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 September 30, 1995
[ ] 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: 1-9287
JONES INTERCABLE INVESTORS, L.P.
- --------------------------------------------------------------------------------
Exact name of registrant as specified in charter
Colorado 36-3468573
- --------------------------------------------------------------------------------
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
----- -----
Units outstanding as of the close of the period covered by this report:
8,322,632 Class A Units
2
JONES INTERCABLE INVESTORS, L. P.
(A Limited Partnership)
UNAUDITED BALANCE SHEETS
September 30, December 31,
ASSETS 1995 1994
------ ------------- ------------
CASH $ 489,438 $ 607,422
TRADE RECEIVABLES, less allowance for doubtful
receivables of $74,200 and $76,659 at September 30, 1995
and December 31, 1994, respectively 869,658 741,315
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 64,720,200 60,015,800
Less- accumulated depreciation (28,388,070) (25,208,198)
------------ ------------
36,332,130 34,807,602
Franchise costs, net of accumulated amortization of
$38,365,007 and $35,793,356 at September 30, 1995 and
December 31, 1994, respectively 9,486,302 12,057,953
Costs in excess of interests in net assets purchased, net of
accumulated amortization of $52,252 and $47,562 at
September 30, 1995 and December 31, 1994, respectively 197,749 202,439
------------ ------------
Total investment in cable
television properties 46,016,181 47,067,994
DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 194,378 141,087
------------ ------------
Total assets $ 47,569,655 $ 48,557,818
============ ============
The accompanying notes to unaudited financial statements
are an integral part of these unaudited balance sheets.
2
3
JONES INTERCABLE INVESTORS, L. P.
(A Limited Partnership)
UNAUDITED BALANCE SHEETS
September 30, December 31,
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) 1995 1994
------------------------------------------- ------------- ------------
LIABILITIES:
Credit facility $ 24,950,000 $ 23,000,000
Other debt 383,035 493,841
Trade accounts payable 144,042 5,381
Accrued distributions to Class A Unitholders 1,248,395 1,248,395
Accrued liabilities 1,304,994 1,685,890
Subscriber prepayments 111,843 124,890
------------ ------------
Total liabilities 28,142,309 26,558,397
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partner-
Contributed capital 1,000 1,000
Accumulated deficit (5,958) (17,688)
------------ ------------
(4,958) (16,688)
------------ ------------
Class A Unitholders-
Net contributed capital
(8,322,632 units outstanding at
September 30, 1995 and December 31, 1994) 116,433,492 116,433,492
Accumulated deficit (589,799) (1,751,179)
Distributions to Unitholders (96,411,389) (92,666,204)
------------ ------------
19,432,304 22,016,109
------------ ------------
Total liabilities and
partners' capital (deficit) $ 47,569,655 $ 48,557,818
============ ============
The accompanying notes to unaudited financial statements
are an integral part of these unaudited balance sheets.
3
4
JONES INTERCABLE INVESTORS, L. P.
(A Limited Partnership)
UNAUDITED STATEMENTS OF OPERATIONS
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
--------------------------- ----------------------------
1995 1994 1995 1994
---------- ---------- ----------- -----------
REVENUES $7,522,301 $6,905,746 $22,246,502 $20,532,939
COSTS AND EXPENSES:
Operating expenses 3,687,080 3,311,236 11,039,398 10,096,971
Management fees and allocated overhead
from General Partner 881,784 813,497 2,659,482 2,520,987
Depreciation and amortization 1,957,932 1,753,399 5,873,782 6,531,094
---------- ---------- ----------- -----------
OPERATING INCOME 995,505 1,027,614 2,673,840 1,383,887
---------- ---------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (485,023) (345,323) (1,433,465) (879,083)
Other, net (67,873) (11,650) (67,265) (67,570)
---------- ---------- ----------- -----------
Total other income (expense) (552,896) (356,973) (1,500,730) (946,653)
---------- ---------- ----------- -----------
NET INCOME $ 442,609 $ 670,641 $ 1,173,110 $ 437,234
========== ========== =========== ===========
ALLOCATION OF NET INCOME:
General Partner $ 4,426 $ 6,706 $ 11,731 $ 4,372
========== ========== =========== ===========
Class A Unitholders $ 438,183 $ 663,935 $ 1,161,379 $ 432,862
========== ========== =========== ===========
NET INCOME PER CLASS A UNIT $ .05 $ .08 $ .14 $ .05
========== ========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
CLASS A UNITS OUTSTANDING 8,322,632 8,322,632 8,322,632 8,322,632
========== ========== =========== ===========
The accompanying notes to unaudited financial statements
are an integral part of these unaudited statements.
