ITEM 1. BUSINESS
THE PARTNERSHIP. Jones Cable Income Fund 1-B, Ltd. (the "Partnership") is a Colorado limited partnership that was formed pursuant to the public offering of limited partnership interests in the Jones Cable Income Fund 1 Limited Partnership Program (the "Program"), which was sponsored by Jones Intercable, Inc. (the "General Partner"). Jones Cable Income Fund 1-A, Ltd. and Jones Cable Income Fund 1-C, Ltd. ("Fund 1-C") are the other partnerships that were formed pursuant to the Program. The Partnership and Fund 1-C formed a general partnership known as Jones Cable Income Fund 1-B/C Venture (the "Venture") in which the Partnership owns a 40 percent interest and Fund 1-C owns a 60 percent interest. The Partnership and the Venture were formed for the purpose of acquiring and operating cable television systems.
The Partnership directly owns the cable television system serving the community of Orangeburg, South Carolina (the "Orangeburg System"). The Venture owns the cable television systems serving the communities of Brighton and Broomfield and portions of Boulder County, Colorado (the "Brighton/Broomfield System"), Clearlake Oaks, California (the "Clearlake Oaks System"), Canyonville, Myrtle Creek, Riddle and Winston, Oregon (the "Myrtle Creek System"), South Sioux City, Nebraska (the "South Sioux City System") and Three Rivers, Schoolcraft/Vicksburg, Constantine/White Pigeon, Dowagiac, Watervliet and Vandalia, Michigan (the "Southwestern Michigan System"). The Orangeburg System, Brighton/Broomfield System, Clearlake Oaks System, Myrtle Creek System, South Sioux City System and the Southwestern Michigan System may hereinafter collectively be referred to as the "Systems."
One of the primary objectives of the Partnership is to provide quarterly cash distributions to the partners. Such cash returns are primarily from cash generated through the operating activities of the Partnership and from the distributions made to the Partnership from the Venture. Because the Partnership's credit facility was at the maximum amount available in 1994, the Partnership utilized cash generated from operations to fund capital expenditures. In addition, the Venture's credit facility has a maximum amount available of $45,000,000, of which $42,100,000 was outstanding at December 31, 1994, which limits the amount of borrowings available to the Venture to fund capital expenditures; therefore, the Venture did not declare any distributions in 1994. Due to these conditions, the Partnership did not declare any distributions for 1994. Distributions for the years ended December 31, 1993 and 1992 were $1,735,352 and $1,642,928, respectively. The General Partner has agreed to defer its portion of any cash flow distributions until the Partnership is liquidated. The Venture is not expected to reinstate distributions in the near term. In January 1995, the Partnership completed negotiations for a new revolving credit agreement that will provide liquidity to fund capital expenditures. The Partnership will attempt to provide some level of distributions from cash generated from operations in 1995. No determination has been made regarding the level of future distributions. The level of distributions, if any, will be determined on a quarter-by-quarter basis. A determination of the level of distributions, if any, will be made on a quarter by quarter basis. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
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. In addition, advertising sales are becoming a significant source of revenue for the Systems. As a result of the adoption by the FCC of new rules under the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"), and several rate regulation orders, the Systems' rate structures for cable programming services and equipment have been revised. See Regulation and Legislation. At December 31, 1994, the Systems' monthly basic service rates ranged from $6.72 to $15.96, monthly basic and tier ("basic plus") service rates ranged from $17.83 to $22.39 and monthly premium services ranged from $3.40 to $12.95 per premium service. Charges for additional outlets have been eliminated, and charges for remote controls and converters have been "unbundled" from the programming service rates. In addition, pay-per-view programs and advertising fees generate revenues. Related charges may include a nonrecurring installation fee that ranges from $4.95 to $45.00; 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 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, 1994, of the total fees received by the Systems, basic service and tier service fees accounted for approximately 69% of total revenues, premium service fees accounted for approximately 18% of total revenues, pay-per-view fees were approximately 1% of total revenues, advertising fees were approximately 3% of total revenues and the remaining 9% of total revenues came principally from equipment rentals, installation fees and program guide sales. The Partnership is 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.
The Partnership'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 business. Each of the Systems has 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 General Partner's policy with regard to past due accounts is basically one of disconnecting service before a past due account becomes material.
The Partnership does not depend 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. The Partnership has no
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 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.
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. The Systems' franchises require that franchise fees ranging from $25.00 per year to 7% of gross revenues of the cable system be paid to the governmental authority that granted the franchise, that certain channels be dedicated to municipal use, that municipal facilities, hospitals and schools be provided cable service free of charge and that any new cable plant be substantially constructed within specific periods. (See Item 2
ITEM 2. PROPERTIES
The cable television systems owned by the Partnership and the Venture at December 31, 1994 are described below:
The following sets forth (i) the monthly basic plus service rates charged to subscribers, (ii) the number of basic subscribers and pay units and (iii) the range of franchise expiration dates 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. While the charge for basic plus service may have increased in some cases in 1993 as a result of the FCC's rate regulations, overall revenues may have decreased due to the elimination of charges for additional outlets and certain equipment. 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, 1994, the Partnership's Orangeburg System operated approximately 350 miles of cable plant, passing approximately 17,000 homes, representing an approximate 72% penetration rate, and the Venture's systems operated approximately 2,200 miles of cable plant, passing approximately 132,000 homes, representing an approximate 65% penetration rate. Figures for numbers of subscribers, miles of cable plant and homes passed are compiled from the General Partner's records and may be subject to adjustments.
Franchise expiration dates range from May 1995 to March 1998. The City of Orangeburg franchise expires in May 1995. The Partnership and the franchising authorities continue to negotiate the terms of a new franchise with a longer term.
Franchise expiration dates range from October 1997 to February 2008.
The franchise expiration dates range from April 1996 to June 2013. There is no franchise expiration date for Brighton.
Franchise expiration dates range from April 1996 to August 2014.
Franchise expiration dates range from June 1998 to July 2004.
Franchise expiration dates range from February 2001 to February 2009.
PROGRAMMING SERVICES
Programming services provided by the Systems include local affiliates of the national broadcast networks, local independent broadcast channels, the traditional satellite services (e.g., American Movie Classics, Arts & Entertainment, Black Entertainment Network, C-SPAN, The Discovery Channel, Lifetime, Entertainment Sports Network, Home Shopping Network, Mind Extension University, Music Television, Nickelodeon, Turner Network Television, The Nashville Network, Video Hits One, and superstations WOR, WGN and TBS. The Partnership's Systems also provide a selection, which varies by system, of premium channel programming (e.g., Cinemax, Encore, Home Box Office, Showtime and The Movie Channel).
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II.
ITEM 5.
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 15, 1995, the approximate number of equity security holders in the Partnership was 4,470.
Item 6.
Item 6. Selected Financial Data
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
JONES CABLE INCOME FUND 1-B
Results of Operations
1994 Compared to 1993-
Revenues of Jones Cable Income Fund 1-B, Ltd. (the "Partnership") increased $143,512, or approximately 3 percent, from $4,341,380 in 1993 to $4,484,892 in 1994. The Partnership's Orangeburg, South Carolina cable television system (the "Orangeburg System") added 472 basic subscribers during 1994, an increase of 4 percent. Such expansion of the subscriber base was primarily responsible for the increase in revenues. The increase in revenues would have been greater but for the reduction in certain rates charged due to basic rate regulations issued by the FCC in April 1993 with which the Partnership complied effective September 1993. See Item 1. No other factor significantly affected the increase in revenues.
