SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
JONES GROWTH PARTNERS II L.P.
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(Name of Registrant as Specified In Its Charter)
N/A
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: Limited
Partnership Interests
(2) Aggregate number of securities to which transaction applies: 19,785
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): Pursuant to
Rule 0-11(c)(2), the transaction valuation is based upon the $36,000,000
sales price that is to be paid to Jones Growth Partners II L.P. in
connection with the transaction that is the subject of the proxy
solicitation.
(4) Proposed maximum aggregate value of the transaction: $36,000,000
(5) Total fee paid: $7,200
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
[LOGO OF JONES SPACELINK CABLE CORPORATION APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
NOTICE OF VOTE OF THE LIMITED PARTNERS OF JONES GROWTH PARTNERS II L.P.
To the Limited Partners of Jones Growth Partners II L.P.:
A special vote of the limited partners of Jones Growth Partners II L.P. (the
"Partnership") is being conducted through the mails on behalf of the
Partnership by Jones Spacelink Cable Corporation, the general partner of the
Partnership, for the purpose of obtaining limited partner approval of the
sale, to an unaffiliated third party, of the Partnership's cable television
system serving the City of Yorba Linda, a portion of the City of Anaheim,
known as Anaheim Hills, and certain portions of unincorporated Orange County,
all in the state of California (the "Yorba Linda System"), for $36,000,000 in
cash, subject to normal working capital closing adjustments that may have the
effect of increasing or reducing the purchase price by a non-material amount.
Information relating to this matter is set forth in the accompanying proxy
statement.
If the limited partners approve the proposed sale of the Yorba Linda System
and if the transaction is closed, the Partnership will distribute the net sale
proceeds to its limited partners of record as of June 30, 1997, and it is
estimated that the Partnership will distribute to the limited partners from
$1,101 to $1,209 for each $1,000 limited partnership interest, with the exact
amount dependent upon a limited partner's date of investment. Distributions
will be net of California non-resident withholding, if applicable, and
distribution checks will be issued to limited partners' account registration
or payment instruction of record. Upon the closing of the sale of the
Partnership's Yorba Linda System, the Partnership will be liquidated and
dissolved.
Only limited partners of record at the close of business on April 30, 1997
are entitled to notice of, and to participate in, this vote of limited
partners. It is very important that all limited partners participate in the
voting. The Partnership's ability to complete the transaction discussed in the
Proxy Statement and the Partnership's ability to make a distribution to its
partners of the net proceeds of the sale of the Partnership's Yorba Linda
System are dependent upon the approval of the transaction by the holders of a
majority of the Partnership's limited partnership interests.
The proposal that is the subject of this proxy solicitation will be adopted
only if approved by the holders of a majority of the limited partnership
interests. Each limited partnership interest entitles the holder thereof to
one vote on the proposal. Because the Partnership's limited partnership
agreement (the "Partnership Agreement") requires that the proposal to sell the
Yorba Linda System be approved by the holders of a majority of the limited
partnership interests, abstentions and non-votes will be treated as votes
against the proposal. A properly executed consent returned to the general
partner on which a limited partner does not mark a vote will be counted as a
vote for the proposed sale of the Yorba Linda System. Because limited partners
do not have dissenters' or appraisal rights in connection with the proposed
sale of the Yorba Linda System, if the holders of a majority of the limited
partnership interests approve the proposal, all limited partners will receive
a distribution of the net sale proceeds in accordance with the procedures
prescribed by the Partnership Agreement regardless of how or whether they vote
on the proposal.
Jones Spacelink Cable Corporation, as general partner of the Partnership,
urges you to sign and return the enclosed proxy as promptly as possible. The
proxy should be returned in the enclosed envelope.
JONES SPACELINK CABLE CORPORATION
General Partner
[SIGNATURE OF ELIZABETH M. STEELE
APPEARS HERE]
Elizabeth M. Steele
Secretary
Dated: May 9, 1997
[LOGO OF JONES SPACELINK CABLE CORPORATION APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY STATEMENT
VOTE OF THE LIMITED PARTNERS
OF JONES GROWTH PARTNERS II L.P.
This Proxy Statement is being furnished in connection with the solicitation
of the written consents of the limited partners of Jones Growth Partners II
L.P. (the "Partnership") by Jones Spacelink Cable Corporation, the general
partner of the Partnership (the "General Partner"), on behalf of the
Partnership, for the purpose of obtaining limited partner approval of the sale
of the Partnership's cable television system serving the City of Yorba Linda,
a portion of the City of Anaheim, known as Anaheim Hills, and certain portions
of unincorporated Orange County, all in the state of California (the "Yorba
Linda System") for $36,000,000 in cash, subject to normal working capital
closing adjustments, to Citizens Century Cable Television Venture, a joint
venture formed under the laws of the state of New York (the "Purchaser"). The
Purchaser is not affiliated with the Partnership or with the General Partner.
Proxies in the form enclosed, properly executed and duly returned, will be
voted in accordance with the instructions thereon. Limited partners are urged
to sign and return the enclosed proxy as promptly as possible. Proxies cannot
be revoked except by delivery of a proxy dated as of a later date. Officers
and other employees of the General Partner may solicit proxies by mail, by
fax, by telephone or by personal interview. The deadline for the receipt of
proxy votes is June 15, 1997, unless extended, but the vote of the
Partnership's limited partners will be deemed to be concluded on the date that
the General Partner, on behalf of the Partnership, is in receipt of proxies
executed by the holders of a majority of the limited partnership interests
either consenting to or disapproving of the proposed transaction. The General
Partner may extend the deadline for receipt of proxy votes if a majority of
the limited partners fail to express an opinion on the transaction by June 15,
1997. If the General Partner extends the deadline for receipt of proxy votes,
the limited partners will be informed by mail of the reason for the extension
and the new deadline. The cost of the proxy solicitation will be paid by the
Partnership.
The Partnership has only one class of limited partners and no limited
partner has a right of priority over any other limited partner. The
participation of the limited partners is divided into limited partnership
interests and each limited partner owns one limited partnership interest for
each $1,000 of capital contributed to the Partnership.
As of April 30, 1997, the Partnership had 19,785 limited partnership
interests outstanding, held by approximately 2,300 persons. There is no
established trading market for such interests. To the best of the General
Partner's knowledge, no person or group of persons beneficially own more than
five percent of the limited partnership interests, except for the Naomi Ruth
Wilden Trust, which owns 1,000 limited partnership interests, representing
5.05 percent of the outstanding limited partnership interests. The General
Partner owns no limited partnership interests. Officers and directors of the
General Partner also do not own any limited partnership interests. Only
limited partners of record at the close of business on April 30, 1997 will be
entitled to notice of, and to participate in, the vote.
Upon the consummation of the proposed sale of the Yorba Linda System, the
Partnership will pay all of its indebtedness, which totalled approximately
$12,821,077 at December 31, 1996, and then the Partnership will distribute the
net sale proceeds to its limited partners of record as of June 30, 1997.
Because limited partners will not receive distributions in an amount equal to
100 percent of the capital initially contributed to the Partnership by the
limited partners plus an amount equal to 8 percent per annum, cumulative and
noncompounded, on an amount equal to their initial capital contributions (the
"8% Return"), the General Partner will not receive any of the net proceeds
from the Yorba Linda System's sale. Based upon pro forma financial information
as of December 31, 1996, as a result of the Yorba Linda System's sale, the
limited partners of the Partnership, as a group, will receive approximately
$22,823,356. Limited partners will receive from $1,101 to $1,209 for each
$1,000 limited partnership interest from the net proceeds of the Yorba Linda
System's sale. The specific amount of a limited partner's distribution will be
dependent upon a limited partner's date of investment, i.e., because the 8%
Return is calculated from the date of investment, the earlier the date of
investment the larger will be the return to an investor. Distributions will be
net of California non-resident withholding, if applicable, and distribution
checks will be issued to limited partners' account registration or payment
instruction of record. See "Federal Income Tax Consequences."
The proposal that is the subject of this proxy solicitation will be adopted
only if approved by the holders of a majority of the limited partnership
interests. Each limited partnership interest entitles the holder thereof to
one vote on the proposal. Because the Partnership's limited partnership
agreement (the "Partnership Agreement") requires that the proposal to sell the
Yorba Linda System be approved by the holders of a majority of the limited
partnership interests, abstentions and non-votes will be treated as votes
against the proposal. A properly executed consent returned to the General
Partner on which a limited partner does not mark a vote will be counted as a
vote for the proposed sale of the Yorba Linda System. Because limited partners
do not have dissenters' or appraisal rights in connection with the proposed
sale of the Yorba Linda System, if the holders of a majority of the limited
partnership interests approve the proposal, all limited partners will receive
a distribution of the net sale proceeds in accordance with the procedures
prescribed by the Partnership Agreement regardless of how or whether they vote
on the proposal.
The Board of Directors of the General Partner has approved the proposed sale
of the Yorba Linda System and the General Partner recommends approval of the
transaction by the holders of the Partnership's limited partnership interests.
The approximate date on which this Proxy Statement and Form of Proxy are
being sent to limited partners is May 9, 1997.
PARTNERSHIP INFORMATION
THE PARTNERSHIP'S INVESTMENT OBJECTIVES
The Partnership was formed to acquire, develop, operate and, ultimately,
sell cable television systems. The primary objectives of the Partnership have
been to obtain capital appreciation in the value of the Partnership's cable
television properties; to preserve and protect invested capital; and to obtain
equity build-up through debt reduction. It has been contemplated from the
outset of the Partnership's existence that capital appreciation in Partnership
cable television properties would be converted to cash by a sale of such
properties at such time as the General Partner determined that the
Partnership's investment objectives had substantially been achieved.
The Partnership was formed in March 1991 as a Colorado limited partnership
in connection with a public offering of its limited partnership interests.
Since its formation, the Partnership has engaged primarily in the ownership
and operation of the Yorba Linda System. The purpose of the sale of the Yorba
Linda System, from the Partnership's perspective, is to attain the
Partnership's primary investment objective, i.e., to convert the Partnership's
capital appreciation in the Yorba Linda System to cash. The sale proceeds will
be used to repay all
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outstanding indebtedness of the Partnership, and the remaining sale proceeds
will be distributed to the limited partners of the Partnership in accordance
with the distribution procedures established by the Partnership Agreement. The
sale of the Yorba Linda System is thus the necessary final step in the
Partnership's accomplishment of its investment objectives with respect to the
Yorba Linda System.
VOTING PROVISIONS OF THE PARTNERSHIP AGREEMENT
Section 2.2(k) and Section 3.2(m) of the Partnership Agreement provide that
the sale of all or substantially all of the Partnership's assets is subject to
the approval of the holders of a majority of the Partnership's limited
partnership interests. Because the Yorba Linda System represents all of the
Partnership's assets, the proposed sale of the Yorba Linda System to the
Purchaser is being submitted for limited partner approval.
