<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
<TABLE>
<CAPTION>
<C><S>
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1998
[_] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
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</TABLE>
Commission File Number: 0-14906
JONES CABLE INCOME FUND 1-B, LTD.
- --------------------------------------------------------------------------------
Exact name of registrant as specified in charter
Colorado 84-1010417
- -------- ----------
State of organization I.R.S. employer I.D. #
9697 East Mineral Avenue, P.O. Box 3309, Englewood, Colorado 80155-3309
-------------------------------------------------------------------------
Address of principal executive office
(303) 792-3111
-----------------------------
Registrant's telephone number
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X
-----
No
-----
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JONES CABLE INCOME FUND 1-B, LTD.
---------------------------------
(A Limited Partnership)
UNAUDITED BALANCE SHEETS
------------------------
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1998 1997
------ ------------- ------------
<S> <C> <C>
CASH $ - $ 145
INVESTMENT IN CABLE TELEVISION JOINT VENTURE 198,525 2,126,411
------------- ------------
Total assets $ 198,525 $ 2,126,556
============= ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
-------------------------------------------
LIABILITIES:
Accrued liabilities $ 51,638 $ -
------------- ------------
Total liabilities 51,638 -
------------- ------------
PARTNERS' CAPITAL (DEFICIT):
General Partner-
Contributed capital 1,000 1,000
Accumulated earnings 109,219 104,961
Distributions (110,219) (110,219)
------------- ------------
- (4,258)
------------- ------------
Limited Partners-
Net contributed capital (83,884 units
outstanding at September 30, 1998
and December 31, 1997) 34,449,671 34,449,671
Accumulated earnings (deficit) 10,485,438 (3,230,916)
Distributions (44,788,222) (29,087,941)
------------- ------------
146,887 2,130,814
------------- ------------
Total liabilities and partners'
capital (deficit) $ 198,525 $ 2,126,556
============= =============
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited balance sheets.
2
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JONES CABLE INCOME FUND 1-B, LTD.
---------------------------------
(A Limited Partnership)
UNAUDITED STATEMENTS OF OPERATIONS
----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
--------------------------- --------------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
---------- -------- ----------- -----------
OTHER INCOME (EXPENSE) $ 1,128 $ - $ (51,783) $ -
---------- -------- ----------- -----------
INCOME (LOSS) BEFORE EQUITY IN
NET INCOME (LOSS) OF CABLE
TELEVISION JOINT VENTURE 1,128 - (51,783) -
EQUITY IN NET INCOME (LOSS) OF
CABLE TELEVISION JOINT
VENTURE 9,037,678 (14,532) 13,772,395 7,259,488
---------- -------- ----------- -----------
NET INCOME (LOSS) $9,038,806 $(14,532) $13,720,612 $7,259,488
========== ======== =========== ===========
ALLOCATION OF NET INCOME (LOSS):
General Partner $ 3,445 $ (15) $ 4,258 $ 10,529
========== ======== =========== ===========
Limited Partners $9,035,361 $(14,517) $13,716,354 $7,248,959
========== ======== =========== ===========
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $ 107.72 $ (.17) $ 163.52 $ 86.42
========== ======== =========== ===========
WEIGHTED AVERAGE NUMBER
OF LIMITED PARTNERSHIP
UNITS OUTSTANDING 83,884 83,884 83,884 83,884
========== ======== =========== ===========
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited statements.
3
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JONES CABLE INCOME FUND 1-B, LTD.
---------------------------------
(A Limited Partnership)
UNAUDITED STATEMENTS OF CASH FLOWS
----------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
----------------------------
1998 1997
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,720,612 $ 7,259,488
Adjustments to reconcile net income to net
cash used in operating activities:
Equity in net loss (income) of cable television
joint venture (13,772,395) (7,259,488)
Increase in accrued liabilities 51,638 -
------------ -----------
Net cash used in operating activities (145) -
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from cable television joint venture 15,700,281 5,965,360
------------ -----------
Net cash provided by investing activities 15,700,281 5,965,360
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to limited partners (15,700,281) (5,965,360)
------------ -----------
Net cash used in financing activities (15,700,281) (5,965,360)
------------ -----------
Decrease in cash (145) -
Cash, beginning of period 145 145
------------ -----------
Cash, end of period $ - $ 145
============ ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ - $ -
============ ===========
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited statements.
4
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JONES CABLE INCOME FUND 1-B, LTD.
---------------------------------
(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 complete 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-
B, Ltd. (the "Partnership") at September 30, 1998 and December 31, 1997, its
results of operations for the three and nine month periods ended September 30,
1998 and 1997 and its cash flows for the nine month periods ended September 30,
1998 and 1997. Results of operations for these periods are not necessarily
indicative of results to be expected for the full year.