Operating, general and administrative expenses increased $170,728, or approximately 7 percent, from $2,550,022 in 1993 to $2,720,750 in 1994. Operating, general and administrative expenses represented 59 percent of revenue in 1993, compared to 61 percent in 1994. The increase in operating, general and administrative expenses was due primarily to increases in programming fees. No other factor significantly affected the increase in operating, general and administrative expenses. Management fees and allocated overhead from the General Partner increased $25,921, or approximately 5 percent, from $546,371 in 1993 to $572,292 in 1994. This increase is due to the increase in revenues, upon which such fees and allocations are based, and an increase in expenses allocated from the General Partner. The General Partner has experienced increases in expenses, including personnel costs and reregulation costs, a portion of which are allocable to the Partnership.
Depreciation and amortization expense decreased $314,234, or approximately 19 percent, from $1,691,043 in 1993 to $1,376,809 in 1994. This decrease is due to a reduction in amortization expense, due to the maturation of the Partnership's intangible asset base and was offset, in part, by an increase in depreciation expense due to capital additions in 1993 and 1994.
Operating loss decreased $261,097, or approximately 59 percent, from $446,056 in 1993 to $184,959 in 1994. This decrease was due to the increase in revenues and the decrease in depreciation and amortization exceeding the increases in operating, general and administrative expense and management fees and allocated overhead from the General Partner. Operating income before depreciation and amortization decreased $53,137, or approximately 4 percent, from $1,244,987 in 1993 to $1,191,850 in 1994, due to the increase in revenues exceeding the increases in operating, general and administrative expense and management fees and allocated overhead from the General Partner. The decrease in operating income before depreciation and amortization reflects the current operating environment of the cable television industry. The FCC rate regulations under the 1992 Cable Act have caused revenues to increase more slowly than otherwise would have been the case. In turn, this has caused certain expenses which are a function of revenue, such as franchise fees, copyright fees and management fees, to increase more slowly than in prior years. However, other operating costs such as programming fees, salaries and benefits, and marketing costs as well as other costs incurred by the General Partner, which are allocated to the Partnership, continue to increase at historical rates. This situation has led to reductions in operating income before depreciation and amortization as a percent of revenue ("Operating Margin"). Such reductions in Operating Margins may continue in the near term as the Partnership and the General Partner incur cost increases due to, among other things, increases in programming fees, compliance costs associated with reregulation and competition, that exceed increases in revenue. The General Partner will attempt to mitigate a portion of these reductions through (a) new service offerings, (b) product re-marketing and re-packaging and (c) marketing efforts targeted at non-subscribers.
Interest expense increased $15,359, or approximately 4 percent, from $376,224 in 1993 to $391,583 in 1994 due to higher effective rates on interest bearing obligations.
Loss before equity in net loss of cable television joint venture decreased $227,408, or approximately 26 percent, from $869,795 in 1993 to $642,387 in 1994. This decrease was due to the factors discussed above and are expected to continue.
In addition to its wholly owned Orangeburg System, the Partnership owns an approximate 40 percent interest in Jones Cable Income Fund 1-B/C Venture (the "Venture"). The Partnership's share of the Venture's loss increased from $1,753,583 in 1993 to $1,949,794 in 1994. The Venture's operations are significant to the Partnership and should be reviewed in conjunction with this analysis. Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations for the Venture for details pertaining to the Venture's operations.
1993 Compared to 1992-
Revenues of the Partnership's Orangeburg System increased $177,690, or approximately 4 percent, from $4,163,690 in 1992 to $4,341,380 in 1993. During 1993, the Orangeburg System added 446 basic subscribers, an increase of 4 percent. Such expansion of the subscriber base was primarily responsible for the increase in revenues. The increase in revenue would have been greater but for the reduction in certain rates charged due to basic rate regulations issued by the FCC in April 1993 with which the Partnership complied effective September 1993. No other individual factor significantly affected the increase in revenues.
Operating, general and administrative expense increased $140,975 or approximately 6 percent, from $2,409,047 in 1992 to $2,550,022 in 1993. Operating, general and administrative expense consumed 59 percent of revenue in 1993 compared to 58 percent in 1992. The increase in operating, general and administrative expense was due primarily to increases in programming fees. Management fees and allocated overhead from the General Partner increased $26,899, or approximately 5 percent, from $519,472 in 1992 to $546,371 in 1993. Such increase was due to the increase in revenue, upon which such fees and allocations are based, and an increase in costs allocated from the General Partner.
Depreciation and amortization decreased $240,212, or approximately 12 percent, from $1,931,255 in 1992 to $1,691,043 in 1993. This decrease was due to a reduction in amortization expense, due to the maturation of the Partnership's intangible asset base and was offset, in part by an increase in depreciation expense due to capital additions in 1992 and 1993.
Operating loss decreased $250,028, or approximately 36 percent, from $696,084 in 1992 to $446,056 in 1993. This decrease is due to the increase in revenues and the decreases in depreciation and amortization exceeding the increases in operating, general and administrative expense and management fees and allocated overhead from the General Partner. Operating income before depreciation and amortization increased $9,816, or approximately 1 percent, from $1,235,171 in 1992 to $1,244,987 in 1993, due to the increase in revenues exceeding the increases in operating, general, and administrative expense and management fees and allocated overhead from the General Partner.
Interest expense decreased $27,908, or approximately 7 percent, from $404,132 in 1992 to $376,224 in 1993 due to lower effective rates on interest bearing obligations. Other expense decreased $244,410, or approximately 84 percent, from $291,925 in 1992 to $47,515 in 1993. This decrease was due to a reduction in costs associated with the potential overbuild in the Orangeburg system.
Loss before equity in net loss of cable television joint venture decreased $522,345, or approximately 38 percent, from $1,392,141 in 1992 to $869,795 in 1993. This decrease was due to the factors discussed above.
Financial Condition
The Partnership expended approximately $901,000 for capital additions during 1994. The construction of service drops to subscribers homes accounted for approximately 27 percent of the capital expenditures. Construction of cable television plant extensions accounted for approximately 22 percent of the expenditures. The purchase of converters accounted for approximately 17 percent of the expenditures. The remaining expenditures were for various enhancements in the Orangeburg System. Funding for these expenditures was provided by cash generated from operations and advances from the General Partner. Anticipated capital expenditures for 1995 are approximately $2,216,000. The construction of service drops to subscribers' homes is expected to account for 33 percent of the expenditures. The purchase of converters and advertising equipment are expected to account for approximately 24 percent and 15 percent, respectively, of the expenditures. The remainder of the expenditures is expected to relate to various enhancements in the Orangeburg System.Funding for these expenditures is expected to be provided by cash generated from operations and borrowings under the Partnership's new revolving credit facility as discussed below.
As of December 31, 1994, the full amount of the Partnership's $3,500,000 credit facility was outstanding. In January 1995, the General Partner completed negotiations for a new revolving credit facility with a maximum amount available of $8,500,000. The Partnership borrowed $5,800,000 to repay the amounts outstanding under the prior credit facility and to repay the General Partner its advances, leaving $2,700,000 of borrowings available. The revolving credit facility converts to a term loan on December 31, 1997 at which time the then-outstanding loan balance will be due in 20 consecutive quarterly installments beginning March 31, 1998. Interest on the revolving credit facility is at the Partnership's option of the Prime rate plus 1/4 percent, the CD rate plus 1 3/8 percent, or the London Interbank Offered Rate plus 1 1/2 percent.