4
5
JONES INTERCABLE INVESTORS, L. P.
(A Limited Partnership)
UNAUDITED STATEMENTS OF CASH FLOWS
For the Nine Months Ended
September 30,
----------------------------
1995 1994
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,173,110 $ 437,234
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,873,782 6,531,094
Decrease (increase) in trade receivables (128,343) 86,775
Increase in deposits, prepaid expenses
and deferred charges (170,860) (78,749)
Increase (decrease) in trade accounts payable,
accrued liabilities and subscriber prepayments (255,282) 235,127
----------- ----------
Net cash provided by operating activities 6,492,407 7,211,481
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (4,704,400) (6,044,277)
----------- ----------
Net cash used in investing activities (4,704,400) (6,044,277)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 3,365,970 4,600,000
Repayment of debt (1,526,776) (2,019,992)
Distributions to unitholders (3,745,185) (3,745,185)
----------- ----------
Net cash used in financing activities (1,905,991) (1,165,177)
----------- ----------
Increase (decrease) in cash (117,984) 2,027
Cash, beginning of period 607,422 366,508
----------- ----------
Cash, end of period $ 489,438 $ 368,535
=========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 1,528,262 $ 738,033
=========== ==========
The accompanying notes to unaudited financial statements
are an integral part of these unaudited statements.
5
6
JONES INTERCABLE INVESTORS, L.P.
(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 Jones Intercable
Investors, L.P. (the "Partnership") at September 30, 1995 and December 31, 1994
and its Statements of Operations for the three and nine month periods ended
September 30, 1995 and 1994, and its Statements of Cash Flows for the nine
month periods ended September 30, 1995 and 1994. 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
areas in and around Independence, Missouri.
(2) Jones Intercable, Inc. (the "General Partner"), a publicly held
Colorado corporation, 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 nine month periods ended September 30, 1995 were
$376,115 and $1,112,325, respectively, compared to $345,287 and $1,026,647,
respectively, for the similar 1994 periods.
The Partnership reimburses the General Partner for certain allocated
overhead and administrative expenses. These expenses represent salaries and
related benefits for corporate personnel, rent, data processing services, and
other facilities costs. Such personnel provide engineering, marketing,
administrative, accounting, legal and investor relations services to the
Partnership. Allocations of personnel costs are based primarily on actual time
spent by employees of the General Partner with respect to each partnership
managed. Remaining expenses are allocated based on the pro rata relationship
of the Partnership's revenues to the total revenues of all systems owned or
managed by the General Partner and certain of its subsidiaries. Systems owned
by the General Partner and all other systems owned by partnerships for which
Jones Intercable, Inc. is the general partner are also allocated a
proportionate share of these expenses. The General Partner 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 nine month
periods ended September 30, 1995 were $505,669 and $1,547,157, respectively,
compared to $468,210 and $1,494,340, respectively, for the similar 1994
periods.
(3) On February 22, 1994, the General Partner and The Jones Group, Ltd.
(the "Jones Group"), a subsidiary of the General Partner engaged in the cable
television system brokerage business, were named as defendants in a lawsuit
brought by three individuals who are Class A Unitholders in the Partnership.
The litigation, entitled Luva Vaughan et al v. Jones Intercable, Inc. et al,
Case No. CV 94-3652, was filed in the Circuit Court for Jackson County,
Missouri, and purports to be "for the use and benefit of" the Partnership. As
originally filed, the suit sought rescission of the sale of the Alexandria,
Virginia cable television system (the "Alexandria System") by the Partnership
to the General Partner, which sale was completed on November 2, 1992. It also
sought a constructive trust on the profits derived from the operation of the
Alexandria System since the date of the sale and an accounting and other
equitable relief. The plaintiffs also alleged that the $1,800,000 commission
paid to Jones Group by the Partnership in connection with such sale was
improper, and asked the Court to order that such commission be repaid to the
Partnership.
