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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission file number: 0-15378
CABLE TV FUND 14-A, LTD.
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(Exact name of registrant as specified in its charter)
Colorado 84-1024657
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(State of Organization) (IRS Employer Identification No.)
P.O. Box 3309, Englewood,
Colorado 80155-3309 (303) 792-3111
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(Address of principal executive (Registrant's telephone
office and Zip Code) 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 registrants, (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days:
Yes x No
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Aggregate market value of the voting stock held by non-affiliates of the
registrant: N/A
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. X
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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, the Venture or the General Partner expects,
believes or anticipates will or may occur in the future are forward-looking
statements. These forward-looking statements are based upon certain assumptions
and are subject to a number of risks and uncertainties. Actual results could
differ materially from the results predicted by these forward-looking
statements.
PART I.
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ITEM 1. BUSINESS
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THE PARTNERSHIP. Cable TV Fund 14-A, Ltd. (the "Partnership") is a
Colorado limited partnership that was formed pursuant to the public offering of
limited partnership interests in the Cable TV Fund 14 Limited Partnership
Program (the "Program"), which was sponsored by Jones Intercable, Inc. (the
"General Partner"). Cable TV Fund 14-B, Ltd. ("Fund 14-B") is the other
partnership that was formed pursuant to the Program. The Partnership and Fund
14-B formed a general partnership known as Cable TV Fund 14-A/B Venture (the
"Venture"), in which the Partnership owns a 27 percent interest and Fund 14-B
owns a 73 percent interest. The Partnership and the Venture were formed for the
purpose of acquiring and operating cable television systems.
The Partnership directly owns cable television systems serving the
areas in and around Buffalo, Minnesota (the "Buffalo System"), Naperville,
Illinois (the "Naperville System"), Calvert County, Maryland (the "Calvert
County System") and certain communities in Central Illinois (the "Central
Illinois System"). The Venture owns the cable television system serving certain
areas in Broward County, Florida (the "Broward County System"). See Item 2.
The Buffalo System, Naperville System, Calvert County System, Central Illinois
System and Broward County System may collectively be referred to as the
"Systems."
It is the General Partners publicly announced policy that it intends
to liquidate its managed limited partnerships, including the Partnership, as
opportunities for sales of partnership cable television systems arise in the
marketplace over the next several years. In accordance with the General
Partners policy, the Central Illinois System and the Naperville System, along
with other Chicago-area systems owned or managed by the General Partner and its
affiliates, were marketed for sale in 1996. The deadline set by the General
Partner for receipt of indications of interest for such systems from prospective
buyers was October 15, 1996. The General Partner did not receive any offer for
the Naperville System but it received several offers for the Central Illinois
System. The General Partner will continue to explore other alternatives for
sale of the Naperville System. There is no assurance as to the timing or terms
of any sales.
DISPOSITION OF CABLE TELEVISION SYSTEM. On January 10, 1997, the
Partnership sold the cable television system serving the areas in and around
Turnersville, New Jersey (the "Turnersville System") to an unaffiliated party
for a sales price of $84,500,000. The Partnership distributed approximately
$25,000,000 (or approximately $313 per each $1,000 invested in the Partnership)
of the sale proceeds to its limited partners, and, as required under the terms
of the Partnerships credit facility, approximately $52,500,000 of the sale
proceeds was used to repay a portion of the Partnerships indebtedness. Because
the $25,000,000 distribution to the limited partners did not return 125 percent
of the amount initially contributed by the limited partners, the General Partner
did not receive a distribution from the proceeds of the sale of the Turnersville
System. The Jones Group, Ltd., a subsidiary of the General Partner, received a
brokerage fee of $2,112,500, representing 2.5 percent of the sales price, for
acting as a broker in this transaction. The balance of the proceeds will be used
by the Partnership for ongoing working capital. Because the sale of the
Turnersville System did not represent a sale of all or substantially all of the
Partnerships assets, no vote of the limited partners of the Partnership was
required to approve this sale.
2
PROPOSED DISPOSITION OF CABLE TELEVISION SYSTEM. On March 12, 1997, the
Partnership entered into an asset purchase agreement to sell the Central
Illinois System to an unaffiliated party for a sales price of $20,100,000,
subject to customary closing adjustments. The closing of this sale is subject to
a number of conditions, including obtaining necessary governmental and other
third party consents and the expiration or termination of the waiting period
specified in the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("Hart-
Scott-Rodino") and the rules and regulations thereunder. Closing is expected to
occur during the second half of 1997. Because the sale of the Central Illinois
System does not represent the sale of all or substantially all of the
Partnership assets, no vote of the limited partnership will be required to
approve this sale. Upon the consummation of the proposed sale of the Central
Illinois System, the Partnership will repay $10,050,000 of the then outstanding
balance on its credit facility and a brokerage fee to The Jones Group, Ltd. a
subsidiary of the General Partner totaling approximately $582,500 and then the
Partnership will distribute the net sale proceeds of approximately $9,497,500 to
its limited partners. This distribution will give the Partnership's limited
partners an approximate return of $119 per $1,000 invested in the Partnership.
Because limited partners have not yet received total distributions that are
equal to 125 percent of the capital initially contributed to the Partnership by
the limited partners, the General Partner will not receive any of the proceeds
from the Central Illinois System's sale. Taking into account the distribution
made on the sale of the Turnersville System and the anticipated distribution to
be made on the sale of the Central Illinois System, the limited partners should
receive in 1997 a total of $432 for each $1,000 invested in the Partnership.
CABLE TELEVISION SERVICES. The Systems offer to their 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. 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 Systems offer 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 Systems also offer premium services to their 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 Systems also offer 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 Systems. At December 31, 1996,
the Systems' monthly basic service rates ranged from $6.02 to $15.52, monthly
basic and tier ("basic plus") service rates ranged from $17.95 to $28.04. and
monthly premium services ranged from $2.74 to $10.95 per premium service. In
addition, the Partnership and the Venture earn revenues from the Systems' pay-
per-view programs and advertising fees. Related charges may include a
nonrecurring installation fee that ranges from $1.99 to $43.30; however, from
time to time the Systems have 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
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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 Systems, basic service and tier
service fees accounted for approximately 65% of total revenues, premium service
fees accounted for approximately 16% of total revenues, pay-per-view fees were
approximately 2% of total revenues, advertising fees were approximately 6% of
total revenues and the remaining 11% of total revenues came principally from
equipment rentals, installation fees and program guide sales. The Partnership
and the Venture are 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 Systems.
FRANCHISES. The Systems are 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. These franchises typically contain many conditions, such as time
limitations on commencement and completion of construction, conditions of
service, including the number of channels, types of programming and the
provision of free service to schools and certain other public institutions, and
the maintenance of insurance and indemnity bonds. The provisions of local
franchises are subject to federal regulation.
The Partnership directly holds 38 franchises, and the Venture holds 9
franchises. These franchises provide for the payment of fees to the issuing
authorities and generally range from 3% to 5% of the gross revenues of a cable
television system. The 1984 Cable Act prohibits franchising authorities from
imposing annual franchise fees in excess of 5% of gross revenues and also
permits the cable television system operator to seek renegotiation and
modification of franchise requirements if warranted by changed circumstances.
Neither the Partnership nor the Venture has ever had a franchise
revoked. The Partnership is currently negotiating the renewal of one franchise
that is operating under an extension, and the Venture has no franchises that
will expire prior to December 31, 1997. Some of the issues involved in recent
renewal negotiations include rate regulation, customer service standards, cable
plant upgrade or replacement and shorter terms of franchise agreements.
COMPETITION. Cable television systems currently experience competition
from several sources.
BROADCAST TELEVISION. Cable television systems have traditionally
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competed with broadcast television, which consists of television signals that
the viewer is able to receive directly on his television without charge using an
"off-air" antenna. The extent of such competition is dependent in part upon the
quality and quantity of signals available by such antenna reception as compared
to the services provided by the local cable system. Accordingly, 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
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that more than one cable television system may be built in the same area (known
as an "overbuild"), with potential loss of revenues to the operator of the
original cable television system. The General Partner has experienced overbuilds
in connection with certain systems that it has owned or managed for limited
partnerships, and currently there are overbuilds in the systems owned or managed
by the General Partner. Constructing and developing a cable television system is
a capital intensive process, and it is often difficult for a new cable system
operator to create a marketing edge over the existing system. Generally, an
overbuilder would be required to obtain franchises from the local governmental
authorities, although in some instances, the overbuilder could be the local
government itself. In any case, an overbuilder would be required to obtain
programming contracts from entertainment programmers and, in most cases, would
have to build a complete cable system, including headends, trunk lines and drops
to individual subscribers homes, throughout the franchise areas.