Since the balance on the the Partnership's former credit facility was at the maximum available, the General Partner had advanced funds necessary for capital expenditures. Interest on such advances was calculated at the General Partner's weighted average cost of borrowing. At December 31, 1994, such advances totalled $2,162,870. Such advances were repaid in January 1995 with proceeds from borrowings under the new revolving credit facility.
The Partnership's approximate 40 percent interest in the Venture is accounted for under the equity method. When compared to the December 31, 1993 balance, the investment has decreased by $1,949,794. This decrease represents the Partnership's share of Venture losses. Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations for the Venture for details pertaining to the Venture's financial condition.
One of the primary objectives of the Partnership is to provide quarterly cash distributions to the partners. Such cash returns are primarily from cash generated through the operating activities of the Partnership and from the distributions made to the Partnership from the Venture. Because the Partnership's credit facility was at the maximum amount available in 1994, the Partnership utilized cash generated from operations to fund capital expenditures. In addition, the Venture's credit facility has a maximum amount available of $45,000,000, of which $42,100,000 was outstanding at December 31, 1994, which limits the amount of borrowings available to the Venture to fund capital expenditures; therefore, the Venture did not declare any distributions in 1994. Due to these conditions, the Partnership did not declare any distributions for 1994. Distributions for the years ended December 31, 1993 and 1992 were $1,735,352 and $1,642,928, respectively. The General Partner has agreed to defer its portion of the distributions from cash flows until the Partnership is liquidated. The Venture is not expected to reinstate distributions in the near term. In January 1995, the Partnership completed negotiations for a new revolving credit agreement that will provide liquidity to fund capital expenditures. The Partnership will attempt to provide some level of distributions from cash generated from operations in 1995. No determination has been made regarding the level of future distributions. The level of distributions, if any, will be determined on a quarter-by-quarter basis.
Regulation and Legislation
On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"), which became effective on December 4, 1992. The 1992 Cable Act generally allows for a greater degree of regulation of the cable television industry. In April 1993, the FCC adopted regulations governing rates for basic and non-basic services. These regulations became effective on September 1, 1993. Such regulations caused reductions in rates for certain regulated services. On February 22, 1994, the FCC adopted several additional rate orders including an order which revised its earlier-announced regulatory scheme with respect to rates. The Partnership has filed a cost-of-service showing for its Orangeburg System and therefore anticipates no further reductions in rates. The cost-of-service showing has not yet received final approval from franchising authorities, however, and there can be no assurance that the Partnership's cost-of-service showing will prevent further rate reductions until such final approval is received. See Item 1 for further discussion of the provisions of the 1992 Cable Act and the FCC regulations promulgated thereunder.
JONES CABLE INCOME FUND 1-B/C VENTURE
Results of Operations
1994 Compared to 1993-
Revenues of Jones Cable Income Fund 1-B/C Venture (the "Venture") increased $771,011, or approximately 4 percent, from $20,350,776 in 1993 to $21,121,787 in 1994. An increase in subscribers accounted for approximately 41 percent of the increase in revenues. Increases in premium service revenue and advertising sales revenue accounted for approximately 28 percent and 26 percent, respectively, of the increase in revenues. The increase in revenues would have been greater but for the reduction in certain rates charged due to basic rate regulations issued by the FCC in April 1993 with which the Venture complied effective September 1, 1993.
Operating, general and administrative expenses increased $645,813, or approximately 6 percent, from $11,371,695 in 1993 to $12,017,508 in 1994. Operating, general and administrative expenses represented 56 percent of revenue in 1993 compared to 57 percent in 1994. The increase in operating, general and administrative expense was due to increases in programming fees, personnel related costs, and advertising sales costs. No other individual factor was significant to the increase in operating, general and administrative expenses. Management fees and allocated overhead from Jones Intercable, Inc. increased $125,126, or approximately 5 percent, from $2,589,673 in 1993 to $2,714,799 in 1994, due primarily to the increase in revenues, upon which such fees and allocations are calculated, and an increase in expenses allocated from Jones Intercable, Inc. The General Partner has experienced increases in expenses, including personnel costs and reregulation costs, a portion of which are allocated to the Venture.
Depreciation and amortization expense decreased $154,759, or approximately 2 percent, from $8,787,240 in 1993 to $8,632,481 in 1994. This decrease is due to the maturation of the Venture's depreciable asset base.
Operating loss decreased $154,831, or approximately 7 percent, from $2,397,832 in 1993 to $2,243,001 in 1994. This decrease is a result of the increase in revenues and the decrease in depreciation and amortization exceeding the increase in operating, general and administrative expenses, management fees and allocated overhead from Jones Intercable, Inc. Operating income before depreciation and amortization increased less than 1 percent, from $6,389,408 in 1993 to $6,389,480 in 1994.
Interest expense increased $745,019, or approximately 37 percent, from $2,016,390 in 1993 to $2,761,409 in 1994. This increase was due to higher effective interest rates on interest bearing obligations. Net loss increased $434,366, or approximately 11 percent, from $4,409,310 in 1993 to $4,902,676 in 1994. These losses are due to the factors discussed above and are expected to continue in the future.
1993 Compared to 1992-
Revenues of the Venture increased $1,502,431, or approximately 8 percent, from $18,848,345 in 1992 to $20,350,776 in 1993. An increase in subscribers accounted for approximately 36 percent of the increase in revenues and basic rate adjustments accounted for approximately 42 percent of the increase in revenues. Increases in advertising sales revenue accounted for approximately 11 percent of the increase in revenues. The increase in revenue would have been greater but for the reduction in certain rates charged due to new basic rate regulations issued by the FCC in April 1993 with which the Venture complied effective September 1, 1993.
Operating, general and administrative expenses increased $1,809,113, or approximately 19 percent, from $9,562,582 in 1992 to $11,371,695 in 1993. Operating, general and administrative expenses represented 56 percent of revenue in 1993 compared to 51 percent in 1992. The increase in operating, general and administrative expense was due to increases in programming fees, personnel related costs, and plant related costs. No other individual factor was significant to the increase in operating, general and administrative expenses. Management fees and allocated overhead from Jones Intercable, Inc. increased $218,910, or approximately 9 percent, from $2,370,763 in 1992 to $2,589,673 in 1993, due primarily to the increase in revenues, upon which such fees and allocations are calculated, and an increase in expenses allocated from Jones Intercable, Inc.
Depreciation and amortization expense decreased $344,202, or approximately 4 percent, from $9,131,442 in 1992 to $8,787,240 in 1993. This decrease was due to the maturation of the Venture's depreciable asset base.
Operating loss increased $181,390, or approximately 8 percent, from $2,216,442 in 1992 to $2,397,832 in 1993. This increase was a result of the increase in operating, general and administrative expenses, management fees and allocated overhead from Jones Intercable, Inc. exceeding the growth in revenues and the decrease in depreciation and amortization expense.
Interest expense increased $100,445, or approximately 5 percent, from $1,915,945 in 1992 to $2,016,390 in 1993. This increase was due to higher outstanding balances on interest bearing obligations. Net loss increased $285,918, or approximately 7 percent, from $4,123,392 in 1992 to $4,409,310 in 1993.
