, or approximately 6 percent, to
$15,875,256 in 1996 from $15,044,764 in 1995. Operating expenses represented
approximately 49 percent and 50 percent of revenues in 1996 and 1995,
respectively. The increase in operating expenses was due primarily to increases
in programming-related costs, which were partially offset by a decrease in
personnel costs. No other individual factor was significant to the increase in
operating expenses.
Management fees and allocated overhead from the General Partner increased
$134,301, or approximately 4 percent, to $3,766,038 in 1996 from $3,631,737 in
1995. This increase was due primarily to the increase in revenues, upon which
such management fees and allocations are based.
Depreciation and amortization expense increased $787,506, or
approximately 10 percent, to $8,668,624 in 1996 from $7,881,118 in 1995. This
increase was due to additions to the Independence System's depreciable asset
base.
Operating income increased $663,522, or approximately 20 percent, to
$3,971,213 in 1996 from $3,307,691 in 1995. This increase was due to the
increase in revenues exceeding the increases in operating expenses, management
fees and allocated overhead from the General Partner and depreciation and
amortization expense.
The cable television industry generally measures the financial
performance of a cable television system in terms of operating income before
depreciation and amortization. This measure is not intended to be a substitute
or improvement upon the items disclosed on the financial statements, rather it
is included because it is an industry standard. Operating income before
depreciation and amortization increased $1,451,028, or approximately 13 percent,
to $12,639,837 in 1996 from $11,188,809 in 1995. This increase was due to the
increase in revenues exceeding the increases in operating expenses and
management fees and allocated overhead from the General Partner.
Interest expense increased $149,381, or approximately 8 percent, to
$2,075,840 in 1996 from $1,926,459 in 1995. This increase was due to higher
outstanding balances on interest bearing obligations.
13
Net income increased $951,977 to $1,746,408 in 1996 from $794,431 in
1995. This increase was due to the factors discussed above.
1995 compared to 1994
---------------------
Revenues of the Partnership increased $2,342,685, or approximately 9
percent, to $29,865,310 in 1995 from $27,522,625 in 1994. The increase in
revenues in the Independence System was primarily a result of increases in the
number of basic service subscribers and basic service rate increases. An
increase in the number of basic service subscribers accounted for approximately
53 percent of the increase in revenues for 1995. Basic subscribers increased by
3,737 subscribers, or approximately 5 percent, to 83,722 at December 31, 1995
from 79,985 at December 31, 1994. Basic service rate increases accounted for
approximately 41 percent of the increase in revenues for 1995. No other
individual factor was significant to the increase in revenues.
Operating expenses increased $1,287,739, or approximately 9 percent, to
$15,044,764 in 1995 from $13,757,025 in 1994. Operating expenses represented
approximately 50 percent of revenues in 1995 and 1994, respectively. This
increase was due primarily to increases in programming-related costs, which were
partially offset by a decrease in personnel costs. No other individual factor
was significant to the increase in operating expenses in the Partnership's
Independence System.
Management fees and allocated overhead from the General Partner increased
$181,043, or approximately 5 percent, to $3,631,737 in 1995 from $3,450,694 in
1994. This increase was due primarily to the increase in revenues, upon which
such fees and allocations are based.
Depreciation and amortization expense decreased $470,321, or
approximately 6 percent, to $7,881,118 in 1995 from $8,351,439 in 1994. This
decrease was due to the maturation of the Independence System's intangible asset
base.
Operating income increased $1,344,224, or approximately 68 percent, to
$3,307,691 in 1995 from $1,963,467 in 1994. This increase was due to the
decrease in depreciation and amortization expense and to the increase in
revenues exceeding the increases in operating expenses and management fees and
allocated overhead from the General Partner.
Operating income before depreciation and amortization increased $873,903,
or approximately 8 percent, to $11,188,809 in 1995 from $10,314,906 in 1994.
This increase was due to the increases in revenues exceeding the increases in
operating expenses and management fees and allocated overhead from the General
Partner.
Interest expense increased $636,968, or approximately 49 percent, to
$1,926,459 in 1995 from $1,289,491 in 1994. This increase was due to higher
outstanding balances on interest bearing obligations and to higher interest
rates in 1995 as compared to 1994.
Net income increased $216,375, or approximately 37 percent, to $794,431
in 1995 from $578,056 in 1994. This increase was due to the factors discussed
above.
14
Item 8. Financial Statements
- ----------------------------
JONES INTERCABLE INVESTORS, L.P.
--------------------------------
(A Limited Partnership)
FINANCIAL STATEMENTS
--------------------
AS OF DECEMBER 31, 1996 AND 1995
--------------------------------
INDEX
-----
Page
----
Report of Independent Public Accountants 16
Balance Sheets 17
Statements of Operations 19
Statements of Partners' Capital (Deficit) 20
Statements of Cash Flows 21
Notes to Financial Statements 22
15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Partners of Jones Intercable Investors, L.P.:
We have audited the accompanying balance sheets of JONES INTERCABLE
INVESTORS, L.P. (a Colorado limited partnership) as of December 31, 1996 and
1995, and the related statements of operations, partners' capital (deficit) and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the General Partner's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Jones Intercable
Investors, L.P. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 7, 1997.
16
JONES INTERCABLE INVESTORS, L.P.
--------------------------------
(A Limited Partnership)
BALANCE SHEETS
--------------
December 31,
----------------------------
ASSETS (Note 1) 1996 1995
------ ------------ -------------
CASH $ 616,013 $ 91,518
TRADE RECEIVABLES, less allowance for doubtful
receivables of $116,097 and $82,938 at
December 31, 1996 and 1995, respectively 1,309,354 1,378,312
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 76,071,150 67,139,530
Less- accumulated depreciation (34,144,942) (29,510,807)
------------ ------------
41,926,208 37,628,723
Franchise costs and other intangible assets, net of
accumulated amortization of $42,711,158 and
$39,276,038 at December 31, 1996 and 1995, respectively 5,390,152 8,825,272
------------ ------------
Total investment in cable
television properties 47,316,360 46,453,995
DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 308,253 151,688
------------ ------------
Total assets $ 49,549,980 $ 48,075,513
============ ============
The accompanying notes to financial statements
are an integral part of these balance sheets.
17
JONES INTERCABLE INVESTORS, L.P.