DBS. High-powered direct-to-home satellites have made possible the wide-
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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
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are expected. Companies offering DBS service use video compression technology to
increase channel capacity of their systems to 100 or more channels and to
provide packages of movies, satellite network and other program services which
are competitive to those of cable television systems. DBS cannot currently offer
its subscribers local programming, although at least one future DBS entrant is
attempting to offer customers regional delivery of local broadcast signals. In
addition to emerging high-powered DBS competition, cable television systems face
competition from a major medium-powered satellite distribution provider and
several low-powered providers, whose service requires use of much larger home
satellite dishes. Not all subscribers terminate cable television service upon
acquiring a DBS system. The General Partner has observed that there are DBS
subscribers that also elect to subscribe to cable television service in order to
obtain the greatest variety of programming on multiple television sets,
including local programming not available through DBS service. The ability of
DBS service providers to compete successfully with the cable television industry
will depend on, among other factors, the ability of DBS providers to overcome
certain legal and technical hurdles and the availability of equipment at
reasonable prices.
TELEPHONE. Federal cross-ownership restrictions historically limited
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entry by local telephone companies into the cable television business. The 1996
Telecommunications Act (the "1996 Telecom Act") eliminated this cross-ownership
restriction, making it possible for companies with considerable resources to
overbuild existing cable operators and enter the business. Several telephone
companies have begun seeking cable television franchises from local governmental
authorities and constructing cable television systems. Ameritech, one of the
seven regional Bell Operating Companies ("BOCs"), which provides telephone
service in a multi-state region including Illinois, has been the most active BOC
in seeking local cable franchises within its service area. A subsidiary of
Ameritech has obtained a franchise for and begun cable service in Naperville,
Illinois, in direct competition with the Naperville System. This competition is
likely to have an adverse effect on the Naperville System's revenues, cash flow
and fair market value. It could also have an adverse impact on the Partnership's
ability to sell the Naperville System. The General Partner is taking prudent
steps necessary to meet this competition from Ameritech and to safeguard the
value of the Naperville System. These steps include a judicial challenge to the
terms on which the franchise was issued to Ameritech. Litigation is currently
pending in federal court against both the City of Naperville and Ameritech and
includes claims by the City of Naperville against the Partnership. (See Item 3,
Legal Proceedings.) Ameritech has also obtained franchises for Glen Ellyn and
Vernon Hills, Illinois, both of which are currently served by cable systems
owned by two partnerships managed by the General Partner. The General Partner
cannot predict at this time the extent of telephone company competition that
will emerge. The entry of telephone companies as direct competitors, however, is
likely to continue over the next several years and could adversely affect the
profitability and market value of the Systems. The entry of electric utility
companies into the cable television business, as now authorized by the 1996
Telecom Act, could have a similar adverse effect.
PRIVATE CABLE. Additional competition is provided by private cable
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television systems, known as Satellite Master Antenna Television (SMATV),
serving multi-unit dwellings such as condominiums, apartment complexes, and
private residential communities. These private cable systems may enter into
exclusive agreements with apartment owners and homeowners associations, which
may preclude operators of franchised systems from serving residents of such
private complexes. Private cable systems that do not cross public rights of way
are free from the federal, state and local regulatory requirements imposed on
franchised cable television operators. In some cases, neither the Partnership
nor the Venture has been able to provide cable television service to buildings
in which private operators have secured exclusive contracts to provide video and
telephony services. The Partnership and the Venture are 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
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programming over-the-air to paying subscribers. The MMDS industry is less
capital intensive than the cable television industry, and it is therefore more
practical to construct MMDS systems in areas of lower subscriber penetration.
Wireless cable systems are now in direct competition with cable television
systems in several areas of the country, including the system in Pima County,
Arizona owned by the General Partner. Telephone companies have recently acquired
or invested in wireless companies, and may use MMDS systems to provide services
within their service areas in lieu of wired delivery systems. Enthusiasm for
MMDS has waned in recent months, however, as Bell Atlantic and NYNEX have
suspended their investment in two major MMDS companies. To date, neither the
Partnership nor the Venture has lost a significant number of subscribers, nor a
significant amount of revenue, to MMDS operators competing with the
Partnership's or the Venture's cable television systems. A series of actions
taken by the FCC, however, including reallocating certain frequencies to the
wireless services, are intended to facilitate the development of wireless cable
television systems as an alternative means of distributing video programming.
The FCC recently held auctions for spectrum that will be used by wireless
operators to provide additional channels of programming over larger distances.
In addition, an emerging technology, Local Multipoint Distribution services
("LMDS"), could also pose a significant threat to the cable television industry,
if and when it becomes established. LMDS, sometimes referred to as cellular
television, could have the capability of delivering more than 100 channels of
video programming to a subscriber's home. The potential impact, however, of LMDS
is difficult to assess due to the newness of the technology and the absence of
any current fully operational LMDS systems.
Cable television systems are also in competition, in various degrees
with other communications and entertainment media, including motion pictures and
home video cassette recorders.
REGULATION AND LEGISLATION
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The operation of cable television systems is extensively regulated by
the FCC, some state governments and most local governments. The new 1996 Telecom
Act alters the regulatory structure governing the nation's telecommunications
providers. It removes barriers to competition in both the cable television
market and the local telephone market. Among other things, it also reduces the
scope of cable rate regulation.
The 1996 Telecom Act requires the FCC to undertake a host of
implementing rulemakings, the final outcome of which cannot yet be determined.
Moreover, Congress and the FCC have frequently revisited the subject of cable
regulation. Future legislative and regulatory changes could adversely affect the
Venture's operations. This section briefly summarizes key laws and regulations
affecting the operation of the Venture's cable systems and does not purport to
describe all present, proposed, or possible laws and regulations affecting the
Partnership or the Venture.
CABLE RATE REGULATION. The 1992 Cable Act imposed an extensive rate
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regulation regime on the cable television industry. Under that regime, all cable
systems are subject to rate regulation, unless they face "effective competition"
in their local franchise area. Federal law now defines "effective competition"
on a community-specific basis as requiring either low penetration (less than
30%) by the incumbent cable operator, appreciable penetration (more than 15%) by
competing multichannel video providers ("MVPs"), or the presence of a competing
MVP affiliated with a local telephone company.
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.
6
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
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no state or local laws or regulations may prohibit or have the effect of
prohibiting any entity from providing any interstate or intrastate
telecommunications service. States are authorized, however, to impose
"competitively neutral" requirements regarding universal service, public safety
and welfare, service quality, and consumer protection. State and local
governments also retain their authority to manage the public rights-of-way and
may require reasonable, competitively neutral compensation for management of the
public rights-of-way when cable operators provide telecommunications service.
The favorable pole attachment rates afforded cable operators under federal law
can be gradually increased by utility companies owning the poles (beginning in
2001) if the operator provides telecommunications service, as well as cable
service, over its plant.
Cable entry into telecommunications will be affected by the regulatory
landscape now being fashioned by the FCC and state regulators. One critical
component of the 1996 Telecom Act to facilitate the entry of new
telecommunications providers (including cable operators) is the interconnection
obligation imposed on all telecommunications carriers. Review of the FCC's
initial interconnection order is now pending before the Eighth Circuit Court of
Appeals.
TELEPHONE COMPANY ENTRY INTO CABLE TELEVISION. The 1996 Telecom Act
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allows telephone companies to compete directly with cable operators by repealing
the historic telephone company/cable cross-ownership ban. Local exchange
carriers ("LECs"), including the BOCs, can now compete with cable operators both
inside and outside their telephone service areas. Because of their resources,
LECs could be formidable competitors to traditional cable operators, and certain
LECs have begun offering cable service. As described above, the General Partner
is now witnessing the beginning of LEC competition in a few of its cable
communities.
Under the 1996 Telecom Act, a LEC providing video programming to
subscribers will be regulated as a traditional cable operator (subject to local
franchising and federal regulatory requirements), unless the LEC elects to
provide its programming via an "open video system" ("OVS"). To qualify for OVS
status, the LEC must reserve two-thirds of the system's activated channels for
unaffiliated entities.
Although LECs and cable operators can now expand their offerings across
traditional service boundaries, the general prohibition remains on LEC buyouts
(i.e., any ownership interest exceeding 10 percent) of co-located cable systems,
cable operator buyouts of
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co-located LEC systems, and joint ventures between cable operators and LECs in
the same market. The 1996 Telecom Act provides a few limited exceptions to this
buyout prohibition, including a carefully circumscribed "rural exemption." The
1996 Telecom Act also provides the FCC with the limited authority to grant
waivers of the buyout prohibition (subject to LFA approval).