PROPOSED SALE OF ASSETS
GENERAL
Pursuant to the terms and conditions of an asset purchase agreement dated
August 16, 1996, as amended (the "Purchase and Sale Agreement") by and between
the Partnership and the Purchaser, as assignee of Century Communications
Corp., the Partnership has agreed to sell the Yorba Linda System to the
Purchaser for a sales price of $36,000,000, subject to normal working capital
closing adjustments. The Purchaser, Citizens Century Cable Television Venture,
is a joint venture of Citizens Cable Company and Century Telecommunications
Venture Corp. The Purchaser's principal office is 50 Locust Avenue, New
Canaan, Connecticut 06840. The Purchaser is managed by Century Communications
Corp., which is engaged in the ownership and operation of cable television
systems in California and other states. The Purchaser is not affiliated with
either the Partnership or the General Partner. The Partnership has been
informed that the Purchaser intends to finance its acquisition of the Yorba
Linda System through cash on hand and through borrowings from commercial
lending institutions.
THE CLOSING
The closing of the sale will occur on a date approximately ten business days
after all of the closing conditions set forth in the Purchase and Sale
Agreement have been satisfied or waived. It is anticipated that the closing
will occur on June 30, 1997. Because the closing is conditioned upon, among
other things, the approval of the limited partners and the receipt of material
third party consents necessary for the transfer of the Yorba Linda System to
the Purchaser, there can be no assurance that the proposed sale will occur. If
all conditions precedent to the Purchaser's obligation to close are not
satisfied or waived by June 30, 1997, the Purchaser's obligations will
terminate.
THE YORBA LINDA SYSTEM
The assets to be acquired by the Purchaser consist primarily of the tangible
and intangible assets of the Yorba Linda System. The Yorba Linda System was
purchased by the Partnership in April 1992 for an aggregate purchase price of
$28,276,415. The Yorba Linda System was purchased using $13,357,000 of limited
partner capital contributions to the Partnership and $15,500,000 of borrowings
available under the Partnership's credit facility with a commercial bank.
At the date of acquisition in April 1992, the Yorba Linda System served
approximately 14,540 basic subscribers using cable plant passing approximately
20,400 homes. As of December 31, 1996, the Yorba Linda System served
approximately 17,170 basic subscribers using cable plant passing approximately
23,300 homes.
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The Purchaser will purchase all of the tangible assets of the Yorba Linda
System that are leased or owned by the Partnership and used in the operation
of the system, including the system's real estate, vehicles, headend
equipment, underground and aboveground cable distribution systems, towers,
earth satellite receive stations and furniture and fixtures. The Purchaser
also will acquire certain of the intangible assets of the system, including
all of the system's franchises necessary for the operation of the system, and
all of the system's leases, agreements, permits, licenses and other contracts
and contract rights necessary for the operation of the system. Also included
in the sale are the subscriber accounts receivable of the system and the
system's records, files, schematics, maps, reports, promotional graphics,
marketing materials and reports filed with federal, state and local regulatory
agencies. The foregoing notwithstanding, certain of the system's assets will
be retained by the Partnership, including cash or cash equivalents on hand and
in banks, insurance policies, and any federal, state or local income or other
tax refunds to which the Partnership may be entitled. Because an affiliate of
the Purchaser already has a franchise from the City of Anaheim, the Purchaser
has determined that it does not need the Partnership's Anaheim franchise to
operate the portion of the Yorba Linda System that serves the community of
Anaheim Hills and the Partnership therefore will not transfer the
Partnership's Anaheim franchise to the Purchaser.
PURCHASE PRICE
Subject to the adjustments described below, the purchase price for the Yorba
Linda System is $36,000,000. The purchase price will be reduced if at closing
the Yorba Linda System has less than the number of basic subscribers
represented to the Purchaser in the Purchase and Sale Agreement. The purchase
price also will be reduced if the Yorba Linda System's annualized gross
revenues as of the closing date are less than the amount represented to the
Purchaser in the Purchase and Sale Agreement. In addition, prorations will be
made at closing to reflect the principle that all liabilities, expenses and
income attributable to the Yorba Linda System for the period on and prior to
the closing date are for the account of the Partnership and all liabilities,
expenses and income attributable to the Yorba Linda System for the period
subsequent to the closing date are for the account of the Purchaser. Items to
be prorated will include prepaid assets for which the Purchaser will receive a
benefit following the closing, pole rents, franchise fees, taxes, copyright
royalty payments, fees and payments under cable service agreements, power and
utility fees and deposits, rentals and other payments under leases. Such items
will be prorated as of the close of business on the closing date. In addition,
the purchaser price will be increased by an amount equal to 95 percent of the
Partnership's subscriber accounts receivable relating to the Yorba Linda
System and the purchase price will be reduced by an amount equal to the sum of
all obligations and liabilities in respect to customers of the Yorba Linda
System and any liabilities or other obligations of the Partnership relating to
the Yorba Linda System that have matured on or prior to the closing date
including, without limitation, accrued taxes, accrued employee vacation pay,
severance pay, sick pay and other fringe benefits. Because the determination
of the final purchase price relates to the number of subscribers and the
annualized gross revenues of the Yorba Linda System as of a date shortly prior
to closing and prorations that cannot be calculated until shortly before or
after the closing date, the final purchase price will be determined after the
voting and revocation period has ended. The General Partner believes that the
closing adjustments will neither increase nor decrease the purchase price by a
material amount. Please see Note 3 of the Notes to Unaudited Pro Forma
Financial Statements for a detailed accounting of the estimated closing
adjustments.
CONDITIONS TO CLOSING
The Purchaser's obligations under the Purchase and Sale Agreement are
subject to the following conditions: (a) all material consents to the
transaction from third parties shall have been obtained; (b) the Partnership
shall have delivered all necessary instruments of transfer in form and
substance reasonably satisfactory to the Purchaser; (c) all of the
representations and warranties of the Partnership contained in the Purchase
and Sale Agreement or in any other document delivered by the Partnership in
connection with the sale of the Yorba Linda System shall be true and correct
in all material respects, and the Partnership shall have performed and
complied in all material respects with all covenants, agreements and
conditions required by the Purchase and Sale Agreement to be performed or
complied with by it on or prior to the closing date, and the Partnership shall
have tendered to the Purchaser a certificate executed by a vice president of
the General Partner representing and
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certifying that the foregoing conditions have been fulfilled; (d) all of the
documents required to be delivered by the Partnership under the Purchase and
Sale Agreement, including all conveyance documents and instruments delivered
by the Partnership in connection with the sale of the Yorba Linda System,
shall be in form and substance reasonably acceptable to the Purchaser's
counsel; (e) the Partnership shall have tendered to the Purchaser certain
legal opinions of the Partnership's counsel; (f) the Partnership shall have
tendered all such additional instruments and other documents as shall be
reasonably necessary to consummate the sale of the Yorba Linda System; (g) no
action or proceeding shall be pending or threatened against the Partnership
before any court, governmental or arbitration body seeking to restrain or
prohibit or seeking damages or other relief in connection with the Purchase
and Sale Agreement or the consummation of the sale of the Yorba Linda System
and there shall be no legal proceedings pending or threatened which, either
individually or in the aggregate, could materially adversely affect the
business, operations or financial condition of the Yorba Linda System; (h) the
Partnership and the General Partner shall have executed and delivered to the
Purchaser an agreement not to compete with the Purchaser; (i) the Partnership
shall have tendered to the Purchaser duly executed satisfactions of any and
all liens, pledges, mortgages, security interests or other encumbrances with
respect to the assets of the Yorba Linda System; (j) between the date of the
Purchase and Sale Agreement and the closing date there shall have been no
material adverse change in the Yorba Linda System or its financial condition;
(k) all waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, shall have terminated or shall have expired; (l) the
downward adjustments to the purchase price as a result of the Partnership
failing to meet its representations about the number of subscribers to the
Yorba Linda System and/or the annualized gross revenues of the Yorba Linda
System shall not be greater than $1,800,000; and (m) any adverse environmental
conditions relating to the assets of the Yorba Linda System shall have been
remediated, corrected or otherwise addressed to the Purchaser's satisfaction.
The General Partner anticipates that each of the foregoing conditions to
closing will be satisfied prior to the June 30, 1997 outside closing date.
The Partnership's obligations under the Purchase and Sale Agreement are
subject to the following conditions: (a) all of the representations and
warranties of the Purchaser contained in the Purchase and Sale Agreement or in
any other document delivered by the Purchaser in connection with the sale of
the Yorba Linda System shall be true and correct in all material respects, and
the Purchaser shall have performed and complied in all material respects with
all covenants, agreements and conditions required by the Purchase and Sale
Agreement to be performed or complied with by it prior to or on the closing
date, and the Purchaser shall have tendered to the Partnership a certificate
executed by an officer of the Purchaser representing and certifying to the
fulfillment of the foregoing conditions; (b) the Purchaser shall have
delivered to the Partnership an opinion of the Purchaser's legal counsel; (c)
the Purchaser shall have delivered to the Partnership the purchase price, as
adjusted, and shall have executed and delivered all closing documents required
by the Purchase and Sale Agreement; (d) all of the documents of the Purchaser
in connection with the transaction shall be in form and substance reasonably
acceptable to counsel for the Partnership; (e) no action or proceeding shall
be pending or threatened against the Purchaser before any court, governmental
or arbitration body seeking to restrain or prohibit or seeking damages or
other relief in connection with the Purchase and Sale Agreement or the
consummation of the sale of the Yorba Linda System; (f) all waiting periods
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
shall have terminated or shall have expired; (g) the downward adjustments to
the purchase price as a result of the Partnership failing to meet its
representations about the number of subscribers to the Yorba Linda System
and/or the annualized gross revenues of the Yorba Linda System shall not be
greater than $1,800,000; and (h) the Partnership shall have obtained the
approval of the sale of the Yorba Linda System by the holders of a majority of
the limited partnership interests in the Partnership. The General Partner
anticipates that each of the foregoing conditions to closing will be satisfied
prior to the June 30, 1997 outside closing date.
All waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, have expired, thereby removing this as a condition to
closing. THE CITY OF YORBA LINDA HAS NOT YET APPROVED THE TRANSFER OF THE
CABLE TELEVISION FRANCHISE AUTHORIZING THE YORBA LINDA SYSTEM TO SERVE
RESIDENTS OF THE CITY OF YORBA LINDA. THIS APPROVAL IS EXPECTED TO BE OBTAINED
BY THE END OF JUNE 1997, BUT THERE CAN BE NO ASSURANCE THAT SUCH APPROVAL WILL
BE OBTAINED. THE SALE OF THE YORBA LINDA SYSTEM WILL NOT CLOSE IF SUCH
APPROVAL IS NOT OBTAINED.
