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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 September 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: 0-19259
JONES GROWTH PARTNERS II L.P.
------------------------------------------------
Exact name of registrant as specified in charter
Colorado #84-1126141
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State of organization I.R.S. employer I.D.#
9697 East Mineral Avenue, P.O. Box 3309, Englewood, Colorado 80155-3309
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Address of principal executive office
(303) 792-9191
-----------------------------
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
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JONES GROWTH PARTNERS II L.P.
(A Limited Partnership)
UNAUDITED BALANCE SHEETS
September 30, December 31,
ASSETS 1994 1993
------ ------------ ------------
CASH $ 100,807 $ 757,270
TRADE ACCOUNTS RECEIVABLE, less allowance for
doubtful receivables of $7,269 and $8,463 at
September 30, 1994 and December 31, 1993, respectively 314,281 84,512
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 13,613,108 12,685,070
Less- accumulated depreciation (2,810,648) (1,815,444)
------------ ------------
10,802,460 10,869,626
Franchise costs, net of accumulated amortization of
$2,533,664 and $1,760,936 at September 30, 1994
and December 31, 1993, respectively 7,769,336 8,542,064
Subscriber lists, net of accumulated amortization of
$1,351,731 and $939,339 at September 30, 1994
and December 31, 1993, respectively 2,497,268 2,909,660
Noncompete agreement, net of accumulated amortization of
$1,076,472 and $748,057 at September 30, 1994
and December 31, 1993, respectively 857,528 1,185,943
Costs in excess of interests in net assets purchased,
net of accumulated amortization of $110,812 and $76,983 at
September 30, 1994 and December 31, 1993,
respectively 1,691,077 1,724,906
------------ ------------
Total investment in cable television properties 23,617,669 25,232,199
DEBT PLACEMENT COSTS, net of accumulated
amortization of $91,873 and $63,844 at
September 30, 1994 and December 31, 1993, respectively 191,532 219,561
DEPOSITS, PREPAID EXPENSES AND OTHER 319,032 209,078
------------ ------------
Total assets $ 24,543,321 $ 26,502,620
============ ============
The accompanying notes to unaudited financial statements
are an integral part of these balance sheets.
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JONES GROWTH PARTNERS II L.P.
(A Limited Partnership)
UNAUDITED BALANCE SHEETS
September 30, December 31,
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) 1994 1993
------------------------------------------- ------------ ------------
LIABILITIES:
Credit facility and other debt $ 11,298,158 $ 11,547,919
Accounts payable to Jones Spacelink, Ltd. 75,414 -
Trade accounts payable and accrued liabilities 479,072 622,845
Subscriber prepayments and deposits 337,915 368,343
------------ ------------
Total liabilities 12,190,559 12,539,107
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partner-
Contributed capital 1,000 1,000
Accumulated deficit (47,280) (31,172)
------------ ------------
(46,280) (30,172)
------------ ------------
Limited Partners-
Contributed capital, net of related
commissions, syndication costs and
interest distribution (19,785 units
outstanding at September 30, 1994 and
December 31, 1993) 16,746,882 16,746,882
Accumulated deficit (4,347,840) (2,753,197)
------------ ------------
12,399,042 13,993,685
------------ ------------
Total partners' capital (deficit) 12,352,762 13,963,513
------------ ------------
Total liabilities and partners'
capital (deficit) $ 24,543,321 $ 26,502,620
============ ============
The accompanying notes to unaudited financial statements
are an integral part of these balance sheets.
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JONES GROWTH PARTNERS II L.P.
(A Limited Partnership)
UNAUDITED STATEMENTS OF OPERATIONS
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1994 1993 1994 1993
---------- ---------- ------------ -----------
REVENUES $1,585,945 $1,583,128 $ 4,705,680 $ 4,702,142
COSTS AND EXPENSES:
Operating, general and administrative 893,158 917,274 2,667,696 2,637,850
Management fees and allocated administrative
costs from the General Partner 188,491 193,287 582,924 569,394
Depreciation and amortization 856,971 821,634 2,570,931 2,452,806
--------- --------- ---------- ----------
OPERATING LOSS (352,675) (349,067) (1,115,871) (957,908)
--------- --------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (185,687) (149,869) (488,970) (446,366)
Other, net 3,730 (1,066) (5,910) (5,558)
--------- --------- ---------- ----------
NET LOSS $ (534,632) $ (500,002) $(1,610,751) $(1,409,832)
========= ========= ========== ==========
ALLOCATION OF NET LOSS:
General Partner $ (5,347) $ (5,000) $ (16,108) $ (14,098)
========= ========= ========== ==========
Limited Partners $(529,285) $ (495,002) $(1,594,643) $(1,395,734)
========= ========= ========== ==========
NET LOSS PER LIMITED
PARTNERSHIP UNIT $ (26.75) $ (25.02) $ (80.60) $ (70.55)
========= ========= ========== ==========
WEIGHTED AVERAGE NUMBER
OF LIMITED PARTNERSHIP
UNITS OUTSTANDING 19,785 19,785 19,785 19,785
========= ========= ========== ==========
The accompanying notes to unaudited financial statements
are an integral part of these statements.