ELECTRIC UTILITY ENTRY INTO TELECOMMUNICATIONS/CABLE TELEVISION. The
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1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services (including cable
television) notwithstanding the Public Utilities Holding Company Act. Electric
utilities must establish separate subsidiaries, known as "exempt
telecommunications companies" and must apply to the FCC for operating authority.
Again, because of their resources, electric utilities could be formidable
competitors to traditional cable systems.
ADDITIONAL OWNERSHIP RESTRICTIONS. The 1996 Telecom Act eliminates
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statutory restrictions on broadcast/cable cross-ownership (including broadcast
network/cable restrictions), but leaves in place existing FCC regulations
prohibiting local cross-ownership between co-located television stations and
cable systems. The 1996 Telecom Act also eliminates the three year holding
period required under the 1992 Cable Act's "anti-trafficking" provision. The
1996 Telecom Act leaves in place existing restrictions on cable cross-ownership
with SMATV and MMDS facilities, but lifts those restrictions where the cable
operator is subject to effective competition. In January 1995, however, the FCC
adopted regulations which permit cable operators to own and operate SMATV
systems within their franchise area, provided that such operation is consistent
with local cable franchise requirements.
Pursuant to the 1992 Cable Act, the FCC adopted rules precluding a cable
system from devoting more than 40% of its activated channel capacity to the
carriage of affiliated national program services. A companion rule establishing
a nationwide ownership cap on any cable operator equal to 30% of all domestic
cable subscribers has been stayed pending further judicial review.
There are no federal restrictions on non-U.S. entities having an
ownership interest in cable television systems or the FCC licenses commonly
employed by such systems. Section 310(b)(4) of the Communications Act does,
however, prohibit foreign ownership of FCC broadcast and telephone licenses,
unless the FCC concludes that such foreign ownership is consistent with the
public interest. BCI's investment in the General Partner could, therefore,
adversely affect any plan to acquire FCC broadcast or common carrier licenses.
Neither the Partnership nor the Venture, however, currently plans 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 and the Venture'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
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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.
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Access to Programming. To spur the development of independent cable
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programmers and competition to incumbent cable operators, the 1992 Cable Act
imposed restrictions on the dealings between cable operators and cable
programmers. Of special significance from a competitive business posture, the
1992 Cable Act precludes video programmers affiliated with cable companies from
favoring cable operators over competitors and requires such programmers to sell
their programming to other multichannel video distributors. This provision
limits the ability of vertically integrated cable programmers to offer exclusive
programming arrangements to cable companies.
OTHER FCC REGULATIONS. In addition to the FCC regulations noted above,
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there are other FCC regulations covering such areas as equal employment
opportunity, subscriber privacy, programming practices (including, among other
things, syndicated program exclusivity, network program nonduplication,
local sports blackouts, indecent programming, lottery programming, political
programming, sponsorship identification, and children's programming
advertisements), registration of cable systems and facilities licensing,
maintenance of various records and public inspection files, frequency usage,
lockbox availability, antenna structure notification, tower marking and
lighting, consumer protection and customer service standards, technical
standards, and consumer electronics equipment compatibility. The FCC is expected
to impose new Emergency Alert System requirements on cable operators this year.
The FCC has the authority to enforce its regulations through the imposition of
substantial fines, the issuance of cease and desist orders and/or the imposition
of other administrative sanctions, such as the revocation of FCC licenses needed
to operate certain transmission facilities used in connection with cable
operations.
Two pending FCC proceedings of particular competitive concern involve
inside wiring and navigational devices. The former rulemaking is considering
ownership of cable wiring located inside multiple dwelling unit complexes. If
the FCC concludes that such wiring belongs to, or can be unilaterally acquired
by the complex owner, it will become easier for complex owners to terminate
service from the incumbent cable operator in favor of a new entrant. The latter
rulemaking is considering whether cable customers must be allowed to purchase
cable converters from third party vendors. If the FCC concludes that such
distribution is required, and does not make appropriate allowances for signal
piracy concerns, it may become more difficult for cable operators to combat
theft of service.
COPYRIGHT. Cable television systems are subject to federal copyright
---------
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 or the Venture'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,
9
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 and the Venture'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 or the
Venture's business. The Systems have 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 Systems is not significant. The Partnership's and the
Venture's policy with regard to past due accounts is basically one of
disconnecting service before a past due account becomes material.
Neither the Partnership nor the Venture depends 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. Neither the Venture
nor the Partnership has any employees because all properties are managed by
employees of the General Partner. The General Partner has engaged in research
and development activities relating to the provision of new services but the
amount of the Partnership's or the Venture'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 or the Venture.
ITEM 2. PROPERTIES
-------------------
The cable television systems owned by the Partnership and the Venture
are described below:
Ownership System Acquisition Date
--------- ------ ----------------
Cable TV Fund 14-A, Ltd. Buffalo System September 1987
Naperville System September 1987
Calvert County System September 1987
Central Illinois System May 1991
Cable TV Fund 14-A/B Venture Broward County System March 1988
The following sets forth (i) the monthly basic plus service rates
charged to subscribers and (ii) the number of basic subscribers for the
Systems. 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 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 Buffalo System operated cable plant passing
approximately 23,900 homes, with an approximate 50% penetration rate; the
Naperville System operated cable plant passing approximately 42,500 homes, with
an approximate 64% penetration rate; the Calvert System operated cable plant
passing approximately 25,900 homes, with an approximate 67% penetration rate,
the Central Illinois System operated cable plant passing approximately
10
162,100 homes, with an approximate 67% penetration rate and the Broward County
System operated cable plant passing approximately 89,100 homes, with an
approximate 57% penetration rate. Figures for numbers of subscribers and homes
passed are compiled from the General Partner's records and may be subject to
adjustments.
Cable TV Fund 14-A, Ltd.
- ------------------------
At December 31,
----------------------------------
Buffalo System 1996 1995 1994
- -------------- ---- ---- ----
Monthly basic plus service rate $22.50 $21.50 $20.00
Basic subscribers 12,050 11,039 9,567
Pay units 7,984 7,313 7,305
At December 31,
----------------------------------
Calvert County System 1996 1995 1994
- --------------------- ---- ---- ----
Monthly basic plus service rate $26.70 $26.63 $25.36
Basic subscribers 17,367 16,454 15,428
Pay units 17,509 17,893 16,034
At December 31,
----------------------------------
Central Illinois System 1996 1995 1994
- ----------------------- ---- ---- ----
Monthly basic plus service rate $19.82 $18.71 $17.21
Basic subscribers 15,416 15,390 14,616
Pay units 12,044 12,292 11,713
At December 31,
----------------------------------
Naperville System 1996 1995 1994
- ----------------- ---- ---- ----
Monthly basic plus service rate $23.87 $23.87 $23.87
Basic subscribers 27,523 27,464 25,063
Pay units 14,413* 17,360 17,636
* For competitive reasons, beginning in 1996 The Disney Channel was
converted from a pay service to a basic plus service resulting in
the loss of approximately 3,000 pay units.
Cable TV Fund 14-A/B Venture
- ----------------------------
At December 31,
----------------------------------
Broward County System 1996 1995 1994
- --------------------- ---- ---- ----
Monthly basic plus service rate $25.58 $24.16 $23.56
Basic subscribers 50,957 49,654 47,819
Pay units 47,286 42,167 41,270
ITEM 3. LEGAL PROCEEDINGS
--------------------------
CABLE TV FUND 14-A, LTD. V. CITY OF NAPERVILLE AND AMERITECH NEW MEDIA,
-----------------------------------------------------------------------
INC. AND CITY OF NAPERVILLE V. CABLE TV FUND 14-A, LTD., United States District
- -------------------------------------------------------
Court for the Northern District of Illinois, Eastern Division, Case No. 96C
5962. The Partnership is plaintiff and counter-defendant in a suit challenging
certain actions arising from the City of Naperville's grant of a franchise to
Ameritech New Media, Inc. ("Ameritech NMI"). Specifically, the Partnership
alleges that under Cable Act standards, the City should have modified the
Partnership's Naperville franchise, because certain provisions of the franchise
are unduly burdensome in a competitive environment.
