FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________
Commission file number: 0-18133
IDS/JONES GROWTH PARTNERS II, L.P.
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(Exact name of registrant as specified in its charter)
Colorado 84-1060548
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State of Organization (IRS Employer
Identification No.)
P.O. Box 3309, Englewood, Colorado 80155-3309 (303) 792-3111
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(Address of principal executive office and Zip Code (Registrant's telephone
no. including area code)
Securities registered pursuant to Section 12(b)
of the Act: None
Securities registered pursuant to Section 12(g)
of the Act: Limited
Partnership Interests
Indicate by check mark whether the 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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State the aggregate market value of the voting stock held by non-affiliates of
the registrant: N/A
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. X
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DOCUMENTS INCORPORATED BY REFERENCE: None
Certain information contained in this Form 10-K Report contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements, other than statements of
historical facts, included in this Form 10-K Report that address activities,
events or developments that the Partnership, the Venture or the Managing General
Partner expects, believes or anticipates will or may occur in the future are
forward-looking statements. These forward-looking statements are based upon
certain assumptions and are subject to a number of risks and uncertainties.
Actual events or results may differ materially from those discussed in the
forward-looking statements as a result of various factors.
PART I.
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ITEM 1. BUSINESS
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THE PARTNERSHIP. IDS/Jones Growth Partners II, L.P. (the
"Partnership") is a Colorado limited partnership that was formed to acquire, own
and operate cable television systems in the United States. Jones Cable
Corporation, a Colorado corporation, is the managing general partner (the
"Managing General Partner") and IDS Cable II Corporation, a Minnesota
corporation, is the supervising general partner (the "Supervising General
Partner") of the Partnership. The Managing General Partner is a wholly owned
subsidiary of Jones Intercable, Inc. ("Intercable"), which is also a Colorado
corporation and one of the largest cable television system operators in the
nation. The Supervising General Partner is a wholly owned subsidiary of IDS
Management Corporation, a Minnesota corporation, which in turn is a wholly owned
subsidiary of American Express Financial Corporation, a Delaware corporation.
The Partnership and IDS/Jones Growth Partners 89-B, Ltd., an
affiliated Colorado limited partnership ("Growth Partners 89-B"), formed a
Colorado general partnership known as IDS/Jones Joint Venture Partners (the
"Venture") for the purpose of acquiring cable television systems. Jones Cable
Corporation also serves as the Managing General Partner of Growth Partners 89-B.
IDS Cable Corporation, a wholly owned subsidiary of IDS Management Corporation,
which is a wholly owned subsidiary of American Express Financial Corporation,
acts as supervising general partner of Growth Partners 89-B. IDS Management
Corporation and Intercable each have an approximate 5 percent equity interest in
the Venture, the Partnership has a 66 percent interest in the Venture, and
Growth Partners 89-B has a 24 percent interest in the Venture.
The Partnership does not directly own any cable television system.
The Venture owns the cable television systems serving the communities of Aurora,
North Aurora, Montgomery, Plano, Oswego, Sandwich, Yorkville and certain
unincorporated areas of Kendall and Kane Counties, all in the State of Illinois
(the "Aurora System"). See Item 2.
It is Intercable's publicly announced policy that it intends to
liquidate its managed limited partnerships, including the Partnership, as
opportunities for sales of partnership cable television systems arise in the
marketplace. In accordance with Intercable's policy, the Aurora System, along
with other Chicago-area systems owned or managed by Intercable and its
affiliates, has been marketed for sale and Intercable continues to seek
opportunities to sell the Aurora System. There is no assurance as to the timing
or terms of any sales. The sale of the Aurora System will be subject to the
approval of the Supervising General Partner and a vote of the limited partners.
CABLE TELEVISION SERVICES. The Aurora System offers to its
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.
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The Aurora System offers tier services on an optional basis to its
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 Aurora
System also offers a package that includes the basic service channels and the
tier services.
The Aurora System also offers premium services to its 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 Aurora System also offers 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 Aurora System. At December 31,
1997, the Aurora System's monthly basic service rate was $11.10, monthly basic
and tier ("basic plus") service rate was $24.21, and monthly premium services
ranged from $4.95 to $10.95 per premium service. In addition, the Aurora
System's pay-per-view programs and advertising fees generate revenues. Related
charges may include a nonrecurring installation fee that ranges from $1.99 to
$18.30; however, from time to time the Aurora System has 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, 1997, of the total fees received by the Aurora System, basic
service and tier service fees accounted for approximately 71 percent of total
revenues, premium service fees accounted for approximately 12 percent of total
revenues, pay-per-view fees were approximately 2 percent of total revenues,
advertising fees were approximately 6 percent of total revenues and the
remaining 9 percent of total revenues came principally from equipment rentals,
installation fees and program guide sales. The Aurora System 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.
