<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(x) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1994.
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _____________.
Commission File Number 0-19889
Jones United Kingdom Fund, Ltd.
- - --------------------------------------------------------------------------------
Exact name of registrant as specified in charter
Colorado #84-1145140
- - --------------------------------------------------------------------------------
State of organization I.R.S. employer I.D.#
1B Portland Place, London WIN 3AA England
-----------------------------------------
Address of principal executive office
011-44-71-291-3131
-----------------------------
Registrant's telephone number
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange Act of
l934 during the preceding l2 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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JONES UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
----------- ------------
<S> <C> <C>
ASSETS
------
CASH AND CASH EQUIVALENTS $ 8,039,338 $ 9,940,929
RECEIVABLES:
Subscriptions receivable, net of related syndication
costs and sales commissions of $-0- and
$84,700 at June 30, 1994 and December 31, 1993,
respectively - 531,300
Other receivables 2,302,328 1,932,198
INVESTMENT IN CABLE TELEVISION AND
TELECOMMUNICATIONS PROPERTIES, net
of accumulated depreciation and amortization of
$4,191,609 and $2,368,403, at June 30, 1994
and December 31, 1993, respectively 53,077,879 36,117,963
PREPAID EXPENSES AND OTHER ASSETS 202,180 118,069
----------- -----------
Total assets $63,621,725 $48,640,459
=========== ===========
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited balance sheets.
2
<PAGE> 3
JONES UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
----------- ------------
<S> <C> <C>
LIABILITIES:
Accounts payable to affiliates $ - $ 2,368,948
Trade accounts payable 4,418,347 3,766,176
Accrued liabilities 4,955,995 3,752,100
Accrued loss on forward contracts - 60,725
Note payable 4,006,611 4,055,520
----------- -----------
Total liabilities 13,380,953 14,003,469
----------- -----------
MINORITY INTERESTS 12,514,108 8,061,163
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partner-
Contributed capital 1,000 1,000
Accumulated deficit (95,828) (63,497)
----------- -----------
(94,828) (62,497)
----------- -----------
Limited Partners-
Net contributed capital (56,935 and 42,170 units
outstanding at June 30, 1994 and
December 31, 1993, respectively) 48,817,997 36,083,185
Accumulated deficit (9,205,685) (6,004,957)
----------- -----------
39,612,312 30,078,228
----------- -----------
Currency translation adjustment (1,790,820) (3,439,904)
----------- -----------
Total partners' capital (deficit) 37,726,664 26,575,827
----------- -----------
Total liabilities and partners' capital (deficit) $63,621,725 $48,640,459
=========== ===========
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited balance sheets.
3
<PAGE> 4
JONES UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
----------------------------- ----------------------------
1994 1993 1994 1993
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES $ 1,977,871 $ 425,171 $ 3,588,950 $ 646,049
COSTS AND EXPENSES:
Operating, general and administrative (3,205,602) (878,934) (5,386,798) (1,308,723)
Management fees and allocated
overhead from the General Partner (356,288) (220,338) (743,621) (413,746)
Depreciation and amortization (808,182) (333,374) (1,518,551) (645,041)
------------ ----------- ----------- -----------
OPERATING LOSS (2,392,201) (1,007,475) (4,060,020) (1,721,461)
------------ ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 73,046 4,154 123,166 8,791
Interest expense (224,422) (46,442) (331,768) (48,049)
------------ ----------- ----------- -----------
LOSS BEFORE MINORITY INTERESTS (2,543,577) (1,049,763) (4,268,622) (1,760,719)
------------ ----------- ----------- -----------
Minority interests 624,677 - 1,035,563 -
------------ ----------- ----------- -----------
NET LOSS $ (1,918,900) $(1,049,763) $(3,233,059) $(1,760,719)
============ =========== =========== ===========
ALLOCATION OF NET LOSS:
General Partner $ (19,189) $ (10,498) $ (32,331) $ (17,607)
============ =========== =========== ===========
Limited Partners $ (1,899,711) $(1,039,265) $(3,200,728) $(1,743,112)
============ =========== =========== ===========
NET LOSS PER LIMITED PARTNERSHIP UNIT $ (33.38) $ (41.97) $ (60.91) $ (76.78)
============ =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 56,912 24,761 52,550 22,701
============ =========== =========== ===========
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited statements.