11
Further, the Partnership alleges that the franchise granted by the City to
Ameritech NMI is materially more favorable than the franchise granted to the
Partnership, that this is contrary to Illinois law and that the Ameritech NMI
franchise therefore is void. This suit also challenges the City's assertion that
the Partnership has breached its franchise in various ways, particularly by
withholding certain payments allegedly due to the City. In its countersuit, the
City seeks a declaratory ruling that the Partnership has breached its franchise
by withholding those same payments. Cross motions to dismiss and for partial
summary judgment have been briefed and argued and are awaiting decision.
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 is publicly held, there is no public market for
the limited partnership interests, and it is not expected that a market will
develop in the future. As of February 14, 1997, the number of equity security
holders in the Partnership was 12,290.
12
Item 6. Selected Financial Data
- -------------------------------
For the Year Ended December 31,
---------------------------------------------------------------------
Cable TV Fund 14-A, Ltd. 1996 1995 1994 1993 1992
- ------------------------ ------------ ------------ ------------ ------------ -------------
Revenues $47,808,719 $44,094,802 $40,442,268 $38,916,469 $ 36,315,757
Depreciation and Amortization 14,627,726 14,459,479 14,826,256 15,197,677 15,464,984
Operating Loss (397,890) (1,459,868) (3,323,006) (3,562,804) (4,065,858)
Equity in Net Loss of
Cable Television Joint Venture (815,252) (1,104,003) (1,468,218) (1,277,358) (1,676,435)
Net Loss (7,371,183) (8,536,167) (9,472,910) (8,608,115) (10,382,060)
Net Loss per Limited Partnership Unit (45.61) (52.82) (58.61) (53.26) (64.24)
Weighted average number of
Limited Partnership Units outstanding 160,000 160,000 160,000 160,000 160,000
General Partner's
Deficit (776,152) (702,440) (617,078) (522,349) (436,268)
Limited Partners' Capital (Deficit) (8,215,874) (918,403) 7,532,402 16,910,583 25,432,617
Total Assets 79,343,054 82,900,838 87,556,346 94,106,926 106,808,479
Debt 85,424,507 80,726,793 77,425,047 75,601,829 79,386,274
General Partner Advances 352,232 887,215 706,579 58,974 457,354
For the Year Ended December 31,
--------------------------------------------------------------------
Cable TV Fund 14-A/B Venture 1996 1995 1994 1993 1992
- ---------------------------- ----------- ----------- ----------- ----------- ------------
Revenues $25,519,105 $23,469,505 $22,183,524 $22,068,952 $ 20,212,867
Depreciation and Amortization 8,360,927 8,774,507 9,188,994 9,352,808 9,971,915
Operating Income (Loss) 28,548 (753,422) (2,661,198) (2,324,939) (3,293,133)
Net Loss (3,008,309) (4,073,811) (5,417,779) (4,713,500) (6,186,107)
Partners' Capital 14,981,843 17,990,152 22,063,963 27,481,742 32,195,242
Total Assets 58,277,058 62,447,556 66,597,460 72,315,816 80,404,133
Debt 41,262,561 40,530,652 42,271,921 43,461,730 46,908,409
Jones Intercable, Inc. Advances 268,256 2,206,959 354,179 57,920 125,873
13
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations
- -------------
The following discussion of the financial condition and results of operations
of Cable TV Fund 14-A, Ltd. (the "Partnership") and Cable TV Fund 14-A/B
Venture (the "Venture")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 and Venture's actual
results may differ significantly from the results predicted in such forward-
looking statements.
FINANCIAL CONDITION
- -------------------
Cable TV Fund 14-A, Ltd. -
- ------------------------
On January 10, 1997, the Partnership sold the cable television system
serving the areas in and around Turnersville, New Jersey (the "Turnersville
System") to an unaffiliated party for a sales price of $84,500,000. The
Partnership distributed approximately $25,000,000 (or approximately $313 per
each $1,000 invested in the Partnership) of the sale proceeds to its limited
partners, and, as required under the terms of the Partnership's credit facility,
approximately $52,500,000 of the sale proceeds will be used to repay a portion
of the Partnership's indebtedness. Because the $25,000,000 distribution to the
limited partners did not return 125 percent of the amount initially contributed
by the limited partners, the General Partner did not receive a distribution from
the proceeds of the sale of the Turnersville System. The Jones Group, Ltd., a
subsidiary of the General Partner, received a brokerage fee of $2,112,500,
representing 2.5 percent of the sales price, for acting as a broker in this
transaction. The balance of the proceeds will be used by the Partnership for
ongoing working capital. Because the sale of the Turnersville System did not
represent a sale of all or substantially all of the Partnership's assets, no
vote of the limited partners of the Partnership was required to approve this
sale.
On March 12, 1997, the Partnership entered into an asset purchase
agreement to sell the Central Illinois System to an unaffiliated party for a
sales price of $20,100,000, subject to customary closing adjustments. The
closing of this sale is subject to a number of conditions, including obtaining
necessary governmental and other third party consents and the expiration or
termination of the waiting period specified in the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and the rules and regulations thereunder. Closing is
expected to occur during the second half of 1997. Upon the consummation of the
proposed sale of the Central Illinois System, the Partnership will repay
$10,050,000 of the then-outstanding balance of its credit facility, and a
brokerage fee to The Jones Group, Ltd. totaling approximately $502,500 and then
the Partnership will distribute the net sale proceeds of approximately
$9,547,500 to its limited partners. This distribution will give the
Partnership's limited partners an approximate return of $119 per $1,000 invested
in the Partnership. Because limited partners have not yet received total
distributions 125 percent of the capital initially contributed to the
Partnership by the limited partners, the General Partner will not receive any of
the proceeds from the Central Illinois System's sale. Taking into account the
distribution made on the sale of the Turnersville System and the anticipated
distribution to be made on the sale of the Central Illinois System, the
limited partners should receive a total of $432 for each $1,000 invested in the
Partnership in 1997. The Partnership will continue to own the cable television
systems serving certain areas in and around Buffalo, Minnesota; Naperville,
Illinois; and Calvert County, Maryland, as well as its 27 percent ownership
interest in the Venture.
During 1996, the Partnership generated net cash from operating
activities totaling $6,647,260, which was available to fund capital expenditures
and non-operating costs. Capital expenditures for the Partnership's directly
owned systems totaled approximately $10,381,000 during 1996. Approximately 37
percent of these expenditures was for new plant construction and approximately
37 percent of these expenditures was attributable to construction of service
drops to subscribers' homes. The remainder of the expenditures related to
various enhancements throughout the Partnership's operating systems. These
expenditures were funded primarily from cash generated from operations and
borrowings under the Partnership's revolving credit facility. Budgeted capital
expenditures for 1997 are approximately $7,700,000. Approximately 39 percent of
the total capital expenditures will be used for new plant construction in all of
the Partnership's systems. Approximately 33 percent will relate to construction
of service drops to subscribers' homes. The remainder of the anticipated
expenditures are for various enhancements in all of the Partnership's systems.
These capital expenditures are necessary to maintain the value of the
Partnership's remaining systems. Funding for the improvements is expected to
come from cash on hand, cash generated from operations, and, if necessary,
borrowings under its credit facility.
Ameritech, which provides telephone service in a multi-state region
including Illinois, has obtained a franchise that allows it to provide cable
television service in Naperville, Illinois, a community currently served by the
Naperville System. Ameritech has begun providing cable television service in
Naperville in direct competition with the Naperville System. This competition is
likely to have an adverse effect on the Naperville System's revenues, cash flow
and fair market value. It could also have an adverse impact on the Partnership's
ability to sell the Naperville System. The General Partner is taking prudent
steps necessary to meet this competition from Ameritech and to safeguard the
value of the Naperville System. These steps include a judicial challenge to the
terms on which the franchise was
14
issued to Ameritech. Litigation is currently pending in federal court against
both the City of Naperville and Ameritech and includes claims by the City of
Naperville against the Partnership.
During July 1994, the Partnership entered into an $80,000,000 revolving
credit facility. In December 1996, the credit facility was amended to permit a
distribution to the limited partners of a portion of the proceeds from the sale
of the Turnersville System, to amend the then-existing amortization schedule and
to increase the facility to $84,700,000. At December 31, 1996, the maximum
amount of $84,700,000 was outstanding. The effective interest rates on amounts
outstanding as of December 31, 1996 and 1995 were 6.67 and 7.15, respectively.