--------------------------------
(A Limited Partnership)
BALANCE SHEETS
--------------
December 31,
----------------------------
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) 1996 1995
- ------------------------------------------------ ------------- ------------
LIABILITIES:
Credit facility $ 30,700,000 $ 26,450,000
Capital lease obligations 296,647 311,696
Accrued distributions to Class A Unitholders 1,248,395 1,248,395
Accounts payable and accrued liabilities 2,637,438 2,146,992
Subscriber prepayments 114,398 118,157
------------- ------------
Total liabilities 34,996,878 30,275,240
------------- ------------
COMMITMENTS AND CONTINGENCIES (Note 8)
PARTNERS' CAPITAL (DEFICIT):
General Partner-
Contributed capital 1,000 1,000
Accumulated earnings (deficit) 7,720 (9,744)
------------- ------------
8,720 (8,744)
------------- ------------
Class A Unitholders-
Net contributed capital
(8,322,632 units outstanding
at December 31, 1996 and 1995) 116,433,492 116,433,492
Accumulated earnings (deficit) 764,252 (964,692)
Distributions to Unitholders (102,653,362) (97,659,783)
------------- ------------
14,544,382 17,809,017
------------- ------------
Total liabilities and
partners' capital (deficit) $ 49,549,980 $ 48,075,513
============= ============
The accompanying notes to financial statements
are an integral part of these balance sheets.
18
JONES INTERCABLE INVESTORS, L.P.
--------------------------------
(A Limited Partnership)
STATEMENTS OF OPERATIONS
------------------------
For the Year Ended December 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
REVENUES $32,281,131 $29,865,310 $27,522,625
COSTS AND EXPENSES:
Operating expenses 15,875,256 15,044,764 13,757,025
Management fees and allocated
overhead from General Partner 3,766,038 3,631,737 3,450,694
Depreciation and amortization 8,668,624 7,881,118 8,351,439
----------- ----------- -----------
OPERATING INCOME 3,971,213 3,307,691 1,963,467
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (2,075,840) (1,926,459) (1,289,491)
Interest income 6,175 6,274 7,899
Other, net (155,140) (593,075) (103,819)
----------- ----------- -----------
Total other income (expense), net (2,224,805) (2,513,260) (1,385,411)
----------- ----------- -----------
NET INCOME $ 1,746,408 $ 794,431 $ 578,056
=========== =========== ===========
ALLOCATION OF NET INCOME:
General Partner $ 17,464 $ 7,944 $ 5,781
=========== =========== ===========
Class A Unitholders $ 1,728,944 $ 786,487 $ 572,275
=========== =========== ===========
NET INCOME PER CLASS A UNIT $.21 $.09 $.07
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF CLASS A
UNITS OUTSTANDING 8,322,632 8,322,632 8,322,632
=========== =========== ===========
The accompanying notes to financial statements
are an integral part of these statements.
19
JONES INTERCABLE INVESTORS, L.P.
--------------------------------
(A Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
-----------------------------------------
For the Year Ended December 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
General Partner:
Balance, beginning of year $ (8,744) $ (16,688) $ (22,469)
Net income for year 17,464 7,944 5,781
----------- ----------- -----------
Balance, end of year $ 8,720 $ (8,744) $ (16,688)
=========== =========== ===========
Class A Unitholders:
Balance, beginning of year $17,809,017 $22,016,109 $26,437,414
Net income for year 1,728,944 786,487 572,275
Distributions to Unitholders (4,993,579) (4,993,579) (4,993,580)
----------- ----------- -----------
Balance, end of year $14,544,382 $17,809,017 $22,016,109
=========== =========== ===========
The accompanying notes to financial statements
are an integral part of these statements.
20
JONES INTERCABLE INVESTORS, L.P.
--------------------------------
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
------------------------
For the Year Ended December 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,746,408 $ 794,431 $ 578,056
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,668,624 7,881,118 8,351,439
Decrease (increase) in trade receivables 68,958 (636,997) 13,003
Increase in deposits, prepaid expenses
and deferred charges (242,293) (153,990) (66,526)
Increase in accounts payable and accrued
liabilities and subscriber prepayments 486,687 448,988 345,542
----------- ----------- -----------
Net cash provided by operating activities 10,728,384 8,333,550 9,221,514
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (9,445,261) (7,123,730) (8,451,389)
----------- ----------- -----------
Net cash used in investing activities (9,445,261) (7,123,730) (8,451,389)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 5,015,615 4,878,614 7,064,889
Repayment of debt (780,664) (1,610,759) (2,600,520)
Distributions to unitholders (4,993,579) (4,993,579) (4,993,580)
----------- ----------- -----------
Net cash used in financing activities (758,628) (1,725,724) (529,211)
----------- ----------- -----------
Increase (decrease) in cash 524,495 (515,904) 240,914
Cash, beginning of year 91,518 607,422 366,508
----------- ----------- -----------
Cash, end of year $ 616,013 $ 91,518 $ 607,422
=========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 2,104,973 $ 1,977,214 $ 1,072,838
=========== =========== ===========
The accompanying notes to financial statements
are an integral part of these statements.
21
JONES INTERCABLE INVESTORS, L.P.
--------------------------------
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(1) ORGANIZATION OF PARTNERSHIP
---------------------------
Formation and Business
----------------------
Jones Intercable Investors, L.P. (the "Partnership"), a Colorado limited
partnership, was formed on September 18, 1986, to acquire, own and operate cable
television systems in the United States. On November 28, 1986, the Partnership
completed the sale of 3,230,000 Class A Units, representing beneficial ownership
of Class A Limited Partnership Interests, to the public at a price of $16.00 per
Class A Unit. On May 23, 1987, the Partnership completed the sale of an
additional 4,300,000 Class A Units, representing beneficial ownership of Class A
Limited Partnership Interests to Jones Intercable, Inc. ("Intercable") (800,000
Units) and to the public at a price of $15.00 per Class A Unit. In addition to
its 800,000 Class A Units, Intercable purchased, through a series of
transactions, 792,632 Class B Units. These purchases by Intercable represent a
19 percent ownership interest in the Partnership. At December 31, 1989, all
Class B Units were converted to Class A Units. Intercable is the general
partner of the Partnership (the "General Partner"). The General Partner and its
subsidiaries also own and operate cable television systems. In addition, the
General Partner manages cable television systems for other limited partnerships
for which it is general partner and, also, for affiliated entities.