Financial Condition
During 1994, capital improvements within the Venture's operating systems totaled approximately $4,602,000. Approximately 25 percent were for the construction of service drops to subscribers' homes. Approximately 23 percent of these expenditures were for rebuilds and upgrades in the Venture's cable television systems and approximately 15 percent was for the construction of new cable plant. The remainder of these expenditures related to various system enhancements and improvements in all of the Venture's systems. Funding for these expenditures was provided by borrowings under the Venture's credit facility and cash generated from operations. Anticipated capital expenditures for 1995 are approximately $5,000,000. Construction of service drops to homes and the construction of new cable plant will account for approximately 24 percent and 23 percent, respectively, of the anticipated expenditures. Expenditures for pay security equipment will account for approximately 12 percent, with the remainder of the expenditures relating to other various enhancements in all of the Venture's systems. Funding for these expenditures is expected to come from cash generated from operations and borrowings under the Venture's credit facility.
In May 1994, the Venture completed renegotiation of its credit facility to increase the maximum amount available to $45,000,000 and to extend the revolving credit period to June 30, 1997, at which time the outstanding balance is payable in full. At December 31, 1994, $42,100,000 was outstanding on the Venture's credit facility leaving $2,900,000 of available borrowings. Interest on outstanding principal is calculated at the Venture's option of the Prime rate plus 1/2 percent, or LIBOR plus 1-1/2 percent.
On January 12, 1993, the Venture entered into an interest rate cap agreement covering outstanding debt obligations of $15,000,000. The agreement protects the Venture for LIBOR interest rates that exceed 7 percent for three years from the date of the agreement. The Venture paid a fee of $145,500.
One of the primary objectives of the Venture is to provide quarterly cash distributions to the Venture partners. Such cash returns are primarily from cash generated through operating activities of the Venture. The Venture's credit facility has a maximum amount available of $45,000,000, of which $42,100,000 was outstanding on December 31, 1994, which limits the amount of borrowings available to the Venture to fund capital expenditures; therefore, the Venture did not declare any distributions in 1994. During 1993 and 1992, the Venture declared and paid distributions to the Venture partners totaling $4,320,000 and $4,090,000, respectively. Due to the borrowing limitations discussed above, the Venture will need to use cash generated from operations to fund capital expenditures and thus the Venture does not anticipate the resumption of distributions to the Venture partners in the near term.
The General Partner believes that the Venture has sufficient sources of capital to meet its presently anticipated needs.
Regulatory and Legislation
On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"), which became effective on December 4, 1992. The 1992 Cable Act generally allows for a greater degree of regulation of the cable television industry. In April 1993, the FCC adopted regulations governing rates for basic and non-basic services. These regulations became effective on September 1, 1993. Such regulations caused reductions in rates for certain regulated services. On February 22, 1994, the FCC adopted several additional rate orders including an order which revised its earlier-announced regulatory scheme with respect to rates. The Venture has filed cost-of-service showings for its Brighton, Broomfield and Boulder County, Colorado; Myrtle Creek, Oregon; South Sioux City,
Nebraska; and Three Rivers and Watervliet, Michigan systems and thus anticipates no further reductions in rates in these systems. The cost-of-service showings have not yet received final approval from franchising authorities, however, and there can be no assurance that the Venture's cost-of-service showings will prevent further rate reductions until such final approvals are received. The Venture complied with the February 1994 benchmark regulations and further reduced rates in its Clearlake Oaks system effective July 1994. See Item 1 for further discussion of the provisions of the 1992 Cable Act and the FCC regulations promulgated thereunder.
Item 8.
Item 8. Financial Statements
JONES CABLE INCOME FUND 1-B
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 AND 1993
INDEX
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Jones Cable Income Fund 1-B:
We have audited the accompanying balance sheets of JONES CABLE INCOME FUND 1-B (a Colorado limited partnership) as of December 31, 1994 and 1993, and the related statements of operations, partners' capital (deficit) and cash flows for each of the three years in the period ended December 31, 1994. 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 Jones Cable Income Fund 1-B as of December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado, March 8, 1995.
JONES CABLE INCOME FUND 1-B (A Limited Partnership)
BALANCE SHEETS
The accompanying notes to financial statements are an integral part of these balance sheets.
JONES CABLE INCOME FUND 1-B (A Limited Partnership)
BALANCE SHEETS
The accompanying notes to financial statements are an integral part of these balance sheets.
JONES CABLE INCOME FUND 1-B (A Limited Partnership)
STATEMENTS OF OPERATIONS
The accompanying notes to financial statements are an integral part of these statements.
JONES CABLE INCOME FUND 1-B (A Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
The accompanying notes to financial statements are an integral part of these statements.
JONES CABLE INCOME FUND 1-B (A Limited Partnership)
STATEMENTS OF CASH FLOWS
The accompanying notes to financial statements are an integral part of these statements.
JONES CABLE INCOME FUND 1-B (A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND PARTNERS' INTERESTS
Formation and Business
Jones Cable Income Fund 1-B, Ltd. (the "Partnership"), a Colorado limited partnership, was formed on August 14, l986, under a public program sponsored by Jones Intercable, Inc. ("Intercable"). The Partnership was formed to acquire, develop and operate cable television systems. Intercable is the "General Partner" and manager of the Partnership. The General Partner 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.
Contributed Capital
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.
The General Partner 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 the General Partner, 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 agreement.
Cable Television System Acquisition
The Partnership's acquisition of the cable television system serving the community of Orangeburg, South Carolina (the "Orangeburg System") was accounted for as a purchase with the purchase price allocated as follows: first, to the fair value of net tangible assets acquired; second, to the value of a subscriber list, franchise costs and favorable leaseholds; and third to costs in excess of interests in net assets purchased. Brokerage fees paid to a subsidiary of the General Partner were allocated to intangible assets based upon the relative value of these assets at acquisition. Other system acquisition costs were capitalized and included in the cost of distribution systems.
The Partnership owns the Orangeburg System and also owns an approximate 40 percent interest in Jones Cable Income Fund 1-B/C Venture (the "Venture"), through a capital contribution made to the Venture in November 1987 of $24,220,000. The Venture acquired cable television systems in Colorado, Oregon and California on December 31, 1987 and in Colorado, Nebraska and Michigan during 1988. The Venture incurred losses of $4,902,676 , $4,409,310 and $4,123,392 in 1994, 1993, and 1992, respectively, of which $1,949,794, $1,753,583 and $1,639,873, respectively, was allocated to the Partnership.
(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.
Investment in Cable Television Joint Venture
The Partnership's investment in the Venture is accounted for under 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 42.
Property, Plant and Equipment
Depreciation of property, plant and equipment is provided primarily using the straight-line method over the following estimated service lives:
Replacements, renewals and improvements are capitalized and maintenance and repairs are charged to expense as incurred.
Intangible Assets
Costs assigned to subscriber lists, favorable leaseholds and costs in excess of interests in net assets purchased are being amortized using the straight-line method over the following remaining estimated useful lives:
Revenue Recognition
Subscriber prepayments are initially deferred and recognized as revenue when earned.
(3) TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
Management Fees, Distribution Ratios and Reimbursement
The General Partner manages the Partnership and receives a fee for its services equal to 5 percent of the gross revenues of the Partnership, excluding revenues from the sale of cable television systems or franchises. Management fees charged during the years ended December 31, 1994, 1993 and 1992 were $224,245, $217,069 and $208,185, respectively.