Upon the sale of the Turnersville System, and as required under the terms of the
Partnership's amended credit facility, $52,500,000 of the sale proceeds was used
to repay bank debt, leaving $32,200,000 outstanding under the revolving credit
facility as of March 12, 1997. The Partnership has received commitments for a
new revolving credit facility, which is expected to be finalized by March 31,
1997, with a commitment of $37,500,000. The Partnership will borrow $32,200,000
from the new credit facility to repay the old credit facility, leaving
$5,300,000 of borrowings available for future needs. The new credit facility
expires on September 30, 2000, at which time the then-outstanding balance is
payable in full. Interest on the new credit facility's outstanding balance is at
the Partnership's option of the London Interbank Offered Rate plus .875 percent
to 1.375 percent, the Certificate of Deposit Rate plus 1.0 percent to 1.5
percent or the Base Rate plus 0 percent to .375 percent.
The General Partner believes that the Partnership has sufficient sources
of capital available from cash on hand, cash generated from operations and, if
necessary, borrowings under its credit facility to meet its anticipated needs.
In addition to those systems owned directly by it, the Partnership owns
a 27 percent interest in the Venture. The Partnership's investment in this
cable television joint venture, accounted for under the equity method, decreased
by $815,252 compared to the December 31, 1995 balance. This decrease represents
the Partnership's proportionate share of losses generated by the Venture during
1996.
Cable TV Fund 14-A/B Venture -
- ----------------------------
For the twelve months ended December 31, 1996, the Venture generated net
cash from operating activities totaling $5,204,336 which is available to fund
capital expenditures and non-operating costs. The Venture expended
approximately $3,880,000 on capital additions during 1996. Cable television
plant extensions accounted for approximately 43 percent of these expenditures.
The construction of service drops to homes accounted for approximately 37
percent of the expenditures. The remainder of these expenditures related to
various enhancements in the Broward County System. These capital expenditures
were funded primarily from cash generated from operations. The Venture plans to
expend approximately $3,916,000 for capital additions in 1997. Of this total,
approximately 35 percent will relate to the construction of service drops to
homes and approximately 34 percent will be expended for cable television plant
extensions. The remainder of the anticipated expenditures are for various
enhancements in the Broward County System. These capital expenditures are
expected to be funded from cash on hand, cash generated from operations and
borrowings under its credit facility.
In June 1996, the Venture amended its existing term loan providing for
a reducing revolving credit facility with an available commitment of
$42,500,000. The entire $42,500,000 commitment is available through December
31, 1998, at which time the commitment will be repaid in twenty quarterly
installments with a final maturity of December 31, 2003. At December 31, 1996,
the balance outstanding was $41,102,968, leaving $1,397,032 available for future
borrowings. Interest is at the Venture's option of Prime plus 1/4 percent, LIBOR
plus 1-1/4 percent or the Certificate of Deposit Rate plus 1-3/8 percent. The
effective interest rates on amounts outstanding as of December 31, 1996 and 1995
were 6.79 percent and 7.17 percent, respectively.
The General Partner believes that the Venture has sufficient sources
of capital from cash on hand, cash generated from operations and borrowings
under its credit facility to service its current needs.
RESULTS OF OPERATIONS
- ---------------------
Cable TV Fund 14-A, Ltd. -
- ------------------------
1996 Compared to 1995-
Revenues of the Partnership increased $3,713,917, or approximately 8
percent, to $47,808,719 for 1996 compared to $44,094,802 in 1995. This increase
was primarily due to basic service rate increases and an increase in the number
of basic subscribers. Basic service rate increases accounted for approximately
51 percent of the increase in revenues. Increases in the number of basic
subscribers accounted for approximately 44 percent of the increase. The number
of basic subscribers increased by 3,167 subscribers, or approximately 3 percent,
to 109,037 at December 31, 1996 compared to 105,870 at December 31, 1995. No
other individual factor was significant to the increase in revenues.
15
Operating expenses consist primarily of costs associated with the
operation and 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 marketing expenses.
Operating expenses increased $2,306,798, or approximately 9 percent, to
$28,026,332 for 1996 compared to $25,719,534 in 1995. Operating expenses
represented 59 percent of revenues in 1996 compared to 58 percent in 1995.
Increases in programming fees primarily accounted for the increase in operating
expenses. The increases in programming fees were due, in part, to the increase
in the subscriber base. No other individual factor was significant to the
increase in revenues.
Management fees and allocated overhead from the General Partner
increased $176,894, or approximately 3 percent, to $5,552,551 for 1996 compared
to $5,375,657 in 1995. The increase was due to the increase in revenues, upon
which such management fees are based.
Depreciation and amortization expense increased $168,247, or
approximately 1 percent, to $14,627,726 for 1996 compared to $14,459,479 in
1995. This increase was due to capital additions in 1996.
Operating loss decreased $1,061,978, or approximately 73 percent, to
$397,890 for 1996 compared to $1,459,868 in 1995. This decrease was due to the
increase in revenues exceeding the increases in operating expenses, depreciation
and amortization expense and management fees and allocated overhead from the
General Partner.
The cable television industry generally measures the financial
performance of a cable television system in terms of operating income before
depreciation and amortization. This measure is not intended to be a substitute
or improvement upon the items disclosed on the financial statements, rather it
is included because it is an industry standard. Operating income before
depreciation and amortization expense increased $1,230,225, or approximately 9
percent, to $14,229,836 for 1996 compared to $12,999,611 in 1995. This increase
was due to the increase in revenues exceeding the increases in operating
expenses and management fees and allocated overhead from the General Partner.
Interest expense decreased $51,639, or less than 1 percent, to
$5,949,858 for 1996 compared to $6,001,497 in 1995. This decrease was due
primarily to lower effective interest rates on interest bearing obligations.
Loss before equity in net loss of cable television joint venture
decreased $876,233, or approximately 12 percent, to $6,555,931 for 1996 compared
to $7,432,164 in 1995. This decrease was due to the factors discussed above.
1995 Compared to 1994 -
Revenues of the Partnership increased $3,652,534, or approximately 9
percent, to $44,094,802 for 1995 compared to $40,442,268 in 1994. Increases in
the subscriber base and premium subscriptions accounted for approximately 53
percent of the increase. The number of basic subscribers increased 7,235, or
approximately 7 percent, to 105,870 at December 31, 1995 compared to 98,635 at
December 31, 1994. Premium service subscriptions increased 2,642, or
approximately 3 percent, to 91,792 at December 31, 1995 compared to 89,150 at
December 31, 1994. Rate increases during the first quarter of 1995 accounted
for approximately 20 percent of the increase in revenues for 1995. An increase
in advertising sales accounted for approximately 18 percent of the increase in
revenues. No other individual factor was significant to the increase in
revenues.
Operating expenses increased $1,908,069, or approximately 8 percent, to
$25,719,534 for 1995 compared to $23,811,465 in 1994. Operating expenses
represented 58 percent of revenues in 1995 compared to 59 percent in 1994.
Increases in programming fees and advertising sales related expenses primarily
accounted for the increase in operating expenses. The increases in programming
fees were due, in part, to the increase in the subscriber base. The increase in
advertising sales related expenses was due, in part, to the increase in
advertising sales activity. No other individual factor was significant to the
increase in revenues.
Management fees and allocated overhead from the General Partner
increased $248,104, or approximately 5 percent, to $5,375,657 for 1995 compared
to $5,127,553 in 1994. The increase was due to the increase in revenues, upon
which such fees and allocations are based, and increases in allocated expenses
from the General Partner.
Depreciation and amortization expense decreased $366,777, or
approximately 2 percent, to $14,459,479 for 1995 compared to $14,826,256 in
1994. This decrease was primarily due to the maturation of a portion of the
intangible asset base.
Operating loss decreased $1,863,138, or approximately 56 percent, to
$1,459,868 for 1995 compared to $3,323,006 in 1994. This decrease was due to
the increase in revenues and the decrease in depreciation and amortization
expense exceeding the increases in operating expenses and management fees and
allocated overhead from the General Partner.
16
Operating income before depreciation and amortization expense increased
$1,496,361, or approximately 13 percent, to $12,999,611 for 1995 compared to
$11,503,250 in 1994. This increase was due to the increase in revenues
exceeding the increases in operating expenses and management fees and allocated
overhead from the General Partner.
Interest expense increased to $1,503,270, or approximately 33 percent,
$6,001,497 for 1995 compared to $4,498,227 in 1994. This increase was due
primarily to higher outstanding balances on interest bearing obligations in
1995.
Loss before equity in net loss of cable television joint venture
decreased $572,528, or approximately 7 percent, to $7,432,164 for 1995 compared
to $8,004,692 in 1994. This decrease was primarily due to the decrease in
operating loss.
In addition to the systems owned directly, the Partnership owns a 27
percent interest in Cable TV Fund 14-A/B Venture (the "Venture"). See
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Venture for details pertaining to the Venture's operations.
