1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(x) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1994.
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _____________.
Commission File Number: 0-13193
CABLE TV FUND 12-A, LTD
- - --------------------------------------------------------------------------------
Exact name of registrant as specified in charter
Colorado #84-0968104
- - --------------------------------------------------------------------------------
State of organization I.R.S. employer I.D.#
9697 East Mineral Avenue, P.O. Box 3309, Englewood, Colorado 80155-3309
------------------------------------------------------------------------
Address of principal executive office
(303) 792-3111
-----------------------------
Registrant's telephone number
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
--- ---
2
CABLE TV FUND 12-A
(A Limited Partnership)
UNAUDITED BALANCE SHEETS
June 30, December 31,
1994 1993
------------ ------------
ASSETS
------
CASH $ 801,620 $ 1,610,187
TRADE RECEIVABLES, less allowance for
doubtful receivables of $34,139 and $49,157
at June 30, 1994 and December 31, 1993,
respectively 581,278 492,896
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 69,476,935 67,276,230
Less- accumulated depreciation (37,961,345) (35,137,424)
------------ ------------
31,515,590 32,138,806
Franchise costs, net of accumulated amortization
of $19,706,975 and $19,132,967 at June 30, 1994
and December 31, 1993, respectively 3,645,147 4,219,155
Subscriber lists, net of accumulated amortization
of $11,218,451 and $11,013,590 at June 30, 1994
and December 31, 1993, respectively 392,414 597,275
------------ ------------
Total investment in cable
television properties 35,553,151 36,955,236
DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 202,082 239,671
------------ ------------
Total assets $ 37,138,131 $ 39,297,990
============ ============
The accompanying notes to unaudited financial statements
are an integral part of these balance sheets.
2
3
CABLE TV FUND 12-A
(A Limited Partnership)
UNAUDITED BALANCE SHEETS
June 30, December 31,
1994 1993
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
-------------------------------------------
LIABILITIES:
Debt $ 27,460,832 $ 29,724,530
Accounts payable-
Trade 64,650 36,877
General Partner 551,180 220,722
Accrued liabilities 1,036,870 1,109,852
Subscriber prepayments 165,386 175,959
------------ ------------
Total liabilities 29,278,918 31,267,940
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partner-
Contributed capital 1,000 1,000
Accumulated deficit (369,916) (368,208)
------------ ------------
(368,916) (367,208)
------------ ------------
Limited Partners-
Net contributed capital (104,000 units
outstanding at June 30, 1994 and
December 31, 1993) 44,619,655 44,619,655
Accumulated deficit (36,391,526) (36,222,397)
------------ ------------
8,228,129 8,397,258
------------ ------------
Total liabilities and
partners' capital (deficit) $ 37,138,131 $ 39,297,990
============ ============
The accompanying notes to unaudited financial statements
are an integral part of these balance sheets.
3
4
CABLE TV FUND 12-A
(A Limited Partnership)
UNAUDITED STATEMENTS OF OPERATIONS
For the Three Months Ended For the Six Months Ended
June 30, June 30,
---------------------------- --------------------------------
1994 1993 1994 1993
---------- ----------- ----------- -----------
REVENUES $7,303,783 $ 7,411,011 $14,604,523 $14,693,007
COSTS AND EXPENSES:
Operating, general
and administrative 4,369,805 4,189,164 8,450,065 8,270,532
Management fees and
allocated overhead
from General Partner 919,044 849,346 1,850,107 1,678,061
Depreciation and
amortization 1,782,501 1,968,870 3,602,791 3,965,271
---------- ----------- ----------- -----------
OPERATING INCOME 232,433 403,631 701,560 779,143
---------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (425,779) (379,747) (797,179) (806,212)
Other, net (63,707) 14,511 (75,218) 25,910
---------- ----------- ----------- -----------
Total other income
(expense), net (489,486) (365,236) (872,397) (780,302)
---------- ----------- ----------- -----------
NET INCOME (LOSS) $ (257,053) $ 38,395 $ (170,837) $ (1,159)
========== =========== =========== ===========
ALLOCATION OF NET
INCOME (LOSS):
General Partner $ (2,571) $ 384 $ (1,708) $ (12)
========== =========== =========== ===========
Limited Partners $ (254,482) $ 38,011 $ (169,129) $ (1,147)
========== =========== =========== ===========
NET INCOME (LOSS) PER
LIMITED PARTNERSHIP UNIT $ (2.45) $ .37 $ (1.63) $ (.01)
========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF LIMITED PARTNERSHIP
UNITS OUTSTANDING 104,000 104,000 104,000 104,000
========== =========== =========== ===========
The accompanying notes to unaudited financial statements
are an integral part of these statements.