Any partnership 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 the General Partner. Distributions resulting 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, other than those made regularly from cash flow, will equal their initial capital contribution; second, payment to the limited partners of a liquidation preference equal to a 10 percent cumulative return on their initial capital contribution, reduced by all prior distributions from cash flow; and the balance, 75 percent to the limited partners and 25 percent to the General Partner.
The Partnership reimburses the General Partner for certain allocated overhead and administrative expenses. These expenses represent salaries and benefits paid to corporate personnel, rent, data processing and other corporate facilities costs. Such personnel provide engineering, marketing, administrative accounting, legal, and investor relations services to the Partnership. Allocations of personnel costs are based primarily on actual time spent by employees of the General Partner with respect to each partnership managed. Remaining overhead costs are allocated based on
revenues and/or assets managed for the partnership. Effective December 1, 1993 the allocation method was changed to be based only on revenue, which the General Partner believes provides a more accurate method of allocation. Systems owned by the General Partner and all other systems owned by partnerships for which Intercable is the general partner are also allocated a proportionate share of these expenses. The General Partner believes that the methodology used in allocating overhead and administrative expenses is reasonable. Amounts allocated to the Partnership by the General Partner for overhead and administrative expenses during the years ended December 31, 1994, 1993 and 1992 were $348,047, $329,302 and $311,287, respectively.
The Partnership was charged interest during 1994 at an average interest rate of 10 percent on the amounts due to the General Partner, which approximated the General Partner's weighted average cost of borrowing. Total interest charged by the General Partner during the years ended December 31, 1994, 1993 and 1992 was $176,867, $217,249 and $214,682, respectively.
Payments to/from Affiliates for Programming Services
The Partnership receives programming from Product Information Network, Superaudio and The Mind Extension University, affiliates of the General Partner. Payments to Superaudio totaled $7,193, $7,243 and $7,012 in 1994, 1993 and 1992, respectively. Payments to The Mind Extension University totaled $6,517, $4,212 and $4,017 in 1994, 1993 and 1992, respectively. The Partnership receives a commission from Product Information Network based on a percentage of advertising revenues and number of subscribers. Product Information Network, which initiated service in 1994, paid commissions to the Partnership totalling $321 in 1994.
(4) DISTRIBUTIONS FROM CASH FLOW
One of the primary objectives of the Partnership is to provide quarterly cash distributions to the partners. Such cash returns are primarily from cash generated through the operating activities of the Partnership and from the distributions made to the Partnership from the Venture. Because the Partnership's credit facility was at the maximum amount available in 1994, the Partnership utilized cash generated from operations to fund capital expenditures. In addition, the Venture's credit facility has a maximum amount available of $45,000,000, of which $42,100,000 was outstanding at December 31, 1994, which limits the amount of borrowings available to the Venture to fund capital expenditures; therefore, the Venture did not declare any distributions in 1994. Due to these conditions, the Partnership did not declare any distributions for 1994. Distributions for the years ended December 31, 1993 and 1992 were $1,735,352 and $1,642,928, respectively. The General Partner has agreed to defer its portion of the distributions from cash flows until the Partnership is liquidated. The Venture is not expected to reinstate distributions in the near term. In January 1995, the Partnership completed negotiations for a new revolving credit agreement that will provide liquidity to fund capital expenditures. The Partnership will attempt to provide some level of distributions from cash generated from operations in 1995. No determination has been made regarding the level of future distributions. The level of distributions, if any, will be determined on a quarter-by-quarter basis.
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 1994 and 1993, consisted of the following:
(6) DEBT
As of December 31, 1994, the full amount of the Partnership's $3,500,000 credit facility was outstanding. In January 1995, the General Partner completed negotiations for a new revolving credit facility with a maximum amount available of $8,500,000. The Partnership borrowed $5,800,000 to repay the amounts outstanding under the prior credit facility and to repay the General Partner its advances, leaving $2,700,000 of borrowings available. The revolving credit facility converts to a term loan on December 31, 1997 at which time the then-outstanding loan balance will be due in 20 consecutive quarterly installments beginning March 31, 1998. Interest on the revolving credit facility is at the Partnership's option of the Prime rate plus 1/4 percent, the CD rate plus 1 3/8 percent, or the London Interbank Offered Rate plus 1 1/2 percent. The effective interest rates on outstanding obligations were 8.63 percent and 4.31 percent, respectively, at December 31, 1994 and 1993.
Installments due on debt principal for the five years ending December 31, 1999 and thereafter, respectively, are $13,200, $13,200, $13,200, $167,150, $572,250 and $2,765,000. At December 31, 1994, substantially all of the Partnership assets secured the above indebtedness.
(7) INCOME TAXES
Income taxes have not been recorded in the accompanying financial statements because they accrue directly to the partners. The Federal and state income tax returns of the Partnership are prepared and filed by the General Partner.
The Partnership's tax returns, the qualification of the Partnership as such for tax purposes, and the amount of distributable partnership income or loss are subject to examination by Federal and state taxing authorities. If such examinations result in changes with respect to the Partnership's qualification as such, or in changes with respect to the Partnership's recorded income or loss, the tax liability of the general and limited partners would likely be changed accordingly.
Taxable loss reported to the partners is different from that reported in the statements of operations due to the difference in depreciation recognized under generally accepted accounting principles and the expense allowed for tax purposes under the Modified Accelerated Cost Recovery System (MACRS). There are no other significant differences between taxable loss and the net loss reported in the statements of operations.
(8) COMMITMENTS AND CONTINGENCIES
On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"), which became effective on December 4, 1992. The 1992 Cable Act generally allows for a greater degree of regulation of the cable television industry. In April 1993, the FCC adopted regulations governing rates for basic and non-basic services. These regulations became effective on September 1, 1993. Such regulations caused reductions in rates for certain regulated services. On February 22, 1994, the FCC adopted several additional rate orders including an order which revised its earlier-announced regulatory scheme with respect to rates. The Partnership has filed a cost-of-service showing for its Orangeburg System and therefore anticipates no further reductions in rates. The cost-of-service showing has not yet received final approval from franchising authorities, however, and there can be no assurance that the Partnership's cost-of-service showings will prevent further rate reductions until such final approval is received. See Item 1 for further discussion of the provisions of the 1992 Cable Act and the FCC regulations promulgated thereunder.
The Partnership rents office and other facilities under various long-term lease arrangements. Rent paid under such lease agreements totaled $26,875, $27,112, and $27,555, respectively, for the years ended December 31, 1994, 1993 and 1992. Minimum commitments under operating leases for each of the five years in the period ending December 31, 1999, and thereafter are as follows:
(9) SUPPLEMENTARY PROFIT AND LOSS INFORMATION
Supplementary profit and loss information for the respective years is presented below:
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Jones Cable Income Fund 1-B/C Venture:
We have audited the accompanying balance sheets of JONES CABLE INCOME FUND 1-B/C Venture (a Colorado general partnership) as of December 31, 1994 and 1993, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the General Partners' 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 Jones Cable Income Fund 1-B/C Venture as of December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado, March 8, 1995.
JONES CABLE INCOME FUND 1-B/C VENTURE (A General Partnership)
BALANCE SHEETS
The accompanying notes to financial statements are an integral part of these balance sheets.
JONES CABLE INCOME FUND 1-B/C VENTURE (A General Partnership)
BALANCE SHEETS
The accompanying notes to financial statements are an integral part of these balance sheets.