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REASONS FOR THE SALE
The decision to proceed with the sale of the Yorba Linda System at this time
was based upon the General Partner's determination that the Partnership has
achieved its investment objectives with respect to the Yorba Linda System. The
Yorba Linda System has appreciated in value during the holding period. At the
time of their investment in the Partnership, the limited partners were
informed that "the Partnership's cable systems will be sold, and cash
distributions from such sales completed five to seven years following initial
acquisition of each cable system by the Partnership; however, the timing of
any sales will be dictated by market conditions, and such sales could occur
earlier or later than this time frame." In addition, investors were informed
that if "in the opinion of the General Partner, market conditions are
conducive to the sale of cable television systems, the General Partner will
use its best efforts to cause the sale of the Partnership's cable systems
commencing on the fifth anniversary of the closing of the offering of
interests in the Partnership." The offering of interests in the Partnership
closed on June 30, 1992. The General Partner determined, therefore, that now
was an appropriate time for the Partnership to sell the Yorba Linda System.
When investing in the Partnership, by virtue of the provisions of the
Partnership Agreement, the limited partners vested in the General Partner the
right and the responsibility to determine when the Partnership's investment
objectives had been achieved. The Yorba Linda System was acquired because, in
the opinion of the General Partner at the time of the Yorba Linda System's
acquisition, it had the potential for capital appreciation within a reasonable
period of time. It is the General Partner's opinion that during the almost
five years that the Yorba Linda System has been held by the Partnership, the
Partnership's investment objectives with respect to the Yorba Linda System
have been achieved. The General Partner used no specific benchmarks or
measurement tools in determining that the Partnership's investment objectives
have been achieved. The General Partner conducted a subjective evaluation of a
variety of factors including the length of the holding period, the prospect
for future growth as compared to the potential risks, the cash on cash return
to investors, the after-tax internal rate of return to limited partners and
the amount of gain to be recognized on the sale of assets.
The General Partner generally considered the benefits to the limited
partners that might be derived by holding the Yorba Linda System for an
additional period of time. The General Partner assumed that the Yorba Linda
System probably would continue to appreciate in value and that as a result the
Yorba Linda System might be able to be sold for a greater sales price in the
future. The General Partner weighed these assumptions against the potential
risks to investors from a longer holding period, i.e., the risks that
regulatory, technology and/or competitive developments could cause the Yorba
Linda System to decline in value, which would result in a lesser sales price
in the future. A longer holding period would expose investors to the risk that
competition from direct broadcast satellite companies, telephone companies
and/or neighboring cable companies could diminish the number of subscribers to
the Yorba Linda System's basic and premium services, thereby decreasing the
value of the Yorba Linda System. A longer holding period also would expose
investors to the risk that changes in the regulations promulgated by the
governmental agencies that oversee cable operations could make cable systems a
less desirable investment, thereby decreasing the value of the Yorba Linda
System. Weighing all of these factors, the General Partner concluded that now
rather than later was the time to sell the Yorba Linda System.
RECOMMENDATION OF THE GENERAL PARTNER AND FAIRNESS OF THE PROPOSED SALE OF
ASSETS
The General Partner believes that the proposed sale of the Yorba Linda
System and the distribution of the net proceeds therefrom are fair to all
limited partners of the Partnership, and it recommends that the limited
partners approve the transaction. In determining the fairness of the proposed
transaction, the General Partner considered each of the following factors, all
of which had a positive effect on its fairness determination:
(i) The limited partnership interests are at present illiquid and the
cash to be distributed to limited partners as a result of the proposed sale
of the Yorba Linda System will provide limited partners with liquidity and
with the means to realize the appreciation in the value of the Yorba Linda
System;
(ii) The purchase price represents the fair market value of the Yorba
Linda System because the purchase price was determined in an arm's length
negotiation between the General Partner, representing the Partnership, and
the Purchaser, an unaffiliated cable television system operator;
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(iii) The Partnership has held the Yorba Linda System for five years, the
holding period originally anticipated by investors in the Partnership;
(iv) The conditions and prospects of the cable television industry in
which the Partnership is engaged, including the developing threat of
competition from DBS services and telephone companies, and the working
capital and other financial needs of the Partnership if it were to continue
to operate the Yorba Linda System; and
(v) The terms and conditions of the Purchase and Sale Agreement by and
between the Partnership and the Purchaser, including the fact that the
purchase price will be paid in cash and the fact that the Purchaser's
obligation to close is not contingent upon its ability to obtain financing.
CERTAIN EFFECTS OF THE SALE
Upon consummation of the sale of the Yorba Linda System, the proceeds of the
sale will be used to repay all indebtedness of the Partnership, and then the
Partnership will distribute the remaining net sale proceeds to the limited
partners pursuant to the terms of the Partnership Agreement. Because limited
partners will not receive distributions in an amount equal to 100 percent of
the capital initially contributed to the Partnership by the limited partners
plus the 8% Return, the General Partner will not receive any of the net
proceeds from the Yorba Linda System's sale. Based upon the pro forma
financial information as of December 31, 1996, as a result of this
distribution, the limited partners of the Partnership, as a group, will
receive approximately $22,823,356. The limited partners will be subject to
federal income tax on the income resulting from the sale of the Yorba Linda
System. See the detailed information below under the caption "Federal Income
Tax Consequences."
After the sale of the Yorba Linda System, the Partnership will be liquidated
and dissolved. Neither Colorado law nor the Partnership Agreement afford
dissenters' or appraisal rights to limited partners in connection with the
proposed sale of the Yorba Linda System. If the proposed transaction is
approved by the holders of a majority of limited partnership interests, all
limited partners will receive a distribution in accordance with the procedures
prescribed by the Partnership Agreement regardless of how or whether they vote
on the proposal. It is anticipated that if the proposed transaction is not
consummated, the General Partner's current management team will continue to
manage the Yorba Linda System on behalf of the Partnership until such time as
the Yorba Linda System can be sold.
FEDERAL INCOME TAX CONSEQUENCES
The purpose of the following discussion of the income tax consequences of
the proposed transaction is to inform the limited partners of the Partnership
of the federal income tax consequences to the Partnership and to its partners
arising from the sale of the Yorba Linda System. The tax information included
herein was prepared by the tax department of the General Partner. The tax
information is taken from tax data compiled by the General Partner in its role
as the Partnership's tax administrator and is not based upon the advice or
formal opinion of counsel. The tax discussion that follows is merely intended
to inform the limited partners of factual information and should not be
considered tax advice.
By the expected date of the Yorba Linda System's sale, the limited partners
will have been allocated ordinary taxable losses of approximately $14,866,578
($751 per $1,000 invested). Application of the passive activity loss rules has
limited these deductible losses in prior years and created passive loss
carryovers to the year of sale. The gain on sale incorporates all prior losses
disallowed under the loss limitations that are presumed deductible in the year
of sale.
The sale of the Yorba Linda System will result in a gain for federal income
tax purposes. The amount of this gain allocated to limited partners is
approximately $5,413,404. The General Partner estimates that $4,099,043 ($207
per $1,000 invested) of this total gain will be treated as ordinary income.
This amount of ordinary income results from the recapture of depreciation on
personal property under Section 1245. The General
7
Partner estimates that the remainder of the gain, or approximately $1,314,361
($66 per $1,000 invested), will be Section 1231 gain that will generally be
treated as long term capital gain by the limited partners.
Assuming the 31 percent rate applies to ordinary income and a 28 percent
rate applies to long term capital gain, as a result of the sale of the Yorba
Linda System, a limited partner will be subject to federal income taxes of $83
per $1,000 invested in the Partnership. The taxable income will be recognized
in the year of the closing of the sale, which is expected to be 1997.
The sale of the Yorba Linda System will cause the liquidation of the
Partnership, which will result in an additional tax deduction for the limited
partners. The final capital account balance reported on the 1997 Schedule K-1
of each limited partner will reflect a positive ending capital account balance
that is projected to equal $121 per $1,000 invested. This amount represents
partnership syndication costs that may be deducted on the limited partners'
tax return as a long term capital loss under Section 731. The deduction of
long term capital losses may be limited depending on each partners' specific
income tax situation.
Limited partners who are non-resident aliens or foreign corporations
("foreign persons") are subject to a withholding tax on their share of the
Partnership's income from the sale of the Yorba Linda System. The withholding
rates are 39.6 percent for individual partners and 35 percent for corporate
partners. The tax withheld will be remitted to the Internal Revenue Service
and the foreign person will receive a credit on their U.S. tax return for the
amount of the tax withheld by the Partnership. The tax withheld will be
treated as a distribution to the limited partner.
The state of California requires that state tax withholding occur on
California source income of non-resident partners of the Partnership. The
amount of tax withheld is calculated on the current year allocable income
without benefit of net operating loss carryforwards. Withholding is not
required on tax exempt limited partners. The rate of withholding is 7 percent
on all domestic non-resident partner distributions and 9.3 percent on foreign
non-resident partner distributions. The withholding process will require
affected partners to file non-resident income tax returns in California. Blank
forms and instructions will be provided in your annual tax packet by the
General Partner to assist in this reporting requirement.
CERTAIN INFORMATION ABOUT THE PARTNERSHIP, THE GENERAL
PARTNER AND THE PURCHASER OF THE SYSTEM
The principal executive offices of the Partnership and the General Partner
are located at 9697 East Mineral Avenue, Englewood, Colorado 80112, and their
telephone number is (303) 792-3111. The principal executive offices of the
Purchaser are located at 50 Locust Avenue, New Canaan, Connecticut 06840.
The limited partnership interests of the Partnership are registered pursuant
to Section 12(g) of the Exchange Act. As such, the Partnership currently is
subject to the informational reporting requirements of the Exchange Act and,
in accordance therewith, is obligated to file periodic reports, proxy
statements and other information with the Securities and Exchange Commission
relating to its business, financial condition and other matters. Reports and
other information filed by the Partnership can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at
the following regional offices of the Commission: 7 World Trade Center, Suite
1300, New York, New York 10048 and Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. After the net proceeds from the
sale of the Yorba Linda System are distributed to the Partnership's limited
partners, the Partnership will be liquidated and dissolved. The Partnership's
registration and reporting requirements under the Exchange Act will be
terminated upon the dissolution of the Partnership.
8
USE OF PROCEEDS FROM THE YORBA LINDA SYSTEM'S SALE
The following is a brief summary of the Partnership's estimated use of the
proceeds from the sale of the Yorba Linda System. All of the following
selected financial information is based upon amounts as of December 31, 1996
and certain estimates of liabilities at closing. Final results may differ from
these estimates. A more detailed discussion of the financial consequences of
the sale of the system is set forth below under the caption "Unaudited Pro
Forma Financial Information." All limited partners are encouraged to review
carefully the unaudited pro forma financial statements and notes thereto.
If the holders of a majority of limited partnership interests of the
Partnership approve the proposed sale of the Yorba Linda System and the
transaction is closed, the Partnership will pay all of its indebtedness, and
then the Partnership will distribute the net sale proceeds pursuant to the
terms of the Partnership Agreement. The estimated uses of the sale proceeds
are as follows:
Contract Sales Price of the Yorba Linda System.................. $ 36,000,000
Add:Cash on Hand................................................ 210,331
Less:Estimated Net Closing Adjustments.......................... (469,831)
Repayment of Debt and Accrued Interest.......................... (12,917,144)
------------
Cash Available for Distribution by the Partnership......... $ 22,823,356
============
Taking into account the distributions to be made on the sale of the Yorba
Linda System, the estimated after-tax internal rate of return on an investment
in the Partnership is approximately 1.49 percent.