4
<PAGE> 5
JONES UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
-----------------------------------
1994 1993
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,233,059) $(1,760,719)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Minority interests (1,035,563) -
Depreciation and amortization 1,518,551 645,041
Decrease (increase) in other receivables (370,130) 107,324
Increase in interest receivable - (3,481)
Increase in prepaid expenses and other assets (84,111) (5,330)
Increase in trade accounts payable and accrued liabilities 1,856,066 1,195,327
----------- -----------
Net cash provided by (used in) operating activities (1,348,246) 178,162
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction costs for cable television/telephony system (18,589,010) (6,567,120)
----------- -----------
Net cash used in investing activities (18,589,010) (6,567,120)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributed capital, net of syndication costs and sales
commissions 12,734,812 6,726,638
Proceeds from sale of common stock by subsidiary 5,538,326 -
Increase (decrease) in note payable (48,909) 2,000
Decrease (increase) in net subscriptions receivable 531,300 (682,238)
Increase (decrease) in accounts payable to affiliates (2,368,948) 1,114,087
----------- -----------
Net cash provided by financing activities 16,386,581 7,160,487
----------- -----------
Effect of exchange rate changes on cash 1,649,084 (187,306)
----------- -----------
Increase (decrease) in cash and cash equivalents (1,901,591) 584,223
Cash and cash equivalents, beginning of period 9,940,929 1,273,381
----------- -----------
Cash and cash equivalents, end of period $ 8,039,338 $ 1,857,604
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 40,338 $ 52,088
=========== ===========
Loss on forward contracts $ - $ 302,270
=========== ===========
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited statements.
5
<PAGE> 6
JONES UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
This Form 10-Q is being filed in conformity with the SEC requirements
for unaudited financial statements and does not contain all of the necessary
footnote disclosures required for a fair presentation of the Consolidated
Balance Sheets and Consolidated Statements of Operations and Cash Flows in
conformity with generally accepted accounting principles. However, in the
opinion of management, this data includes all adjustments, consisting only of
normal recurring accruals, necessary to present fairly the financial position
of Jones United Kingdom Fund, Ltd. (the "Partnership") at June 30, 1994 and
December 31, 1993 and its results of operations and cash flows for the three
and six month periods ended June 30, 1994 and 1993. Results of operations for
these periods are not necessarily indicative of results to be expected for the
full year. Certain prior year amounts were reclassified to conform to the 1994
presentation.
(2) INVESTMENT IN SUBSIDIARY
Jones Cable Group of South Hertfordshire Limited ("Jones South
Hertfordshire") is a United Kingdom corporation originally owned by Jones
Global Funds, Inc. ("Global Funds"), the former General Partner of the
Partnership, and Jones Cable Group, Ltd., an affiliate of Global Funds. Jones
South Hertfordshire is the holder of a franchise to own and operate a cable
television/telephony system in the South Hertfordshire franchise area, located
in the northwestern suburbs of London, England (the "South Herts System").
There are approximately 95,000 homes in the franchise area, of which
approximately 85,000 will be passed by the South Herts System's cable
television/telephony plant when construction in the franchise area is
completed. At June 30, 1994, the network under construction consisted of
approximately 410 miles of cable plant, passing approximately 62,000 homes, of
which approximately 50,000 homes were passed by activated cable plant. At June
30, 1994, the South Herts System's cable television subscribers totalled
approximately 10,400, the South Herts System's residential telephone customers
totalled approximately 9,150, with approximately 6,330 of these residential
subscribers taking both services. In addition, the South Herts System provided
telephony services to 220 businesses in its franchise area.
On February 20, 1992, upon receipt of approval from United Kingdom
regulatory authorities, the Partnership acquired, through its nominees, Global
Funds and Jones Cable Group, Ltd., the beneficial ownership of 100 percent of
the shares of Jones South Hertfordshire. The acquisition by the Partnership of
all of the shares of Jones South Hertfordshire resulted in the Partnership
acquiring beneficial ownership of the South Herts System. The Partnership
reimbursed Global Funds and its affiliates, at cost, for their expenses in
connection with obtaining, holding and maintaining the franchise rights or
licenses for the South Herts System, for capital expenditures during the period
before the Partnership acquired the beneficial ownership of Jones South
Hertfordshire, and for the amount of operating and interest expenses in excess
of operating receipts incurred during such period, which totalled $4,996,650.
Subsequent to the Partnership's acquisition of Jones South Hertfordshire,
additional cost reimbursements have been made to Global Funds and its
affiliates for construction costs. Partnership funds are maintained in U.S.
bank accounts as protection from foreign passive income tax restrictions and
are used to reimburse Global Funds and its affiliates for the South Herts
System's construction and operation. Through June 30, 1994, the total amount
reimbursed to fund the South Herts System's construction and development was
approximately $44,288,000. As a result of the Partnership's acquisition of all
of the shares of Jones South Hertfordshire in 1992, for accounting purposes it
has been consolidated with the Partnership's operations.
