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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(x) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended 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: 0-14689
JONES CABLE INCOME FUND 1-A, LTD.
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Exact name of registrant as specified in charter
Colorado 84-1010416
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State of organization I.R.S. employer I.D.#
9697 East Mineral Avenue, Englewood, Colorado 80112
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Address of principal executive office
(303) 792-3111
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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 CABLE INCOME FUND 1-A
(A Limited Partnership)
UNAUDITED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
------
CASH $ 81,933 $ 61,322
TRADE RECEIVABLES, less allowance for doubtful
receivables of $2,838 and $6,117 at June 30, 1994
and December 31, 1993, respectively 39,387 57,745
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 9,173,113 8,901,952
Less- accumulated depreciation (4,976,315) (4,650,013)
----------- -----------
4,196,798 4,251,939
Franchise costs, net of accumulated amortization
of $513,483 and $481,053 at June 30, 1994
and December 31, 1993, respectively 213,517 245,947
Subscriber lists, net of accumulated amortization
of $1,352,896 and $1,281,604 at June 30, 1994
and December 31, 1993, respectively 50,104 121,396
Costs in excess of interests in net assets
purchased, net of accumulated amortization
of $36,478 and $34,174 at June 30, 1994
and December 31, 1993, respectively 147,522 149,826
----------- -----------
Total investment in cable television properties 4,607,941 4,769,108
DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 18,207 15,135
----------- -----------
Total assets $ 4,747,468 $ 4,903,310
=========== ===========
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these balance sheets.
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JONES CABLE INCOME FUND 1-A
(A Limited Partnership)
UNAUDITED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
----------- -----------
<S> <C> <C>
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
-------------------------------------------
LIABILITIES:
Debt $ 3,543,488 $ 3,310,501
Accounts payable-
Trade 15,280 4,196
General Partner - 20,529
Accrued liabilities 285,368 234,531
Accrued distribution to limited partners 250,000 250,000
Subscriber prepayments 55,100 60,027
----------- -----------
Total liabilities 4,149,236 3,879,784
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partner-
Contributed capital 1,000 1,000
Accumulated deficit (6,087) (6,834)
Distributions (61,249) (56,249)
----------- -----------
(66,336) (62,083)
----------- -----------
Limited Partners-
Net contributed capital (17,000 units outstanding
at June 30, 1994 and December 31, 1993) 7,288,694 7,288,694
Accumulated deficit (560,126) (634,085)
Distributions (6,064,000) (5,569,000)
----------- -----------
664,568 1,085,609
----------- -----------
Total liabilities and partners'
capital (deficit) $ 4,747,468 $ 4,903,310
=========== ===========
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these balance sheets.
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JONES CABLE INCOME FUND 1-A
(A Limited Partnership)
UNAUDITED 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 $1,091,799 $1,029,976 $2,159,382 $2,033,349
COSTS AND EXPENSES:
Operating, general and
administrative 636,108 603,358 1,273,384 1,238,133
Management fees and
allocated overhead from
General Partner 141,865 121,733 286,725 244,611
Depreciation and
amortization 210,182 202,842 432,328 407,055
---------- ---------- ---------- ----------
OPERATING INCOME 103,644 102,043 166,945 143,550
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (48,529) (34,920) (86,024) (66,047)
Other, net (6,435) (858) (6,215) (687)
---------- ---------- ---------- ----------
Total other expense, net (54,964) (35,778) (92,239) (66,734)
---------- ---------- ---------- ----------
NET INCOME $ 48,680 $ 66,265 $ 74,706 $ 76,816
========== ========== ========== ==========
ALLOCATION OF NET INCOME:
General Partner $ 487 $ 663 $ 747 $ 768
========== ========== ========== ==========
Limited Partners $ 48,193 $ 65,602 $ 73,959 $ 76,048
========== ========== ========== ==========
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ 2.83 $ 3.86 $ 4.35 $ 4.47
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER
OF LIMITED PARTNERSHIP
UNITS OUTSTANDING 17,000 17,000 17,000 17,000
========== ========== ========== ==========
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these statements.