Based on financial information available at December 31, 1996, the following
table presents the estimated results of the Partnership when it has completed
the sale of the Yorba Linda System:
Dollar Amount Raised...................................... $ 19,785,000
Number of Cable Television Systems Purchased.............. One
Date of Closing of Offering............................... June 1992
Tax and Distribution Data per $1,000 of Limited
Partnership Capital:
Federal Income Tax Results
Ordinary Income (Loss)
--from operations..................................... $ (732)
--from recapture...................................... $ 959
Capital Gain (Loss)................................... $ (55)
Cash Distributions to Investors
Source (on GAAP basis)
--investment income................................... $ 101 to 209
--return of capital................................... $ 1,000
Source (on cash basis)
--sales............................................... $1,101 to 1,209
9
UNAUDITED PRO FORMA FINANCIAL INFORMATION
OF JONES GROWTH PARTNERS II L.P.
The following unaudited pro forma balance sheet assumes that as of December
31, 1996, the Partnership had sold the Yorba Linda System for $36,000,000. The
funds available to the Partnership, adjusting for the estimated net closing
adjustments of the Yorba Linda System, are expected to total approximately
$35,530,169. Such funds will be used to repay all indebtedness of the
Partnership and the balance will be distributed pursuant to the terms of the
Partnership Agreement. Because the limited partners will not receive
distributions totaling the amount initially contributed to the Partnership by
the limited partners plus the 8% Return, the General Partner will not receive
any of the net sale proceeds.
The unaudited pro forma balance sheet should be read in conjunction with the
appropriate notes to the unaudited pro forma balance sheet.
ALL OF THE FOLLOWING UNAUDITED PRO FORMA FINANCIAL INFORMATION IS BASED UPON
AMOUNTS AS OF DECEMBER 31, 1996 AND CERTAIN ESTIMATES OF LIABILITIES AT
CLOSING. FINAL RESULTS MAY DIFFER FROM SUCH INFORMATION.
10
JONES GROWTH PARTNERS II L.P.
UNAUDITED PRO FORMA BALANCE SHEET
DECEMBER 31, 1996
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS BALANCE
----------- ------------ -----------
ASSETS
Cash and Cash Equivalents............... $ 210,331 $ 22,613,025 $22,823,356
Trade Receivables, net.................. 180,326 (180,326) --
Investment in Cable Television
Properties:
Property, plant and equipment, net.... 11,542,507 (11,542,507) --
Intangible assets, net................ 8,300,830 (8,300,830) --
----------- ------------ -----------
Total investment in cable television
properties......................... 19,843,337 (19,843,337) --
Deposits, Prepaid Expenses and Other
Assets................................. 229,998 (229,998) --
----------- ------------ -----------
Total Assets............................ $20,463,992 $ 2,359,364 $22,823,356
=========== ============ ===========
LIABILITIES AND PARTNERS' CAPITAL
(DEFICIT)
Liabilities:
Debt.................................. $12,821,077 $(12,821,077) $ --
Trade Accounts Payable and Accrued
Liabilities.......................... 546,347 (546,347) --
Subscriber Prepayments and Deposits... 322,430 (322,430) --
Accrued Distribution to Limited
Partners............................. -- 22,823,356 22,823,356
----------- ------------ -----------
Total Liabilities................... 13,689,854 9,133,502 22,823,356
----------- ------------ -----------
Partners' Capital (Deficit):
General Partner....................... (102,065) 102,065 --
Limited Partners...................... 6,876,203 (6,876,203) --
----------- ------------ -----------
Total Partners' Capital (Deficit)... 6,774,138 (6,774,138) --
----------- ------------ -----------
Total Liabilities and Partners'
Capital (Deficit).................... $20,463,992 $ 2,359,364 $22,823,356
=========== ============ ===========
The accompanying notes to unaudited pro forma financial statements are an
integral part of this unaudited balance sheet.
11
JONES GROWTH PARTNERS II L.P.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS BALANCE
----------- ----------- ---------
REVENUES................................... $ 7,696,684 $(7,696,684) $ --
COSTS AND EXPENSES:
Operating expenses....................... 4,284,935 (4,284,935) --
Management fees and allocated overhead
from
General Partner......................... 914,068 (914,068) --
Depreciation and Amortization............ 3,932,348 (3,932,348) --
----------- ----------- -----
OPERATING LOSS............................. (1,434,667) 1,434,667 --
----------- ----------- -----
OTHER INCOME (EXPENSE):
Interest expense......................... (904,667) 904,667 --
Other, net............................... (32,259) 32,259 --
----------- ----------- -----
Total other income (expense), net...... (936,926) 936,926 --
----------- ----------- -----
NET LOSS................................... $(2,371,593) $ 2,371,593 $ --
=========== =========== =====
NET LOSS PER LIMITED PARTNERSHIP INTEREST.. $ (118.67) $ 118.67 $ --
=========== =========== =====
The accompanying notes to unaudited pro forma financial statements are an
integral part of this unaudited statement.
12
JONES GROWTH PARTNERS II L.P.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1) The following calculations present the sale of the Yorba Linda System and
the resulting estimated proceeds expected to be received by the Partnership.
2) The unaudited pro forma balance sheet assumes that the Partnership had
sold the Yorba Linda System for $36,000,000 as of December 31, 1996. The
unaudited statements of operations assume that the Partnership had sold the
Yorba Linda System for $36,000,000 as of January 1, 1996.
3) The estimated gain recognized from the sale of the Yorba Linda System and
corresponding estimated distribution to limited partners as of December 31,
1996 has been computed as follows:
GAIN ON SALE OF ASSETS:
Contract sales price............................................. $ 36,000,000
Less: Net book value of investment in cable television properties
at December 31, 1996....................................... 19,843,337
------------
Gain on sale of assets........................................... $ 16,156,663
============
DISTRIBUTION TO PARTNERS:
Contract sales price............................................. $ 36,000,000
Working Capital Adjustment:
Add:Trade receivables, net....................................... 180,326
Prepaid expenses................................................. 122,553
Less:Accrued liabilities......................................... (450,280)
Subscriber prepayments........................................... (322,430)
------------
Adjusted cash received........................................... 35,530,169
Less:Outstanding debt to third parties........................... (12,821,077)
Interest and other accruals...................................... (96,067)
Add:Cash on hand................................................. 210,331
------------
Cash available for distribution.................................. $ 22,823,356
============
AVAILABLE INFORMATION
The Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 is being mailed to the limited partners of the Partnership
together with this Proxy Statement.
INCORPORATION BY REFERENCE
The Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 is incorporated by reference in this proxy statement. The
Partnership specifically incorporates by reference herein Item 1. Business,
Item 2. Properties, Item 5. Market for the Registrant's Common Stock and
Related Security Holder Matters, Item 6. Selected Financial Data, Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Item 8. Financial Statements and Item 13. Certain Relationships
and Related Transactions from its 1996 Annual Report on Form 10-K.
13
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 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: 0-19259
JONES GROWTH PARTNERS II L.P.
-----------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-1126141
-------- ----------
State of Organization (IRS Employer
Identification No.)
P.O. Box 3309, Englewood, Colorado 80155-3309 (303) 792-3111
- --------------------------------------------- --------------
(Address of principal executive office and Zip Code (Registrant's telephone no.
including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited
Partnership
Interests
Indicate by check mark whether the registrant, (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
---
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: N/A
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((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
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.
-------
ITEM 1. BUSINESS
-----------------
THE PARTNERSHIP. Jones Growth Partners II L.P. (the "Partnership") is
a Colorado limited partnership that was formed to acquire, own and operate cable
television systems in the United States. Jones Spacelink Cable Corporation, a
Colorado corporation, is the general partner (the "General Partner") of the
Partnership. The General Partner is a wholly-owned subsidiary of Jones
Intercable, Inc. ("Intercable"). Intercable is a Colorado corporation engaged
in the business of owning and operating cable television systems. The
Partnership owns the cable television systems serving Yorba Linda and certain
portions of Anaheim Hills, all in the State of California (the "Yorba Linda
System"). See Item 2.
PROPOSED DISPOSITION OF THE YORBA LINDA SYSTEM, On August 16, 1996,
the Partnership entered into an asset purchase agreement providing for the sale
by the Partnership to an unaffiliated party of substantially all of the assets,
property and business of the Partnership relating to the Yorba Linda System.
The sales price for the Yorba Linda System is $36,000,000, subject to customary
closing adjustments. Closing of this sale is expected to occur during the
second quarter of 1997 and is subject to a number of conditions, including the
approval of governmental franchising authorities and the approval of the
transaction by the holders of a majority of the Partnership's limited
partnership interests. If all conditions precedent to the purchaser's
obligation to close are not satisfied or waived by June 30, 1997, the
purchaser's obligations will terminate. The General Partner, on behalf of the
Partnership, is preparing proxy solicitation materials and intends to conduct a
vote of the limited partners of the Partnership by mail during the second
quarter of 1997.
Upon the consummation of the proposed sale of the Yorba Linda System,
the Partnership will repay the outstanding balance on its credit facility, which
totaled $12,790,000 at December 31, 1996, and then the Partnership will
distribute the sale proceeds, net of working capital adjustments, to its limited
partners of record as of April 30, 1997. Because limited partners will not
receive distributions in an amount equal to 100 percent of the capital initially
contributed to the Partnership by the limited partners plus an amount equal to 8
percent per annum, cumulative and noncompounded, on an amount equal to their
initial capital contributions, the General Partner will not receive any of the
proceeds from the Yorba Linda System's sale. As a result of the Yorba Linda
System's sale, the limited partners of the Partnership, as a group, will receive
approximately $22,823,356. Limited partners will receive from $1,101 to $1,209
for each $1,000 limited partnership interest from the net proceeds of the Yorba
Linda System's sale. The specific amount of a limited partner's distribution
will be dependent upon a limited partner's date of investment, i.e., because the
8 percent return is calculated from the date of investment, the earlier the date
of investment the larger will be the return to an investor. Upon the successful
completion of the sale of the Yorba Linda System, which is expected to occur
during the second quarter of 1997, the Partnership will be liquidated and
dissolved.
CABLE TELEVISION SERVICES. The Yorba Linda System offers to its
subscribers various types of programming, which include basic service, tier
service, premium service, pay-per-view programs and packages including several
of these services at combined rates.
Basic cable television service usually consists of signals of all four
national television networks, various independent and educational television
stations (both VHF and UHF) and certain signals received from satellites.
2
Basic service also usually includes programs originated locally by the system,
which may consist of music, news, weather reports, stock market and financial
information and live or videotaped programs of a public service or entertainment
nature. FM radio signals are also frequently distributed to subscribers as part
of the basic service.
The Yorba Linda System offers tier services on an optional basis to
their subscribers. A tier generally includes most of the cable networks such as
Entertainment and Sports Programming Network (ESPN), Cable News Network (CNN),
Turner Network Television (TNT), Family Channel, Discovery and others, and the
cable television operators buy tier programming from these networks. The
Systems also offer a package that includes the basic service channels and the
tier services.