At December 31, 1996, the Partnership owned the cable television system
serving certain communities in and around Independence, Missouri.
Cable Television System Sale and Partnership Liquidation
--------------------------------------------------------
On February 28, 1997, the Partnership entered into an asset purchase
agreement to sell the Independence System to Jones Cable Holdings II, Inc., a
wholly owned subsidiary of the General Partner, for a sales price of
$171,213,667, which represents the average of three independent appraisals of
the fair market value of the Independence System. Upon the closing of the sale
of the Independence System, the Partnership will repay the then-outstanding
balance on its credit facility, pay a brokerage fee of $4,280,342 to The Jones
Group, Ltd., a subsidiary of the General Partner, and then the Partnership will
distribute the net proceeds to the Class A Unitholders. Such distribution is
expected to be approximately $16.12 for each Class A Unit held. Because this
distribution plus previous distributions made to Class A Unitholders will not
exceed the preferred return set forth in the Partnership Agreement, there will
be no general partner distribution related to this transaction; however, the
General Partner will receive a distribution as a Class A Unitholder. The
Independence System is the Partnership's only remaining asset. Upon the
successful completion of the sale of the Independence System, the Partnership
will be liquidated and dissolved.
Contributed Capital of the Partnership
--------------------------------------
The capitalization of the Partnership is set forth in the accompanying
statements of partners' capital (deficit).
All profits and losses of the Partnership are allocated 99 percent to
the Unitholders and 1 percent to the General Partner.
(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.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the General Partner's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities
22
and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Partnership Acquisitions
------------------------
The Partnership's acquisitions were accounted for using the "purchase
method" of accounting. The allocation of the purchase price (determined by
independent appraisal) was as follows: first, to the fair value of
net tangible assets acquired; second, to the value of subscriber lists; third,
to franchise costs; and fourth, to costs in excess of interests in net assets
purchased.
Property, Plant and Equipment
-----------------------------
Depreciation of property, plant and equipment is provided primarily 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
Replacements, renewals and improvements are capitalized and maintenance
and repairs are charged to expense as incurred.
Property, plant and equipment and the corresponding accumulated
depreciation are written off as certain assets become fully depreciated and are
no longer in service.
Intangible Assets
-----------------
Costs assigned to franchises and costs in excess of interests in net
assets purchased are being amortized using the straight-line method over the
following remaining estimated useful lives:
Franchise costs 1 - 2 years
Costs in excess of interests
in net assets purchased 30 years
Revenue Recognition
-------------------
Subscriber prepayments are initially deferred and recognized as revenue
when earned.
(3) TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
----------------------------------------------------
Management Fees, Reimbursements of Allocated Expenses and Distribution
----------------------------------------------------------------------
Ratios
- ------
The General Partner manages the Partnership and receives a fee for its
services equal to 5 percent of the gross revenues of the Partnership, excluding
revenues from the sale of cable television systems or franchises. Management
fees for the years ended December 31, 1996, 1995 and 1994 were $1,614,057,
$1,493,266 and $1,376,131, respectively.
The Partnership reimburses the General Partner for certain allocated
overhead and administrative expenses. These expenses represent the salaries and
related benefits paid for 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. Such services, and their related costs, are necessary to the
operation of the Partnership and would have been incurred by the Partnership, if
it was a stand alone entity. Allocations of personnel costs are based primarily
on actual time spent by employees of the General Partner with respect to each
partnership managed. Remaining expenses are allocated based on the pro rata
relationship of the Partnership's revenues to the total revenues of all systems
owned or managed by the General Partner and certain of its subsidiaries.
Systems owned by the General Partner and all other systems owned by partnerships
for which Intercable is the general partner are also allocated a proportionate
share of these expenses. The General Partner believes that the methodology used
in allocating overhead and administrative expenses is reasonable. Amounts
charged the Partnership by the General Partner for allocated overhead and
23
administrative expenses for the years ended December 31, 1996, 1995 and 1994
were $2,151,981, $2,138,471 and $2,074,563, respectively.
Distributions made upon the sale or refinancing of a Partnership cable
television system or upon dissolution of the Partnership shall be made as
follows: first, to the Class A Unitholders an amount equal to the Preferred
Return. The "Preferred Return" is defined as a return equal to 10 percent per
annum, cumulative and non-compounded on an amount equal to the capital
contribution made with respect to a Class A Unit, less any portion of such
amount which has been returned to Class A Units from prior sale or refinancing
proceeds; provided that such return will be reduced by all prior distributions
of cash flow from operations on the Class A Units, and certain prior
distributions of proceeds from sales or refinancing of Partnership cable
television properties; second, to the Class A Unitholders an amount equal to the
capital originally contributed; third, 60 percent to Class A Unitholders and 40
percent to the General Partner.
The Partnership is charged interest on accounts payable to the General
Partner at a rate which approximates the General Partner's weighted average cost
of borrowing. There was no interest charged to the Partnership by the General
Partner during 1996, 1995 and 1994.
Payments to/from Affiliates for Programming Services
----------------------------------------------------
The Partnership receives programming from Superaudio, Jones Education
Company and Product Information Network, all of which are affiliates of the
General Partner.
Payments to Superaudio totaled approximately $51,871, $45,956 and $46,113
in 1996, 1995 and 1994, respectively. Payments to Jones Education Company
totaled approximately $55,913, $49,159 and $41,783 in 1996, 1995 and 1994,
respectively.
The Partnership receives a commission from Product Information Network
based on a percentage of advertising revenue and number of subscribers. Product
Information Network paid commissions to the Partnership totaling $30,104,
$11,148 and $4,073 in 1996, 1995 and 1994, respectively.
(4) DISTRIBUTIONS TO UNITHOLDERS
----------------------------
The Partnership declared a $.15 per unit distribution for each of the
four quarters of 1996. All declared distributions were paid at December 31,
1996, except for the fourth quarter distribution, which was paid in February
1997. The Partnership expects that cash distributions will continue to be paid
quarterly until the sale of the Independence System is closed; however, the
level of such distributions will be determined on a quarter-by-quarter basis.