The Partnership owns a 40 percent interest in Jones Cable Income Fund 1-B/C
Venture (the "Venture"). Jones Cable Income Fund 1-C, Ltd. ("Fund 1-C") owns a
60 percent interest in the Venture. The Venture owns and operates the cable
television system serving Myrtle Creek, Oregon (the "Myrtle Creek System"). The
Venture owned and operated the cable television systems serving Three Rivers,
Schoolcraft, Vicksburg, Constantine, White Pigeon, Dowagiac, Watervliet and
Vandalia, Michigan (the "Southwestern Michigan System") and South Sioux City,
Nebraska (the "South Sioux City System") until their sale in July 1998 and
August 1998, respectively. See Note 2. The Venture also sold the cable
television system serving Clearlake and Lakeport, California (the "Clearlake
System") on January 9, 1998. Jones Intercable, Inc., a publicly held Colorado
corporation, is the "General Partner" and manages the Partnership and the
Venture.
(2) During 1998, the Venture sold three of its cable television systems.
Following is a discussion of these sales in order by sale date.
Clearlake System
----------------
On January 9, 1998, the Venture sold the Clearlake System to an
unaffiliated party for a sales price of $21,400,000, subject to customary
closing adjustments. From the sale proceeds, the Venture paid a brokerage fee
to The Jones Group, Ltd., a subsidiary of the General Partner ("The Jones
Group"), totaling $535,000, which represents 2.5 percent of the sales price,
repaid $9,600,000 of the then outstanding balance on the Venture's credit
facility, settled working capital adjustments, deposited $300,000 into an
indemnity escrow account and then the Venture distributed the net sale proceeds
of $11,000,000 to the Partnership and Fund 1-C. The Partnership received
$4,374,700 and Fund 1-C received $6,625,300 of such distribution. The
Partnership, in turn, distributed the $4,374,700 (an approximate return of $52
for each $500 limited partnership interest, or $104 for each $1,000 invested in
the Partnership) to the limited partners of the Partnership in February 1998.
Because this distribution to the limited partners of the Partnership together
with all prior distributions did not return the amount initially contributed by
the limited partners to the Partnership plus the limited partners' liquidation
preference provided by the Partnership's limited partnership agreement, the
General Partner did not receive a general partner distribution from the
Clearlake System's sale proceeds. Because the sale of the Clearlake System did
not represent a sale of all or substantially all of the Partnership's assets, no
vote of the limited partners of the Partnership was required to approve this
sale.
For a period of one year following the closing date, $300,000 of the sale
proceeds will remain in escrow as security for the Venture's agreement to
indemnify the purchaser under the asset purchase agreement. The Venture's
primary exposure, if any, will relate to the representations and warranties made
about the Clearlake System in the asset purchase agreement. Any amounts
remaining from this indemnity escrow account and not claimed by the buyer at the
end of the one-year escrow period will be returned and distributed by the
Partnership. If the entire $300,000 escrow amount is distributed to the
Partnership and Fund 1-C, of which there can be no assurance, the Partnership
would receive $119,310, and Fund 1-C would receive $180,690. The Partnership,
in turn, would distribute the $119,310 (an approximate return of $1 for each
$500 limited partnership interest, or $2 for each $1,000 invested in the
Partnership) to the limited partners of the Partnership.
Southwestern Michigan System
----------------------------
On July 31, 1998, the Venture sold the Southwestern Michigan System to
three unaffiliated parties for a total sales price of $31,250,000, subject to
customary closing adjustments. From the sale proceeds, the Venture paid a
brokerage fee to The Jones Group totaling $781,250 representing 2.5 percent of
the sales price, repaid $9,500,000 of the then outstanding
5
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balance of the Venture's credit facility, settled working capital adjustments
and then the Venture distributed the net sales proceeds of $21,200,000 to the
Partnership and Fund 1-C. The Partnership received $8,431,240 and Fund 1-C
received $12,768,760 of such distribution. The Partnership, in turn, distributed
the $8,431,240 (an approximate return of $100 for each $500 limited partnership
interest, or $200 for each $1,000 invested in the Partnership) to the limited
partners of the Partnership in August 1998. Because this distribution to the
limited partners of the Partnership together with all prior distributions did
not return the amount initially contributed by the limited partners to the
Partnership plus the limited partnership liquidation preference provided by the
Partnership's limited partnership agreement, the General Partner of the
Partnership did not receive a general partner distribution from the Southwestern
Michigan System's sale proceeds. Because the sale of the Southwestern Michigan
System did not represent a sale of all or substantially all of the Partnership's
assets, no vote of the limited partners of the Partnership was required to
approve this sale.