Under the terms of the partnership agreement of the Partnership, the
General Partner has the right to acquire cable television systems from the
Partnership at a purchase price equal to the average of three independent
appraisals of the cable television system to be acquired. The partnership
agreement provided that one appraiser would be selected by the General Partner,
one appraiser would be selected by the Partnership, and the third appraiser
would be selected by the first two appraisers. The plaintiffs claim that the
General Partner selected all three appraisers and therefore did not follow the
procedure in the partnership agreement for the selection of appraisers. The
purchase price paid by the General Partner upon such sale was approximately
$73,200,000. Plaintiffs seek damages in the amount of $13.8 million ($12
million in additional compensation for the Alexandria System and a return of
the $1.8 million commission).
6
7
On October 21, 1994, plaintiffs filed a motion to dismiss Jones Group
in response to Jones Group's argument that Missouri lacked personal
jurisdiction over it. Plaintiffs' motion was granted, and plaintiffs then
filed an action in Colorado against Jones Group seeking a return of the
brokerage commission.
The General Partner and Jones Group filed motions for summary judgment
in the Missouri and Colorado cases, respectively. The Missouri court granted
the General Partner's motion in part and dismissed all counts of the complaint
for rescission. It also struck the plaintiffs' jury demand. The Colorado
court also granted Jones Group's motion in part finding that the payment of the
brokerage commission was not a breach of the partnership agreement, but leaving
for trial the issue of whether such payment constituted a breach of fiduciary
duty.
Subsequently, the plaintiffs have filed an amended complaint in the
Missouri case, recasting their allegations in terms of breach of contract,
common law fraud, conversion and breach of fiduciary duty. Plaintiffs sought
compensatory damages on all claims and punitive damages on the common law
fraud, conversion and breach of fiduciary duty claims. The plaintiffs
reasserted their right to a jury trial. On October 4, 1995, the Court granted
the General Partner's motion for summary judgment on the common law fraud,
conversion and breach of fiduciary duty claims and also struck plaintiffs'
demand for a jury trial. As a result, there is only one remaining substantive
claim (breach of contract); no claim for punitive damages; and the trial will
be to the Court commencing on April 29, 1996.
On October 25, 1995, plaintiffs and Jones Group filed, in the Colorado
action, a joint motion to stay the Colorado action until the resolution of the
Missouri action. The motion to stay is pending before the Colorado court.
The General Partner has conducted written discovery in the form of
interrogatories and requests for production of documents; has noticed the
depositions of plaintiffs and plaintiffs' expert and has retained an expert to
testify that the three appraisals were performed in accordance with standard
appraisal methodologies. Although plaintiffs have retained an "expert"
appraiser to testify that the value of the Alexandria System in November 1992
was $85 million, approximately $12 million more than the purchase price, the
General Partner believes both that the purchase price was fair and that the
brokerage commission was properly paid to Jones Group in accordance with the
express terms of the partnership agreement. Consequently, the General Partner
intends to continue to vigorously defend the litigation.
(4) Certain prior year amounts have been reclassified to conform to the
1995 presentation.
7
8
JONES INTERCABLE INVESTORS, 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, 1995, the Partnership
generated net cash from operating activities totaling approximately $6,492,000,
which is available to fund capital expenditures, distributions and
non-operating costs. Capital expenditures for the Partnership's Independence
System totaled approximately $4,704,000 for the first nine months of 1995.
Approximately 35 percent of these expenditures were for the construction of
service drops to subscriber homes. Approximately 14 percent of these
expenditures were for the extension and rebuild of cable plant. The remaining
expenditures were for various enhancements in the Partnership's Independence
System. Funding for these expenditures was provided by cash generated from
operations and borrowings from the Partnership's revolving credit facility.
Budgeted capital expenditures for the remainder of 1995 are approximately
$3,533,000. The rebuild of the Independence System is expected to account for
approximately 18 percent of the anticipated remaining capital expenditures.
Service drops connecting new subscribers are expected to account for
approximately 13 percent. The remainder of the expenditures will relate to
various enhancements in the Independence System. Funding for these capital
improvements is expected to be provided by cash generated from operations and
borrowings from the Partnership's credit facility.