(5) PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant and equipment as of December 31, 1996 and 1995, consists
of the following:
December 31,
---------------------------
1996 1995
------------ ------------
Cable distribution systems $ 70,640,008 $ 61,887,816
Equipment and tools 1,795,869 1,714,326
Office furniture and equipment 825,535 642,237
Buildings 1,209,479 1,178,013
Vehicles 1,549,259 1,666,138
Land 51,000 51,000
------------ ------------
76,071,150 67,139,530
Less - accumulated depreciation (34,144,942) (29,510,807)
------------ ------------
$ 41,926,208 $ 37,628,723
============ ============
24
(6) DEBT
----
Debt consists of the following: December 31,
---------------------------
1996 1995
------------ ------------
Lending institutions-
Revolving credit facility $ 30,700,000 $ 26,450,000
Capital lease obligations 296,647 311,696
------------ ------------
$30,996,647 $ 26,761,696
============ ============
The maximum amount available under the Partnership's revolving credit
facility is $35,000,000. As of December 31, 1996, $30,700,000 was outstanding,
leaving $4,300,000 of available borrowings for future needs. Under the terms of
the credit agreement, as amended, the revolving credit facility expires on
December 31, 1998. Interest on outstanding principal balances is at the
Partnership's option of the Prime Rate plus .25 percent, the Certificate of
Deposit Rate plus 1.25 percent or the Euro-rate plus 1.25 percent. The effective
interest rates on amounts outstanding as of December 31, 1996 and 1995 were 6.84
percent and 7.25 percent, respectively.
Installments due on debt principal and capital lease obligations for each
of the five years in the period ending December 31, 2001 and thereafter,
respectively, are $88,994, $30,788,994, $88,994, $29,665, $-0- and $-0-. All
indebtedness is expected to be repaid upon the completion of the sale of the
Independence System. At December 31, 1996, substantially all of the
Partnership's property, plant and equipment secured the above indebtedness.
At December 31, 1996, the carrying amount of the Partnership's long-term
debt did not differ significantly from the estimated fair value of the financial
instruments. The fair value of the Partnership's long-term debt is estimated
based on the discounted amount of future debt service payments using rates of
borrowing for a liability of similar risk.
(7) INCOME TAXES
------------
Income taxes have not been recorded in the accompanying financial
statements because the Partnership will pay no federal or state income taxes as
an entity. Instead, all of the income, gains, losses, deductions and credits of
the Partnership will pass through to the General Partner and the Unitholders.
The federal and state income tax returns of the Partnership are prepared and
filed by the General Partner.
The Partnership's tax returns, the qualification of the Partnership as
such for tax purposes, and the amount of distributable Partnership income or
loss are subject to examination by federal and state taxing authorities. If
such examinations result in changes with respect to the Partnership's
qualification as such, or in changes with respect to the Partnership's recorded
income or loss, the tax liability of the General Partner and Unitholders would
likely be changed.
Taxable income to the General Partner and Unitholders is different from
that reported in the statements of operations largely due to the difference in
depreciation recognized under generally accepted accounting principles and the
expense allowed for tax purposes under the Modified Accelerated Cost Recovery
System. Additionally, since the Partnership has previously made an IRC Section
754 election, the cost basis of the Partnership assets, with respect to new
Unitholders has been increased or decreased to reflect the difference between
the new unitholders' purchase price and their proportionate share of the
adjusted tax basis of the Partnership properties. The portion of this adjustment
which relates to depreciable or amortizable assets results in difference between
book and tax depreciation or amortization. Under IRC Section 197, certain
intangibles placed in service after August 10, 1993, including goodwill, are
allowed to be amortized over a 15 year period for tax purposes, creating
additional book and tax amortization differences. There are no other significant
differences between taxable loss and the net loss reported in the statements of
operations.
The Partnership will be taxed as a corporation beginning January 1, 1998,
if it operates its current business at such time. The Partnership intends to
sell its assets and liquidate prior to such date. Current tax law impacts the
Unitholders due to limitations on the utilization of passive losses generated by
the Partnership. Investors in Publicly Traded Partnerships ("PTP's"), such as
Jones Intercable Investors, L.P., are subject to additional limitations under
the passive-activity loss rules as amended by the Revenue Act of 1987. Passive
losses reported on Schedule K-1, Form 1065,
25
by a PTP can only be used to offset passive income from the same partnership.
Passive losses of a PTP which are limited by this rule may be carried forward.
(8) COMMITMENTS AND CONTINGENCIES
-----------------------------
The Partnership rents office and other facilities under various long-term
operating lease arrangements. Rent paid under such lease arrangements totaled
$163,164, $166,127 and $147,185, respectively, for the years ended December 31,
1996, 1995 and 1994. Minimum commitments for each of the five years in the
period ending December 31, 2001, and thereafter are as follows:
1997 $148,551
1998 131,196
1999 43,199
2000 7,200
2001 7,200
Thereafter 34,800
--------
$372,146
========
(9) SUPPLEMENTARY PROFIT AND LOSS INFORMATION
-----------------------------------------
Supplementary profit and loss information for the respective years is
presented below:
For the Year Ended December 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
Maintenance and repairs $ 351,832 $ 356,537 $ 303,262
========== ========== ==========
Taxes, other than income and payroll taxes $ 327,288 $ 252,921 $ 199,752
========== ========== ==========
Advertising $ 303,881 $ 297,727 $ 319,442
========== ========== ==========
Depreciation of property, plant and equipment $5,233,504 $4,429,581 $3,639,053
========== ========== ==========
Amortization of intangible assets $3,435,120 $3,451,537 $4,712,386
========== ========== ==========
26
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. Directors of the General Partner serve until the
next annual meeting of the General Partner and until their successors shall be
elected and qualified.