4
5
CABLE TV FUND 12-A
(A Limited Partnership)
UNAUDITED STATEMENTS OF CASH FLOWS
For the Six Months Ended
June 30,
-------------------------------
1994 1993
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (170,837) $ (1,159)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 3,602,791 3,965,271
Amortization of interest rate protection
contract 25,002 24,990
Increase in trade receivables (88,383) (91,234)
Decrease (increase) in deposits, prepaid expenses and
deferred charges 12,588 (232,858)
Increase (decrease) in amount due General Partner 330,458 (259,868)
Decrease in trade accounts payable,
accrued liabilities and subscriber prepayments (55,783) (413,302)
----------- -----------
Net cash provided by operating activities 3,655,836 2,991,840
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (2,200,705) (1,445,674)
----------- -----------
Net cash used in investing activities (2,200,705) (1,445,674)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 49,816 17,615
Repayment of debt (2,313,514) (1,565,104)
----------- -----------
Net cash used in financing activities (2,263,698) (1,547,489)
----------- -----------
Decrease in cash (808,567) (1,323)
Cash, beginning of period 1,610,187 1,599,111
----------- -----------
Cash, end of period $ 801,620 $ 1,597,788
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 780,777 $ 955,560
=========== ===========
The accompanying notes to unaudited financial statements
are an integral part of these statements.
5
6
CABLE TV FUND 12-A
(A Limited Partnership)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) This Form 10-Q is being filed in conformity with the SEC requirements
for unaudited financial statements and does not contain all of the necessary
footnote disclosures required for a fair presentation of the Balance Sheets and
Statements of Operations and Cash Flows in conformity with generally accepted
accounting principles. However, in the opinion of management, this data
includes all adjustments, consisting only of normal recurring accruals,
necessary to present fairly the financial position of Cable TV Fund 12-A (the
"Partnership") at June 30, 1994 and December 31, 1993 and its Statements of
Operations and Cash Flows for the three and six month periods ended June 30,
1994 and 1993. Results of operations for these periods are not necessarily
indicative of results to be expected for the full year.
The Partnership owns and operates the cable television systems serving
areas in and around Fort Myers, Florida, Lake County, Illinois, Orland Park,
Illinois and Park Forest, Illinois.
(2) Jones Intercable, Inc., a publicly held Colorado corporation (the
"General Partner"), manages the Partnership and receives a fee for its services
equal to 5 percent of the gross revenues of the Partnership, excluding revenues
from the sale of cable television systems or franchises. Management fees for
the three and six month periods ended June 30, 1994 were $365,189 and $730,226,
respectively, as compared to $370,551 and $734,650, respectively, for the
similar 1993 periods.