In order to provide funding for the construction of the South Herts
System, two additional participants have invested in Jones South Hertfordshire.
Jones Intercable of South Hertfordshire, Inc., an affiliate of Global Funds,
invested L.3,400,000 (or approximately $5,000,000) in Jones South Hertfordshire
in exchange for 34,000 Class A shares in November 1993. Also in November 1993
affiliates of Sandler Capital Management (the "Sandler Group"), an investor
group not affiliated with the Partnership or Global Funds, committed to invest
L.6,800,000 ($9,928,000 at the exchange rate of U.S. $1.46 per United Kingdom
pound sterling) in Jones South Hertfordshire, of which L.4,533,334 ($6,618,668
at such exchange rate) has been funded in exchange for 45,332 Class B shares.
Additionally, the Sandler Group invested L.1,006,566 (approximately $1,469,586)
for 10,066 Class B shares and Jones Intercable of South Hertfordshire, Inc.
invested L.503,283 (approximately $759,454) for 5,033 Class A shares. Funding
of these additional investments occurred in May 1994. Funding of the remainder
of the initial Sandler Group commitment was completed in July 1994 by the
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<PAGE> 7
Sandler Group investing L.1,800,000 (approximately $2,628,000) for 18,000 Class
B shares and by Jones Intercable of South Hertfordshire, Inc. investing
L.466,800 (approximately $680,828) for 4,668 Class A shares.. At June 30,
1994, the Partnership owned 234,201 Class A shares, the Sandler Group owned
55,398 Class B shares and Jones Intercable of South Hertfordshire, Inc. owned
39,033 Class A shares. The ownership interests in Jones South Hertfordshire at
June 30, 1994 were: the Partnership, 71 percent; the Sandler Group, 17
percent; and Jones Intercable of South Hertfordshire, Inc., 12 percent. See
note 7 for further discussion on ownership interests.
(3) TRANSACTIONS WITH AFFILIATED ENTITIES
Pursuant to the provisions of the Partnership Agreement, Jones Cable
Group, Ltd., as an affiliate of Global Funds, is paid a consulting fee by the
Partnership. During the construction phases of the South Herts System, this
consulting fee is 2 percent of construction costs. After completion of
construction of each portion of the system, the consulting fee for the
completed portion is 5 percent of the gross revenues, excluding revenues from
the sale of cable television/telephony systems. The 5 percent fee is
calculated and payable monthly. Consulting fees paid or payable to Jones Cable
Group, Ltd. by the Partnership for the three months ended June 30, 1994 and
1993 were $115,840 and $91,136, respectively. Of these amounts, $16,947 and
$69,877 were capitalized in the investment in cable television and
telecommunications properties on the Consolidated Balance Sheets and $98,893
and $21,259 were expensed on the Consolidated Statements of Operations for the
three months ended June 30, 1994 and 1993, respectively. Consulting fees paid
or payable to Jones Cable Group, Ltd. by the Partnership for the six months
ended June 30, 1994 and 1993 were $213,342 and $155,470, respectively. Of
these amounts, $33,894 and $123,168 were capitalized in the investment in cable
television and telecommunications properties on the Consolidated Balance Sheets
and $179,448 and $32,302 were expensed on the Consolidated Statements of
Operations for the six months ended June 30, 1994 and 1993, respectively.
Global Funds and its affiliates are entitled to reimbursement from the
Partnership for direct and indirect expenses allocable to the operation of the
Partnership and the South Herts System, which includes, but is not limited to,
rent, supplies, telephone, travel, copying charges and salaries of any full or
part-time employees. Global Funds believes that the methodology used in
allocating these expenses is reasonable. During the three months ended June
30, 1994 and 1993, reimbursements made to Global Funds and its affiliates for
any allocable direct and indirect expenses totalled $257,395 and $199,079,
respectively. During the six months ended June 30, 1994 and 1993,
reimbursements made to Global Funds and its affiliates for expenses totalled
$564,173 and $381,444, respectively.
Global Funds and its affiliates may make advances to, and defer
collection of fees and allocated expenses owed by, the Partnership, although
they are not required to do so. The Partnership will be charged interest on
such advances and deferred amounts at a rate equal to Global Fund's or certain
affiliates' weighted average cost of all debt financing from unaffiliated
entities. For both the three and six months ended June 30, 1994 and 1993, no
such interest had been charged to the Partnership by the Global Funds or
its affiliates.