Glenn R. Jones 67 Chairman of the Board and Chief Executive Officer
Derek H. Burney 57 Vice Chairman of the Board
James B. O'Brien 47 President and Director
Ruth E. Warren 47 Group Vice President/Operations
Kevin P. Coyle 45 Group Vice President/Finance
Christopher J. Bowick 41 Group Vice President/Technology
George H. Newton 62 Group Vice President/Telecommunications
Raymond L. Vigil 50 Group Vice President/Human Resources
Cynthia A. Winning 45 Group Vice President/Marketing
Elizabeth M. Steele 45 Vice President/General Counsel/Secretary
Larry W. Kaschinske 37 Vice President/Controller
Robert E. Cole 64 Director
William E. Frenzel 68 Director
Donald L. Jacobs 58 Director
James J. Krejci 55 Director
John A. MacDonald 43 Director
Raphael M. Solot 63 Director
Howard O. Thrall 49 Director
Siim A. Vanaselja 40 Director
Sanford Zisman 57 Director
Robert B. Zoellick 43 Director
Mr. Glenn R. Jones has served as Chairman of the Board of Directors
and Chief Executive Officer of the General Partner since its formation in 1970,
and he was President from June 1984 until April 1988. Mr. Jones is the sole
shareholder, President and Chairman of the Board of Directors of Jones
International, Ltd. He is also Chairman of the Board of Directors of the
subsidiaries of the General Partner and of certain other affiliates of the
General Partner. Mr. Jones has been involved in the cable television business
in various capacities since 1961, is a member of the Board of Directors and the
Executive Committee of the National Cable Television Association. Additionally,
Mr. Jones is a member of the Board of Governors for the American Society for
Training and Development, and a member of the Board of Education Council of the
National Alliance of Business. Mr. Jones is also a founding member of the James
Madison Council of the Library of Congress. 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 President's Award
from the Cable Television Public Affairs Association in recognition of Jones
International's educational efforts through Mind Extension University (now
Knowledge TV); the Donald G. McGannon Award for the advancement of minorities
and women in cable from the United Church of Christ Office of Communications;
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; the
Cableforce 2000 Accolade awarded by Women in Cable in recognition of the General
Partner's innovative employee programs; the Most Outstanding Corporate
Individual Achievement Award from the International Distance Learning Conference
for his contributions to distance education; the Golden Plate Award from the
American Academy of Achievement for his advances in distance education; the Man
of the Year named by the
27
Denver chapter of the Achievement Rewards for College Scientists; and in 1994
Mr. Jones was inducted into Broadcasting and Cable's Hall of Fame.
Mr. Derek H. Burney was appointed a Director of the General Partner in
December 1994 and Vice Chairman of the Board of Directors on January 31, 1995.
Mr. Burney joined BCE Inc., Canada's largest telecommunications company, in
January 1993 as Executive Vice President, International. He has been the
Chairman of Bell Canada International Inc., a subsidiary of BCE, since January
1993 and, in addition, has been Chief Executive Officer of BCI since July 1993.
Prior to joining BCE, Mr. Burney served as Canada's ambassador to the United
States from 1989 to 1992. Mr. Burney also served as chief of staff to the Prime
Minister of Canada from March 1987 to January 1989 where he was directly
involved with the negotiation of the U.S. - Canada Free Trade Agreement. In July
1993, he was named an Officer of the Order of Canada. Mr. Burney is also a
director of Bell Cablemedia plc, Mercury Communications Limited, Videotron
Holdings plc, Tele-Direct (Publications) Inc., Teleglobe Inc., Bimcor Inc.,
Maritime Telegraph and Telephone Company, Limited, Moore Corporation Limited,
Northbridge Programming Inc. and certain subsidiaries of Bell Canada
International.
Mr. James B. O'Brien, the General Partner's President, joined the
General Partner in January 1982. Prior to being elected President and a
Director of the General Partner in December 1989, Mr. O'Brien served as a
Division Manager, Director of Operations Planning/Assistant to the CEO, Fund
Vice President and Group Vice President/Operations. Mr. O'Brien was appointed
to the General Partner's Executive Committee in August 1993. As President, he
is responsible for the day-to-day operations of the cable television systems
managed and owned by the General Partner. Mr. O'Brien is a board member of
Cable Labs, Inc., the research arm of the U.S. cable television industry. He
also serves as Vice Chairman and a director of the Cable Television
Administration and Marketing Association and as a director and member of the
Executive Committee of the Walter Kaitz Foundation, a foundation that places
people of ethnic minority groups in positions with cable television systems,
networks and vendor companies.
Ms. Ruth E. Warren joined the General Partner in August 1980 and has
served in various operational capacities, including system manager and Fund Vice
President, since then. Ms. Warren was elected Group Vice President/Operations
of the General Partner in September 1990.
Mr. Kevin P. Coyle joined The Jones Group, Ltd. in July 1981 as Vice
President/Financial Services. In September 1985, he was appointed Senior Vice
President/Financial Services. He was elected Treasurer of the General Partner
in August 1987, Vice President/Treasurer in April 1988 and Group Vice
President/Finance and Chief Financial Officer in October 1990.
Mr. Christopher J. Bowick joined the General Partner in September 1991
as Group Vice President/Technology and Chief Technical Officer. Previous to
joining the General Partner, Mr. Bowick worked for Scientific Atlanta's
Transmission Systems Business Division in various technical management
capacities since 1981, and as Vice President of Engineering since 1989.
Mr. George H. Newton joined the General Partner in January 1996 as
Group Vice President/Telecommunications. Prior to joining the General Partner,
Mr. Newton was President of his own consulting business, Clear Solutions, and
since 1994 Mr. Newton has served as a Senior Advisor to Bell Canada
International. From 1990 to 1993, Mr. Newton served as the founding Chief
Executive Officer and Managing Director of Clear Communications, New Zealand,
where he established an alternative telephone company in New Zealand. From 1964
to 1990, Mr. Newton held a wide variety of operational and business assignments
with Bell Canada International.
Mr. Raymond L. Vigil joined the General Partner in June 1993 as Group
Vice President/Human Resources. Previous to joining the General Partner, Mr.
Vigil served as Executive Director of Learning with USWest. Prior to USWest,
Mr. Vigil worked in various human resources posts over a 14-year term with the
IBM Corporation.
Ms. Cynthia A. Winning joined the General Partner as Group Vice
President/Marketing in December 1994. Previous to joining the General Partner,
Ms. Winning served since 1994 as the President of PRS Inc.,
28
Denver, Colorado, a sports and event marketing company. From 1979 to 1981 and
from 1986 to 1994, Ms. Winning served as the Vice President and Director of
Marketing for Citicorp Retail Services, Inc., a provider of private-label credit
cards for ten national retail department store chains. From 1981 to 1986, Ms.
Winning was the Director of Marketing Services for Daniels & Associates cable
television operations, as well as the Western Division Marketing Director for
Capital Cities Cable. Ms. Winning also serves as a board member of Cities in
Schools, a dropout intervention/prevention program.
Ms. Elizabeth M. Steele joined the General Partner in August 1987 as
Vice President/General Counsel and Secretary. From August 1980 until joining
the General Partner, Ms. Steele was an associate and then a partner at the
Denver law firm of Davis, Graham & Stubbs, which serves as counsel to the
General Partner.