The Partnership reimburses the General Partner for certain allocated
overhead and administrative expenses. These expenses consist primarily of
salaries and benefits paid to corporate personnel, rent, data processing
services and other facilities costs. Such personnel provide engineering,
marketing, administrative, accounting, legal and investor relations services to
the Partnership. Allocations of personnel costs are based primarily on actual
time spent by employees of the General Partner with respect to each partnership
managed. Remaining overhead costs are allocated based on revenues and/or the
cost of assets managed for the partnership. Effective December 1, 1993, the
allocation method was changed to be based only on revenue, which the General
Partner believes provides a more accurate method of allocation. Systems owned
by the General Partner and all other systems owned by partnerships for which
Jones Intercable, Inc. is the general partner are also allocated a
proportionate share of these expenses. The General Partner believes that the
methodology used in allocating overhead and administrative expenses is
reasonable. Amounts charged the Partnership by the General Partner for
allocated overhead and administrative expenses for the three and six month
periods ended June 30, 1994 were $553,855 and $1,119,881, respectively, as
compared to $478,795 and $943,411, respectively, for the similar 1993 periods.
6
7
CABLE TV FUND 12-A
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
Capital expenditures totalled approximately $2,200,000 during the
first six months of 1994. Approximately 32 percent of these expenditures
related to the construction of service drops to subscribers' homes.
Approximately 22 percent of the expenditures related to the construction of new
cable plant. The remaining expenditures were used for various enhancements in
the Partnership's systems. Funding for these expenditures was provided by cash
generated from operations. Budgeted capital expenditures for the remainder of
1994 are approximately $2,575,000. Approximately 43 percent is for the
construction of new cable plant. Approximately 11 percent will be used for the
construction of service drops to subscriber's homes. The remainder of the
anticipated expenditures is expected to be used for various enhancements and
rebuild projects in all of the Partnership's systems. Funding for these
expenditures is expected to be provided by cash generated from operations. The
level of capital expenditures will depend, in part, upon the General Partner's
determination as to the proper scope and timing of such expenditures in light
of the recent adoption of the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 cable act"), and the rules and regulations
adopted in connection with such legislation, and the Partnership's liquidity
position.
At June 30, 1992, the then-outstanding balance of $34,000,000 on the
Partnership's $35,000,000 credit facility converted to a term loan. The term
loan is payable in 20 consecutive quarterly installments that commenced on
September 30, 1992. At June 30, 1994, $27,250,000 was outstanding under this
term loan. Installments paid during the first and second quarters of 1994
totalled $2,250,000. Payments due for the remainder of 1994 total $2,250,000.
The General Partner is currently negotiating to reduce amortization payments in
order to provide liquidity for capital expenditures. Generally, interest
payable on amounts borrowed under the term loan is at the Partnership's option
of prime plus 1/2 percent or a fixed rate defined as the CD rate plus 1-1/4
percent or the Euro-Rate plus 1-1/4 percent. The effective interest rates on
outstanding obligations as of June 30, 1994 and 1993 were 5.82 percent and 4.57
percent, respectively. In January 1993, the Partnership entered into an
interest rate cap agreement covering outstanding debt obligations of
$15,000,000. The Partnership paid a fee of $150,000. The agreement protects
the Partnership from a three month LIBOR interest rate that exceeds 7 percent
for three years from the date of the agreement.
Subject to regulatory matters discussed below, and assuming successful
renegotiation of the credit facility, the General Partner believes that the
Partnership has sufficient sources of capital from cash on hand and cash
generated from operations to meet its presently anticipated needs.
Regulatory Matters
Congress enacted the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act"), which became effective on
December 4, 1992. This legislation has caused significant changes to the
regulatory environment in which the cable television industry operates. The
1992 Cable Act generally allows for a greater degree of regulation of the cable
television industry. Under the 1992 Cable Act's definition of effective
competition, nearly all cable systems in the United States, are subject to rate
regulation of basic cable services. In addition, the 1992 Cable Act allows the
FCC to regulate rates for non-basic service tiers other than premium services
in response to complaints filed by franchising authorities and/or cable
subscribers. In April 1993, the FCC adopted regulations governing rates for
basic and non-basic services. The FCC's rules became effective on September 1,
1993.