(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Currency Exchange Rates
The costs incurred by Jones South Hertfordshire are converted from
United Kingdom pounds sterling to United States dollars pursuant to Statement
of Financial Accounting Standard No. 52 ("SFAS 52"). Since pounds sterling
represent Jones South Hertfordshire's functional currency, translation
adjustments related to recording assets and liabilities in U.S. dollars at
current exchange rates are charged or credited directly to cumulative
translation adjustment in shareholder's equity. In the discretion of Global
Funds, net proceeds received from the sale of Partnership interests will be
converted from United States dollars to United Kingdom pounds sterling.
Likewise, net proceeds from the sale or refinancing of the Partnership's cable
television/telephony properties will be converted from United Kingdom pounds
sterling to United States dollars in order to make any distributions to the
partners.
Through December 1993, the Partnership purchased United Kingdom pounds
sterling through currency futures contracts negotiated by Intercable for the
benefit of the Partnership to hedge its identifiable foreign currency
construction commitments and for the benefit of other affiliates. The blended
average exchange rate under the futures contracts was
7
<PAGE> 8
U.S. $1.68 per United Kingdom pound sterling. At June 30, 1994, the
Partnership had incurred a loss of $275,432 on these futures contracts, which
has been capitalized in the investment in cable television and
telecommunications properties on the Consolidated Balance Sheets. Through June
30, 1994, the Partnership purchased United Kingdom pounds sterling through
currency futures contracts negotiated by Intercable. The blended average
exchange rate under these futures contracts was U.S. $1.46 per United Kingdom
pound sterling. At June 30, 1994, the Partnership had incurred a loss of
$59,191 on these futures contracts, which has been capitalized in the
investment in cable television and telecommunications properties on the
Consolidated Balance Sheets.
Property, Plant and Equipment
Prior to receiving the first revenues from subscribers of a cable
television/telephony system constructed by the Partnership, all construction
costs, operating expenses and interest related to the system are capitalized.
From the time of such receipt until completion of construction (defined as the
"prematurity period"), which in most cases is no longer than two years, except
in major urban markets, in which case the prematurity period may be longer than
two years, portions of certain fixed operating expenses and interest are
capitalized in addition to direct construction costs. Global Funds has
estimated a prematurity period of 3 years for the South Herts System based upon
its urban location, housing density and requirement for mostly underground
cable. The portions capitalized are decreased as progress is made toward
obtaining the subscriber level expected at the end of the prematurity period,
after which no further expenses are capitalized. In addition, costs (including
labor, overhead and other costs of completion) associated with installation in
homes not previously served by cable television/telephony are capitalized and
included as a component of the investment in cable television and
telecommunications properties. From inception to June 30, 1994, the South
Herts System had received $6,522,652 of revenue from operations and had
capitalized approximately $2,784,526 of expenses. For the three months ended
June 30, 1994 and 1993, the Partnership recognized revenues from operations
totalling $1,977,871 and $425,171, respectively, and had capitalized
approximately $-0- and $2,401,376 , of expenses, respectively. For the six
months ended June 30, 1994 and 1993, the Partnership recognized revenues from
operations totalling $3,588,950 and $646,049, respectively, and had capitalized
approximately $-0- and $2,401,376, of expenses, respectively.
(5) FINANCINGS
In July 1992, Jones South Hertfordshire entered into an agreement with
a bank to refinance its primary office/headend building for L.800,000. This
loan is to be repaid over 10 years with quarterly principal and interest
payments due July 1993 through July 2002. Interest is calculated at the London
InterBank Offered Rate ("LIBOR") plus 2 percent. For the three months ended
June 30, 1994 and 1993, Jones South Hertfordshire had recorded interest expense
of $20,106 and $21,083, respectively. For the six months ended June 30, 1994
and 1993, Jones South Hertfordshire had recorded interest expense of $40,338
and $48,049, respectively. For the interest period December 30, 1993 to March
30, 1994, the effective interest rate was fixed at 7.50 percent. For the
interest period March 31, 1994 to July 24, 1994 , the effective interest rate
was fixed at 7.3125 percent. At June 30, 1994, the LIBOR rate was 5.19
percent. At June 30, 1994, the amount outstanding on this loan totalled
$1,030,335 when converted to U.S. dollars at the exchange rate between U.S.
dollars and U.K. pounds sterling effective at such date.