South Sioux City System
-----------------------
On August 31, 1998, the Venture sold the South Sioux City System to an
unaffiliated party for a sales price of $9,500,000, subject to customary closing
adjustments. The Venture paid a brokerage fee to The Jones Group totaling
$237,500 representing 2.5 percent of the sales price, repaid $2,000,000 of the
outstanding balance on the Venture's credit facility, settled working capital
adjustments and then the Venture distributed the net sales proceeds of
approximately $7,277,700 to the Partnership and Fund 1-C. The Partnership
received approximately $2,894,341 and Fund 1-C received approximately $4,383,359
of such distribution. The Partnership, in turn, distributed the $2,894,341 (an
approximate return of $34 for each $500 limited partnership interest, or $68 for
each $1,000 invested in the Partnership) to the limited partners of the
Partnership in September 1998. Because this distribution to the limited
partners of the Partnership together with all prior distributions did not return
the amount initially contributed by the limited partners to the Partnership plus
the limited partners' liquidation preference provided by the Partnership's
limited partnership agreement, the General Partner of the Partnership did not
receive a general partner distribution from the South Sioux City System's sale
proceeds. Because the sale of the South Sioux City System does not represent a
sale of all or substantially all of the Partnership's assets, no vote of the
limited partners of the Partnership will be required to approve this sale.
Pro Forma
---------
The pro forma effect of the sales of the South Sioux City System, the
Southwestern Michigan System and the Clearlake System on the results of the
Venture's operations for the nine months ended September 30, 1998 and the sales
of the South Sioux City System and the Southwestern Michigan System, the
Clearlake System and the cable television systems serving Brighton, Broomfield
and Boulder County, Colorado (the "Colorado Systems") on the Venture's
operations for the nine months ended September 30, 1997, assuming the
transactions had occurred at the beginning of each year, is presented in the
following unaudited tabulation:
For the Nine Months Ended September 30, 1998
--------------------------------------------
Unaudited
Pro Forma Unaudited
As Reported Adjustments Pro Forma
------------ ------------- -----------
Revenues $ 7,935,981 $ (6,093,591) $1,842,390
=========== ============ ==========
Operating Loss $ (624,421) $ 550,967 $ (73,454)
=========== ============ ==========
Consolidated Income (Loss) $34,630,110 $(34,784,359) $ (154,249)
=========== ============ ==========
6
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For the Nine Months Ended September 30, 1997
--------------------------------------------
<TABLE>
<CAPTION>
Unaudited
Pro Forma Unaudited
As Reported Adjustments Pro Forma
----------- ------------- -----------
<S> <C> <C> <C>
Revenues $13,867,189 $(12,062,107) $1,805,082
=========== ============ ==========
Operating Income (Loss) $ 503,217 $ (620,536) $ (117,319)
=========== ============ ==========
Consolidated Income $18,253,679 $(18,220,758) $ 32,921
=========== ============ ==========
</TABLE>
(3) On September 9, 1998, the Venture entered into an asset purchase agreement
providing for the sale of the Myrtle Creek System to an unaffiliated party for a
sales price of $10,000,000, subject to customary closing adjustments. The
closing of this transaction, which is expected to occur in the first quarter of
1999, is subject to the consents of governmental authorities and third parties
with whom the Venture has contracted that are necessary for the transfer of the
Myrtle Creek System. Because the sale of the Myrtle Creek System represents a
sale of all of the remaining assets of the Partnership and Fund 1-C, a vote of
the limited partners of the Partnership and a vote of the limited partners of
Fund 1-C will be required to approve this sale. The General Partner expects to
conduct these votes early in the first quarter of 1999.
Upon consummation of the proposed sale of the Myrtle Creek System, based
upon financial information as of September 30, 1998, the Venture will pay a
brokerage fee to The Jones Group of $250,000, representing 2.5 percent of the
sales price, for acting as a broker in the transaction, repay the balance
outstanding on its credit facility of $2,900,000, settle working capital
adjustments and deposit $500,000 into an indemnity escrow account. The
remaining net sales proceeds of approximately $5,950,000 will be distributed to
the Partnership and Fund 1-C. The Partnership will receive approximately
$2,366,315 and Fund 1-C will receive approximately $3,583,685. The Partnership,
in turn, will distribute the $2,366,315, less working capital adjustments, which
totaled $51,638 at September 30, 1998, for a distribution of $2,314,677 (an
approximate return of $28 for each $500 limited partner interest, or $56 for
each $1,000 invested in the Partnership) to the limited partners of the
Partnership. Because the distribution to the limited partners of the
Partnership together with all prior distributions will not return the amount
initially contributed by the limited partners to the Partnership plus the
preferred return provided by the Partnership's limited partnership agreement,
the General Partner of the Partnership will not receive a general partner
distribution from the sale proceeds.
For a period of one year following the closing date, $500,000 of the sale
proceeds will remain in escrow as security for the Venture's agreement to
indemnify the purchaser under the asset purchase agreement. The Venture's
primary exposure, if any, will relate to the representations and warranties made
about the Myrtle Creek System in the asset purchase agreement. Any amounts
remaining from this indemnity escrow account and not claimed by the buyer at the
end of the one-year escrow period will be returned and distributed by the
Partnership. If the entire $500,000 escrow amount is distributed to the
Partnership and Fund 1-C, of which there can be no assurance, the Partnership
would receive $198,850, and Fund 1-C would receive $301,150. The Partnership,
in turn, would distribute the $198,850 (an approximate return of $2.50 for each
limited partnership interest, or $5 for each $1,000 invested in the Partnership)
to the limited partners of the Partnership. Since the Myrtle Creek System
represents the only asset of the Venture, and the Partnership's interest in the
Venture represents its only asset, the Partnership and the Venture will be
liquidated and dissolved upon the final distribution of any amounts remaining
from the indemnity escrow account.