In compliance with these rules, the Partnership reduced rates charged
for certain regulated services effective September 1, 1993. These reductions
resulted in some decrease in revenues and operating income before depreciation
and amortization; however the decrease was not as severe as originally
anticipated. The General Partner has undertaken actions to mitigate a portion
of these reductions primarily through (a) new service offerings in some
systems, (b) product re-marketing and re-packaging and (c) marketing efforts
directed at non-subscribers. To the extent that such reductions are not
mitigated the values of the Partnership's systems, which are calculated based
on cash flow, could be adversely impacted.
7
8
On February 22, 1994, the FCC adopted several additional rate orders
including an order which revised its earlier-announced regulatory scheme with
regard to rates. The FCC's new regulations will generally require rate
reductions, absent a successful cost- of-service showing, of 17 percent of
September 30, 1992 rates, adjusted for inflation, channel modifications,
equipment costs, and increases in programming costs. However, the FCC held rate
reductions in abeyance in certain systems. The new regulations became
effective on May 15, 1994, but operators could elect to defer rate reductions
to July 14, 1994, so long as they made no change in their rates and did not
restructure service offerings between May 15 and July 14.
On February 22, 1994, the FCC also adopted interim cost-of-service
regulations. Rate reductions will not be required where it is successfully
demonstrated that rates for basic and other regulated programming services are
justified and reasonable using cost-of-service standards. The FCC established
an interim industry-wide 11.25 percent permitted rate of return, and requested
comments on whether this standard and other interim cost-of-service standards
should be made permanent. The FCC also established a presumption that
acquisition costs above a system's book value should be excluded from the rate
base, but the FCC will consider individual showings to rebut this presumption.
The need for special rate relief will also be considered by the FCC if an
operator demonstrates that the rates set by a cost-of-service proceeding would
constitute confiscation of investment, and that, absent a higher rate, the
credit necessary to operate and to attract investment could not be maintained.
The FCC will establish a uniform system of accounts for operators that elect
cost-of-service rate regulation, and the FCC has adopted affiliate transaction
regulations. The FCC also proposed adopting a productivity factor to be offset
against future inflation increases to be applied regardless of which form of
regulation is used, cost of service or benchmark regulation. After a rate has
been set pursuant to a cost-of-service showing, rate increases for regulated
services will be indexed for inflation, and operators will also be permitted to
increase rates in response to increases in costs beyond their control, such as
taxes and increased programming costs.
The Partnership has elected to file cost-of-service showings in its
Fort Myers, Florida and Orland park, Illinois systems. The Partnership
complied with the new benchmark regulations and reduced rates in the Lake
County, Illinois system. As a result, the annualized reduction of operating
income before depreciation and amortization is $250,000, or approximately 3
percent. In the systems electing cost-of-service, the General Partner
anticipates no further reduction in revenues or operating income before
depreciation and amortization. The Partnership will continue its efforts to
mitigate the effect of rate reductions.
The 1992 Cable Act contains new broadcast signal carriage
requirements, and the FCC has adopted regulations implementing the statutory
requirements. These new rules allow a local commercial broadcast television
station to elect whether to demand that a cable system carry its signal or to
require the cable system to negotiate with the station for "retransmission
consent." A cable system is generally required to devote up to one-third of
its activated channel capacity for the mandatory carriage of local commercial
broadcast television stations, and non-commercial television stations are also
given mandatory carriage rights, although such stations are not given the
option to negotiate retransmission consent for the carriage of their signals by
cable systems. Additionally, cable systems also are required to obtain
retransmission consent from all commercial television stations (except for
commercial satellite-delivered independent "superstations"), which do not elect
mandatory carriage, commercial radio stations and, in some instances, low-power
television stations carried by cable systems.
The retransmission consent rules went into effect on October 6, 1993.