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JONES GROWTH PARTNERS II L.P.
(A Limited Partnership)
UNAUDITED STATEMENTS OF CASH FLOWS
For the Nine Months Ended
September 30,
------------------------------
1994 1993
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,610,751) $(1,409,832)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 2,570,931 2,452,806
Amortization of interest rate protection contract 11,316 16,978
Increase in trade accounts receivable, net (229,769) (60,063)
Increase in deposits, prepaid expenses and other (121,004) (305,125)
Decrease in trade accounts payable, accrued
liabilities and subscriber prepayments and deposits (174,201) (477,943)
Increase (decrease) in accounts payable to Jones Spacelink, Ltd. 75,414 (141,435)
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Net cash provided by operating activities 521,936 75,386
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment, net (928,638) (753,235)
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Net cash used in investing activities (928,638) (753,235)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings -- 844,031
Repayment of borrowings (249,761) (308,885)
----------- -----------
Net cash provided by (used in) financing activities (249,761) 535,146
----------- -----------
DECREASE IN CASH (656,463) (142,703)
CASH, BEGINNING OF PERIOD 757,270 179,156
----------- -----------
CASH, END OF PERIOD $ 100,807 $ 36,453
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 486,278 $ 461,908
=========== ===========
The accompanying notes to unaudited financial statements
are an integral part of these statements.
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JONES GROWTH PARTNERS II L.P.
(A Limited Partnership)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) This Form 10-Q is being filed in conformity with the Securities and
Exchange Commission 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 of normal
recurring accruals, necessary to present fairly the financial position of Jones
Growth Partners II L.P. (the "Partnership") at September 30, 1994 and December
31, 1993 and its results of operations and changes in its cash flows for the
three and nine month periods ended September 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 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").
(2) Jones Spacelink Cable Corporation (the "General Partner"), a wholly
owned subsidiary of Jones Spacelink, Ltd. ("Spacelink"), 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 both the three and nine month periods ended September
30, 1994 were $79,297 and $235,284, respectively, as compared to $79,156 and
$235,107 for the three and nine month periods ended September 30, 1994,
respectively.
The Partnership reimburses Spacelink and certain of its subsidiaries
for certain allocated general and administrative costs. Allocation of
personnel costs are based primarily on actual time spent by employees of
Spacelink and certain of its subsidiaries 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 Spacelink and certain of its subsidiaries, and/or
the costs of assets managed for the Partnership. Effective December 1, 1993,
the allocation method was changed to be based only on revenue, which the
General Partner believes provides a more accurate method of allocation. All
cable television systems owned or managed by Spacelink and certain of its
subsidiaries are allocated a proportionate share of these expenses. Included
in the costs allocated from Spacelink and certain of its subsidiaries are
expenses allocated to Spacelink and certain of its subsidiaries from affiliated
entities for information processing and administrative services. Spacelink
believes that the methodology used in allocating general and administrative
costs is reasonable. Reimbursements by the Partnership to Spacelink for
allocated general and administrative costs for the three and nine month periods
ended September 30, 1994 were $109,194 and $347,640, respectively, as compared
to $114,131 and $334,287 for the three and nine month periods ended September
30, 1993, respectively.
(3) Certain prior year amounts have been reclassified to conform to the
1994 presentation.
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JONES GROWTH PARTNERS II L.P.
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
For the nine months ended September 30, 1994, the Partnership
generated operating income before depreciation and amortization of $1,455,060
and incurred interest expense totalling $488,970 leaving $966,090 to fund
capital expenditures and non-operating costs.
During the first nine months of 1994, the Partnership expended
approximately $928,000 of plant and equipment for its Yorba Linda System.
Approximately 53 percent of these expenditures were for various enhancements
throughout the Yorba Linda System, approximately 29 percent of these
expenditures were for cable, hardware and labor for new subscriber
installations and to replace equipment in the Yorba Linda System, and
approximately 16 percent of these expenditures were for pay-per-view equipment.