Taking into account prior distributions to the limited partners from
operating cash flow, from the net proceeds of prior cable television system
sales, from the 1998 distributions of the Partnership's portion of the net sale
proceeds from the sales of the Clearlake System, the Southwestern Michigan
System and the South Sioux City System and the planned distribution in the first
quarter of 1999 of the Partnership's portion of the net sales proceeds from the
sale of the Myrtle Creek System (excluding all escrowed proceeds), the limited
partners of the Partnership will have received an approximate return of $562 for
each $500 limited partnership interest, or $1,124 for each $1,000 invested in
the Partnership.
7
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(4) Financial information regarding the Venture is presented below.
UNAUDITED BALANCE SHEETS
------------------------
<TABLE>
<CAPTION>
ASSETS September 30, 1998 December 31, 1997
------ ------------------- ------------------
<S> <C> <C>
Cash and accounts receivable $ 169,747 $ 816,973
Investment in cable television properties 3,386,908 29,221,097
Other assets 381,300 476,648
------------ ------------
Total assets $ 3,937,955 $ 30,514,718
============ ============
LIABILITIES AND PARTNERS' CAPITAL
- ----------------------------------------------
Debt $ 2,921,574 $ 23,624,588
Accounts payable and accrued liabilities 506,648 1,532,807
Partners' contributed capital, net (14,973,692) 24,504,008
Accumulated income (deficit) 15,483,425 (19,146,685)
------------ ------------
Total liabilities and partners' capital $ 3,937,955 $ 30,514,718
============ ============
</TABLE>
UNAUDITED STATEMENTS OF OPERATIONS
----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1998 1997 1998 1997
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Revenues $ 1,689,051 $4,513,647 $ 7,935,981 $13,867,189
Operating expenses 1,317,367 2,333,184 4,931,092 7,799,531
Management fees and allocated overhead
from Jones Intercable, Inc. 186,371 476,874 883,373 1,521,950
Depreciation and amortization 572,488 1,323,160 2,745,937 4,042,491
----------- ---------- ----------- -----------
Operating income (loss) (387,175) 380,429 (624,421) 503,217
----------- ---------- ----------- -----------
Interest expense (152,863) (337,578) (555,149) (1,047,954)
Gain on sale of cable television systems 23,191,974 - 35,830,323 18,889,257
Other, net 72,925 (79,392) (20,643) (90,841)
----------- ---------- ----------- -----------
Net income (loss) $22,724,861 $ (36,541) $34,630,110 $18,253,679
=========== ========== =========== ===========
</TABLE>
(5) The General Partner manages the Partnership and 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 Jones Intercable, Inc. by the Venture for the three and
nine month periods ended September 30, 1998 totaled $84,452 and $396,799,
respectively, compared to $225,682 and $693,359, respectively, for the similar
1997 periods. Management fees paid by the Venture and attributable to the
Partnership for the three and nine month periods ended September 30, 1998
totaled $33,587 and $157,807 compared to $89,754 and $275,749, respectively, for
the similar 1997 periods.
The Venture reimburses the General Partner 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
8
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corporate facilities costs. Such personnel provide engineering, marketing,
administrative, accounting, legal and investor relations services to the
Venture. Such services, and their related costs, are necessary to the
operations of the Venture and would have been incurred by the Venture if it was
a stand alone entity. Allocations of personnel costs are based primarily on
actual time spent by employees of the General Partner with respect to each
entity managed. Remaining expenses are allocated based on the pro rata
relationship of the Venture's revenues to the total revenues of all systems
owned or managed by the General Partner and certain of its subsidiaries.
Systems owned by the General Partner and all other systems owned by partnerships
for which Jones Intercable, Inc. is the general partner are also allocated a
proportionate share of these expenses. The General Partner believes that the
methodology of allocating overhead and administrative expenses is reasonable.
Reimbursements for overhead and administrative expenses paid by the Venture for
the three and nine month periods ended September 30, 1998 totaled $101,919 and
$486,574, respectively, compared to $251,192 and $828,591, respectively, for the
similar 1997 periods. Reimbursements for overhead and administrative expenses
attributable to the Partnership for the three and nine month periods ended
September 30, 1998 totaled $40,533 and $193,511, respectively, compared to
$99,899 and $329,531, respectively, for the similar 1997 periods.
9
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JONES CABLE INCOME FUND 1-B, LTD.
---------------------------------
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
It is the General Partner's publicly announced policy that it intends to
liquidate its managed partnerships, including the Partnership. In accordance
with the General Partner's policy, the Venture sold the Clearlake System in
January 1998, it sold the Southwestern Michigan System in July 1998, it sold the
South Sioux City System in August 1998 and it has entered into an agreement to
sell the Myrtle Creek System. Since the Myrtle Creek System is the Venture's
only remaining asset, and the Partnership's interest in the Venture represents
its only asset, the Partnership and Venture will be liquidated and dissolved
when this sale is complete.