The Yorba Linda System also offers premium services to its
subscribers, which consist of feature films, sporting events and other special
features that are presented without commercial interruption. The cable
television operators buy premium programming from suppliers such as HBO,
Showtime, Cinemax or others at a cost based on the number of subscribers the
cable operator serves. Premium service programming usually is significantly
more expensive than the basic service or tier service programming, and
consequently cable operators price premium service separately when sold to
subscribers.
The Yorba Linda System also offers to subscribers pay-per-view
programming. Pay-per-view is a service that allows subscribers to receive
single programs, frequently consisting of motion pictures that have recently
completed their theatrical exhibitions and major sporting events, and to pay for
such service on a program-by-program basis.
REVENUES. Monthly service fees for basic, tier and premium services
constitute the major source of revenue for the Yorba Linda System. At December
31, 1996, the Yorba Linda System's monthly basic service rates ranged from
$10.00 to $14.50, monthly basic and tier ("basic plus") service rate was $26.50
and monthly premium services ranged from $4.70 to $11.95 per premium service.
In addition, the Partnership earns revenues from the Yorba Linda System's pay-
per-view programs and advertising fees. Related charges may include a
nonrecurring installation fee that ranges from $10.00 to $35.00; however, from
time to time the Yorba Linda System has followed the common industry practice of
reducing or waiving the installation fee during promotional periods. Commercial
subscribers such as hotels, motels and hospitals are charged a nonrecurring
connection fee that usually covers the cost of installation. Except under the
terms of certain contracts with commercial subscribers and residential apartment
and condominium complexes, the subscribers are free to discontinue the service
at any time without penalty. For the year ended December 31, 1996, of the total
fees received by the Yorba Linda System, basic service and tier service fees
accounted for approximately 67% of total revenues, premium service fees
accounted for approximately 12% of total revenues, pay-per-view fees were
approximately 6% of total revenues, advertising fees were approximately 2% of
total revenues and the remaining 13% of total revenues came principally from
equipment rentals, installation fees and program guide sales. The Partnership
is dependent upon the timely receipt of service fees to provide for maintenance
and replacement of plant and equipment, current operating expenses and other
costs of the Yorba Linda System.
FRANCHISES. The Yorba Linda System is constructed and operated under
non-exclusive, fixed-term franchises or other types of operating authorities
(referred to collectively herein as "franchises") granted by local governmental
authorities. The Yorba Linda System's franchises require that franchise fees
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 three franchises for the Yorba Linda 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.
3
The Partnership has never had a franchise revoked. The Partnership's
franchise expiration dates range from August 2001 to August 2004.
COMPETITION. Cable television systems currently experience
competition from several sources.
Broadcast Television. Cable television systems have traditionally
---------------------
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, 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,
---------------------
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. Intercable 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 Intercable. 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
---
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
---------
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
4
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 Intercable.
Intercable 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 Intercable'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
-------------
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 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
----
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 Intercable. 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
- --------------------------
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.
5
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
---------------------
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.
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
-----------------------------------
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
6
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
---------------------------------------------
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 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, Intercable 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
---------------------------------------------------------------
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
---------------------------------
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
7
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 Intercable 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
---------------------------------
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.
Access Channels. LFAs can include franchise provisions requiring
---------------
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
---------------------
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
---------------------
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.
8
Copyright. Cable television systems are subject to federal copyright
---------
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 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 Yorba Linda
System has had some subscribers who later terminated the service. Terminations
occur primarily because people move to another home or to another city. In
other cases, people terminate on a seasonal basis or because they no longer can
afford or are dissatisfied with the service. The amount of past due accounts in
the Yorba Linda System is not significant. The Partnership'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 does not have
any 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.
9
ITEM 2. PROPERTIES
-------------------
The Partnership acquired the Yorba Linda System in April 1992. 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 Yorba
Linda System. The monthly basic service rates set forth herein represent, with
respect to systems with multiple headends, the basic service rate charged to the
majority of the subscribers within the Yorba Linda System. 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 Yorba Linda System operated cable plant
passing approximately 23,300 homes, with an approximate 73% penetration rate.
Figures for numbers of subscribers, miles of cable plant and homes passed are
compiled from the General Partner's records and may be subject to adjustments.
At December 31,
-------------------------
YORBA LINDA SYSTEM 1996 1995 1994
- ------------------ ------- ------- -------
Monthly basic plus service rate $ 26.50 $ 24.77 $ 22.25
Basic subscribers 17,173 16,611 15,961
Pay units 10,960 10,295 9,414
ITEM 3. LEGAL PROCEEDINGS
--------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
None.
PART II.
--------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
-------------------------------------------------
AND RELATED SECURITY HOLDER MATTERS
-----------------------------------
While the Partnership's interests are publicly held, there is no
established public market for the interests, and it is not expected that such a
market will develop in the future. As of February 14, 1997, the number of
equity security holders in the Partnership was 2,300.
10
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------
For the Year Ended December 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
Revenues $ 7,696,684 $ 6,903,528 $ 6,345,871 $ 6,198,092 $ 4,293,195
Depreciation and Amortization 3,932,348 3,652,676 3,444,027 3,287,050 2,122,103
Operating Loss (1,434,667) (1,594,133) (1,538,783) (1,316,141) (686,403)
Net Loss (2,371,593) (2,553,640) (2,264,142) (1,912,873) (1,089,275)
Net Income (Loss) per Limited
Partnership Unit (118.67) (127.78) (113.29) (95.72) (62.24)
Weighted Average Number of
Limited Partner Units
Outstanding 19,785 19,785 19,785 19,785 17,309
General Partner's Capital (Deficit) (102,065) (78,349) (52,813) (30,172) (11,043)
Limited Partners' Capital 6,876,203 9,224,080 11,752,184 13,993,685 15,887,429
Total Assets 20,463,992 22,683,846 23,964,837 26,502,620 27,812,155
Credit Facility and Other Debt 12,821,077 12,754,960 11,247,350 11,547,919 10,516,485
General Partner Advances - - 71,270 - 141,435
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
- -------------
The following discussion of Jones Growth Partners II L.P.'s (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 August 16, 1996, the Partnership entered into an asset purchase
agreement providing for the sale of the Yorba Linda System by the Partnership to
an unaffiliated party for a sales price of $36,000,000, subject to normal
working capital adjustments. Closing of this sale is subject to a number of
conditions, including the approval of governmental franchising authorities and
the approval of the transaction by the holders of a majority of the
Partnership's limited partnership interests. The General Partner, on behalf of
the Partnership, is preparing proxy solicitation materials and intends to
conduct a vote of the limited partners of the Partnership by mail in the second
quarter of 1997. Upon the consummation of the proposed sale of the Yorba Linda
System, the Partnership will repay the outstanding balance on its credit
facility, which totaled $12,790,000 at December 31, 1996, and then the
Partnership will distribute the sale proceeds, net of working capital
adjustments, to its limited partners. Because limited partners will not receive
distributions in an amount equal to 100 percent of the capital initially
contributed to the Partnership by the limited partners plus an amount equal to
8 percent per annum, cumulative and noncompounded, on an amount equal to their
initial capital contributions, the General Partner will not receive any of the
net proceeds from the Yorba Linda System's sale. As a result of the Yorba Linda
System's sale, the limited partners of the Partnership, as a group, will receive
approximately $22,823,356. Limited partners will receive from $1,101 to $1,209
for each $1,000 limited partnership interest from the net proceeds of the Yorba
Linda System's sale. The specific amount of a limited partner's distribution
will be dependent upon a limited partner's date of investment. Upon the
successful completion of the sale of the Yorba Linda System, which is expected
to occur during the second quarter of 1997, the Partnership will be liquidated
and dissolved.
For the year ended December 31, 1996, the Partnership generated net cash
from operating activities totaling $1,778,948 which is available to fund capital
expenditures and non-operating costs. The Partnership's capital expenditures
for 1996 totaled approximately $1,700,000. Approximately 34 percent of these
expenditures was for the construction of service drops to subscribers homes.
Approximately 22 percent of these expenditures was for the purchase of
converters and approximately 18 percent of these expenditures was for new plant
construction. The remainder of the capital expenditures was for various
enhancements in the Yorba Linda System. Such expenditures were funded from cash
from operations and borrowings under the Partnership's credit facility. Capital
expenditures for 1997 are expected to be
11
approximately $1,600,000 and will be financed principally from cash flow from
operations and, if necessary and in its discretion, advances from the General
Partner borrowings under the Partnership's credit facility. As a result of the
pending sale of the Yorba Linda System, as discussed above, capital expenditures
for 1997 will be only for various enhancements necessary to maintain the value
of the Yorba Linda System until it is sold. Depending upon the timing of the
closing of the sale of the Yorba Linda System, the Partnership likely will make
only the portion of budgeted capital expenditures scheduled to be made during
the Partnership's continued ownership of the Yorba Linda System.
As of December 31, 1996, $12,790,000 was outstanding under the
Partnership's $13,000,000 credit facility. At December 31, 1996, the revolving
credit facility's outstanding principal balance converted to a term loan,
payable in quarterly installments with a final maturity date of December 31,
2002. Payments due in 1997 total $639,500 and will be funded primarily from cash
generated from operations. The loan will be repaid in full upon the sale of the
Yorba Linda System. Generally, the interest on the outstanding principal balance
is at the Partnership's option of the Prime rate plus 1/4 percent to 1/2 percent
or the London Interbank Offered Rate plus 1-1/4 percent to 1-1/2 percent,
depending upon the ratio of the Partnership debt to operating cash flow. The
effective interest rates on amounts outstanding as of December 31, 1996 and 1995
were 6.75 percent and 7.45 percent, respectively.
The Partnership will rely on cash on hand, cash flow from operations and,
if necessary, and in its discretion, advances from the General Partner to fund
capital expenditures and other liquidity needs of the Partnership until the
Yorba Linda System is sold.
RESULTS OF OPERATIONS
- ---------------------
1996 Compared to 1995-
Revenues of the Partnership increased $793,156, or approximately 11
percent, to $7,696,684 in 1996 compared to $6,903,528 for the comparable 1995
period. The increase in revenues was primarily due to basic service rate
increases and an increase in the number of basic subscribers. Basic service
rate increases accounted for approximately 35 percent of the increase in
revenues and an increase in the number of basic subscribers accounted for
approximately 21 percent of the increase in revenues for the year ended December
31, 1996. The number of basic subscribers increased 562, or approximately 3
percent, to 17,173 subscribers at year end December 31, 1996 from 16,611
subscribers at year end December 31, 1995. An increase in converter and cable
remote rental revenues accounted for approximately 19 percent of the increase in
revenues. 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 $276,768, or approximately 7 percent, to
$4,284,935 in 1996 from $4,008,167 in 1995. Operating expenses represented
approximately 56 percent and 58 percent of revenues in 1996 and 1995,
respectively. The increase in operating expenses was primarily due to increases
in programming costs which were due, in part, to the increases in subscribers.