JONES CABLE INCOME FUND 1-B/C VENTURE (A General Partnership)
STATEMENTS OF OPERATIONS
The accompanying notes to financial statements are an integral part of these statements.
JONES CABLE INCOME FUND 1-B/C VENTURE (A General Partnership)
STATEMENTS OF PARTNERS' CAPITAL
The accompanying notes to financial statements are an integral part of these statements.
JONES CABLE INCOME FUND 1-B/C VENTURE (A General Partnership)
STATEMENTS OF CASH FLOWS
The accompanying notes to financial statements are an integral part of these statements.
JONES CABLE INCOME FUND 1-B/C VENTURE (A General Partnership)
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND PARTNERS' INTERESTS
Formation and Business
On October 21, 1987, Jones Cable Income Fund 1-B, Ltd. ("Fund 1-B") and Jones Cable Income Fund 1-C, Ltd. ("Fund 1-C") formed a Colorado general partnership known as Jones Cable Income Fund 1-B/C Venture (the "Venture") by making capital contributions of $24,220,000 and $36,681,000, respectively (approximately 40 and 60 percent, respectively). The Venture was formed to acquire, develop and operate cable television systems. During 1988 and 1987, the Venture acquired various cable television systems serving the areas in and around Brighton, Broomfield and Boulder County, Colorado; Lake County, California; Myrtle Creek, Oregon; South Sioux City, Nebraska; and Three Rivers and Watervliet, Michigan.
Jones Intercable, Inc. ("Intercable"), the general partner of Fund 1-B and Fund 1-C, manages the Venture. 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 affiliated entities.
Contributed Capital
The capitalization of the Venture is set forth in the accompanying statements of partners' capital.
All Venture distributions, including those made from cash flow, from the sale or refinancing of Venture property and on dissolution of the Venture, shall be made to Fund 1-B and Fund 1-C in proportion to their interests in the Venture.
Cable Television System Acquisition
Venture acquisitions were accounted for as purchases with the purchase prices allocated as follows: first, to the fair value of net tangible assets acquired; second, to the value of subscriber lists, franchise costs and a noncompete agreement; and third, to cost in excess of interests in net assets purchased. Brokerage fees paid to a subsidiary of Intercable's parent were allocated to intangible assets based upon the relative value of these assets at acquisition. Other system acquisition costs were capitalized and included in the cost of distribution systems.
(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 Venture's tax returns are also prepared on the accrual basis.
Property, Plant and Equipment
Depreciation of property, plant and equipment is provided primarily using the straight-line method over the following estimated service lives:
Replacements, renewals and improvements are capitalized and maintenance and repairs are charged to expense as incurred.
Intangible Assets
Costs assigned to franchises, subscriber lists, a noncompete agreement and costs in excess of interests in net assets purchased are amortized using the straight-line method over the following remaining estimated useful lives:
Revenue Recognition
Subscriber prepayments are initially deferred and recognized as revenue when earned.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 1994 presentation.
(3) TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
Management Fees and Reimbursements
Intercable manages the Venture and receives a fee for its services equal to 5 percent of the gross revenues of the Venture, excluding revenues from the sale of cable television systems or franchises. Management fees paid to Intercable by the Venture during the years ended December 31, 1994, 1993 and 1992 were $1,056,089, $1,017,539 and $942,417, respectively.
The Venture 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 facilities costs. Such personnel provide engineering, marketing, administrative, accounting, legal and investor relations services to the Venture. Allocations of personnel costs are based primarily on actual time spent by employees of Intercable with respect to each entity managed. Remaining overhead costs are allocated based on revenue and/or assets managed for the partnership. Effective December 1, 1993, the allocation method was changed to be based only on revenue, which the General Partner believes provides a more accurate method of allocation. Systems owned by 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 of allocating overhead and administrative expenses is reasonable. Overhead and administrative expenses allocated to the Venture by Intercable during the years ended December 31, 1994, 1993 and 1992 were $1,658,710, $1,572,134 and $1,428,346, respectively.
The Venture was charged interest during 1994 at an average interest rate of 10 percent on the amounts due Intercable, which approximated Intercable's weighted average cost of borrowing. Total interest charged the Venture by Intercable was $180,316, $187,959 and $67,841 during 1994, 1993 and 1992, respectively.
Payments to/from Affiliates for Programming Services
The Venture receives programming from Product Information Network, Superaudio, The Mind Extension University and Jones Computer Network, affiliates of Intercable. Payments to Superaudio totaled $25,189, $26,541 and $33,913 in 1994, 1993 and 1992, respectively. Payments to The Mind Extension University totaled $33,199, $20,832 and $20,053 in 1994, 1993 and 1992, respectively. Payments to Jones Computer Network, which initiated service in 1994, totaled $13,218 in 1994. The Venture receives a commission from Product Information Network based on a percentage of advertising revenues and number of subscribers. Product Information Network, which initiated service in 1994, paid commissions to the Venture totalling $15,283 in 1994.
(4) DISTRIBUTIONS FROM CASH FLOW
One of the primary objectives of the Venture is to provide quarterly cash distributions to the Venture partners. Such cash returns are primarily from cash generated through operating activities of the Venture. The Venture's credit facility has a maximum amount available of $45,000,000, of which $42,100,000 was outstanding on December 31, 1994, which limits the amount of borrowings available to the Venture to fund capital expenditures; therefore, the Venture did not declare any distributions in 1994. During 1993 and 1992, the Venture declared and paid distributions to the Venture partners totaling $4,320,000 and $4,090,000, respectively. Due to the borrowing limitations discussed above, the Venture will need to use cash generated from operations to fund capital expenditures and thus the Venture does not anticipate the resumption of distributions to the Venture partners in the near term.
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 1994 and 1993, consisted of the following:
(6) DEBT
In May 1994, the Venture completed negotiation of its credit facility to increase the maximum amount available to $45,000,000 and to extend the revolving credit period to June 30, 1997, at which time the then-outstanding balance is payable in full. At December 31, 1994, $42,100,000 was outstanding on the Venture's credit facility leaving $2,900,000 of available borrowings. Interest on outstanding principal is calculated at the Venture's option of the Prime rate plus 1/2 percent, or LIBOR plus 1-1/2 percent. The effective interest rates on amounts outstanding on the Venture's credit facility as of December 31, 1994 and 1993 were 7.36 percent and 4.67 percent, respectively.
On January 12, 1993, the Venture entered into an interest rate cap agreement covering outstanding debt obligations of $15,000,000. The Venture paid a fee of $145,500. The agreement protects the Venture for LIBOR interest rates that exceed 7 percent for three years from the date of the agreement.
Installments due on debt principal for each of the five years in the period ending December 31, 1999, respectively, are $85,002, $85,002, $42,185,001, $28,334 and $-0-. As of December 31, 1994, substantially all of the Venture's assets secured the above indebtedness.
(7) INCOME TAXES
Income taxes have not been recorded in the accompanying financial statements because they accrue directly to Fund 1-B and Fund 1-C. The Federal and state income tax returns of the Venture are prepared and filed by Intercable.
The Venture's tax returns, the qualification of the Venture as such for tax purposes, and the amount of distributable Venture income or loss are subject to examination by Federal and state taxing authorities. If such examinations result in changes with respect to the Venture's qualification as such, or in changes with respect to the Venture's recorded income or loss, the tax liability of Fund 1-B and Fund 1-C would likely be changed accordingly.