Jones South Hertfordshire is currently negotiating, based upon
commitments received from two banks, a facility agreement (the "proposed South
Herts credit agreement"), which will provide for a L.28,000,000 revolving and
term loan credit facility. The facility commitments are subject to negotiation
of final terms and documentation and no assurance can be given that definitive
documentation for the proposed South Herts credit agreement will be agreed.
The credit facility would be a revolving facility through December 31,
1997, at which time the facility would be converted into a term loan. The term
loan portion would require repayment of outstanding principal amounts beginning
in 1998, with the final 50 percent of such amounts being repaid in 2001 and
2002. The facility is expected to be divided into two tranches and the
aggregate amount drawn down under both tranches may not exceed L.28,000,000.
The availability of tranche A of L.16,000,000 would be subject to certain
conditions which have not currently been satisfied and amounts drawn down under
tranche A would bear interest at sterling LIBOR plus a margin of 3.75 percent.
The availability of tranche B of L.28,000,000 would be subject to certain
conditions which have not currently been satisfied and amounts drawn down under
tranche B would bear interest at sterling LIBOR plus margin ranging from 2.5
percent to 1.75 percent depending on the bank debt ratio of Jones South
Hertfordshire. The maximum amount that can be borrowed under both tranches is
L.28,000,000. In order for tranche B to borrow its maximum of L.28,000,000,
tranche A must have no amounts outstanding. The proposed South Herts credit
agreement is expected to contain various covenants, including financial
covenants, and events of default, including a restriction on the payment of
dividends.
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The proposed South Herts credit agreement is expected to be secured by
all of the assets of Jones South Hertfordshire. In addition, there will be a
pledge of all of the shares of Jones South Hertfordshire as additional security
for the facility. Such debt financing, if completed, coupled with the equity
investments discussed in Note 2 is expected to be sufficient to enable Jones
South Hertfordshire to complete the construction of the South Herts System
within the timetable to be set forth in the modified license.
(6) COMMITMENTS
In October 1992, Jones South Hertfordshire entered into a short-term
interconnection agreement with BT plc so that it can provide both long-distance
national and international telephone services. This agreement is scheduled to
expire on August 31, 1994, and Jones South Hertfordshire is seeking a longer
term interconnection agreement with BT plc. Also, in May 1994, Jones South
Hertfordshire entered into an interconnection agreement with Mercury
Communications Limited to provide both long-distance national and international
telephone services. This agreement expires April 16, 1996. A telephony switch
was purchased pursuant to a financing arrangement with the seller for
L.2,693,000. At June 30, 1994, Jones South Hertfordshire had capitalized U.S.
$2,976,276 for the telephony equipment, which is the cost of the equipment that
has been delivered and is fully operational. As additional equipment is
delivered and becomes operational, the related costs will be capitalized.
As of June 30, 1994, approximately 73 percent of the South Herts
System had been constructed. Because Jones South Hertfordshire did not meet
the construction timetable set forth in the original license issued for the
South Hertfordshire franchise area, Jones South Hertfordshire requested an
amendment of the construction timetable from OFTEL, the United Kingdom
regulatory authority that issued the license. On February 28, 1994, OFTEL
modified the South Herts System's license. The license, as modified, requires
that the South Herts System pass 60,000 homes with cable by December 31, 1994
and that it be completed (by passing 85,000 homes) by December 31, 1995. At
June 30, 1994, the network under construction consisted of approximately 410
miles of cable plant, passing approximately 62,000 homes, of which
approximately 50,000 homes were passed by activated cable plant.
(7) SUBSEQUENT EVENT
On June 10, 1994, Intercable, Jones Global Group, Inc. ("Global
Group"), the parent of Global Funds, and certain of their subsidiaries
(collectively, "Jones") and the Sandler Group entered into agreements to
transfer all of their interests in their United Kingdom cable/telephony
operations and franchises, including Intercable's interest in Jones South
Hertfordshire, Global Funds' general partner interest in the Partnership and
the Sandler Group's interest in Jones South Hertfordshire to Bell Cablemedia
plc ("BCM") in exchange for American Depository Shares ("ADS's") to be issued
by BCM in connection with a planned public offering of ADS's by BCM. At that
date, BCM was then indirectly owned 80 percent by Bell Canada International
Inc. ("BCI") and 20 percent by Cable & Wireless plc ("C&W").