No other individual factor significantly affected the increase in operating
expense.
Management fees to the General Partner and allocated administrative costs
from Jones Intercable, Inc. ("Intercable") increased $77,250, or approximately 9
percent, to $914,068 in 1996 from $836,818 in 1995. This increase was primarily
a result of the increase in revenues, upon which such management fees and
allocated administrative costs are based.
Depreciation and amortization expense increased $279,672, or approximately
8 percent, to $3,932,348 in 1996 from $3,652,676 in 1995. This increase in
depreciation and amortization expense was attributable to additions to the
Partnership's depreciable asset base.
Operating loss decreased $159,466, or approximately 10 percent, to
$1,434,667 in 1996 from $1,594,133 in 1995. This decrease was due to the
increase in revenues exceeding the increases in operating expenses, management
fees to the General Partner and allocated administrative expenses from
Intercable 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
12
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 $439,138, or approximately 21 percent, to $2,497,681 in
1996 from $2,058,543 in 1995. The increase was due to the increases in revenues
exceeding the increase in operating expenses and management fees to the General
Partner and allocated administrative expenses from Intercable.
Interest expense decreased $54,617, or approximately 6 percent, to $904,667
in 1996 from $959,284 in 1995. The decrease was primarily due to lower
effective interest rates on outstanding obligations during 1996.
Net loss decreased $182,047, or approximately 7 percent, to $2,371,593 in
1996 from $2,553,640 in 1995. The decrease was a result of the factors
discussed above.
1995 Compared to 1994-
Revenues of the Partnership increased $557,657, or approximately 9 percent,
to $6,903,528 in 1995 compared to $6,345,871 in 1994. Increases in equipment
rental revenue accounted for approximately 30 percent of the increase in
revenues. The number of basic subscribers increased to 16,611 at December 31,
1995, compared to 15,961 at December 31, 1994, an increase of 650 basic
subscribers, or approximately 4 percent. This increase in basic subscribers
accounted for approximately 28 percent of the increase in revenues. Basic
service rate increases accounted for approximately 21 percent of the increase in
revenues. No other individual factor was significant to the increase in
revenues.
Operating expenses increased $370,068, or approximately 10 percent, to
$4,008,167 in 1995 from $3,638,099 in 1994. Operating expenses represented
approximately 58 percent and 57 percent of revenues in 1995 and 1994,
respectively. The increase in operating expenses was primarily due to increases
in programming costs which were due, in part, to the increases in subscribers.
No other individual factor significantly affected the increase in operating
expense.
Management fees to the General Partner and allocated administrative costs
from Intercable increased $34,290, or approximately 4 percent, to $836,818 in
1995 from $802,528 in 1994. This increase was primarily the result of increases
in revenues upon which such management fees are based.
Depreciation and amortization expense increased $208,649, or approximately
6 percent, to $3,652,676 in 1995 from $3,444,027 in 1994. This increase in
depreciation and amortization expense was attributable to additions to the
Partnership's depreciable asset base.
Operating loss increased $55,350, or approximately 4 percent, to $1,594,133
in 1995 from $1,538,783 in 1994. This increase was due to the increases in
operating expenses, management fees to the General Partner and allocated
administrative expenses from Intercable and depreciation and amortization
exceeding the increase in revenues.
Operating income before depreciation and amortization increased $153,299,
or approximately 8 percent, to $2,058,543 in 1995 from $1,905,244 in 1994. The
increase was due to the increases in revenues exceeding the increase in
operating expenses and management fees to the General Partner and allocated
administrative expenses from Intercable.
Interest expense increased $239,372, or approximately 33 percent, to
$959,284 in 1995 from $719,912 in 1994. The increase was primarily due to
higher outstanding balances on interest bearing obligations during 1995.
Net loss increased $289,498, or approximately 13 percent, to $2,553,640 in
1995 from $2,264,142 in 1994. The increase was a result of the factors
discussed above.
13
Item 8. Financial Statements
- -----------------------------
JONES GROWTH PARTNERS II L.P.
-----------------------------
FINANCIAL STATEMENTS
--------------------
AS OF DECEMBER 31, 1996 AND 1995
--------------------------------
AND FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
--------------------------------------------------------
INDEX
-----
Report of Independent Public Accountants 15
Balance Sheets 16
Statements of Operations 18
Statements of Partners' Capital (Deficit) 19
Statements of Cash Flows 20
Notes to Financial Statements 21
14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Partners of Jones Growth Partners II L.P.:
We have audited the accompanying balance sheets of Jones Growth Partners II L.P.
(a Colorado limited partnership) as of December 31, 1996 and 1995, and the
related statements of operations, partners' capital (deficit) and cash flows for
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 Growth Partners II L.P.
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for 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.
15
JONES GROWTH PARTNERS II L.P.
-----------------------------
(A Limited Partnership)
BALANCE SHEETS
--------------
December 31,
--------------------------
ASSETS (Note 1) 1996 1995
------ ------------ ------------
CASH $ 210,331 $ 60,263
TRADE RECEIVABLES, less allowance
for doubtful receivables of $32,132 and $27,667 at
December 31, 1996 and 1995, respectively 180,326 235,967
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 18,203,037 16,508,040
Less - accumulated depreciation (6,660,530) (4,705,821)
----------- -----------
11,542,507 11,802,219
Franchise costs and other intangible assets, net of
accumulated amortization of $9,587,058 and
$7,651,621 at December 31, 1996 and 1995,
respectively 8,300,830 10,236,267
----------- -----------
Total investment in cable television properties 19,843,337 22,038,486
DEBT PLACEMENT COSTS, net of accumulated
amortization of $175,960 and $138,588 at
December 31, 1996 and 1995, respectively 107,445 144,817
DEPOSITS, PREPAID EXPENSES AND OTHER 122,553 204,313
----------- -----------
Total assets $20,463,992 $22,683,846
=========== ===========
The accompanying notes to financial statements
are an integral part of these balance sheets.
16
JONES GROWTH PARTNERS II L.P.
-----------------------------
(A Limited Partnership)
BALANCE SHEETS
--------------
December 31,
--------------------------
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) 1996 1995
------------------------------------------- ------------ ------------
LIABILITIES:
Credit facility and other debt $12,821,077 $12,754,960
Trade accounts payable and accrued liabilities 546,347 489,853
Subscriber prepayments and deposits 322,430 293,302
----------- -----------
Total liabilities 13,689,854 13,538,115
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
PARTNERS' CAPITAL (DEFICIT):
General Partner-
Contributed capital 1,000 1,000
Accumulated deficit (103,065) (79,349)
----------- -----------
(102,065) (78,349)
----------- -----------
Limited Partners-
Contributed capital, net of related
commissions, syndication costs and
interest distribution (19,785 units outstanding
at December 31, 1996 and 1995, respectively) 16,746,882 16,746,882
Accumulated deficit (9,870,679) (7,522,802)
----------- -----------
6,876,203 9,224,080
----------- -----------
Total partners' capital (deficit) 6,774,138 9,145,731
----------- -----------
Total liabilities and partners' capital (deficit) $20,463,992 $22,683,846
=========== ===========
The accompanying notes to financial statements
are an integral part of these balance sheets.
17
JONES GROWTH PARTNERS II L.P.
-----------------------------
(A Limited Partnership)
STATEMENTS OF OPERATIONS
------------------------
For the Year Ended
December 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
REVENUES $ 7,696,684 $ 6,903,528 $ 6,345,871
COSTS AND EXPENSES:
Operating expenses 4,284,935 4,008,167 3,638,099
Management fees to the General Partner
and allocated administrative costs from
Jones Intercable, Inc. 914,068 836,818 802,528
Depreciation and amortization 3,932,348 3,652,676 3,444,027
----------- ----------- -----------
OPERATING LOSS (1,434,667) (1,594,133) (1,538,783)
OTHER INCOME (EXPENSE):
Interest expense (904,667) (959,284) (719,912)
Other, net (32,259) (223) (5,447)
----------- ----------- -----------
NET LOSS $(2,371,593) $(2,553,640) $(2,264,142)
=========== =========== ===========
ALLOCATION OF NET LOSS:
General Partner $ (23,716) $ (25,536) $ (22,641)
=========== =========== ===========
Limited Partners $(2,347,877) $(2,528,104) $(2,241,501)
=========== =========== ===========
NET LOSS PER LIMITED
PARTNERSHIP UNIT $ (118.67) $ (127.78) $ (113.29)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 19,785 19,785 19,785
=========== =========== ===========
The accompanying notes to financial statements
are an integral part of these statements.
18
JONES GROWTH PARTNERS II 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 $ (78,349) $ (52,813) $ (30,172)
Net loss for the year (23,716) (25,536) (22,641)
----------- ----------- -----------
Balance, end of year $ (102,065) $ (78,349) $ (52,813)
=========== =========== ===========
LIMITED PARTNERS:
Balance, beginning of year $ 9,224,080 $11,752,184 $13,993,685
Net loss for the year (2,347,877) (2,528,104) (2,241,501)
----------- ----------- -----------
Balance, end of year $ 6,876,203 $ 9,224,080 $11,752,184
=========== =========== ===========
The accompanying notes to financial statements
are an integral part of these statements.
19
JONES GROWTH PARTNERS II L.P.
-----------------------------
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
------------------------
For the Year Ended
December 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,371,593) $(2,553,640) $(2,264,142)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 3,932,348 3,652,676 3,444,027
Amortization of interest rate protection contract - 22,628 22,636
Decrease (increase) in trade accounts receivable 55,641 102,924 (254,379)
Decrease (increase) in deposits, prepaid expenses and other 76,930 (1,451) (44,324)
Increase (decrease) in trade accounts payable and accrued
liabilities and subscriber prepayments and deposits 85,622 (163,691) (44,342)
Increase (decrease) in advances from General Partner - (71,270) 71,270
----------- ----------- -----------
Net cash provided by operating activities 1,778,948 988,176 930,746
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment, net (1,694,997) (2,496,654) (1,326,316)
----------- ----------- -----------
Net cash used in investing activities (1,694,997) (2,496,654) (1,326,316)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 199,517 2,196,455 55,108
Repayment of borrowings (133,400) (688,845) (355,677)
----------- ----------- -----------
Net cash provided by (used in) financing activities 66,117 1,507,610 (300,569)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH 150,068 (868) (696,139)
CASH AT BEGINNING OF YEAR 60,263 61,131 757,270
----------- ----------- -----------
CASH AT END OF YEAR $ 210,331 $ 60,263 $ 61,131
=========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 953,526 $ 927,817 $ 675,892
=========== =========== ===========
The accompanying notes to financial statements
are an integral part of these statements.
20
JONES GROWTH PARTNERS II L.P.