Taxable loss reported to Fund 1-B and Fund 1-C is different from that reported in the statements of operations due to the difference in depreciation recognized under generally accepted accounting principles and the expense allowed for tax purposes under the Modified Accelerated Cost Recovery System (MACRS). There are no other significant differences between taxable income or loss and the net income or loss reported in the statements of operations.
(8) COMMITMENTS AND CONTINGENCIES
On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"), which became effective on December 4, 1992. The 1992 Cable Act generally allows for a greater degree of regulation of the cable television industry. In April 1993, the Federal Communications Commission (the "FCC") adopted regulations governing rates for basic and non-basic services. These regulations became effective on September 1, 1993. Such regulations caused reductions in rates for certain regulated services. On February 22, 1994, the FCC adopted several additional rate orders including an order which revised its earlier-announced regulatory scheme with respect to rates. The Venture has filed cost-of-service showings for its Brighton, Broomfield and Boulder County, Colorado; Myrtle Creek, Oregon; South Sioux City, Nebraska; and Three Rivers and Watervliet, Michigan systems and thus anticipates no further reductions in rates in these systems. The cost-of-service showings have not yet received final approval from franchising authorities, however, and there can be no assurance that the Venture's cost-of-service showings will prevent further rate reductions until such final approvals are received. The Venture complied with the February 1994 benchmark regulations and further reduced rates in its Clearlake Oaks system effective July 1994.
The Venture rents office and other facilities under various long-term lease arrangements. Rent paid under such lease arrangements totaled $82,204 , $78,616 and $88,074, respectively, for the years ended December 31, 1994, 1993 and 1992. Minimum commitments under operating leases for each of the five years in the period ending December 31, 1999, and thereafter are as follows:
(9) SUPPLEMENTARY PROFIT AND LOSS INFORMATION
Supplementary profit and loss information for the respective years is presented below:
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership itself has no officers or directors. Certain information concerning the directors and executive officers of the General Partner is set forth below.
Mr. Glenn R. Jones has served as Chairman of the Board of Directors and Chief Executive Officer of the General Partner since its formation in 1970, and he was President from June 1984 until April 1988. Mr. Jones was elected a member of the Executive Committee of the Board of Directors in April 1985. Mr. Jones is the sole shareholder, President and Chairman of the Board of Directors of Jones International, Ltd. He is also Chairman of the Board of Directors of the subsidiaries of the General Partner and of certain other affiliates of the General Partner. Mr. Jones has been involved in the cable television business in various capacities since 1961, is a past and present member of the Board of Directors of the National Cable Television Association, and is a former member of its Executive Committee. Mr. Jones is a past director and member of the Executive Committee of C-Span. Mr. Jones has been the recipient of several awards including the Grand Tam Award in 1989, the highest award from the Cable Television Administration and Marketing Society; the Chairman's Award from the Investment Partnership Association, which is an association of sponsors of public syndications; the cable television industry's Public Affairs Association President's Award in 1990, the Donald G. McGannon award for the advancement of minorities and women in cable; the STAR Award from American Women in Radio and Television, Inc. for exhibition of a commitment to the issues and concerns of women in television and radio; and the Women in Cable Accolade in 1990 in recognition of support of this organization. Mr. Jones is also a founding member of the James Madison Council of the Library of Congress and is on the Board of Governors of the American Society of Training and Development.
Mr. Derek H. Burney was appointed a Director of the General Partner in December 1994 and Vice Chairman of the Board of Directors in January 1995. He is also a member of the Executive Committee of the Board of Directors. Mr. Burney joined BCE Inc., Canada's largest telecommunications company, in January 1993 as Executive Vice President, International. He has been the Chairman of Bell Canada International Inc., a
subsidiary of BCE, since January 1993 and, in addition, has been Chief Executive Officer of BCI since July 1993. Prior to joining BCE, Mr. Burney served as Canada's ambassador to the United States from 1989 to 1992. Mr. Burney also served as chief of staff to the Prime Minister of Canada from March 1987 to January 1989 where he was directly involved with the negotiation of the U.S. - Canada Free Trade Agreement. In July 1993, he was named an Officer of the Order of Canada. Mr. Burney is chairman of Bell Cablemedia plc. He is a director of Mercury Communications Limited, Videotron Holdings plc, Tele-Direct (Publications) Inc., Teleglobe Inc., Bimcor Inc., Maritime Telegraph and Telephone Company, Limited, Moore Corporation Limited and Northbridge Programming Inc.
Mr. James B. O'Brien, the General Partner's President, joined the General Partner in January 1982. Prior to being elected President and a Director of the General Partner in December 1989, Mr. O'Brien served as a Division Manager, Director of Operations Planning/Assistant to the CEO, Fund Vice President and Group Vice President/Operations. Mr. O'Brien was appointed to the General Partner's Executive Committee in August 1993. As President, he is responsible for the day-to-day operations of the cable television systems managed and owned by the General Partner. Mr. O'Brien is also President and a Director of Jones Cable Group, Ltd., Jones Global Funds, Inc. and Jones Global Management, Inc., all affiliates of the General Partner. Mr. O'Brien is a board member of Cable Labs, Inc., the research arm of the U.S. cable television industry. He also serves as a director of the Cable Television Administration and Marketing Association and as a director of the Walter Kaitz Foundation, a foundation that places people of any ethnic minority group in positions with cable television systems, networks and vendor companies.
Ms. Ruth E. Warren joined the General Partner in August 1980 and has served in various operational capacities, including system manager and Fund Vice President, since then. Ms. Warren was elected Group Vice President/Operations of the General Partner in September 1990.
Mr. Kevin P. Coyle joined The Jones Group, Ltd. in July 1981 as Vice President/Financial Services. In September 1985, he was appointed Senior Vice President/Financial Services. He was elected Treasurer of the General Partner in August 1987, Vice President/Treasurer in April 1988 and Group Vice President/Finance and Chief Financial Officer in October 1990.
Mr. Christopher J. Bowick joined the General Partner in September 1991 as Group Vice President/Technology and Chief Technical Officer. Previous to joining the General Partner, Mr. Bowick worked for Scientific Atlanta's Transmission Systems Business Division in various technical management capacities since 1981, and as Vice President of Engineering since 1989.
Mr. Timothy J. Burke joined the General Partner in August 1982 as corporate tax manager, was elected Vice President/Taxation in November 1986 and Group Vice President/Taxation/Administration in October 1990.
Mr. Raymond L. Vigil joined the General Partner in June 1993 as Group Vice President/Human Resources. Previous to joining the General Partner, Mr. Vigil served as Executive Director of Learning with USWest. Prior to USWest, Mr. Vigil worked in various human resources posts over a 14-year term with the IBM Corporation.
Ms. Cynthia A. Winning joined the General Partner as Group Vice President/Marketing in December 1994. Previous to joining the General Partner, Ms. Winning served since 1994 as the President of PRS Inc., Denver, Colorado, a sports and event marketing company. From 1979 to 1981 and from 1986 to 1994, Ms. Winning served as the Vice President and Director of Marketing for Citicorp Retail Services, Inc., a provider of private-label credit cards for ten national retail department store chains. From 1981 to 1986, Ms. Winning was the Director of Marketing Services for Daniels & Associates cable television operations, as well as the Western Division Marketing Director for Capital Cities Cable. Ms. Winning also serves as a board Member of Cities in Schools, a dropout intervention/prevention program.