The maximum amount available under the Partnership's revolving credit
facility is subject to the terms of the credit agreement and the partnership
agreement's leverage limitations discussed below. The maximum amount available
under the Partnership's revolving credit facility is $35,000,000. As of
September 30, 1995, $24,950,000 was outstanding, leaving $10,050,000 of
available borrowings for future needs. Under the terms of the agreement, the
revolving credit facility will expire on December 31, 1996. Interest on
outstanding principal balances is at the Partnership's option of the Prime Rate
plus .25 percent, the Certificate of Deposit Rate plus 1.25 percent or the
Euro-rate plus 1.25 percent. The effective interest rates on amounts
outstanding as of September 30, 1995 and 1994 were 7.15 percent and 6.27
percent, respectively.
The level of borrowings allowed by the Partnership's limited
partnership agreement is 25 percent of the fair market value of the
Partnership's assets at the time of borrowing or 25 percent of the cost of the
Partnership's assets at the time of borrowing, whichever is higher. This
limitation restricts the Partnership's ability to borrow funds for capital
expenditures and to make distributions. In addition, such limitations may
reduce the financial flexibility and liquidity of the Partnership. Further,
the payment of the principal and interest on outstanding debt obligations will
diminish the level of funds available to the Partnership and reduce the
financial flexibility of the Partnership. The Partnership's most recent
appraisal of the Independence System was $157,046,000. Based upon this
appraised value, the Partnership has a borrowing capacity of approximately
$39,000,000, which would allow the Partnership to borrow the maximum amount
($35,000,000) currently available under its credit facility.
The Partnership has declared a $.15 per unit distribution for the
first, second and third quarters of 1995. The Partnership intends to
distribute all cash flow from operations after payment of expenses, capital
additions, and creation of cash reserves deemed reasonably necessary to
preserve and enhance the value of the Partnership's cable television system.
The General Partner believes that the Partnership has sufficient
sources of capital to service its presently anticipated needs from cash on
hand, cash generated from operations and borrowings available under its
revolving credit facility.
Regulatory Matters
The FCC's rate regulations related to the 1992 Cable Act contain
provisions for increasing rates for added channels, external costs and
inflation. The Partnership has been able to adjust rates recently under such
provisions. Such adjustments, together with a reduction in the cost of
implementing the 1992 Cable Act compared to such costs in prior periods, are
expected to cause the Partnership's revenue and cash flow to increase in fiscal
1996.
8
9
Currently, there is legislation before Congress which, if enacted,
would significantly change the regulatory environment in which the cable
industry operates. Such legislation may eliminate rate regulation and allow
telephone companies and others much broader entry into the cable television
business and, in turn, may allow cable operators into the telephone and other
telecommunications businesses. While the General Partner is encouraged by
provisions of the legislation, it is too early to assess the impact such
legislation, if enacted, would have on the Partnership.
RESULTS OF OPERATIONS
Revenues of the Partnership increased $616,555, or approximately 9
percent, to $7,522,301 for the three months ended September 30, 1995 from
$6,905,746 for the comparable 1994 period. Revenues of the Partnership
increased $1,713,563, or approximately 8 percent, to $22,246,502 for the nine
months ended September 30, 1995 from $20,532,939 for the comparable 1994
period. The increase in revenues in the Independence System is primarily a
result of increases in the number of basic subscribers and basic rate
adjustments. An increase in the subscriber base accounted for approximately 50
percent and 56 percent, respectively, of the increase in revenues for the three
and nine month periods ended September 30, 1995. Basic subscribers increased
by 4,102 subscribers, or approximately 5 percent, to 82,525 at September 30,
1995 from 78,423 at September 30, 1994. Basic rate adjustments accounted for
approximately 47 percent and 39 percent, respectively, of the increase in
revenues for the three and nine month periods ended September 30, 1995. No
other individual factor was significant to the increase in revenues.
Operating expenses consist primarily of costs associated with the
administration of the Partnership's cable television systems. 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 consumer marketing expenses.