The Partnership owns a 40 percent interest in the Venture. This investment
is accounted for under the equity method. When compared to the December 31,
1997 balance, this investment has decreased by $1,927,886. This decrease
represents the Partnership's proportionate share of income, reduced by
distributions received during 1998.
On January 9, 1998, the Venture sold the Clearlake System to an
unaffiliated party for a sales price of $21,400,000, subject to customary
closing adjustments. From the sale proceeds, the Venture paid a brokerage fee
to The Jones Group totaling $535,000, which represents 2.5 percent of the sales
price, repaid $9,600,000 of the then outstanding balance on the Venture's credit
facility, settled working capital adjustments and then the Venture distributed
the net sale proceeds of $11,000,000 to the Partnership and Fund 1-C. The
Partnership received $4,374,700 and Fund 1-C received $6,625,300 of such
distribution. The Partnership, in turn, distributed the $4,374,700 (an
approximate return of $52 for each $500 limited partnership interest, or $104
for each $1,000 invested in the Partnership) to the limited partners of the
Partnership in February 1998. Because this distribution to the limited partners
of the Partnership together with all prior distributions did not return the
amount initially contributed by the limited partners to the Partnership plus the
limited partners' liquidation preference provided by the Partnership's limited
partnership agreement, the General Partner did not receive a general partner
distribution from the Clearlake System's sale proceeds. Because the sale of the
Clearlake System did not represent a sale of all or substantially all of the
Partnership's assets, no vote of the limited partners of the Partnership was
required to approve this sale.
On July 31, 1998, the Venture sold the Southwestern Michigan System to
three unaffiliated parties for a total sales price of $31,250,000, subject to
customary closing adjustments. From the sale proceeds, the Venture paid a
brokerage fee to The Jones Group totaling $781,250 representing 2.5 percent of
the sales price, repaid $9,500,000 of the then outstanding balance of the
Venture's credit facility, settled working capital adjustments and then the
Venture distributed the net sales proceeds of $21,200,000 to the Partnership and
Fund 1-C. The Partnership received $8,431,240 and Fund 1-C received $12,768,760
of such distribution. The Partnership, in turn, distributed the $8,431,240 (an
approximate return of $100 for each $500 limited partnership interest, or $200
for each $1,000 invested in the Partnership) to the limited partners of the
Partnership in August 1998. Because this distribution to the limited partners
of the Partnership together with all prior distributions did not return the
amount initially contributed by the limited partners to the Partnership plus the
limited partnership liquidation preference provided by the Partnership's limited
partnership agreement, the General Partner of the Partnership did not receive a
general partner distribution from the Southwestern Michigan System's sale
proceeds. Because the sale of the Southwestern Michigan System did not
represent a sale of all or substantially all of the Partnership's assets, no
vote of the limited partners of the Partnership was required to approve this
sale.
On August 31, 1998, the Venture sold the South Sioux City System to an
unaffiliated party for a sales price of $9,500,000, subject to customary closing
adjustments. The Venture paid a brokerage fee to The Jones Group totaling
$237,500 representing 2.5 percent of the sales price, repaid $2,000,000 of the
outstanding balance on the Venture's credit facility, settled working capital
adjustments and then the Venture distributed the net sales proceeds of
approximately $7,277,700 to the Partnership and Fund 1-C. The Partnership
received approximately $2,894,341 and Fund 1-C received approximately $4,383,359
of such distribution. The Partnership, in turn, distributed the $2,894,341 (an
approximate return of $34 for each $500 limited partnership interest, or $68 for
each $1,000 invested in the Partnership) to the limited partners of the
Partnership in September 1998. Because this distribution to the limited
partners of the Partnership together with all prior distributions did not return
the amount initially contributed by the limited partners to the Partnership plus
the limited partners' liquidation preference provided by the Partnership's
limited partnership agreement, the General Partner of the
10
<PAGE>
Partnership did not receive a general partner distribution from the South Sioux
City System's sale proceeds. Because the sale of the South Sioux City System
does not represent a sale of all or substantially all of the Partnership's
assets, no vote of the limited partners of the Partnership will be required to
approve this sale.
On September 9, 1998, the Venture entered into an asset purchase agreement
providing for the sale of the Myrtle Creek System to an unaffiliated party for a
sales price of $10,000,000, subject to customary closing adjustments. The
closing of this transaction, which is expected to occur in the first quarter of
1999, is subject to the consents of governmental authorities and third parties
with whom the Venture has contracted that are necessary for the transfer of the
Myrtle Creek System. Because the sale of the Myrtle Creek System represents a
sale of all of the remaining assets of the Partnership and Fund 1-C, a vote of
the limited partners of the Partnership and a vote of the limited partners of
Fund 1-C will be required to approve this sale. The General Partner expects to
conduct these votes early in the first quarter of 1999.