Mr. Larry Kaschinske joined the General Partner in 1984 as a staff
accountant in the General Partner's former Wisconsin Division, was promoted to
Assistant Controller in 1990, named Controller in August 1994 and was elected
Vice President/Controller in June 1996.
Mr. Robert E. Cole was appointed a Director of the General Partner in
March 1996. Mr. Cole is currently self-employed as a partner of First Variable
Insurance Marketing and is responsible for marketing to National Association of
Securities Dealers, Inc. firms in northern California, Oregon, Washington and
Alaska. From 1993 to 1995, Mr. Cole was the Director of Marketing for Lamar
Life Insurance Company; from 1992 to 1993, Mr. Cole was Senior Vice President of
PMI Inc., a third party lender serving the special needs of Corporate Owned Life
Insurance (COLI) and from 1988 to 1992, Mr. Cole was the principal and co-
founder of a specialty investment banking firm that provided services to finance
the ownership and growth of emerging companies, productive assets and real
property. Mr. Cole is a Certified Financial Planner and a former United States
Naval Aviator.
Mr. William E. Frenzel was appointed a Director of the General Partner
in April 1995. Mr. Frenzel has been a Guest Scholar since 1991 with the
Brookings Institution, a research organization located in Washington D. C.
Until his retirement in January 1991, Mr. Frenzel served for twenty years in the
United States House of Representatives, representing the State of Minnesota,
where he was a member of the House Ways and Means Committee and its Trade
Subcommittee, the Congressional Representative to the General Agreement on
Tariffs and Trade (GATT), the Ranking Minority Member on the House Budget
Committee and a member of the National Economic Commission. Mr. Frenzel also
served in the Minnesota Legislature for eight years. He is a Distinguished
Fellow of the Tax Foundation, Vice Chairman of the Eurasia Foundation, a Board
Member of the U.S.-Japan Foundation, the Close-Up Foundation, Sit Mutual Funds
and Chairman of the Japan-America Society of Washington.
Mr. Donald L. Jacobs was appointed a Director of the General Partner
in April 1995. Mr. Jacobs is a retired executive officer of TRW. Prior to his
retirement, he was Vice President and Deputy Manager of the Space and Defense
Sector; prior to that appointment, he was the Vice President and General Manager
of the Defense Systems Group and prior to his appointment as Group General
Manager, he was President of ESL, Inc., a wholly owned subsidiary of TRW.
During his career, Mr. Jacobs served on several corporate, professional and
civic boards.
Mr. James J. Krejci was President of the International Division of
International Gaming Technology, International headquartered in Reno, Nevada,
until March 1995. Prior to joining IGT in May 1994, Mr. Krejci was Group Vice
President of Jones International, Ltd. and was Group Vice President of the
General Partner. He also served as an officer of subsidiaries of Jones
International, Ltd. until leaving the General Partner in May 1994. Mr. Krejci
has been a Director of the General Partner since August 1987.
29
Mr. John A. MacDonald was appointed a Director of the General Partner
in November 1995. Mr. MacDonald is Executive Vice President of Business
Development and Chief Technology Officer of Bell Canada International Inc.
Prior to joining Bell Canada in November 1994, Mr. MacDonald was President and
Chief Executive Officer of The New Brunswick Telephone Company, Limited, a post
he had held since March of that year. Prior to March 1994, Mr. MacDonald was
with NBTel for 17 years serving in various capacities, including Market Planning
Manager, Corporate Planning Manager, Manager of Systems Planning and Development
and General Manager, Chief Engineer and General Manager of Engineering and
Information Systems and Vice President of Planning. Mr. MacDonald was the
former Chairman of the New Brunswick section of the Institute of Electrical and
Electronic Engineers and also served on the Federal Government's Information
Highway Advisory Council. Mr. MacDonald is Chairman of MediaLinx Interactive
Inc. and Stentor Canadian Network Management and is presently a Governor of the
Montreal Exchange. He also serves on the Board of Directors of Tele-Direct
(Publications) Inc., Bell-Northern Research, Ltd., SRCI, Bell Sygma, Canarie
Inc., and is a member of the University of New Brunswick Venture Campaign
Cabinet.
Mr. Raphael M. Solot was appointed a Director of the General Partner
in March 1996. Mr. Solot is an attorney and has practiced law for 31 years with
an emphasis on franchise, corporate and partnership law and complex litigation.
Mr. Howard O. Thrall was appointed a Director of the General Partner
in March 1996. Mr. Thrall had previously served as a Director of the General
Partner from December 1988 to December 1994. Mr. Thrall is Senior Vice
President-Corporate Development for First National Net, Inc., a leading service
provider for the mortgage banking industry, and he heads First National Net's
Washington, D.C. regional office. From September 1993 through July 1996, Mr.
Thrall served as Vice President of Sales, Asian Region, for World Airways, Inc.
headquartered at the Washington Dulles International Airport. From 1984 until
August 1993, Mr. Thrall was with the McDonnell Douglas Corporation, where he
concluded as a Regional Vice President, Commercial Marketing with the Douglas
Aircraft Company subsidiary. Mr. Thrall is also an active management and
international marketing consultant, having completed assignments with McDonnell
Douglas Aerospace, JAL Trading, Inc., Technology Solutions Company, Cheong Kang
Associated (Korea), Aero Investment Alliance, Inc. and Western Real Estate
Partners, among others.
Mr. Siim A. Vanaselja was appointed a Director of the General Partner
in August 1996. Mr. Vanaselja joined BCE Inc., Canada's largest
telecommunications company, in February 1994 as Assistant Vice-President,
International Taxation. In June 1994, he was appointed Assistant Vice-President
and Director of Taxation, and in February 1995, Mr. Vanaselja was appointed
Vice-President, Taxation. On August 1, 1996, Mr. Vanaselja was appointed the
Chief Financial Officer of Bell Canada International Inc., a subsidiary of BCE
Inc. Prior to joining BCE Inc. and since August 1989, Mr. Vanaselja was a
partner in the Toronto office of KPMG Peat Marwick Thorne. Mr. Vanaselja has
been a member of the Institute of Chartered Accountants of Ontario since 1982
and is a member of the Canadian Tax Foundation, the Tax Executives Institute and
the International Fiscal Association.