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JONES CABLE INCOME FUND 1-A
(A Limited Partnership)
UNAUDITED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
------------------------------
1994 1993
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 74,706 $ 76,816
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 432,328 407,055
Decrease in trade receivables 18,358 22,740
Increase in deposits, prepaid expenses and
deferred charges (3,072) (4,345)
Increase (decrease) in trade accounts payable,
accrued liabilities and subscriber prepayments 51,994 (37,112)
Decrease in advances from General Partner (20,529) (19,356)
--------- ---------
Net cash provided by operating activities 553,785 445,798
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (271,161) (311,152)
--------- ---------
Net cash used in investing activities (271,161) (311,152)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 250,000 447,399
Repayment of debt (17,013) (8,808)
Cash flow distributions to limited partners (495,000) (520,000)
--------- ---------
Net cash used in financing activities (262,013) (81,409)
--------- ---------
Increase in cash 20,611 53,237
Cash, beginning of period 61,322 38,127
--------- ---------
Cash, end of period $ 81,933 $ 91,364
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 93,105 $ 35,412
========= =========
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these statements.
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JONES CABLE INCOME FUND 1-A
(A Limited Partnership)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) This Form 10-Q is being filed in conformity with the SEC requirements
for unaudited financial statements and does not contain all of the necessary
footnote disclosures required for a fair presentation of the Balance Sheets and
Statements of Operations and Cash Flows in conformity with generally accepted
accounting principles. However, in the opinion of management, this data
includes all adjustments, consisting only of normal recurring accruals,
necessary to present fairly the financial position of Jones Cable Income Fund
1-A ("the Partnership") at June 30, 1994 and December 31, 1993 and its
Statements 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.
The Partnership owns and operates the cable television systems serving
certain areas in and around Owatonna, Minnesota and Milwaukie, Oregon.
(2) Jones Intercable, Inc., a publicly held Colorado corporation (the
"General Partner"), manages the Partnership and receives a fee for its services
equal to five percent of the gross revenues of the Partnership, excluding
revenues from the sale of cable television systems or franchises. Management
fees for the three and six month periods ended June 30, 1994 were $54,590 and
$107,969, respectively, as compared to $51,499 and $101,667, respectively, for
the similar 1993 periods.
The Partnership reimburses the General Partner for certain allocated
overhead and administrative expenses. These expenses represent 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 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 Jones
Intercable, Inc. is the general partner are also allocated a proportionate
share of these expenses. The General Partner believes that the methodology
used in allocating overhead and administrative expenses is reasonable. Amounts
allocated to the Partnership by the General Partner for allocated overhead and
administrative expenses for the three and six month periods ended June 30, 1994
were $87,275 and $178,756, respectively, as compared to $70,234 and $142,944,
respectively, for the similar 1993 periods.
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JONES CABLE INCOME FUND 1-A
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
During the first six months of 1994, the Partnership expended
approximately $271,000 in capital improvements. Approximately 30 percent
related to the purchase of converters, approximately 25 percent related to
service drops to subscribers' homes and approximately 12 percent of these
expenditures related to the upgrade of equipment within the Partnership's
systems. These expenditures were funded by borrowings from the Partnership's
credit facility. Anticipated capital expenditures for the remainder of 1994
are approximately $475,000. Of these expenditures, approximately 20 percent
relates to service drops, approximately 12 percent relates to the purchase of
converters and approximately 30 percent relates to the upgrade of equipment.
The remainder of the expenditures are for various enhancements in the
Partnership's systems. The actual level of capital expenditures will depend,
in part, upon the General Partner's determination as to the proper scope and
timing of such expenditures in light of the 1992 Cable Act and the
Partnership's liquidity position. Funding for these expenditures is expected
to be provided by cash generated from operations, borrowings under a
renegotiated credit facility, if available, and, in its discretion, advances
from the General Partner.