Upon consummation of the proposed sale of the Myrtle Creek System, based
upon financial information as of September 30, 1998, the Venture will pay a
brokerage fee to The Jones Group of $250,000, representing 2.5 percent of the
sales price, for acting as a broker in the transaction, repay the balance
outstanding on its credit facility of $2,900,000, settle working capital
adjustments and deposit $500,000 into an indemnity escrow account. The
remaining net sales proceeds of approximately $6,250,000 will be distributed to
the Partnership and Fund 1-C. The Partnership will receive approximately
$2,485,625 and Fund 1-C will receive approximately $3,764,375. The Partnership,
in turn, will distribute the $2,485,625 (an approximate return of $30 for each
$500 limited partner interest, or $60 for each $1,000 invested in the
Partnership) to the limited partners of the Partnership. Because the
distribution to the limited partners of the Partnership together with all prior
distributions will not return the amount initially contributed by the limited
partners to the Partnership plus the preferred return provided by the
Partnership's limited partnership agreement, the General Partner of the
Partnership will not receive a general partner distribution from the sale
proceeds.
For a period of one year following the closing date, $500,000 of the sale
proceeds will remain in escrow as security for the Venture's agreement to
indemnify the purchaser under the asset purchase agreement. The Venture's
primary exposure, if any, will relate to the representations and warranties made
about the Myrtle Creek System in the asset purchase agreement. Any amounts
remaining from this indemnity escrow account and not claimed by the buyer at the
end of the one-year escrow period will be returned and distributed by the
Partnership. If the entire $500,000 escrow amount is distributed to the
Partnership and Fund 1-C, of which there can be no assurance, the Partnership
would receive $198,850, and Fund 1-C would receive $301,150. The Partnership,
in turn, would distribute the $198,850 (an approximate return of $2.50 for each
limited partnership interest, or $5 for each $1,000 invested in the Partnership)
to the limited partners of the Partnership. Since the Myrtle Creek System
represents the only asset of the Venture, and the Partnership's interest in the
Venture represents its only asset, the Partnership and the Venture will be
liquidated and dissolved upon the final distribution of any amounts remaining
from the indemnity escrow account.
Taking into account prior distributions to the limited partners from
operating cash flow, from the net proceeds of prior cable television system
sales, from the distributions of the Partnership's portion of the net sale
proceeds from the sales of the Clearlake System, the Southwestern Michigan
System and the South Sioux City System and the planned distribution in the first
quarter of 1999 of the Partnership's portion of the net sales proceeds from the
sale of the Myrtle Creek System (excluding escrowed proceeds), the limited
partners of the Partnership will have received an approximate return of $564 for
each $500 limited partnership interest, or $1,128 for each $1,000 invested in
the Partnership.
For the nine months ended September 30, 1998, the Venture generated net
cash from operating activities totaling $584,806, which is available to fund
capital expenditures and non-operating costs. During the first nine months of
1998, capital expenditures within the Venture's systems totaled approximately
$1,290,000. Approximately 43 percent of these expenditures was for the
construction of service drops to subscribers' homes and approximately 29 percent
of these expenditures was for the construction of new cable plant related to new
homes passed. The remainder was for other capital expenditures used to maintain
the value of the Venture's remaining systems. Funding for these expenditures
was provided by cash on hand, cash generated from operations and borrowings
available under the Venture's credit facility. Anticipated capital expenditures
for the remainder of 1998 are approximately $87,000. Construction of service
drops to homes will account for approximately 26 percent of the anticipated
expenditures and construction of new cable plant related to new homes passed
will account for approximately 24 percent of the anticipated expenditures. The
remainder is for other capital expenditures to be used to maintain the value of
the Venture's Myrtle Creek System. Funding for these expenditures is expected
to come from cash on hand, cash generated from operations and available
borrowings under the Venture's credit facility. The Venture is obligated to
conduct its business in the ordinary course until the remaining systems are
sold.
11
<PAGE>
On January 9, 1998, as required by the terms of its credit facility, the
Venture used a portion of the proceeds of the sale of the Clearlake System to
repay $9,600,000 of the balance then-outstanding. On July 31, 1998, the Venture
used a portion of the proceeds of the sale of the Southwest Michigan System to
repay $9,500,000 of the balance outstanding. On September 3, 1998, the Venture
used a portion of the sale of the South Sioux City System to repay $2,000,000 of
the balance outstanding. At the same time, the commitment on the credit facility
was reduced to $8,400,000. At September 30, 1998, the Venture's credit facility
had $2,900,000 outstanding. On November 5, 1998, the commitment on the credit
facility was reduced to $3,000,000. On September 30, 2000, the maximum amount
available begins to reduce quarterly until June 30, 2005 when the amount
available will be zero. Interest on outstanding principal is calculated at the
Venture's option of the Base Rate, or the Euro-Rate plus 7/8 percent. The
effective interest rate on amounts outstanding as of September 30, 1998 and 1997
was 6.59 percent and 7.06 percent, respectively.