Operating expenses increased $375,844, or approximately 11 percent, to
$3,687,080 for the three month period ended September 30, 1995 from $3,311,236
for the comparable 1994 period. Operating expenses for the three month periods
represented approximately 49 percent and 48 percent of revenues in 1995 and
1994, respectively. This increase was primarily due to an increase in
programming-related costs. Operating expenses increased $942,427, or
approximately 9 percent, to $11,039,398 for the nine month period ended
September 30, 1995 from $10,096,971 for the comparable 1994 period. Operating
expenses for the nine month periods represented approximately 50 percent and 49
percent of revenues in 1995 and 1994, respectively. This increase was due
primarily to increases in programming-related costs and marketing costs, which
were partially offset by a decrease in personnel costs. No other individual
factor was significant to the increase in operating expenses in the
Partnership's Independence System.
Management fees and allocated overhead from the General Partner
increased $68,287, or approximately 8 percent, to $881,784 for the third
quarter of 1995 from $813,497 for the comparable 1994 period. For the nine
months ended September 30, management fees and allocated overhead from the
General Partner increased $138,495, or approximately 5 percent, to $2,659,482
in 1995 from $2,520,987 in 1994. These increases were due primarily to the
increase in revenues, upon which such management fees are based, as well as
increases in allocated expenses from the General Partner. The General Partner
has experienced increases in expenses, a portion of which is allocated to the
Partnership.
For the three month periods ended September 30, depreciation and
amortization expense increased $204,532, or approximately 12 percent, to
$1,957,932 in 1995 from $1,753,399 in 1994. This increase was due to the
addition of assets to the Independence System's depreciable asset base. For
the nine month periods ended September 30, depreciation and amortization
expense decreased $657,312, or approximately 10 percent, to $5,873,782 in 1995
from $6,531,094 in 1994. This decrease was due to the maturation of the
Independence System's intangible asset base.
Operating income decreased $32,109, or approximately 3 percent, to
$995,505 for the three month period ended September 30, 1995 from $1,027,614
for the comparable 1994 period. This decrease was primarily due to the
increase in depreciation and amortization expense. Operating income increased
$1,289,953, or approximately 93 percent, to $2,673,840 for the nine month
period ended September 30, 1995 from $1,383,887 for the comparable 1994 period.
This increase was primarily due to the decrease in depreciation and
amortization expense and to the increase in revenues exceeding the increases in
operating expenses and management fees and allocated overhead from the General
Partner.
9
10
The cable television industry generally measures the performance of a
cable television system in terms of cash flow or operating income before
depreciation and amortization. The value of a cable television system is often
determined using multiples of cash flow. This measure is not intended to be a
substitute or improvement upon the items disclosed on the financial statements,
rather it is included because it is an industry standard. Operating income
before depreciation and amortization increased $172,424, or approximately 6
percent, to $2,953,437 for the three months ended September 30, 1995 from
$2,781,013 for the comparable 1994 period. Operating income before
depreciation and amortization expense increased $632,641, or approximately 8
percent, to $8,547,622 for the nine months ended September 30, 1995 from
$7,914,981 for the comparable 1994 period. These increases were due to the
increases in revenues exceeding the increases in operating expenses and
management fees and allocated overhead from the General Partner.
For the three month periods, interest expense increased $139,700, or
approximately 40 percent, to $485,023 in 1995 from $345,323 in 1994. For the
nine month periods, interest expense increased $554,382, or approximately 63
percent, to $1,433,465 in 1995 from $879,083 in 1994. These increases were due
to higher outstanding balances on interest-bearing obligations and to higher
interest rates in 1995 as compared to 1994. The effective interest rates on
amounts outstanding as of September 30, 1995 and 1994 were 7.15 percent and
6.27 percent, respectively.
The Partnership recorded net income of $442,609 for the three months
ended September 30, 1995 compared to $670,641 for the similar period in 1994.
The Partnership recorded net income of $1,173,110 for the nine months ended
September 30, 1995 compared to $437,234 for the similar period in 1994. These
changes are primarily due to the changes in operating income discussed above.
10
11
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
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.
JONES INTERCABLE INVESTORS, L.P.
BY: JONES INTERCABLE, INC.
General Partner
By: /S/ Kevin P. Coyle
-----------------------------------
Kevin P. Coyle
Group Vice President/Finance
(Principal Financial Officer)
Dated: November 14, 1995
12
13
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
- ------ ------------------- ----
27 Financial Data Schedule