Ms. Elizabeth M. Steele joined the General Partner in August 1987 as Vice President/General Counsel and Secretary. From August 1980 until joining the General Partner, Ms. Steele was an associate and then a partner at the Denver law firm of Davis, Graham & Stubbs, which serves as counsel to the General Partner.
Mr. Larry Kaschinske joined the General Partner in 1984 as a staff accountant in the General Partner's former Wisconsin Division; was promoted to Assistant Controller in 1990 and named Controller in August 1994.
Mr. James J. Krejci was President of the International Division of International Gaming Technology International headquartered in Reno, Nevada, until March 1995. Prior to joining IGT in May 1994, Mr. Krejci was Group Vice President of Jones International, Ltd. and a Group Vice President of the General Partner. Prior to May 1994, he also served as Group Vice President of Jones Futurex, Inc., an affiliate of the General Partner engaged in manufacturing and marketing data encryption devices, Jones Interactive, Inc., a subsidiary of Jones International, Ltd. providing computer data and billing processing facilities and Jones Lightwave, Ltd., a company owned by Jones International, Ltd. and Mr. Jones, which is engaged in the provision of telecommunications services. Mr. Krejci has been a Director of the General Partner since August 1987.
Ms. Christine Jones Marocco was appointed a Director of the General Partner in December 1994. She is the daughter of Glenn R. Jones. Ms. Marocco is also a director of Jones International, Ltd.
Mr. Daniel E. Somers was appointed a Director of the General Partner in December 1994 and also serves on the General Partner's Audit Committee. From January 1992 to January 1995, Mr. Somers worked as Senior Vice President and Chief Financial Officer of Bell Canada International Inc. and was appointed Executive Vice President and Chief Financial Officer on February 1, 1995. He is also a Director of certain of its affiliates. Prior to joining Bell Canada International Inc. and since January 1989, Mr. Somers was the President and Chief Executive Officer of Radio Atlantic Holdings Limited. Mr. Somers is a member of the North American Society of Corporate Planning, the Financial Executives Institution and the Financial Analysts Federation.
Mr. Robert S. Zinn was appointed a Director of the General Partner in December 1994. Mr. Zinn joined the General Partner in January 1991 and is a member of its Legal Department. He is also Vice President/Legal Affairs of Jones International, Ltd. Prior to joining the General Partner, Mr. Zinn was in private law practice in Denver, Colorado for over 25 years.
Mr. David K. Zonker was appointed a Director of the General Partner in December 1994. Mr. Zonker has been the President of Jones International Securities, Ltd., a subsidiary of Jones International, Ltd. since January 1984 and he has been its Chief Executive Officer since January 1988. From October 1980 until joining Jones International Securities, Ltd. in January 1984, Mr. Zonker was employed by the General Partner. Mr. Zonker is a member of the Board of Directors of various affiliates of the General Partner, including Jones International Securities, Ltd. Mr. Zonker is licensed by the National Association of Securities Dealers, Inc. and he is a past chairman of the Investment Program Association, a trade organization based in Washington, D.C. that promotes direct investments. He is a member of the Board of Trustees of Graceland College, Lamoni, Iowa; the International Association of Financial Planners and the American and Colorado Institutes of Certified Public Accountants.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no employees; however, various personnel are required to operate the cable television systems owned by the Partnership. Such personnel are employed by the General Partner and, pursuant to the terms of the limited partnership agreement of the Partnership, the cost of such employment is charged by the General Partner to the Partnership as a direct reimbursement item. See Item 13.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS
No person or entity owns more than 5 percent of the limited partnership interests of the Partnership.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The General Partner and its affiliates engage in certain transactions with the Partnership and the Venture as contemplated by the limited partnership agreement of the Partnership. The General Partner believes that the terms of such transactions are generally as favorable as could be obtained by the Partnership and the Venture from unaffiliated parties. This determination has been made by the General Partner in good faith, but none of the terms were or will be negotiated at arm's-length and there can be no assurance that the terms of such transactions have been or will be as favorable as those that could have been obtained by the Partnership or the Venture from unaffiliated parties.
The General Partner charges a management fee, and the General Partner is reimbursed the for certain allocated overhead and administrative expenses. These expenses consist primarily of salaries and benefits paid to corporate personnel, rent, data processing services and other facilities costs. Such personnel provide engineering, marketing, administrative, accounting, legal and investor relations services. Allocations of personnel costs are based primarily on actual time spent by employees of the General Partner. Remaining overhead costs are allocated based on revenues and/or the costs of assets managed. Systems owned by the General Partner and all other systems owned by partnerships for which Jones Intercable, Inc. is the general partner, are also allocated a proportionate share of these expenses.
The General Partner also advances funds and charges interest on the balance payable. The interest rate charged approximates the General Partner's weighted average cost of borrowing.
The Systems receive stereo audio programming from Superaudio, a joint venture owned 50% by an affiliate of the General Partner and 50% by an unaffiliated party,educational video programming from Mind Extension University, Inc., an affiliate of the General Partner, and computer video programming from Jones Computer Network, Ltd., an affiliate of the General Partner, for fees based upon the number of subscribers receiving the programming.
Product Information Network ("PIN"), an affiliate of the General Partner, provides advertising time for third parties on the Systems. In consideration, the revenues generated from the third parties are shared two-thirds and one-third between PIN and the Partnership or the Venture. During the year ended December 31, 1994, the Partnership received revenues from PIN of $321, and the Venture received revenues from PIN of $15,283.
The charges to the Partnership and to the Venture for related party transactions are as follows for the periods indicated:
PART IV.
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
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(1) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1987.
(2) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1992.
(3) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1993.
(4) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1990.
(5) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1988.
(6) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1989.
(7) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1986.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 CABLE INCOME FUND 1-B, LTD. a Colorado limited partnership By: Jones Intercable, Inc.
By: /s/ Glenn R. Jones --------------------------- Glenn R. Jones Chairman of the Board and Chief Dated: March 27, 1995 Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ Glenn R. Jones --------------------------- Glenn R. Jones Chairman of the Board and Chief Executive Officer Dated: March 27, 1995 (Principal Executive Officer)
By: /s/ Kevin P. Coyle --------------------------- Kevin P. Coyle Group Vice President/Finance Dated: March 27, 1995 (Principal Financial Officer)
By: /s/ Larry Kaschinske --------------------------- Larry Kaschinske Controller Dated: March 27, 1995 (Principal Accounting Officer)
By: /s/ James B. O'Brien --------------------------- James B. O'Brien Dated: March 27, 1995 President and Director
By: /s/ Raymond L. Vigil --------------------------- Raymond L. Vigil Dated: March 27, 1995 Group Vice President and Director
By: /s/ Robert S. Zinn --------------------------- Robert S. Zinn Dated: March 27, 1995 Director
By: /s/ David K. Zonker --------------------------- David K. Zonker Dated: March 27, 1995 Director
By: --------------------------- Derek H. Burney Dated: Director
By: --------------------------- James J. Krejci Dated: Director
By: --------------------------- Christine Jones Marocco Dated: Director
By: --------------------------- Daniel E. Somers Dated: Director
EXHIBIT INDEX
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(1) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1987.
(2) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1992.
(3) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1993.
(4) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1990.
(5) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1988.
(6) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1989.
(7) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1986.