Mr. Sanford Zisman was appointed a director of the General Partner in
June 1996. Mr. Zisman is a member of the law firm, Zisman & Ingraham, P.C. of
Denver, Colorado and has practiced law for 31 years, with an emphasis on tax,
business and estate planning and probate administration. Mr. Zisman currently
serves as a member of the Board of Directors of Saint Joseph Hospital, the
largest hospital in Colorado, and he has served as Chairman of the Board,
Chairman of the Finance Committee and Chairman of the Strategic Planning
Committee of the hospital. Since 1992, he has also served on the Board of
Directors of Maxim Series Fund, Inc., a subsidiary of Great-West Life Assurance
Company.
Mr. Robert B. Zoellick was appointed a Director of the General Partner
in April 1995. Mr. Zoellick is Executive Vice President for Housing and Law of
Fannie Mae, a federally chartered and stockholder-owned corporation that is the
largest housing finance investor in the United States. From August 1992 to
January 1993, Mr. Zoellick served as Deputy Chief of Staff of the White House
and Assistant to the President. From May 1991 to August 1992, Mr. Zoellick
served concurrently as the Under Secretary of State for Economic and
Agricultural Affairs and as Counselor of the Department of State, a post he
assumed in March 1989. From 1985 to 1988, Mr. Zoellick served at the Department
of Treasury in a number of capacities, including Counselor to the Secretary.
Mr. Zoellick received the Alexander Hamilton and Distinguished Service Awards,
highest honors of the Departments of Treasury and State, respectively. The
German Government awarded him the Knight Commanders Cross for his work on
Germany unification. Mr. Zoellick currently serves on the boards of Alliance
Capital, Said Holdings, the Council on
30
Foreign Relations, the Congressional Institute, the German Marshall Fund of the
U.S., the European Institute, the National Bureau of Asian Research, the
American Council on Germany, the American Institute for Contemporary German
Studies and the Overseas Development Council.
ITEM 11. EXECUTIVE COMPENSATION
--------------------------------
The Partnership has no employees; however, various personnel are
required to operate the Independence System. Such personnel are employed by the
General Partner and, pursuant to the terms of the limited partnership agreement
of the Partnership, the cost of such employment is charged by the General
Partner to the Partnership as a direct reimbursement item. See Item 13.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS
----------------------------------------------------------------------
No person or entity owns more than 5 percent of the limited
partnership interests in the Partnership, except for the General Partner. The
General Partner owns 19.14 percent of the limited partnership interests in the
Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
The General Partner and its affiliates engage in certain transactions
with 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.
TRANSACTIONS WITH THE GENERAL PARTNER
The General Partner charges a management fee, and the General Partner
is reimbursed for certain allocated overhead and administrative expenses. These
expenses represent the salaries and benefits paid to corporate personnel, rent,
data processing services and other corporate facilities costs. Such personnel
provide engineering, marketing, administrative, accounting, legal and investor
relations services to the Partnership. Allocations of personnel costs are based
primarily on actual time spent by employees of the General Partner with respect
to each partnership managed. Remaining expenses are allocated based on the pro
rata relationship of the Partnership's revenues to the total revenues of all
systems owned or managed by the General Partner and certain of its subsidiaries.
Systems owned by the General Partner and all other systems owned by partnerships
for which Jones Intercable, Inc. is the general partner are also allocated a
proportionate share of these expenses.
The General Partner also advances funds and charges interest on the
balance payable. The interest rate charged approximates the General Partner's
weighted average cost of borrowing.
TRANSACTIONS WITH AFFILIATES
Jones Education Company ("JEC") is owned 63% by Jones International,
Ltd. ("International"), an affiliate of the General Partner, 9% by Glenn R.
Jones, 12% by Bell Canada International Inc. ("BCI") and 16% by the General
Partner. JEC operates two television networks, JEC Knowledge TV and Jones
Computer Network. JEC Knowledge TV provides programming related to computers
and technology; business, careers and finance; health and wellness; and global
culture and languages. Jones Computer Network provides programming focused
primarily on computers and technology. JEC sells its programming to certain
cable television systems owned or managed by the General Partner.
31
Jones Galactic Radio, Inc. is a company now owned by Jones
International Networks, Ltd., an affiliate of International. Superaudio, a
joint venture between Jones Galactic Radio, Inc. and an unaffiliated entity,
provides satellite programming to certain cable television systems owned or
managed by the General Partner.
The Product Information Network Venture (the "PIN Venture") is a
venture among a subsidiary of Jones International Networks, Ltd., an affiliate
of International, and two unaffiliated cable system operators. The PIN Venture
operates the Product Information Network ("PIN"), which is a 24-hour network
that airs long-form advertising generally known as "infomercials." The PIN
Venture generally makes incentive payments of approximately 60% of its net
advertising revenue to the cable systems that carry its programming. Most of
the General Partner's owned and managed systems carry PIN for all or part of
each day. Revenues received by the Partnership from the PIN Venture relating to
the Partnership's owned cable television systems totaled approximately $30,104
for the year ended December 31, 1996.
The charges to the Partnership for related party transactions are as
follows for the periods indicated:
For the Year Ended December 31,
---------------------------------------
1996 1995 1994
--------------- ---------- ----------
Management fees $1,614,057 $1,493,266 $1,376,131
Allocation of expenses 2,151,981 2,138,471 2,074,563
Programming fees:
Jones Education Company 55,913 49,159 41,783
Superaudio 51,871 45,956 46,113
32
PART IV.
--------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
-------------------------------------------------------------------------
(a)1. See index to financial statements for list of
financial statements and exhibits thereto filed as
a part of this report.
3. Exhibits:
2.1 Asset Purchase Agreement dated February 28, 1997
between the Partnership and Jones Intercable, Inc.
4.1 Limited Partnership Agreement for Jones Intercable
Investors, L.P. (1)
10.1.1 Copy of a franchise and related documents thereto
granting a community antenna television system
franchise for the Village of Baldwin Park,
Missouri. (3)
10.1.2 Copy of a franchise and related documents thereto
granting a community antenna television system
franchise for the City of Bates, Missouri. (4)
10.1.3 Copy of a franchise and related documents thereto
granting a community antenna television system
franchise for the City of Blue Springs, Missouri.
(2)
10.1.4 Copy of a franchise and related documents thereto
granting a community antenna television system
franchise for the City of Grain Valley, Missouri.