In September 1992, the Partnership entered into a $3,500,000 revolving
credit facility. The revolving credit period expires March 31, 1995, at which
time the outstanding balance converts to a term loan with a final maturity of
June 30, 1999. The balance outstanding on the Partnership's credit facility at
June 30, 1994 was the maximum of $3,500,000. The General Partner expects to
renegotiate the Partnership's credit facility to increase the maximum amount
available to fund capital expenditures. If the General Partner is unsuccessful
in renegotiating the credit facility, the Partnership may have to reduce the
level of capital expenditures and/or distributions. Interest on outstanding
principal amounts is computed at the Partnership's option of LIBOR plus 1
percent or the prime rate plus 1/4 percent. The effective interest rates on
amounts outstanding as of June 30, 1994 and 1993 were 5.7457 percent and 4.6107
percent, respectively.
A primary objective of the Partnership is to provide quarterly cash
distributions from operating cash flow to the limited partners. The
Partnership declared a $250,000 distribution to the limited partners during the
second quarter of 1994, which was principally from second quarter operating
cash flow of the Partnership. The regulatory situation discussed below could
have an adverse effect on the Partnership's ability to make distributions.
Future distributions will be announced on a quarter-by-quarter basis and no
determination has been made regarding the level of future distributions. The
payment of quarterly operating cash flow distributions may reduce the financial
flexibility of the Partnership.
Subject to the regulatory matters discussed below and assuming
successful renegotiation of the credit facility, the General Partner believes
that the Partnership has, and will continue to have, sufficient sources of
capital available to meet its presently anticipated needs.
Regulatory Matters
Congress enacted the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act"), which became effective on
December 4, 1992. This legislation has caused significant changes to the
regulatory environment in which the cable television industry operates. The
1992 Cable Act generally allows for a greater degree of regulation of the cable
television industry. Under the 1992 Cable Act's definition of effective
competition, nearly all cable television systems in the United States,
including those owned and managed by the Partnership, are subject to rate
regulation of basic cable services. In addition, the 1992 Cable Act allows the
FCC to regulate rates for non-basic service tiers other than premium services
in response to complaints filed by franchising authorities and/or cable
subscribers. In April 1993, the FCC adopted regulations governing rates for
basic and non- basic services. The FCC's rules became effective on September
1, 1993.
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In compliance with these rules, the Partnership reduced rates charged
for certain regulated services effective September 1, 1993. These reductions
resulted in some decrease in revenues and operating income before depreciation
and amortization, however the decrease was not as severe as originally
anticipated. The General Partner has undertaken actions to mitigate a portion
of these reductions primarily through (a) new service offerings in some
systems, (b) product re-marketing and re-packaging and (c) marketing efforts
directed at non-subscribers.
On February 22, 1994, the FCC adopted several additional rate orders
including an order which revised its earlier-announced regulatory scheme with
respect to rates. The FCC's new regulations will generally require rate
reductions, absent a successful cost-of-service showing, of 17 percent of
September 30, 1992 rates, adjusted for inflation, channel modifications,
equipment costs, and increases in programming costs. However the FCC held rate
reductions in abeyance in certain systems. The new regulations became
effective on May 15, 1994, but operators could elect to defer rate reductions
to July 14, 1994, so long as they made no change in their rates and did not
restructure service offerings between May 15 and July 14.
The Partnership complied with the new benchmark regulations and
reduced rates in its operating systems. The annualized reduction of operating
income before depreciation and amortization is approximately $170,000, or
approximately 14 percent. The Partnership will continue its efforts to
mitigate the effect of such rate reductions.
The 1992 Cable Act contains new broadcast signal carriage
requirements, and the FCC has adopted regulations implementing the statutory
requirements. These new rules allow a local commercial broadcast television
station to elect whether to demand that a cable system carry its signal or to
require the cable system to negotiate with the station for "retransmission
consent." A cable system is generally required to devote up to one-third of
its activated channel capacity for the mandatory carriage of local commercial
broadcast television stations, and non-commercial television stations are also
given mandatory carriage rights, although such stations are not given the
option to negotiate retransmission consent for the carriage of their signals by
cable systems. Additionally, cable systems also are required to obtain
retransmission consent from all commercial television stations (except for
commercial satellite-delivered independent "superstations") which do not elect
mandatory carriage, commercial radio stations, and in some instances, low-power
television stations carried by cable systems.