Cable TV Fund 14-A/B Venture -
- ----------------------------
1996 Compared to 1995-
Revenues of the Venture's Broward County System increased $2,049,600, or
approximately 9 percent, to $25,519,105 in 1996 from $23,469,505 in 1995. Basic
service rate increases accounted for approximately 35 percent of the increase in
revenue. An increase in the number of basic subscribers accounted for
approximately 27 percent of the increases in revenue. The number of basic
subscribers totaled 50,957 at December 31, 1996 compared to 49,654 at December
31, 1995, an increase of 1,303, or approximately 3 percent. Increases in
premium service revenue accounted for approximately 16 percent of the increase
in revenue. No other individual factor significantly affected the increase in
revenues.
Operating expenses consist primarily of costs associated with the
operation and administration of the Venture'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 marketing expenses.
Operating expense increased $1,528,324, or approximately 12 percent, to
$14,148,533 in 1996 from $12,620,209 in 1995. Operating expenses represented 55
percent of revenue in 1996, compared to 54 percent in 1995. The increase in
operating expenses was due primarily to increases in programming fees, which
were partially offset by decreases in personnel and marketing expenses. No
other individual factor significantly affected the increase in operating
expenses.
Management fees and allocated overhead from Jones Intercable, Inc.
increased $152,886, or approximately 5 percent, to $2,981,097 in 1996 from
$2,828,211 in 1995. This increase was due primarily to the increase in revenues
upon which such fees and allocations are based.
Depreciation and amortization expense decreased $413,580, or
approximately 5 percent, to $8,360,927 in 1996 from $8,774,507 in 1995. The
decrease in depreciation and amortization expense was attributable to the
maturation of the Venture's asset base.
The Partnership reported operating income of $28,548 in 1996 compared to
an operating loss of $753,422 in 1995. This change was due to the increase in
revenues and the decreases in depreciation and amortization expense exceeding
the increase in operating expenses and management fees and allocated overhead
from Jones Intercable, Inc.
The cable television industry generally measures the financial
performance of a cable television system in terms of operating income before
depreciation and amortization. This measure is not intended to be a substitute
or improvement upon the items disclosed on the financial statements, rather it
is included because it is an industry standard. Operating income before
depreciation and amortization expense increased $368,390, or approximately 5
percent, to $8,389,475 in 1996 from $8,021,085 in 1995 due to the increase in
revenues exceeding the increases in operating expenses and management fees and
allocated overhead from Jones Intercable, Inc.
Interest expense decreased $364,677, or approximately 11 percent, to
$3,006,847 in 1996 from $3,371,524 in 1995 due to lower outstanding balances on
interest bearing obligations during 1996 and lower effective interest rates on
interest bearing obligations.
17
Net loss decreased $1,065,502, or approximately 26 percent, to $3,008,309
in 1996 from $4,073,811 in 1995. These losses were primarily the result of the
factors discussed above.
1995 Compared to 1994 -
Revenues of the Venture's Broward County System increased $1,285,981, or
approximately 6 percent, to $23,469,505 in 1995 from $22,183,524 in 1994. The
number of basic subscribers totaled 49,654 at December 31, 1995 compared to
47,819 at December 31, 1994, an increase of 1,835, or approximately 4 percent.
This increase in basic subscribers accounted for approximately 44 percent of the
increases in revenue. Increases in premium service revenue accounted for
approximately 25 percent of the increases in revenue and basic service rate
adjustments accounted for approximately 11 percent of the increases in revenue.
No other individual factor significantly affected the increase in revenues.
Operating expenses decreased $258,229, or approximately 2 percent, to
$12,620,209 in 1995 from $12,878,438 in 1994. Operating expenses represented 54
percent of revenue in 1995, compared to 58 percent in 1994. The decrease in
operating expenses was due primarily to decreases in personnel and marketing
expenses, which were partially offset by increases in programming fees and
office related expenses. No other individual factor significantly affected the
decrease in operating expense.
Management fees and allocated overhead from Jones Intercable, Inc.
increased $50,921, or approximately 2 percent, to $2,828,211 in 1995 from
$2,777,290 in 1994 primarily due to the increase in revenues upon which such
fees and allocations are based.
Depreciation and amortization expense decreased $414,487, or approximately
5 percent, to $8,774,507 in 1995 from $9,188,994 in 1994. The decrease in
depreciation and amortization expense was attributable to the maturation of the
Venture's asset base.
Operating loss decreased $1,907,776, or approximately 72 percent, to
$753,422 in 1995 from $2,661,198 in 1994. This decrease was due to the increase
in revenues and the decreases in operating and depreciation and amortization
expenses exceeding the increase in management fees and allocated overhead from
Jones Intercable, Inc.
Operating income before depreciation and amortization expense increased
$1,493,289, or approximately 23 percent, to $8,021,085 in 1995 from $6,527,796
in 1994 due to the increases in revenues and decreases in operating expenses
exceeding the increase in management fees and allocated overhead from Jones
Intercable, Inc.
Interest expense increased $643,490, or approximately 24 percent, to
$3,371,524 in 1995 from $2,728,034 in 1994 due to higher effective interest
rates and higher outstanding balances on interest bearing obligations.
Net loss decreased $1,343,968, or approximately 25 percent, to
$4,073,811 in 1995 from $5,417,779 in 1994. These losses were primarily the
result of the factors discussed above.
18
Item 8. Financial Statements
- -----------------------------
CABLE TV FUND 14-A, LTD. AND
----------------------------
CABLE TV FUND 14-A/B VENTURE
----------------------------
FINANCIAL STATEMENTS
--------------------
AS OF DECEMBER 31, 1996 AND 1995
--------------------------------
INDEX
-----
Page
------------
14-A 14-A/B
---- ------
Report of Independent Public Accountants 20 32
Balance Sheets 21 33
Statements of Operations 23 35
Statements of Partners' Capital (Deficit) 24 36
Statements of Cash Flows 25 37
Notes to Financial Statements 26 38
19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Partners of Cable TV Fund 14-A, Ltd.:
We have audited the accompanying balance sheets of CABLE TV FUND 14-A,
LTD. (a Colorado limited partnership) as of December 31, 1996 and 1995, and the
related statements of operations, partners' capital (deficit) and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the General Partner's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Cable TV Fund 14-A,
Ltd. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 12, 1997.
20
CABLE TV FUND 14-A, LTD.
------------------------
(A Limited Partnership)
BALANCE SHEETS
--------------
December 31,
---------------------------
ASSETS 1996 1995
------ ------------ ------------
CASH $ 1,257,022 $ 293,179
TRADE RECEIVABLES, less allowance for doubtful receivables of
$255,399 and $75,209 at December 31, 1996 and 1995, respectively 1,142,329 1,328,715
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 137,237,866 128,171,454
Less- accumulated depreciation (76,946,443) (67,771,303)
------------ ------------
60,291,423 60,400,151
Franchise costs and other intangible assets, net of accumulated
amortization of $38,800,080 and $35,205,293 at
December 31, 1996 and 1995, respectively 11,788,190 15,382,977
Investment in cable television joint venture 3,963,820 4,779,072
------------ ------------
Total investment in cable television properties 76,043,433 80,562,200
DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 900,270 716,744
------------ ------------
Total assets $ 79,343,054 $ 82,900,838
============ ============
The accompanying notes to financial statements
are an integral part of these balance sheets.
21
CABLE TV FUND 14-A, LTD.
------------------------
(A Limited Partnership)
BALANCE SHEETS
--------------
December 31,
----------------------------
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) 1996 1995
------------------------------------------- ------------ -------------
LIABILITIES:
Debt $ 85,424,507 $ 80,726,793
Accounts payable-
General Partner 352,232 887,215
Trade accounts payable and accrued liabilities 2,412,088 2,774,638
Subscriber prepayments 146,253 133,035
------------ ------------
Total liabilities 88,335,080 84,521,681
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS' CAPITAL (DEFICIT):
General Partner-
Contributed capital 1,000 1,000
Accumulated deficit (777,152) (703,440)
------------ ------------
(776,152) (702,440)
------------ ------------
Limited Partners-
Net contributed capital (160,000 units outstanding at
December 31, 1996 and 1995) 68,722,000 68,722,000
Accumulated deficit (76,937,874) (69,640,403)
------------ ------------
(8,215,874) (918,403)
------------ ------------
Total liabilities and partners' capital (deficit) $ 79,343,054 $ 82,900,838
============ =============
The accompanying notes to financial statements
are an integral part of these balance sheets.