Capital expenditures for the remainder of 1994 are expected to be approximately
$200,000 and will be financed principally from cash flow from operations and
cash balances on hand. Approximately 47 percent of the expected capital
expenditures will be for cable, hardware and labor to extend the cable plant,
to make additional subscriber installations and to replace equipment in the
Yorba Linda System, approximately 14 percent will be for pay-per-view
equipment, and the remainder of these expenditures will be for various other
enhancements throughout the Yorba Linda System.
On September 30, 1994, an amendment was signed to extend the revolving
aspect of the Partnership's $13,000,000 credit facility to December 31, 1996,
at which time the outstanding principal balance will convert to a term loan,
which term loan will be payable in quarterly installments and will mature on
December 31, 2002. Generally, the interest on the outstanding principle
balance is at the Partnership's option of the prime rate plus 1/4 percent to
1/2 percent or LIBOR plus 1-1/4 percent to 1-1/2 percent, depending upon the
ratio of the Partnership debt to operating cash flow. As of September 30,
1994, $11,261,375 was outstanding under the Partnership's $13,000,000 credit
facility leaving $1,738,625 for future borrowings.
On January 12, 1993, the Partnership entered into an interest rate cap
agreement covering outstanding debt obligations of $7,000,000. The Partnership
paid a fee of $67,900 for the rate cap agreement. The agreement protects the
Partnership from LIBOR interest rates that exceed seven percent for three years
from the date of the agreement. At September 30, 1994 and 1993, the
Partnership was paying an average of 6.52 percent and 4.85 percent,
respectively, on the total outstanding borrowings under its credit facility.
Subject to recent Regulation and Legislation as described below, the
General Partner presently believes cash flow from operations and borrowings
from the Partnership's credit facility will be sufficient to fund capital
expenditures, payments and other liquidity needs of the Partnership over the
near-term.
Regulation and Legislation
Congress enacted the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act"), which became effective on
December 4, 1992. This legislation has caused significant changes to the
regulatory environment in which the cable television industry operates. The
1992 Cable Act generally allows for a greater degree of regulation of the cable
television industry. Under the 1992 Cable Act's definition of effective
competition, nearly all cable television systems in the United States,
including those owned and managed by Spacelink, 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 initial
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 Partnership
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undertook actions to mitigate a portion of these reductions through (a) new
service offerings in some systems, (b) product re- marketing and re-packaging
and (c) marketing efforts directed at non-subscribers.
On February 22, 1994, however, the FCC adopted several additional rate
orders including an order which revised its earlier- announced regulatory
scheme with respect to rates. The FCC's new regulations 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 changes in their rates and did not
restructure service offerings between May 15, 1994 and July 14, 1994.
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
return necessary to operate and to attract investment could not be maintained.
The FCC will establish a uniform system of accounts for operators that elect
cost-of-service rate regulation, and the FCC has adopted affiliate transaction
regulations. After a rate has been set pursuant to a cost-of-service showing,
rate increases for regulated services will be indexed for inflation, and
operators will also be permitted to increase rates in response to increases in
costs beyond their control, such as taxes and increased programming costs.
After analyzing the effect of the two methods of rate regulation, the
General Partner concluded that the Partnership should electThe Partnership has
elected to file cost-of-service showings in the Yorba Linda System. The
General Partner anticipates no reduction in revenues or operating income before
depreciation and amortization resulting from the FCC's rate regulations.
There have been several lawsuits filed by cable operators and
programmers in Federal court challenging various aspects of the 1992 Cable Act,
including provisions relating to mandatory broadcast signal carriage,
retransmission consent, access to cable programming, rate regulations,
commercial leased channels and public access channels. On April 8, 1993, a
three-judge Federal district court panel issued a decision upholding the
constitutionality of the mandatory signal carriage requirements of the 1992
Cable Act. That decision was appealed directly to the United States Supreme
Court. The United States Supreme Court vacated the lower court decision on
June 27, 1994 and remanded the case to the district court for further
development of a factual record. The 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 remained at relatively the same levels for
the three month periods ended September 30, 1993 and 1994, with $1,583,128 for
the three month period ended September 30, 1993 and $1,585,945 for the
comparable period in 1994. Revenues of the Partnership remained constant
between the nine month periods ended September 30, 1993 and 1994,with
$4,702,142 for the nine month period ended September 30, 1993 and $4,705,680
for the comparable 1994 period. Increases in revenues were primarily due to
increases in advertising revenues, equipment
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rental revenues and installation revenues, which were partially offset by
decreases in basic service revenues. Since September 30, 1993, the Yorba Linda
System added 589 basic subscribers, increasing from 15,213 basic subscribers at
September 30, 1993 to 15,802 basic subscribers at September 30, 1994. The
increase in revenues from such subscribers was offset by the reduction in basic
rates attributable to the new FCC rate regulations which took effect September
1, 1993. See Regulation and Legislation above.