The retransmission consent rules went into effect on October 6, 1993.
Throughout all cable television systems owned by the Partnership no television
stations withheld their consent to retransmission of their signal. Certain
broadcast signals are being carried pursuant to extensions, and the General
Partner expects to finally conclude retransmission consent negotiations with
those remaining stations without having to terminate the distribution of any of
those signals. However, there can be no assurance that such will occur. If
any broadcast station currently being carried pursuant to an extension is
dropped, there could be a negative effect on the system in which it is dropped
if a significant number of subscribers in such system were to disconnect their
service. However, in most cases, only one broadcaster in any market is being
carried pursuant to an extension arrangement, and the dropping of such
broadcaster, were that to occur, is not expected to have a negative effect on
the system.
There have been several lawsuits filed by cable operators and
programmers in Federal court challenging various aspects of the 1992 Cable Act,
including provisions relating to mandatory broadcast signal carriage,
retransmission consent, access to cable programming, rate regulations,
commercial leased channels and public access channels. On April 8, 1993, a
three-judge Federal district court panel issued a decision upholding the
constitutionality of the mandatory signal carriage requirements of the 1992
Cable Act. That decision was appealed directly to the United States Supreme
Court. The United States Supreme Court vacated the lower court decision on
June 27, 1994 and remanded the case to the district court for further
development of a factual record. The Court's majority determined that the
must-carry rules were content neutral, but that it was not yet proven that the
rules were needed to preserve the economic health of the broadcasting industry.
In the interim, the must-carry rules will remain in place during the pendency
of the proceedings in district court. In 1993, a Federal district court for
the District of Columbia upheld provisions of the 1992 Cable Act concerning
rate regulation, retransmission consent, restrictions on vertically integrated
cable television operators and programmers, mandatory carriage of programming
on commercial leased channels and public, educational and governmental access
channels and the exemption for municipalities from civil damage liability
arising out of local regulation of cable services. The 1992 Cable Act's
provisions providing for multiple ownership limits for cable operators and
advance notice of free previews for certain
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programming services have been found unconstitutional, and these decisions have
been appealed. In November 1993, the United States Court of Appeals for the
District of Columbia held that the FCC's regulations implemented pursuant to
Section 10 of the 1992 Cable Act, which permit cable operators to ban indecent
programming on public, educational or governmental access channels or leased
access channels, were unconstitutional, but the court has agreed to reconsider
its decision. All of these decisions construing provisions of the 1992 Cable
Act and the FCC's implementing regulations have been or are expected to be
appealed.
RESULTS OF OPERATIONS
Revenues of the Partnership increased $61,823, or approximately 6
percent from $1,029,976 for the three months ended June 30, 1993 to $1,091,799
for the similar period in 1994. For the six month periods ended June 30, 1994
and 1993, revenues increased $126,033, or approximately 6 percent, from
$2,033,349 at June 30, 1993 to $2,159,382 at June 30, 1994. These increases in
revenues were primarily due to increases in basic subscribers and advertising
revenues. Since June 30, 1993, the Partnership's cable system added 694 basic
subscribers, increasing from 11,777 basic subscribers at June 30, 1993 to
12,471 basic subscribers at June 30, 1994. The increase in revenues would have
been greater but for the reduction in certain rates charged due to new basic
rate regulations issued by the FCC in May 1993 with which the Partnership
complied effective September 1, 1993. In addition, on February 22, 1994, the
FCC announced a further rulemaking which, when implemented July 14, 1994,
reduced rates further. See regulation and legislation discussion above. No
other individual factor significantly affected the increases in revenues.