-----------------------------
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(1) ORGANIZATION AND PARTNERS' INTERESTS:
------------------------------------
Formation and Business
----------------------
Jones Growth Partners II L.P. (the "Partnership"), a Colorado limited
partnership, was formed on March 27, 1991, pursuant to a public offering of
limited partnership interests sponsored by Jones Spacelink Cable Corporation
(the "General Partner"). The Partnership was formed to acquire, construct,
develop and operate cable television systems. The General Partner is a wholly
owned subsidiary of Jones Intercable, Inc. ("Intercable"), a Colorado
corporation. The General Partner and certain of its affiliates also own and
operate cable television systems for their own account and for the account of
other managed limited partnerships.
Contributed Capital
-------------------
The capitalization of the Partnership is set forth in the accompanying
statements of partners' capital (deficit). No limited partner is obligated to
make any additional contributions to Partnership capital. The General Partner
purchased its general partner interest in the Partnership by contributing $1,000
to Partnership capital.
Cable Television System Acquisition
-----------------------------------
On April 17, 1992, the Partnership purchased the cable television system
serving the areas in and around the communities of Yorba Linda, certain portions
of Anaheim Hills, and certain portions of unincorporated Orange County, all in
the State of California (the "Yorba Linda System").
All profits and losses of the Partnership are allocated 99 percent to the
limited partners and 1 percent to the General Partner, except for income or gain
from the sale or disposition of cable television properties, which will be
allocated to the partners based upon the formula set forth in the Partnership's
agreement and interest income earned prior to the first acquisition by the
Partnership of a cable television system, which was allocated 100 percent to the
limited partners.
Cable Television System Sale
----------------------------
On August 16, 1996, the Partnership entered into an asset purchase
agreement providing for the sale of the Yorba Linda System by the Partnership to
an unaffiliated party for a sales price of $36,000,000, subject to normal
working capital adjustments. Closing of this sale is subject to a number of
conditions, including the approval of governmental franchising authorities and
the approval of the transaction by the holders of a majority of the
Partnership's limited partnership interests. The General Partner, on behalf of
the Partnership, is preparing proxy solicitation materials and intends to
conduct a vote of the limited partners of the Partnership by mail in the second
quarter of 1997. Upon the consummation of the proposed sale of the Yorba Linda
System, the Partnership will repay the outstanding balance on its credit
facility, which totaled $12,790,000 at December 31, 1996, and then the
Partnership will distribute the sale proceeds, net of working capital
adjustments, to its limited partners. Because limited partners will not receive
distributions in an amount equal to 100 percent of the capital initially
contributed to the Partnership by the limited partners plus an amount equal to
8 percent per annum, cumulative and noncompounded, on an amount equal to their
initial capital contributions, the General Partner will not receive any of the
net proceeds from the Yorba Linda System's sale. As a result of the Yorba Linda
System's sale, the limited partners of the Partnership, as a group, will receive
approximately $22,823,356. Limited partners will receive from $1,101 to $1,209
for each $1,000 limited partnership interest from the net proceeds of the Yorba
Linda System's sale. The specific amount of a limited partner's distribution
will be dependent upon a limited partner's date of investment. Upon the
successful completion of the sale of the Yorba Linda System, which is expected
to occur during the second quarter of 1997, the Partnership will be liquidated
and dissolved.
21
(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 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.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include cash on hand, amounts held in banks and
highly liquid investments with a maturity at purchase of three months or less.
Property, Plant and Equipment
-----------------------------
Depreciation of property, plant and equipment is provided using the
straight-line method over the following estimated service lives:
Cable distribution systems 5 - 15 years
Equipment and tools 5 years
Office furniture and equipment 5 years
Buildings 10 - 20 years
Vehicles 3 years
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.
Allocation of Cost of Purchased Cable Television Systems
--------------------------------------------------------
Based on an independent appraisal, the Partnership allocated the total
purchase price of the Yorba Linda System acquired as follows: first, to the
fair value of net tangible assets acquired; second, to franchise costs in an
amount equal to the estimated value of franchise agreements; third, to
subscriber lists; fourth, to the noncompete agreement; and fifth, to costs in
excess of interests in net assets purchased. The brokerage fee paid to an
affiliate of the General Partner upon acquisition of the Yorba Linda System and
other acquisition costs were capitalized and charged to investment in cable
television properties in the accompanying balance sheets.
Intangible Assets
-----------------
Costs assigned to intangible assets are being amortized using the straight-
line method over the following estimated useful lives:
Franchise costs 2 - 6 years
Subscriber lists 2 years
Costs in excess of interests in net assets purchased 35 years
22
Revenue Recognition
-------------------
Subscriber prepayments are initially deferred and recognized as revenue
when earned.
Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to the 1996
presentation.
(3) TRANSACTIONS WITH THE GENERAL PARTNER AND CERTAIN OF ITS AFFILIATES:
-------------------------------------------------------------------
Management Fees, Distribution Ratios and Reimbursements
-------------------------------------------------------
The General Partner manages the Partnership and receives a fee for its
services equal to five percent of the gross revenues of the Partnership,
excluding revenues from the sale of cable television systems or franchises.
Management fees paid to the General Partner by the Partnership for the years
ended December 31, 1996, 1995 and 1994 were $384,834, $345,176 and $317,294,
respectively.
Any partnership distributions made from cash flow (defined as cash receipts
derived from routine operations, less debt principal and interest payments and
cash expenses) are generally allocated 99 percent to the limited partners and
one percent to the General Partner. Any distributions other than from cash flow
are generally made as follows: first, to the limited partners in an amount
which, together with all prior distributions made from sources other than cash
flow, will equal the amount initially contributed to partnership capital by the
limited partners; second, to the limited partners an amount equal to eight
percent per annum, cumulative and noncompounded, on an amount equal to their
initial capital contributions (less any portion of such initial capital
contributions returned by the distribution to limited partners from prior sale
or refinancing proceeds) provided, however, that the eight percent return will
be reduced by all prior distributions of cash flow from the partnership and
prior distributions of proceeds of sales or refinancings that exceed an amount
equal to the limited partner's initial capital contributions; third, any
remaining distribution shall be allocated 80 percent to the limited partners and
20 percent to the General Partner until the limited partners have received 250
percent of their initial capital contribution, after which any remaining
distribution shall be allocated 75 percent to the limited partners and 25
percent to the General Partner.
The Partnership reimburses the General Partner and certain of its
affiliates for certain allocated general and administrative costs. These
expenses represent the salaries and related benefits paid for corporate
personnel, office rent and related facilities expense. 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 and certain of its affiliates with respect to each partnership managed.
Remaining expenses are allocated based upon the pro rata relationship of the
Partnership's revenues to the total revenues of all cable television systems
owned or managed by the General Partner and certain of its affiliates. Systems
owned by Intercable 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 general and administrative costs is reasonable. Reimbursements by the
Partnership to the General Partner for allocated general and administrative
costs for the years ended December 31, 1996, 1995 and 1994 were $529,234,
$491,642 and $485,234, respectively.
The Partnership was charged interest during 1996 at an average rate of 8.58
percent on the amounts due to the General Partner, which approximated the
General Partner's weighted average cost of borrowing. Interest charged to the
Partnership by the General Partner totaled $-0-, $10,802 and $10,276 during
1996, 1995 and 1994, respectively.
Payments to/from Affiliates for Programming Services
----------------------------------------------------
The Partnership receives programming from Jones Education Company, Great
American Country, Inc. and Product Information Network, all of which are
affiliates of Intercable.
Payments to Jones Education Company for the years ended December 31, 1996,
1995 and 1994 totaled $34,112, $30,109 and $14,541, respectively. Payments to
Great American Country, Inc., which initiated service in 1996, totaled $14,534
in 1996.
23
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 $17,958,
$14,601 and $2,389 for the years ended December 31, 1996, 1995 and 1994,
respectively.
(4) PROPERTY, PLANT AND EQUIPMENT:
-----------------------------
Property, plant and equipment as of December 31, 1996 and 1995, consisted
of the following:
1996 1995
------------ ------------
Cable distribution system $16,754,013 $15,204,625
Equipment and tools 882,404 834,580
Office furniture and equipment 231,780 196,545
Buildings 7,093 6,468
Vehicles 327,747 265,822
----------- -----------
18,203,037 16,508,040
Less: accumulated depreciation (6,660,530) (4,705,821)
----------- -----------
$11,542,507 $11,802,219
=========== ===========
(5) INCOME TAXES:
------------
Income taxes have not been recorded in the accompanying financial
statements because they accrue directly to the partners. The federal and state
income tax returns of the Partnership are prepared and filed by the General
Partner.
The Partnership's tax returns, the qualification of the Partnership as such
for tax purposes, and the amount of distributable income or loss are subject to
examination by federal and state taxing authorities. If such examinations
result in changes with respect to the Partnership's qualification as such, or in
changes with respect to the Partnership's recorded income or loss, the tax
liability of the General Partner and limited partners would likely be changed
accordingly.
Taxable income or loss to the Partners is different from that reported in
the statements of operations due to the difference in depreciation recognized
under generally accepted accounting principles and the expense allowed for tax
purposes under the Modified Accelerated Cost Recovery System (MACRS). There are
no other significant differences between taxable income or loss and the net
income or loss reported in the statements of operations.
24
(6) DEBT:
----
As of December 31, 1996, $12,790,000 was outstanding under the
Partnership's $13,000,000 credit facility. At December 31, 1996, the revolving
credit facility's outstanding principal balance converted to a term loan,
payable in quarterly installments with a final maturity date of December 31,
2002. Generally, the interest on the outstanding principal balance is at the
Partnership's option of the Prime rate plus 1/4 percent to 1/2 percent or the
London Interbank Offered Rate plus 1-1/4 percent to 1-1/2 percent, depending
upon the ratio of the Partnership debt to operating cash flow. The effective
interest rates on amounts outstanding as of December 31, 1996 and 1995 were 6.75
percent and 7.45 percent, respectively.
The Partnership's debt consists of the following:
December 31,
------------------------
1996 1995
----------- -----------
Lending institutions-
Revolving credit and
term loan facility $12,790,000 $12,650,000
Capitalized lease obligations 31,077 104,960
----------- -----------
$12,821,077 $12,754,960
=========== ===========
Maturities of the revolving credit and term loan facility and capital lease
obligations for each of the five years in the period ended December 31, 2001 and
thereafter are as follows:
1997 $ 648,823
1998 1,288,323
1999 1,927,823
2000 2,561,108
2001 3,197,500
Thereafter 3,197,500
----------
$12,821,077
==========
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) COMMITMENTS AND CONTINGENCIES:
-----------------------------
The Partnership rents office and other facilities under various long-term
lease arrangements. Rent paid under such lease arrangements totaled $91,128,
$67,319 and $84,194 for the years ended December 31, 1996, 1995 and 1994,
respectively. Future minimum lease payments, as of December 31, 1996, under
noncancelable operating leases for each of the five years in the period ending
December 31, 2001, and thereafter are as follows:
1997 $123,837
1998 91,248
1999 91,952
2000 92,892
2001 75,285
Thereafter 8,000
--------
Total future minimum lease payments $483,214
========
25
(8) SUPPLEMENTARY PROFIT AND LOSS INFORMATION:
-----------------------------------------
Supplementary profit and loss information is presented below:
Year Ended December 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
Maintenance and repairs $ 54,488 $ 56,020 $ 45,174
========== ========== ==========
Taxes, other than income and
payroll taxes $ 243,492 $ 377,866 $ 316,193
========== ========== ==========
Advertising costs $ 56,369 $ 65,335 $ 44,800
========== ========== ==========
Depreciation of property,
plant and equipment $1,959,539 $1,547,208 $1,343,502
========== ========== ==========
Amortization of intangible assets $1,972,809 $2,105,468 $2,100,525
========== ========== ==========
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.