In the cable television system owned by the Partnership no television stations
withheld their consent to retransmission of their signal. Certain broadcast
signals are being carried pursuant to extensions, and the General Partner
expects to finally conclude retransmission consent negotiations with those
remaining stations without having to terminate the distribution of any of those
signals. However, there can be no assurance that such will occur. If any
broadcast station currently being carried pursuant to an extension is dropped,
there could be a negative effect on the system in which it is dropped if a
significant number of subscribers in such system were to disconnect their
service. However, in most cases, only one broadcaster in any market is being
carried pursuant to an extension arrangement, and the dropping of such
broadcaster, were that to occur, is not expected to have a negative effect on
the system.
8
9
There have been several lawsuits filed by cable operators and
programmers in federal court challenging various aspects of the 1992 Cable Act,
including provisions relating to mandatory broadcast signal carriage,
retransmission consent, access to cable programming, rate regulation,
commercial leased channels and public-educational-governmental access channels.
On April 8, 1993, a three-judge federal district court panel upheld the
validity of the mandatory signal carriage requirements established by the 1992
Cable Act. That decision was appealed directly to the United States Supreme
Court. The United States Supreme Court vacated the lower court decision on
June 27, 1994 and remanded the case to the district court for further
development of a factual record. The Court's majority determined that the
must-carry rules were content neutral, but that it was not yet proven that the
rules were needed to preserve the economic health of the broadcasting industry.
In the interim, the must-carry rules will remain in place during the pendency
of the proceedings in district court. In 1993, a Federal district court for
the District of Columbia upheld provisions of the 1992 Cable Act concerning
rate regulation, retransmission consent, restrictions on vertically integrated
cable television operators and programmers, mandatory carriage of programming
on commercial leased channels and public, educational and governmental access
channels and the exemption for municipalities from civil damage liability
arising out of local regulation of cable services. The 1992 Cable Act's
provisions providing for multiple ownership limits for cable operators and
advance notice of free previews for certain programming services have been
found unconstitutional, and these decisions have been appealed. In November
1993, the United States Court of Appeals for the District of Columbia held that
the FCC's regulations implemented pursuant to Section 10 of the 1992 Cable Act,
which permit cable operators to ban indecent programming on public, educational
or governmental access channels or leased access channels, were
unconstitutional, but the court has agreed to reconsider its decision. All of
these decisions construing provisions of the 1992 Cable Act and the FCC's
implementing regulations have been or are expected to be appealed.
RESULTS OF OPERATIONS
Revenues of the Partnership decreased $107,228, or approximately 1
percent, from $7,411,011 for the three month period ended June 30, 1993 to
$7,303,783 for the comparable 1994 period. Revenues of the Partnership
decreased $88,484, or less than 1 percent, from $14,693,007 for the first six
months of 1993 to $14,604,523 for the comparable 1994 period. The decrease in
revenue was caused by the reduction in basic rates due to new basic rate
regulations issued by the FCC in May 1993, with which Fund 12-A complied
effective September 1, 1993. The decrease in revenues due to rate reductions
was offset, in part, by increases in subscribers. The Partnership has added
approximately 3,400 basic subscribers since June 30, 1993, an increase of 5
percent. Basic subscribers totalled 63,715 at June 30, 1993, compared to
67,103 at June 30, 1994.
Operating, general and administrative expense increased $180,641, or
approximately 4 percent, from $4,189,164 for the three months ended June 30,
1993 to $4,369,805 for the comparable 1994 period. This expense represented 60
percent of revenue for the second quarter of 1994 compared to 57 percent for
the similar 1993 period. This increase is due primarily to increases in
programming expense and personnel expense. Operating, general and
administrative expense increased $179,533, or approximately 2 percent, from
$8,270,532 for the six months ended June 30, 1993 to $8,450,065 for the
comparable 1994 period. This expense represented 58 percent of revenue for the
six month period ended June 30, 1994 compared to 56 percent for the similar
1993 period. Programming fees primarily accounted for the increase in expense
and was due in part to the increase in the subscriber base. Advertising sales
expense accounted for approximately 20 percent to the increase in expense.