22
CABLE TV FUND 14-A, LTD.
------------------------
(A Limited Partnership)
STATEMENTS OF OPERATIONS
------------------------
Year Ended December 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
REVENUES $47,808,719 $44,094,802 $40,442,268
COSTS AND EXPENSES:
Operating expenses 28,026,332 25,719,534 23,811,465
Management fees and allocated overhead from
General Partner 5,552,551 5,375,657 5,127,553
Depreciation and amortization 14,627,726 14,459,479 14,826,256
----------- ----------- -----------
OPERATING LOSS (397,890) (1,459,868) (3,323,006)
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (5,949,858) (6,001,497) (4,498,227)
Other, net (208,183) 29,201 (183,459)
----------- ----------- -----------
Total other income (expense) (6,158,041) (5,972,296) (4,681,686)
----------- ----------- -----------
LOSS BEFORE EQUITY IN NET LOSS OF
CABLE TELEVISION JOINT VENTURE (6,555,931) (7,432,164) (8,004,692)
EQUITY IN NET LOSS OF CABLE TELEVISION
JOINT VENTURE $ (815,252) (1,104,003) (1,468,218)
----------- ----------- -----------
NET LOSS $(7,371,183) $(8,536,167) $(9,472,910)
=========== =========== ===========
ALLOCATION OF NET LOSS:
General Partner $ (73,712) $ (85,362) $ (94,729)
=========== =========== ===========
Limited Partners $(7,297,471) $(8,450,805) $(9,378,181)
=========== =========== ===========
NET LOSS PER LIMITED PARTNERSHIP UNIT $(45.61) $(52.82) $(58.61)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 160,000 160,000 160,000
=========== =========== ===========
The accompanying notes to financial statements
are an integral part of these statements.
23
CABLE TV FUND 14-A, LTD.
------------------------
(A Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
-----------------------------------------
Year Ended December 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
GENERAL PARTNER:
Balance, beginning of year $ (702,440) $ (617,078) $ (522,349)
Net loss for year (73,712) (85,362) (94,729)
----------- ----------- -----------
Balance, end of year $ (776,152) $ (702,440) $ (617,078)
=========== =========== ===========
LIMITED PARTNERS:
Balance, beginning of year $ (918,403) $ 7,532,402 $16,910,583
Net loss for year (7,297,471) (8,450,805) (9,378,181)
----------- ----------- -----------
Balance, end of year $(8,215,874) $ (918,403) $ 7,532,402
=========== =========== ===========
The accompanying notes to financial statements
are an integral part of these statements.
24
CABLE TV FUND 14-A, LTD.
------------------------
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
------------------------
Year Ended December 31,
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,371,183) $ (8,536,167) $ (9,472,910)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 14,627,726 14,459,479 14,826,256
Equity in net loss of cable television joint venture 815,252 1,104,003 1,468,218
Amortization of interest rate protection contract - 16,667 16,668
Decrease (increase) in trade receivables 186,386 (258,134) (132,111)
Increase in deposits, prepaid expenses
and deferred charges (726,606) (63,074) (699,666)
Increase (decrease) in trade accounts payable and
accrued liabilities and subscriber prepayments (349,332) 398,277 451,507
Increase (decrease) in advances from General Partner (534,983) 180,636 647,605
------------ ------------ ------------
Net cash provided by operating activities 6,647,260 7,301,687 7,105,567
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (10,381,131) (10,737,233) (8,978,588)
------------ ------------ ------------
Net cash used in investing activities (10,381,131) (10,737,233) (8,978,588)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 5,183,313 3,546,885 77,661,002
Repayment of debt (485,599) (245,139) (75,837,784)
------------ ------------ ------------
Net cash provided by financing activities 4,697,714 3,301,746 1,823,218
------------ ------------ ------------
Increase (decrease) in cash 963,843 (133,800) (49,803)
Cash, beginning of year 293,179 426,979 476,782
------------ ------------ ------------
Cash, end of year $ 1,257,022 $ 293,179 $ 426,979
============ ============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 6,136,741 $ 5,740,361 $ 4,339,995
============ ============ ============
The accompanying notes to financial statements
are an integral part of these statements.
25
CABLE TV FUND 14-A, LTD.
------------------------
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(1) ORGANIZATION AND PARTNERS' INTERESTS
------------------------------------
Formation and Business
----------------------
Cable TV Fund 14-A, Ltd. (the "Partnership"), a Colorado limited
partnership, was formed on February 6, l987, under a public program sponsored by
Jones Intercable, Inc. ("Intercable"), a publicly held Colorado corporation.
The Partnership was formed to acquire, construct, develop and operate cable
television systems. Intercable is the "General Partner" and manager of the
Partnership. Intercable and its subsidiaries also own and operate cable
television systems. In addition, Intercable manages cable television systems
for other limited partnerships for which it is general partner and, also, for
other affiliated entities.
On January 8, 1988, the Partnership and Cable TV Fund 14-B, Ltd. formed
Cable TV Fund 14-A/B Venture (the "Venture"), to acquire the cable television
system serving areas in and around Broward County, Florida. The Partnership
contributed $18,975,000 to the capital of the Venture for 27 percent ownership
interest and Cable TV Fund 14-B, Ltd. contributed $51,025,000 to the capital of
the Venture for 73 percent ownership interest.
Cable Television System Acquisitions and Formation of the Venture
-----------------------------------------------------------------
The Partnership acquired the cable television systems serving certain
areas in and around the communities of Turnersville, New Jersey (the
"Turnersville System"); Buffalo, Minnesota; Naperville, Illinois; and Calvert
County, Maryland in 1987. In 1991, the Partnership purchased additional cable
television systems serving certain communities in Central Illinois (the "Central
Illinois System"). As discussed below, the Partnership sold the Turnersville
System on January 10, 1997 and entered into an asset purchase agreement on March
12, 1997 to sell the Central Illinois System.
Cable Television System Sales
-----------------------------
On January 10, 1997, the Partnership sold the Turnersville System to an
unaffiliated party for a sales price of $84,500,000. The Partnership distributed
approximately $25,000,000 (or approximately $313 per each $1,000 invested in the
Partnership) of the sale proceeds to its limited partners, and, as required
under the terms of the Partnership's credit facility, approximately $52,500,000
of the sale proceeds will be used to repay a portion of the Partnership's
indebtedness. Because the $25,000,000 distribution to the limited partners did
not return 125 percent of the amount initially contributed by the limited
partners, the General Partner did not receive a distribution from the proceeds
of the sale of the Turnersville System. The Jones Group, Ltd., a subsidiary of
the General Partner, received a brokerage fee of $2,112,500, representing 2.5
percent of the sales price, for acting as a broker in this transaction. The
balance of the proceeds will be used by the Partnership for ongoing working
capital. Because the sale of the Turnersville System did not represent a sale of
all or substantially all of the Partnership's assets, no vote of the limited
partners of the Partnership was required to approve this sale. The Partnership
will continue to own the cable television systems serving certain areas in and
around Buffalo, Minnesota; Naperville, Illinois; and Calvert County, Maryland,
as well as its 27 percent ownership interest in the Venture.
On March 12, 1997, the Partnership entered into an asset purchase agreement
to sell the Central Illinois System to an unaffiliated party for a sales price
of $20,100,000, subject to customary closing adjustments. The closing of this
sale is subject to a number of conditions, including obtaining necessary
governmental and other third party consents and the expiration or termination of
the waiting period specified in the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 and the rules and regulations thereunder. Closing is expected to occur
during the second half of 1997. Upon the consummation of the proposed sale of
the Central Illinois System, the Partnership will repay $10,050,000 of the then-
outstanding balance of its credit facility, and a brokerage fee to The Jones
Group, Ltd. totaling approximately $502,500, and then the Partnership will
distribute the net sale proceeds of approximately $9,547,500 to its limited
partners. This distribution will give the Partnership's limited partners an
approximate return of $119 per $1,000 invested in the Partnership. Because
limited partners have not yet received total distributions 125 percent of the
capital initially contributed to the Partnership by the limited partners, the
General Partner will not receive any of the proceeds from the Central Illinois
System's sale. Taking into account the distribution made on the sale of the
Turnersville System and the anticipated distribution to be made on the sale of
the Central Illinois System, the limited partners should receive a total of $432
for each $1,000 invested in the Partnership in 1997. The Partnership will
continue to own the cable television systems serving certain areas in and around
Buffalo, Minnesota; Naperville, Illinois; and Calvert County, Maryland, as well
as its 27 percent ownership interest in the Venture.