Name Age Positions with the General Partner
- ---- --- ----------------------------------
Glenn R. Jones 67 Chairman of the Board and Chief Executive Officer
James B. O'Brien 47 President
Ruth E. Warren 47 Vice President/Operations
Elizabeth M. Steele 45 Vice President and Secretary
Kevin P. Coyle 45 Vice President/Finance
Larry W. Kaschinske 37 Controller
Mr. Glenn R. Jones has served as Chief Executive Officer of the
General Partner since its inception in November 1988. Mr. Jones has served as
Chairman of the Board of Directors and Chief Executive Officer of Intercable
since its formation in 1970, and he was President from June 1984 until April
1988. Mr. Jones is the sole shareholder, President and Chairman of the Board of
Directors of Jones International, Ltd. He is also Chairman of the Board of
Directors of the subsidiaries of Intercable and of certain other affiliates of
Intercable. Mr. Jones has been involved in the cable television business in
various capacities since 1961, is a 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 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. James B. O'Brien was appointed President of the General Partner in
January 1995. Mr. O'Brien joined Intercable in January 1982. Prior to being
elected President and a Director of Intercable in December 1989, Mr. O'Brien
served as a Division Manager, Director of Operations Planning/Assistant to the
CEO, Fund Vice President and Group Vice President/Operations. Mr. O'Brien was
appointed to Intercable's Executive Committee in August 1993. As President, he
is responsible for the day-to-day operations of the cable television systems
managed and owned by Intercable. Mr. O'Brien is a board member of Cable Labs,
Inc., the research arm of the U.S. cable television industry. He also serves as
Vice Chairman and a director of the Cable Television Administration and
27
Marketing Association and as a member of the Executive Committee and a director
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, the General Partner's Vice President/Operations,
joined Intercable in August 1980 and has served in various operational
capacities, including system manager and Fund Vice President, since then. Ms.
Warren was elected Group Vice President/Operations of Intercable in September
1990.
Ms. Elizabeth M. Steele, the General Partner's Vice President and
Secretary, joined Intercable in August 1987 as Vice President/General Counsel
and Secretary. From August 1980 until joining Intercable, Ms. Steele was an
associate and then a partner at the Denver law firm of Davis, Graham & Stubbs,
which serves as counsel to Intercable.
Mr. Kevin P. Coyle was appointed Vice President/Finance of the General
Partner in March 1995. Mr. Coyle joined The Jones Group, Ltd. in July 1981 as
Vice President/Financial Services. In September 1985, he was appointed Senior
Vice President/Financial Services. He was elected Treasurer of Intercable in
August 1987, Vice President/Treasurer in April 1988 and Group Vice
President/Finance and Chief Financial Officer in October 1990.
Mr. Larry Kaschinske was appointed Controller of the General Partner
in March 1995. Mr. Kaschinske joined Intercable in 1984 as a staff accountant
in Intercable's former Wisconsin Division; was promoted to Assistant Controller
in 1990 and named Controller in August 1994.
ITEM 11. EXECUTIVE COMPENSATION
--------------------------------
The Partnership has no employees; however, various personnel are
required to operate the Yorba Linda System. Such personnel are employed by the
General Partner and, pursuant to the terms of the limited partnership agreement
of the Partnership, the cost of such employment is charged by the General
Partner to the Partnership as a direct reimbursement item. See Item 13.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS
----------------------------------------------------------------------
As of March 4, 1997, no person or entity owned more than 5 percent of
the limited partnership interests of the Partnership, except for the Naomi Ruth
Wilden Trust, which owned 1,000 limited partnership interests, representing
5.05% of the outstanding limited partnership interests.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
The General Partner and its affiliates engage in certain transactions
with the Partnership as contemplated by the limited partnership agreement of the
Partnership. The General Partner believes that the terms of such transactions
are generally as favorable as could be obtained by the Partnership from
unaffiliated parties. This determination has been made by the General Partner
in good faith, but none of the terms were or will be negotiated at arm's-length
and there can be no assurance that the terms of such transactions have been or
will be as favorable as those that could have been obtained by the Partnership
from unaffiliated parties.
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 Intercable with respect to each
partnership managed. Remaining expenses are allocated based on the pro rata
relationship of the
28
Partnership's revenues to the total revenues of all systems owned or managed by
Intercable and certain of its subsidiaries. Systems owned by Intercable 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 Intercable.
The Great American Country network provides country music video
programming to certain cable television systems owned or managed by Intercable.
This network is owned and operated by Great American Country, Inc., a subsidiary
of Jones International Networks, Ltd., an affiliate of International.
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 Intercable.
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
Intercable'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 Yorba
Linda System totaled approximately $17,958 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 $384,834 $345,176 $317,294
Allocation of expenses 529,234 491,642 485,235
Interest expense 0 10,802 10,276
Amount of advances outstanding 0 0 71,270
Highest amount of advances outstanding 0 266,281 75,414
Programming fees:
Jones Education Company 34,112 30,109 14,541
Great American Country 14,534 0 0
29
PART IV.
--------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
-------------------------------------------------------------------------
(a)1. See index to financial statements for the list of
financial statements and exhibits thereto filed as
part of this report.
3. The following exhibits are filed herewith.
4.1 Agreement of Limited Partnership of Jones Growth
Partners II L.P. (1)
10.1.1 Copy of a franchise and related documents thereto
granting a community antenna television system
franchise for the City of Anaheim, California. (3)
10.1.2 Copy of a franchise and related documents thereto
granting a community antenna television system
franchise for the County of Orange, California. (3)
10.1.3 Copy of a franchise and related documents thereto
granting a community antenna television system
franchise for the City of Yorba Linda, California. (3)
10.2.1 Credit and Security Agreement dated as of April
15, 1992 among the Partnership and Credit Lyonnais
New York Branch, as agent for various lenders. (3)
10.2.2 Amendment No. 1 dated as of September 30, 1994 to
the Credit and Security Agreement dated as of
April 15, 1992 among Jones Growth Partners II L.P.
and Credit Lyonnais New York Branch, as agent for
various lenders. (4)
10.3.1 Purchase and Sale Agreement dated August 24, 1990,
by and among Empire Partners, a California general
partnership, Empire Cable Television, Inc., a
California corporation, Yorba Linda Television
Co., Inc., a California corporation, and Crown
Valley Cable Television, Inc., a California
corporation, as sellers, and Jones Spacelink,
Ltd., a Colorado corporation, as buyer. (2)
10.3.2 Letter Agreement dated October 16, 1990, amending
Purchase and Sale Agreement. (2)
10.3.3 Second Amendment to Purchase and Sale Agreement
dated May 31, 1991. (2)
10.3.4 Third Amendment to Purchase and Sale Agreement
dated June 14, 1991. (2)
10.3.5 Fourth Amendment to Purchase and Sale Agreement
dated August 9, 1991. (2)
10.3.6 Asset Purchase Agreement dated August 16, 1996
among Jones Intercable, Inc., Jones Growth
Partners II L.P. and Century Communications Corp. (5)
27 Financial Data Schedule.
__________
(1) Incorporated by reference from the Form 8-A
Registration Statement of Jones Growth Partners II
L.P. filed with the Securities and Exchange
Commission on May 6, 1991 (Commission File No.
0-19259).
30
(2) Incorporated by reference from the Form S-1
Registration Statement of Jones Growth Partners II
L.P. filed with the Securities and Exchange
Commission (Registration No. 33-32169).
(3) Incorporated by reference from Registrant's Report
on Form 10-K for the fiscal year ended December
31, 1992.
(4) Incorporated by reference from Registrant's Report
on Form 10-K for the fiscal year ended December
31, 1994.
(5) Incorporated by reference from Registrant's Report
on Form 8-K dated August 28, 1996.
(b) Reports on Form 8-K
-------------------
None.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
JONES GROWTH PARTNERS II L.P.
a Colorado limited partnership
By: Jones Spacelink Cable Corporation
By:/s/ Glenn R. Jones
__________________________________
Glenn R. Jones
Chairman of the Board and Chief
Dated: March 24, 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 24, 1997 (Principal Executive Officer)
By:/s/ Kevin P. Coyle
________________________________
Kevin P. Coyle
Vice President/Finance
Dated: March 24, 1997 (Principal Financial Officer)
By:/s/ Larry Kaschinske
________________________________
Larry Kaschinske
Controller
Dated: March 24, 1997 (Principal Accounting Officer)
32
[JONES INTERCABLE
LOGO APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE PARTNERSHIP BY THE MANAGING GENERAL
PARTNER
The undersigned Limited Partner of IDS/Jones Growth Partners 87-A, Ltd., a
Colorado limited partnership, hereby votes on the sale of IDS/Jones Growth
Partners 87-A, Ltd.'s Roseville, California cable television system pursuant to
the terms and conditions of that certain Asset Purchase Agreement dated as of
October 14, 1996, as amended, as follows:
[_] CONSENTS [_] WITHHOLDS CONSENT [_] ABSTAINS
(continued on other side)
[JONES INTERCABLE
LOGO APPEARS HERE]
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED LIMITED PARTNER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE PROPOSED SALE TRANSACTION.
PLEASE SIGN EXACTLY AS NAME
APPEARS.
DATED: _____________________, 1997
__________________________________
Beneficial Owner Signature
(Investor)
__________________________________
Authorized Trustee/Custodian
Signature
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
[JONES INTERCABLE
LOGO APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE PARTNERSHIP BY THE MANAGING GENERAL
PARTNER
The undersigned Limited Partner of IDS/Jones Growth Partners 87-A, Ltd., a
Colorado limited partnership, hereby votes on the sale of IDS/Jones Growth
Partners 87-A, Ltd.'s Roseville, California cable television system pursuant to
the terms and conditions of that certain Asset Purchase Agreement dated as of
October 14, 1996, as amended, as follows:
[_] CONSENTS [_] WITHHOLDS CONSENT [_] ABSTAINS
(continued on other side)
[JONES INTERCABLE
LOGO APPEARS HERE]
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED LIMITED PARTNER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE PROPOSED SALE TRANSACTION.
PLEASE SIGN EXACTLY AS NAME
APPEARS.
When limited partnership inter-
ests are held by more than one
person, all owners should sign.
When signing as attorney, as ex-
ecutor, administrator, trustee or
guardian, please give full title
as such. If a corporation, please
sign in full corporation name by
authorized officer. If a partner-
ship, please sign in partnership
name by authorized person.
DATED: _____________________, 1997
__________________________________
Signature
__________________________________
Signature
__________________________________
Signature
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.