(2)
10.1.5 Copy of a franchise and related documents thereto
granting a community antenna television system
franchise for the City of Greenwood, Missouri. (2)
10.1.6 Copy of a franchise and related documents thereto
granting a community antenna television system
franchise for the City of Independence, Missouri.
(2)
10.1.7 Copy of a franchise and related documents thereto
granting a community antenna television system
franchise for the County of Jackson, Missouri. (3)
10.1.8 Copy of a franchise and related documents thereto
granting a community antenna television system
franchise for the County of Johnson, Missouri. (3)
10.1.9 Copy of a franchise and related documents thereto
granting a community antenna television system
franchise for the City of Lake Lotawana, Missouri.
(2)
10.1.10 Copy of a franchise and related documents thereto
granting a community antenna television system
franchise for the City of Lake Tapawingo,
Missouri. (2)
10.1.11 Copy of a franchise and related documents thereto
granting a community antenna television system
franchise for the City of Lake Winnebago,
Missouri. (2)
10.1.12 Copy of a franchise and related documents thereto
granting a community antenna television system
franchise for the City of Lee's Summit, Missouri.
(2)
10.1.13 Copy of a franchise and related documents thereto
granting a community antenna television system
franchise for the City of Oak Grove, Missouri. (2)
10.1.14 Copy of a franchise and related documents thereto
granting a community antenna television system
franchise for the City of Odessa, Missouri. (2)
33
10.1.15 Copy of a franchise and related documents thereto
granting a community antenna television system
franchise for the City of Olathe, Kansas. (2)
10.1.16 Copy of a franchise and related documents thereto
granting a community antenna television system
franchise for the City of Peculiar, Missouri. (2)
10.1.17 Copy of a franchise and related documents thereto
granting a community antenna television system
franchise for the City of Pleasant Hill, Missouri.
(2)
10.1.18 Copy of a franchise and related documents thereto
granting a community antenna television system
franchise for the City of Raymore, Missouri. (2)
10.1.19 Copy of a franchise and related documents thereto
granting a community antenna television system
franchise for the City of Raytown, Missouri. (2)
10.1.20 Copy of a franchise and related documents thereto
granting a community antenna television system
franchise for the City of Sugar Creek, Missouri.
(2)
10.2.1 Revolving Credit and Term Loan Agreement dated as
of August 27, 1987, between the Partnership,
Mellon Bank, N.A. and other banks. (2)
10.2.2 Amendment No. 1 dated May 5, 1989 to the Revolving
Credit and Term Loan Agreement. (4)
10.2.3 Amendment No. 2 dated August 10, 1990 to the
Revolving Credit and Term Loan Agreement. (4)
10.2.4 Amendment No. 3 dated June 30, 1992 to the
Revolving Credit and Term Loan Agreement. (4)
10.2.5 Amendment No. 4 dated September 30, 1992 to the
Revolving Credit and Term Loan Agreement. (4)
10.2.6 Amendment No. 5 dated June 30, 1993 to the
Revolving Credit and Term Loan Agreement. (5)
10.2.7 Amendment No. 6 dated August 31, 1993 to the
Revolving Credit and Term Loan Agreement. (5)
10.2.8 Amendment No. 7 dated February 28, 1994 to the
Revolving Credit and Term Loan Agreement. (5)
10.2.9 Amendment No. 8 dated as of December 23, 1994 to
the Revolving Credit and Term Loan Agreement. (6)
10.2.10 Amendment No. 9 dated as of December 30, 1996 to
the Revolving Credit and Term Loan Agreement.
27 Financial Data Schedule
__________
(1) Incorporated by reference from Registrant's Annual
Report on Form 10-K for fiscal year ended December
31, 1986.
(2) Incorporated by reference from Registrant's Annual
Report on Form 10-K for fiscal year ended December
31, 1987.
(3) Incorporated by reference from Registrant's Annual
Report on Form 10-K for fiscal year ended December
31, 1988.
34
(4) Incorporated by reference from Registrant's Annual
Report on Form 10-K for fiscal year ended December
31, 1992.
(5) Incorporated by reference from Registrant's Annual
Report on Form 10-K for fiscal year ended December
31, 1993.
(6) Incorporated by reference from Registrant's Annual
Report on Form 10-K for fiscal year ended December
31, 1994.
(b) Reports on Form 8-K
------- -- ---- ---
None.
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
JONES INTERCABLE INVESTORS, L.P.
a Colorado limited partnership
By: Jones Intercable, Inc.
By: /s/ Glenn R. Jones
________________________________
Glenn R. Jones
Chairman of the Board and Chief
Dated: March 14, 1997 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 14, 1997 (Principal Executive Officer)
By: /s/ Kevin P. Coyle
________________________________
Kevin P. Coyle
Group Vice President/Finance
Dated: March 14, 1997 (Principal Financial Officer)
By: /s/ Larry Kaschinske
________________________________
Larry Kaschinske
Vice President/Controller
Dated: March 14, 1997 (Principal Accounting Officer)
By: /s/ James B. O'Brien
________________________________
James B. O'Brien
Dated: March 14, 1997 President and Director
By: /s/ Derek H. Burney
________________________________
Derek H. Burney
Dated: March 14, 1997 Director
By: /s/ Robert E. Cole
________________________________
Robert E. Cole
Dated: March 14, 1997 Director
36
By: /s/ William E. Frenzel
___________________________________
William E. Frenzel
Dated: March 14, 1997 Director
By: /s/ Donald L. Jacobs
___________________________________
Donald L. Jacobs
Dated: March 14, 1997 Director
By: /s/ James J. Krejci
___________________________________
James J. Krejci
Dated: March 14, 1997 Director
By:
___________________________________
John A. MacDonald
Dated: March 14, 1997 Director
By: /s/ Raphael M. Solot
___________________________________
Raphael M. Solot
Dated: March 14, 1997 Director
By:
___________________________________
Howard O. Thrall
Dated: March 14, 1997 Director
By: /s/ Siim A. Vanaselja
___________________________________
Siim A. Vanaselja
Dated: March 14, 1997 Director
By: /s/ Sanford Zisman
___________________________________
Sanford Zisman
Dated: March 14, 1997 Director
By: /s/ Robert B. Zoellick
___________________________________
Robert B. Zoellick
Dated: March 14, 1997 Director
37