On July 22, 1994, in connection with the closing of the public
offering by BCM, Jones and the Sandler Group completed the exchange of their
interests in United Kingdom cable/telephony operations and franchises for ADS's
issued by BCM. At closing, BCM acquired Intercable's interest in Jones South
Hertfordshire, the Sandler Group's interest in Jones South Hertfordshire and
Global Funds' general partner interest in the Partnership. As a result of this
transaction, Jones South Hertfordshire is now owned 67 percent by the
Partnership and 33 percent by BCM, and the general partner of the Partnership
is now Fawnspring Limited, a wholly owned subsidiary of BCM.
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<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Partnership was formed on December 23, 1991 to acquire, construct,
develop, own and operate cable television/telephony systems in the United
Kingdom. As of June 30, 1994, the Partnership had received limited partner
subscriptions of $56,935,000, or $49,106,438 net of sales commissions and other
organizational and offering costs. Sales of limited partnership interests
ended in April 1994.
Subsequent to the Partnership's acquisition of Jones South
Hertfordshire, cost reimbursements have been made to the General Partner for
construction costs. Partnership funds are maintained in U.S. bank accounts as
protection from foreign passive income tax restrictions and have been used to
reimburse the General Partner at cost on a monthly basis for expenditures
incurred by the General Partner for the South Herts System's construction and
operation. Through June 30, 1994, the total amount of such costs reimbursed to
Global Funds to fund Jones South Hertfordshire's construction and development
totalled approximately $44,288,000.
Jones South Hertfordshire provides local telephone service using
telephone switching equipment that it owns, and it has entered into
interconnection agreements with BT plc and Mercury Communications Limited so
that it can provide local, long-distance, national and international telephone
services. Jones South Hertfordshire purchased a telephony switch for the South
Herts System in August 1992. This switch enables Jones South Hertfordshire to
provide local telephony and related value-added services. The switch was
purchased pursuant to a financing arrangement with the seller for L.2,693,000.
At June 30, 1994, Jones South Hertfordshire had capitalized U.S. $2,976,276
for the telephony switch, which was the cost of the equipment that had been
delivered at June 30, 1994, and is fully operational. As additional equipment
is delivered and becomes operational, the related costs will be capitalized.
The interconnection agreement with BT plc is scheduled to expire on August 31,
1994, and Jones South Hertfordshire is seeking a longer term interconnection
agreement with BT plc. The interconnection agreement with Mercury
Communications Limited expires April 16, 1996. Testing of the telephony
service started in November 1992, and the service was first offered to the
South Herts System's subscribers in February 1993.
In order to provide funding for the construction of the South Herts
System, two additional participants have invested in Jones South Hertfordshire.
Jones Intercable of South Hertfordshire, Inc., an affiliate of Global Funds,
invested L.3,400,000 (or approximately $5,000,000) in Jones South Hertfordshire
in exchange for 34,000 Class A shares in November 1993. Also in November 1993
affiliates of Sandler Capital Management (the "Sandler Group"), an investor
group not affiliated with the Partnership or Global Funds, committed to invest
L.6,800,000 ($9,928,000 at the exchange rate of U.S. $1.46 per United Kingdom
pound sterling) in Jones South Hertfordshire, of which L.4,533,334 ($6,618,668
at such exchange rate) has been funded in exchange for 45,332 Class B shares.
Additionally, the Sandler Group invested L.1,006,566 (approximately $1,469,586)
for 10,066 Class B shares and Jones Intercable of South Hertfordshire, Inc.
invested L.503,283 (approximately $759,454) for 5,033 Class A shares. Funding
of these additional investments occurred in May 1994. Funding of the remainder
of the initial Sandler Group commitment was made in July 1994 by the Sandler
Group investing L.1,800,000 (approximately $2,628,000) for 18,000 Class B
shares and by Jones Intercable fo South Hertfordshire, Inc. investing L.466,800
(approximately $680,828) for 4,668 Class A shares. At June 30, 1994, the
Partnership owned 234,201 Class A shares, the Sandler Group owned 55,398 Class
B shares and Jones Intercable of South Hertfordshire, Inc. owned 39,033 Class A
shares. The ownership interests in Jones South Hertfordshire at June 30, 1994
were: the Partnership, 71 percent; the Sandler Group, 17 percent; and Jones
Intercable of South Hertfordshire, Inc., 12 percent.
On June 10, 1994, Intercable, Jones Global Group, Inc. ("Global
Group"), the parent of Global Funds, and certain of their subsidiaries
(collectively, "Jones") and the Sandler Group entered into agreements to
transfer all of their interests in their United Kingdom cable/telephony
operations and franchises, including Intercable's interest in Jones South
Hertfordshire, Global Funds' general partner interest in the Partnership and
the Sandler Group's interest in Jones South Hertfordshire to Bell Cablemedia
plc ("BCM") in exchange for American Depository Shares ("ADS's") to be issued
by BCM in connection with a planned public offering of ADS's by BCM. At that
date, BCM was then indirectly owned 80 percent by Bell Canada International
Inc. ("BCI") and 20 percent by Cable & Wireless plc ("C&W").