The Venture has sufficient sources of capital available from cash on
hand, cash generated from operations and from borrowings available under its
credit facility to meet its anticipated needs.
The Year 2000 issue is the result of many computer programs being written
such that they will malfunction when reading a year of "00." This problem could
cause system failure or miscalculations causing disruptions of business
processes.
The General Partner has initiated an assessment of its computer
applications to determine the extent of the problem. Based on this assessment,
the General Partner has determined that the majority of its computer
applications supporting business processes, including accounting and billing,
are designed to handle the Year 2000 appropriately.
The General Partner is currently focusing its efforts on the impact of the
Year 2000 issue on service delivery. The General Partner has established an
internal team to address this issue. The General Partner is identifying and
testing all date-sensitive equipment involved in delivering service to the
Venture's customers. In addition, the General Partner will assess the Venture's
options regarding repair or replacement of affected equipment during this
testing. The General Partner believes that the financial impact will not be
material.
RESULTS OF OPERATIONS
- ---------------------
Revenues of the Venture decreased $2,824,596, or approximately 63 percent,
to $1,689,051 for the three months ended September 30, 1998 from $4,513,647 for
the comparable 1997 period. Revenues decreased $5,931,208, or approximately 43
percent, to $7,935,981 for the nine months ended September 30, 1998 from
$13,867,189 for the comparable 1997 period. These decreases were a result of
the sale of the Colorado Systems, the Clearlake System, the Southwest Michigan
System and the South Sioux City System. Disregarding the effect of these sales,
revenues would have increased $11,771, or approximately 2 percent, to $611,404
for the three months ended September 30, 1998 from $599,633 for the comparable
1997 period and revenues would have increased $37,308, or approximately 2
percent, to $1,842,390 for the nine months ended September 30, 1998 from
$1,805,082 for the comparable 1997 period. These increases were primarily due
to an increase in basic service revenues. Basic service rate increases
primarily accounted for the increases in revenues for the three and nine month
periods ended September 30, 1998. No other single factor significantly affected
these increases in revenues.
Operating expenses consist primarily of costs associated with the operation
and administration of the Venture's cable television systems. The principal
cost components are salaries paid to system personnel, programming expenses,
professional fees, subscriber billing costs, rent for leased facilities, cable
system maintenance expenses and marketing expenses.
Operating expenses decreased $1,015,817, or approximately 44 percent, to
$1,317,367 for the three months ended September 30, 1998 from $2,333,184 for the
comparable 1997 period. Operating expenses decreased $2,868,439, or
approximately 37 percent, to $4,931,092 for the nine months ended September 30,
1998 from $7,799,531 for the comparable 1997 period. These decreases were a
result of the sale of the Colorado Systems, the Clearlake System, the Southwest
Michigan System and the South Sioux City System. Disregarding the effect of
these sales, operating expenses would have increased $7,623, or approximately 2
percent, to $369,424 for the three months ended September 30, 1998 from $361,801
for the comparable 1997 period, and operating expenses would have increased
$4,183, or less than 1 percent, to $1,083,932 for the nine months ended
September 30, 1998 from $1,079,749 for the comparable 1997 period. These
increases in operating expenses for the three and nine month periods were due
primarily to increases in programming costs. No other individual factor was
significant to these increases in operating expenses. Operating expenses
represented 60 percent of
12
<PAGE>
revenues for both the three and nine month periods ended September 30, 1998
compared to 59 percent and 60 percent, respectively, for the similar periods in
1997.
The cable television industry generally measures the financial performance
of a cable television system in terms of operating cash flow (revenues less
operating expenses). This measure is not intended to be a substitute or
improvement upon the items disclosed on the financial statements, rather it is
included because it is an industry standard. Operating cash flow decreased
$1,808,779, or approximately 83 percent, to $371,684 for the three months ended
September 30, 1998 from $2,180,463 for the comparable 1997 period. Operating
cash flow decreased $3,062,769, or approximately 50 percent, to $3,004,889 for
the nine months ended September 30, 1998 from $6,067,658 for the comparable 1997
period. These decreases were a result of the sale of the Colorado Systems, the
Clearlake System, the Southwest Michigan System and the South Sioux City System.
Disregarding the effect of these sales, operating cash flow would have increased
$4,148, or approximately 2 percent, to $241,980 for the three months ended
September 30, 1998 from $237,832 for the comparable 1997 period, and operating
cash flow would have increased $33,125, or approximately 5 percent, to $758,458
for the nine months ended September 30, 1998 from $725,333 for the comparable
1997 period. These increases were due to the increases in revenues exceeding
the increases in operating expenses.