Operating, general and administrative expense decreased $24,116, or
approximately 3 percent, from $917,274 for the three months ended September 30,
1993 to $893,158 for the comparable period in 1994. This decrease in
operating, general and administrative expenses was primarily due to decreases
in personnel costs, which were partially offset by increases in programming and
advertising related costs. Operating, general and administrative expense
increased $29,846, or approximately 1 percent, from $2,637,850 for the nine
months ended September 30, 1993 to $2,667,696 for the comparable period in
1994. This increase in operating, general and administrative expenses was due
to increases in advertising costs, which were partially offset by decreases in
personnel costs. Operating, general and administrative expenses represented
approximately 56 percent and 58 percent of revenues for the three months ended
September 30, 1994 and 1993, respectively, and approximately 57 percent and 56
percent of revenues for the nine months ended September 30, 1994 and 1993,
respectively. No other individual factor significantly affected the increase
in operating, general and administrative expense for the periods discussed.
Management fees and allocated administrative costs from the General
Partner decreased $4,796, or approximately 2 percent, from $193,287 for the
three months ended September 30, 1993 to $188,491 for the similar period in
1994. This decrease is due to decreases in allocated expenses as a result of a
change in the allocation method at December 1, 1993. Management fees and
allocated administrative costs from the General Partner increased $13,530, or
approximately 2 percent, from $569,394 for the nine months ended September 30,
1993 to $582,924 for the similar period in 1994. This increase is primarily
due to increases 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 increased $35,337, or
approximately 4 percent, from $821,634 for the three month period ended
September 30, 1993 to $856,971 for the similar period in 1994. Depreciation
and amortization expense increased $118,125, or approximately 5 percent, from
$2,452,806 for the nine month period ended September 30, 1993 to $2,570,931 for
the similar period in 1994. These increases are due to increases in the
Partnership's depreciable asset base.
Operating loss increased $3,608, or approximately 1 percent from
$349,067 for the three months ended September 30, 1993 to $352,675 for the
similar 1994 period. Operating loss increased $157,963, or approximately 17
percent from $957,908 for the nine months ended September 30, 1993 to
$1,115,871 for the similar 1994 period. These increases are due to increases
in depreciation and amortization expense.
Operating income before depreciation and amortization increased
$31,729, or approximately 7 percent, from $472,567 for the three month period
ended September 30, 1993 to $504,296 for the comparable period in 1994. This
increase was due to the decreases in allocated administrative expenses from the
General Partner and operating, general and administrative expenses. Operating
income before depreciation and amortization decreased $39,838, or approximately
3 percent, from $1,494,898 for the nine month period ended September 30, 1993
to $1,455,060 for the comparable period in 1994. This decrease was due to the
increases in allocated administrative expenses from the General Partner and
operating, general and administrative expenses.
Interest expense increased $35,818, or approximately 24 percent, from
$149,869 for the three month period ended September 30, 1993 to $185,687 for
the comparable period in 1994. Interest expense increased $42,604, or
approximately 10 percent from $446,366 for the nine month period ended
September 30, 1993 to $488,970 for the comparable period in 1994. These
increases were primarily the result of higher outstanding balances on interest
bearing obligations and to higher interest rates during 1994 as compared to
1993. The effective interest rates on amounts outstanding as of September 30,
1994 and 1993 were 6.52 percent and 4.85 percent, respectively.
Net loss increased by $34,630, or approximately 7 percent, from
$500,002 for the three month period ended September 30, 1993 to $534,632 for
the comparable period in 1994. Net loss increased $200,919, or approximately
14 percent from $1,409,832 for the nine month period ended September 30, 1993
to $1,610,751 for the comparable period in 1994. These losses are primarily a
result of increases in interest expense and depreciation and amortization, and
may increase over the short-term as a result of the effects of the 1992 Cable
Act and are expected to continue in the future.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
27) Financial Data Schedule
b) Reports on Form 8-K
None
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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.
JONES GROWTH PARTNERS II L.P.
BY: JONES SPACELINK CABLE
CORPORATION, its General Partner
By: /S/ Jay B. Lewis
Jay B. Lewis
Controller
(Principal Financial and Accounting Officer)
Dated: November 11, 1994
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INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
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27 Financial Data Schedule.