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On July 22, 1994, in connection with the closing of the public
offering by BCM, Jones and the Sandler Group completed the exchange of their
interests in United Kingdom cable/telephony operations and franchises for ADS's
issued by BCM. At closing, BCM acquired Intercable's interest in Jones South
Hertfordshire, the Sandler Group's interest in Jones South Hertfordshire and
Global Funds' general partner interest in the Partnership. As a result of this
transaction, Jones South Hertfordshire is now owned 67 percent by the
Partnership and 33 percent by BCM, and the general partner of the Partnership
is now Fawnspring Limited, a wholly owned subsidiary of BCM.
During the first six months of 1994, Jones South Hertfordshire had
approximately $18,488,056 of capital expenditures. Approximately 92 percent of
these expenditures were for the construction of the South Herts System and were
funded from limited partner contributions and advances from affiliates.
Additional capital expenditures totalling approximately $19,472,000 will be
required through 1994 to complete construction of the South Herts System. Such
expenditures are expected to be funded through debt financing, if available,
and equity contributions, if needed.
In July 1992, Jones South Hertfordshire entered into an agreement with
a bank to refinance its primary office/headend building for L.800,000. This
loan is to be repaid over 10 years with quarterly principal and interest
payments due July 1993 through July 2002. Interest is calculated at the London
InterBank Offered Rate ("LIBOR") plus 2 percent. For the interest period
December 30, 1993 to March 30, 1994, the effective interest rate was fixed at
7.50 percent. For the interest period March 31, 1994 to July 24, 1994 , the
effective interest rate is fixed at 7.312 percent. At June 30, 1994, the LIBOR
rate was 5.19 percent. At June 30, 1994, the amount outstanding on this loan
totalled $1,030,335 when converted to U.S. dollars at the exchange rate between
U.S. dollars and U.K. pounds sterling effective at such date.
Jones South Hertfordshire is currently negotiating, based upon
commitments received from two banks, a facility agreement (the "proposed South
Herts credit agreement"), which will provide for a L.28,000,000 revolving and
term loan credit facility. The facility commitments are subject to negotiation
of final terms and documentation and no assurance can be given that definitive
documentation for the proposed South Herts credit agreement will be agreed.
The credit facility would be a revolving facility through December 31,
1997, at which time the facility would be converted into a term loan. The term
loan portion would require repayment of outstanding principal amounts beginning
in 1998, with the final 50 percent of such amounts being repaid in 2001 and
2002. The facility is expected to be divided into two tranches and the
aggregate amount drawn down under both tranches may not exceed L.28,000,000.
The availability of tranche A of L.16,000,000 would be subject to certain
conditions which have not currently been satisfied and amounts drawn down under
tranche A would bear interest at sterling LIBOR plus a margin of 3.75 percent.
The availability of tranche B of L.28,000,000 would be subject to certain
conditions which have not currently been satisfied and amounts drawn down under
tranche B would bear interest at sterling LIBOR plus margin ranging from 2.5
percent to 1.75 percent depending on the bank debt ratio of Jones South
Hertfordshire. The maximum amount that can be borrowed under both tranches is
L.28,000,000. In order for tranche B to borrow its maximum of L.28,000,000,
tranche A must have no amounts outstanding. The proposed South Herts credit
agreement is expected to contain various covenants, including financial
covenants, and events of default, including a restriction on the payment of
dividends.
The proposed South Herts credit agreement is expected to be secured by
all of the assets of Jones South Hertfordshire. In addition, there will be a
pledge of all of the shares of Jones South Hertfordshire as additional security
for the facility. Such debt financing, if completed, coupled with the equity
investments discussed in Note 2 is expected to be sufficient to enable Jones
South Hertfordshire to complete the construction of the South Herts System
within the timetable to be set forth in the modified license.