Management fees and allocated overhead from the General Partner increased
$69,698, or approximately 8 percent, from $849,346 for the three month period
ended June 30, 1993 to $919,044 for the comparable 1994 period. Management
fees and allocated overhead from the General Partner increased $172,046, or
approximately 10 percent, from $1,678,061 for the six month period ended June
30, 1993 to $1,850,107 for the comparable 1994 period. These increases were
due to an increase in allocated expenses from the General Partner. The General
Partner has experienced increases in expenses, including personnel costs and
reregulation costs.
Depreciation and amortization expense decreased $186,369, or
approximately 9 percent, from $1,968,870 for the three month period ended June
30, 1993 to $1,782,501 for the similar 1994 period. Depreciation and
amortization decreased $362,480, or approximately 9 percent, from $3,965,271
for the six month period ended June 30, 1993 to $3,602,791 for the similar 1994
period. These decreases are due to the maturation of the Partnership's asset
base.
9
10
Operating income decreased $171,198, or approximately 42 percent, from
$403,631 for the three months ended June 30, 1993 to $232,433 for 1994. For
the six month periods, operating income decreased $77,583, or approximately 10
percent, from $779,143 in 1993 to $701,560 in 1994. These decreases are due to
the decreases in revenue as well as the increases in operating, general and
administrative expense and management fees and allocated overhead from the
General Partner exceeding the decrease in depreciation and amortization
expense. Operating income before depreciation and amortization decreased
$357,567, or 15 percent, from $2,372,501 to $2,014,934 and $440,063, or 9
percent, from $4,744,414 to $4,304,351, respectively, for the three and six
month periods ending June 30, 1993 as compared to 1994. These decreases are
due to the decrease in revenues and the increases in operating, general and
administrative expenses and allocated overhead from the General Partner. The
decreases in operating income before depreciation and amortization reflect the
current operating environment of the cable television industry. The FCC rate
regulations under the 1992 Cable Act have caused revenues to decrease. In
turn, this has caused certain expenses which are a function of revenue, such as
franchise fees, copyright fees and management fees to decrease. However, other
operating costs such as programming fees, salaries and benefits, and marketing
costs as well as costs incurred by the General Partner, which are allocated to
the Partnership, continue to increase. This situation has led to reductions in
operating income before depreciation and amortization as a percent of revenue
("Operating Margin"). Such reductions in Operating Margins may continue in the
near term as the Parternship and the General Partner incur cost increases due
to, among other things, programming fees, reregulation and competition, that
exceed increases in revenue. The General Partner will attempt to mitigate a
portion of these reductions through (a) rate adjustments; (b) new service
offerings; (c) product re-marketing and re-packaging and (d) targeted
non-subscriber acquisition marketing.
Interest expense increased $46,032, or approximately 12 percent, from
$379,747 for the three month period ended June 30, 1993 to $425,779 for the
comparable 1994 period due to higher effective interest rates on interest
bearing obligations. Interest expense decreased $9,033, or approximately 1
percent, from $806,212 for the six month period ended June 30, 1993 to $797,179
for the comparable 1994 period. The decrease for the six month period is due
to lower outstanding balances on interest bearing obligations and was offset,
in part, by higher effective interest rates. Net loss of $257,053 was recorded
for the three month period ended June 30, 1994, compared to net income of
$38,395 for the similar 1993 period. Net loss increased $169,678 from $1,159
for the six month period ended June 30, 1993 to $170,837 for the comparable
1994 period. These increases in net loss are due to the factors discussed
above.
10
11
Part II - OTHER INFORMATION
None
11
12
SIGNATURES
Pursuant to the requirements 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.
CABLE TV FUND 12-A
BY: JONES INTERCABLE, INC.
General Partner
By: /s/ KEVIN P. COYLE
Kevin P. Coyle
Group Vice President/Finance
(Principal Financial Officer)
Dated: August 10, 1994
12