26
The pro forma effect of the sale of the Turnersville System on the
results of the Partnership's operations for the years ended December 31, 1996
and 1995, assuming the transaction had occurred at the beginning of the year, is
presented in the following unaudited tabulation:
For the Year Ended December 31, 1996
-----------------------------------------
Pro Forma
As Reported Adjustments Pro Forma
------------ ------------- ------------
Revenues $47,808,719 $(17,525,511) $30,283,208
=========== ============ ===========
Operating Loss $ (397,890) $ (2,623,944) $(3,021,834)
=========== ============ ===========
Loss Before Equity in Net Loss of
Cable Television Joint Venture $(6,555,931) $ 1,187,766 $(5,368,165)
=========== ============ ===========
For the Year Ended December 31, 1995
-----------------------------------------
Pro Forma
As Reported Adjustments Pro Forma
------------ ------------- ------------
Revenues $44,094,802 $(16,392,499) $27,702,303
=========== ============ ===========
Operating Loss $(1,459,868) $ (1,995,588) $(3,455,456)
=========== ============ ===========
Loss Before Equity in Net Loss of
Cable Television Joint Venture $(7,432,164) $ 1,771,014 $(5,661,150)
=========== ============ ===========
Contributed Capital, Commissions and Syndication Costs
------------------------------------------------------
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 contribution to partnership capital.
Intercable purchased its interest in the Partnership by contributing
$1,000 to partnership capital.
All profits and losses of the Partnership are allocated 99 percent to
the limited partners and 1 percent to Intercable, 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.
(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.
Purchase Price Allocation
-------------------------
The Partnership allocated the total contract purchase price of cable
television systems acquired as follows: first, to the fair value of net
tangible assets acquired; second, to the value of subscriber lists and a
noncompete agreement with previous owners; third, to franchise costs; and
fourth, to costs in excess of interests in net assets purchased. Other system
acquisition costs were capitalized and charged to distribution systems, except
for the Central Illinois System which were charged to intangible assets.
27
Investment in Cable Television Joint Venture
--------------------------------------------
In addition to its wholly owned systems, the Partnership owns a 27
percent interest in the Venture through a capital contribution made in March
1988 of $18,975,000. The Venture acquired the Broward County System in March
1988. The Venture incurred losses of $3,008,309, $4,073,811 and $5,417,779 in
1996, 1995 and 1994, respectively, of which $815,252, $1,104,003 and $1,468,218,
respectively, was allocated to the Partnership. The investment is accounted for
on the equity method. The operations of the Venture are significant to the
Partnership and should be reviewed in conjunction with these financial
statements. Reference is made to the accompanying financial statements of the
Venture on pages 32 to 41.
Property, Plant and Equipment
-----------------------------
Depreciation of property, plant and equipment is provided primarily
using the straight-line method over the following estimated service lives:
Cable distribution systems 5 - 15 years
Equipment and tools 3 - 5 years
Office furniture and equipment 5 years
Buildings 10 - 20 years
Vehicles 3 years
Replacements, renewals and improvements are capitalized and
maintenance and repairs are charged to expense as incurred.
Property, plant and equipment and the corresponding accumulated
depreciation are written off as certain assets become fully depreciated and are
no longer in service.
Intangible Assets
-----------------
Costs assigned to intangible assets are being amortized using the
straight-line method over the following remaining estimated useful lives:
Franchise costs 1 - 3 years
Subscriber lists 3 years
Costs in excess of interests in net assets purchased 30 - 35 years
Revenue Recognition
-------------------
Subscriber prepayments are initially deferred and recognized as
revenue when earned.
Reclassification
----------------
Certain prior year amounts have been reclassified to conform to
the 1996 presentation.
(3) TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
----------------------------------------------------
Management Fees, Distribution Ratios and Reimbursements
-------------------------------------------------------
Intercable 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 paid
to Intercable by the Partnership for the years ended December 31, 1996, 1995,
and 1994 (exclusive of the Partnership's 27 percent interest in the Venture)
were $2,390,436, $2,204,740 and $2,022,113, respectively.
Any distributions made from cash flow (defined as cash receipts
derived from routine operations, less debt principal and interest payments and
cash expenses) are allocated 99 percent to the limited partners and 1 percent to
Intercable. Any distributions other than interest income on limited partner
subscriptions earned prior to the acquisition of the Partnership's first cable
television system or from cash flow, such as from the sale or refinancing of a
system or upon dissolution of the Partnership, will be made as follows: first,
to the limited partners in an amount which, together with all prior
distributions, will equal 125 percent of the amount initially contributed to the
Partnership capital by the limited partners; the balance, 75 percent to the
limited partners and 25 percent to Intercable.
28
The Partnership reimburses Intercable for certain allocated overhead
and administrative expenses. These expenses represent the salaries and related
benefits paid for corporate personnel, rent, data processing services and other
corporate related facilities costs. Such personnel provide engineering,
marketing, administrative, accounting, legal and investor relations services to
the Partnership. Such services, and their related costs, are necessary to the
operation of the Partnership and would have been incurred by the Partnership if
it was a stand alone entity. Allocations of personnel costs are based primarily
on actual time spent by employees of Intercable 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 Intercable and certain of its subsidiaries. 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. Intercable
believes that the methodology used in allocating overhead and administrative
expenses is reasonable. Reimbursements made to Intercable by the Partnership
for allocated overhead and administrative expenses (exclusive of the
Partnership's 27 percent interest in the Venture) were $3,162,115, $3,170,917
and $3,105,440 in 1996, 1995 and 1994, respectively.
The Partnership was charged interest during 1996 at an average
interest rate of 8.58 percent on the amounts due Intercable, which approximated
Intercable's weighted average cost of borrowing. Total interest charged to the
Partnership by Intercable was $250,004, $23,107 and, $43,708 for the years ended
December 31, 1996, 1995 and 1994, respectively.
Payments to/from Affiliates for Programming Services
----------------------------------------------------
The Partnership receives programming from Superaudio, Jones Education
Company, Great American Country, Inc. and Product Information Network, all of
which are affiliates of Intercable.
Payments to Superaudio totaled $63,513, $54,644 and $51,858 in 1996,
1995 and 1994, respectively. Payments to Jones Education Company totaled
$133,110, $126,679 and $72,733 in 1996, 1995 and 1994, respectively. Payments
to Great American Country, Inc., which initiated service in 1996, totaled
$35,100 in 1996.
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 $90,304,
$77,790 and $42,223 in 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:
December 31,
-----------------------------
1996 1995
------------ ------------
Cable distribution systems $126,936,005 $116,916,533
Equipment and tools 4,124,407 4,130,430
Office furniture and equipment 1,714,390 1,644,051
Buildings 2,407,909 2,393,755
Vehicles 1,667,374 2,698,904
Land 387,781 387,781
------------ ------------
137,237,866 128,171,454
Less - accumulated depreciation (76,946,443) (67,771,303)
------------ ------------
$ 60,291,423 $ 60,400,151
============ ============
29
(5) DEBT
----
December 31,
-------------------------
Debt consists of the following: 1996 1995
----------- -----------
Lending institutions-
Revolving credit and term loan $84,700,000 $80,000,000
Capital lease obligations 724,507 726,793
----------- -----------
$85,424,507 $80,726,793
=========== ===========
During July 1994, the Partnership entered into an $80,000,000 revolving
credit facility. In December 1996, the credit facility was amended to permit a
distribution to the limited partners of a portion of the proceeds from the sale
of the Turnersville System, to amend the then-existing amortization schedule and
to increase the facility to $84,700,000. At December 31, 1996, the maximum
amount of $84,700,000 was outstanding. The effective interest rates on amounts
outstanding as of December 31, 1996 and 1995 were 6.67 and 7.15, respectively.
Upon the sale of the Turnersville System, and as required under the terms of the
Partnership's amended credit facility, $52,500,000 of the sale proceeds was used
to repay bank debt, leaving $32,200,000 outstanding under the revolving credit
facility as of March 12, 1997. The Partnership has received commitments for a
new revolving credit facility, which is expected to be finalized by March 31,
1997, with a commitment of $37,500,000. The Partnership will borrow $32,200,000
from the new credit facility to repay the old credit facility, leaving
$5,300,000 of borrowings available for future needs. The new credit facility
expires on September 30, 2000, at which time the then-outstanding balance is
payable in full. Interest on the new credit facility's outstanding balance is at
the Partnership's option of the London Interbank Offered Rate plus .875 percent
to 1.375 percent, the Certificate of Deposit Rate plus 1.0 percent to 1.5
percent or the Base Rate plus 0 percent to .375 percent.