The Partnership may encounter currency exchange rate fluctuations that
could have a material effect on the Partnership. Construction cost estimates
are based on a currency exchange rate of U.S. $1.46 per United Kingdom pound
sterling. This currency exchange rate is Global Fund's best estimate of the
blended average rate that may be available to the Partnership when it exchanges
U.S. dollars for United Kingdom pounds sterling during the construction phase
of the South Herts System. Through December 1993, the Partnership purchased
United Kingdom pounds sterling through currency futures contracts negotiated by
Intercable for the benefit of the Partnership and other affiliates. The
blended average exchange rate under the futures contracts was U.S. $1.68 per
United Kingdom pound sterling. At June 30, 1994, the Partnership had incurred
a loss of $275,432 on these futures contracts, which has been capitalized in
the investment in cable television and telecommunications properties on the
Consolidated Balance Sheets. Through June 30, 1994, the Partnership purchased
United Kingdom pounds sterling through currency futures contracts negotiated by
Intercable. The blended average exchange rate under these futures contracts
was U.S. $1.46 per United Kingdom pound sterling. At June 30, 1994, the
Partnership had incurred a loss of $59,191 on these futures contracts, which
has been capitalized in the investment in cable television and
telecommunications properties on the Consolidated Balance Sheets.
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RESULTS OF OPERATIONS
Revenues of the Partnership increased $1,552,700 for the three months
ended June 30, 1994, over the similar period in 1993 from $425,171 in 1993 to
$1,977,871 in 1994. Revenues of the Partnership increased $2,942,901 for the
six months ended June 30, 1994, over the similar period in 1993 going from
$646,049 in 1993 to $3,588,950 in 1994. These increases were the result of
increases in the South Herts System's customer subscriber base due primarily to
additional activated plant in 1994. The South Herts System served
approximately 2,500 cable television only subscribers, 300 telephony only
subscribers and 1,260 cable television/telephony subscribers at June 30, 1993
as compared to approximately 4,073 cable television only subscribers, 2,819
telephony only subscribers and 6,330 cable television/telephony subscribers at
June 30, 1994.
Operating, general and administrative expenses increased $2,326,668
for the three months ended June 30, 1994 over the similar period in 1993 from
$878,934 in 1993 to $3,205,602 in 1994. Operating, general and administrative
expenses increased $4,078,075 for the six months ended June 30, 1994, over the
similar period in 1993 from $1,308,723 in 1993 to $5,386,798 in 1994. These
increases were primarily due to increases in personnel costs, programming costs
and marketing costs during 1994 as compared to 1993. Such increases are
related to the growth in the South Herts System's size and subscriber base.
Management fees and allocated overhead from the General Partner
increased $135,950 for the three months ended June 30, 1994, over the similar
period in 1993 from $220,338 in 1993 to $356,288 in 1994. Management fees and
allocated overhead from the General Partner increased $329,875 for the six
months ended June 30, 1994, over the similar period in 1993 from $413,746 in
1993 to $743,621 in 1994. These increases were generally due to the increases
in revenues, upon which such fees and allocations are based.
Depreciation and amortization expense increased $474,808 for the three
months ended June 30, 1994 over the similar period in 1993 from $333,374 in
1993 to $808,182 in 1994. Depreciation and amortization expense increased
$873,510 for the six months ended June 30, 1994 over the similar period in 1993
from $645,041 in 1993 to $1,518,551 in 1994. These increases were due to
increases in the Partnership's depreciable asset base.
Interest expense increased $177,980 for the three months ended June
30, 1994 over the similar period in 1993 from $46,442 in 1993 to $224,422 in
1994. Interest expense increased $283,719 for the six months ended June 30,
1994 over the similar period in 1993 from $48,049 in 1993 to $331,768 in 1994.
These increases were generally due to interest costs relating to equipment
leases that the Partnership entered into in the third quarter of 1993.
Interest income increased $68,892 for the three months ended June 30,
1994 over the similar period in 1993 from $4,154 in 1993 to $73,046 in 1994.
Interest income increased $114,375 for the six months ended June 30, 1994 over
the similar percent in 1993 from $8,791 in 1993 to $123,166 in 1994. These
increases in interest income were the result of higher average cash balances
invested during 1994 as compared to average balances invested during 1993.
Net loss increased $869,137 for the three months ended June 30, 1994
over the similar period in 1993 from $1,049,763 in 1993 to $1,918,900 in 1994.
Net loss increased $1,472,340 for the six months ended June 30, 1994 over the
similar period in 1993 from $1,760,719 in 1993 to $3,233,059 in 1994. These
increases in net loss are due to the increases in the expenses discussed above
exceeding the increases in revenues.
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PART 2. OTHER INFORMATION
NONE
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JONES UNITED KINGDOM FUND, LTD.
a Colorado limited partnership
BY: FAWNSPRING LIMITED,
Its General Partner
By: /s/ WILLIAM ANDERSON
William Anderson
Director
Dated: August 12, 1994
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