Management fees and allocated overhead from the General Partner decreased
$290,503, or approximately 61 percent, to $186,371 for the three months ended
September 30, 1998 from $476,874 for the comparable 1997 period. Management
fees and allocated overhead from the General Partner decreased $638,577, or
approximately 42 percent, to $883,373 for the nine month period ended September
30, 1998 from $1,521,950 for the comparable 1997 period. These decreases were a
result of the sale of the Colorado Systems, the Clearlake System, the Southwest
Michigan System and the South Sioux City System. Disregarding the effect of
these sales, management fees and allocated overhead from the General Partner
would have decreased $4,451, or approximately 6 percent, to $74,436 for the
three months ended September 30, 1998 from $78,887 for the comparable 1997
period, and would have decreased $28,516, or approximately 11 percent, to
$230,076 for the nine months ended September 30, 1998 from $258,592 for the
comparable 1997 period. These decreases were primarily due to a decrease in the
expenses allocated from the General Partner.
Depreciation and amortization expense decreased $750,672, or approximately
57 percent, to $572,488 for the three months ended September 30, 1998 from
$1,323,160 for the comparable 1997 period. Depreciation and amortization
expense decreased $1,296,554, or approximately 32 percent, to $2,745,937 for the
nine months ended September 30, 1998 from $4,042,491 for the comparable 1997
period. These decreases were a result of the sale of the Colorado Systems, the
Clearlake System, the Southwest Michigan System and the South Sioux City System.
Disregarding the effect of these sales, depreciation and amortization expense
would have increased $11,854, or approximately 6 percent, to $201,375 for the
three months ended September 30, 1998 from $189,521 for the comparable 1997
period, and would have increased $17,776, or approximately 3 percent, to
$601,836 for the nine months ended September 30, 1998 from $584,060 for the
comparable 1997 period. These increases were due to an increase in the Myrtle
Creek System's depreciable asset base.
The Venture reported an operating loss of $387,175 for the three months
ended September 30, 1998 compared to operating income of $380,429 for the
comparable 1997 period. The Venture reported an operating loss of $624,421 for
the nine months ended September 30, 1998 compared to operating income of
$503,217 for the comparable 1997 period. Disregarding the effect of the sale of
the Colorado Systems, the Clearlake System, the Southwest Michigan System and
the South Sioux City System, the Venture's operating loss would have increased
$3,255, or approximately 11 percent, from $33,831 for the three months ended
September 30, 1998 compared to $30,576 for the comparable 1997 period. This
increase was primarily due to an increase in depreciation and amortization
expense, which was partially offset by an increase in operating cash flow and a
decrease in expenses allocated from the General Partner. Operating loss
decreased $43,865, or approximately 37 percent, to $73,454 for the nine months
ended September 30, 1998 compared to $117,319 for the comparable 1997 period.
This decrease in operating loss was a result of the increase in operating cash
flow and decrease in expenses allocated from the General Partner exceeding the
increase in depreciation and amortization expense.
Interest expense decreased $184,715, or approximately 55 percent, to
$152,863 for the three months ended September 30, 1998 from $337,578 for the
comparable 1997 period. Interest expense decreased $492,805, or approximately
47 percent, to $555,149 for the nine months ended September 30, 1998 from
$1,047,954 for the comparable 1997 period. These decreases were primarily due
to the lower outstanding balances on the Venture's interest bearing obligations,
as a result of a portion of the proceeds from the sale of the Clearlake System,
the Southwest Michigan System and the South Sioux City System being used to
repay a portion of the outstanding loan principal balance.
13
<PAGE>
The Venture reported a gain on the sale of the Clearlake System, the
Southwest Michigan System and the South Sioux City System of $35,830,323 in the
first nine months of 1998 and a gain on the sale of the Colorado Systems of
$18,889,257 in the first nine months of 1997.
The Venture reported net income of $22,724,861 for the three months ended
September 30, 1998 compared to a net loss of $36,541 for the similar 1997
period. The Venture reported net income of $34,630,110 for the nine months
ended September 30, 1998 compared to $18,253,679 for the similar 1997 period.
These changes were primarily due to gains on cable television system sales
reported in 1998 compared to 1997 as discussed above.
14
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
27) Financial Data Schedule
b) Reports on Form 8-K
Report on Form 8-K dated July 31, 1998 reported that on July 31,
1998, the Venture sold the Southwestern Michigan System to an
unaffiliated party for a sales price of $31,250,000, subject to
customary closing adjustments.
Report on Form 8-K dated August 31, 1998, reported than on August
31, 1998, the Venture sold the South Sioux City System to an
unaffiliated party for a sales price of $9,500,000, subject to
customary closing adjustments.
Report on Form 8-K dated September 9, 1998, reported that on
September 9, 1998, the Venture entered into an asset purchase agreement
to sell the Myrtle Creek System to an unaffiliated party for a sales
price of $10,000,000, subject to customary closing adjustments.
15
<PAGE>
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-B, LTD.
BY: JONES INTERCABLE, INC.
General Partner
By: /S/ Kevin P. Coyle
--------------------------------------
Kevin P. Coyle
Group Vice President/Finance
(Principal Financial Officer)
Dated: November 13, 1998
16
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
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<TOTAL-ASSETS> 198,525
<CURRENT-LIABILITIES> 51,638
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 146,887
<TOTAL-LIABILITY-AND-EQUITY> 198,525
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