Operating, general and administrative expenses increased $32,750, or
approximately 5 percent, from $603,358 to $636,108 for the three month period
ended June 30, 1994 as compared to 1993. This increase is primarily due to an
increase in programming costs. Operating, general and administrative expense
increased $35,251, or approximately 3 percent, from $1,238,133 for the six
month period ended June 30, 1993 to $1,273,384 for the similar 1994 period.
This increase is primarily due to increases in programming costs and
advertising costs, which were partially offset by a decrease in personnel
costs. Operating, general and administrative expense represented 58 percent
and 59 percent of revenue for the three months ended June 30, 1994 and 1993,
respectively, as compared to 59 percent and 61 percent for the six months ended
June 30, 1994 and 1993, respectively. No other individual factor contributed
significantly to the increases in operating, general and administrative
expense.
Management fees and allocated overhead from the General Partner
increased $20,132, or approximately 17 percent, from $121,733 for the three
month period ended June 30, 1993 to $141,865 for the similar 1994 period.
Management fees and allocated overhead from the General Partner increased
$42,114, or approximately 17 percent, from $244,611 for the six months ended
June 30, 1993 to $286,725 for the similar 1994 period. These increases are due
to the increase in revenues, upon which such fees and allocations are based and
an increase in allocated expenses from the General Partner. The General
Partner has experienced increases in expenses, including personnel costs and
reregulation costs.
Depreciation and amortization expense increased $7,340, or
approximately 4 percent, from $202,842 for the three months ended June 30, 1993
to $210,182 for the similar 1994 period. Depreciation and amortization expense
increased $25,273, or approximately 6 percent, from $407,055 for the six months
ended June 30, 1993 to $432,328 for the similar 1994 period. The increases
were due to the purchase of property, plant and equipment in 1993.
Operating income increased $1,601, or approximately 2 percent, from
$102,043 for the three months ended June 30, 1993 to $103,644 for the similar
1994 period. Operating income increased $23,395, or approximately 16 percent,
from $143,550 for the six months ended June 30, 1993 to $166,945 for the
similar 1994 period. These increases were due to the increases in revenues
exceeding the increases in depreciation and amortization, operating, general
and administrative expense and management fees and allocated overhead from the
General Partner. Operating income before depreciation and amortization
increased $8,941 or approximately 3 percent, from $304,885 for the three months
ended June 30, 1993 to $313,826 for the similar 1994 period. Operating income
before depreciation and amortization increased $48,668, or approximately 9
percent, from $550,605 for the six months ended June 30, 1993 to $599,273 for
the similar 1994 period. These increases are due to the increase in revenue
exceeding the increases in operating, general and administrative expense and
management fees and allocated overhead from the General Partner.
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Interest expense increased $13,609, or approximately 39 percent, from
$34,920 for the three months ended June 30, 1993 to $48,529 for the similar
1994 period. Interest expense increased $19,977, or approximately 30 percent,
from $66,047 for the six month period ended June 30, 1993 to $86,024 for the
similar 1994 period. These increases are due to higher amounts outstanding on
interest bearing obligations and to higher interest rates. The effective
interest rates on amounts outstanding as of June 30, 1994 and 1993 were 5.75
percent and 4.61 percent, respectively.
Net income decreased $17,585, or approximately 27 percent, from
$66,265 for the three month period ended June 30, 1993 to $48,680 for the
similar 1994 period, due primarily to the increase in interest expense. Net
income decreased $2,110, or approximately 3 percent, from $76,816 for the six
month period ended June 30, 1993 to $74,706 for the similar 1994 period. This
decrease is primarily due to the increase in interest expense exceeding the
increases in operating income.
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Part II - OTHER INFORMATION
NONE
11
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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 CABLE INCOME FUND 1-A
BY: JONES INTERCABLE, INC.
General Partner
By: /s/ KEVIN P. COYLE
Kevin P. Coyle
Group Vice President/Finance
(Principal Financial Officer)
Dated: August 11, 1994
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