FRANCHISES. The Aurora System is constructed and operated under non-
exclusive, fixed-term franchises or other types of operating authorities
(referred to collectively herein as "franchises") granted by local governmental
authorities. These franchises typically contain many conditions, such as time
limitations on commencement and completion of construction, conditions of
service, including the number of channels, types of programming and the
provision of free service to schools and certain other public institutions, and
the maintenance of insurance and indemnity bonds. The provisions of local
franchises are subject to federal regulation.
The Venture holds 9 franchises for the Aurora System. These
franchises provide for the payment of fees to the issuing authorities and
generally range from 3 percent to 5 percent of the gross revenues of a cable
television system. The 1984 Cable Act prohibits franchising authorities from
imposing annual franchise fees in excess of 5 percent of gross revenues and also
permits the cable television system operator to seek renegotiation and
modification of franchise requirements if warranted by changed circumstances.
The Venture has never had a franchise revoked. The Venture is
currently negotiating the renewal of one franchise that will expire prior to
December 31, 1998. The Managing General Partner has no reason to believe that
such franchise will not be renewed in due course. Intercable recently has
experienced lengthy negotiations
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with some franchising authorities for the granting of franchise renewals. Some
of the issues involved in recent renewal negotiations include rate regulation,
customer service standards, cable plant upgrade or replacement and shorter terms
of franchise agreements.
COMPETITION. Cable television systems currently experience
competition from several sources.
Broadcast Television. Cable television systems have traditionally
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competed with broadcast television, which consists of television signals that
the viewer is able to receive directly on his television without charge using an
"off-air" antenna. The extent of such competition is dependent in part upon the
quality and quantity of signals available by such antenna reception as compared
to the services provided by the local cable system. Accordingly, it has
generally been less difficult for cable operators to obtain higher penetration
rates in rural areas where signals available off-air are limited, than in
metropolitan areas where numerous, high quality off-air signals are often
available without the aid of cable television systems.
Traditional Overbuild. Cable television franchises are not exclusive,
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so that more than one cable television system may be built in the same area
(known as an "overbuild"), with potential loss of revenues to the operator of
the original cable television system. Intercable has experienced overbuilds in
connection with certain systems that it has owned or managed for limited
partnerships, and currently there are overbuilds in certain of the systems owned
or managed by Intercable but not in the Aurora System. Constructing and
developing a cable television system is a capital intensive process, and it is
often difficult for a new cable system operator to create a marketing edge over
the existing system. Generally, an overbuilder would be required to obtain
franchises from the local governmental authorities, although in some instances,
the overbuilder could be the local government itself. In any case, an
overbuilder would be required to obtain programming contracts from entertainment
programmers and, in most cases, would have to build a complete cable system,
including headends, trunk lines and drops to individual subscribers homes,
throughout the franchise areas.
DBS. High-powered direct-to-home satellites have made possible the
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wide-scale delivery of programming to individuals throughout the United States
using small roof-top or wall-mounted antennas. Several companies began offering
direct broadcast satellite ("DBS") service over the last few years. Companies
offering DBS service use video compression technology to increase channel
capacity of their systems to 100 or more channels and to provide packages of
movies, satellite network and other program services which are competitive to
those of cable television systems. DBS faces technical and legal obstacles to
offering its customers local broadcast programming, although at least one DBS
provider is now attempting to do so. In addition to emerging high-powered DBS
competition, cable television systems face competition from a major medium-
powered satellite distribution provider and several low-powered providers, whose
service requires use of much larger home satellite dishes. Not all subscribers
terminate cable television service upon acquiring a DBS system. The Managing
General Partner has observed that there are DBS subscribers that also elect to
subscribe to cable television service in order to obtain the greatest variety of
programming on multiple television sets, including local programming not
available through DBS service. The ability of DBS service providers to compete
successfully with the cable television industry will depend on, among other
factors, the ability of DBS providers to overcome certain legal and technical
hurdles and the availability of equipment at reasonable prices.
Telephone and Utilities. Federal cross-ownership restrictions
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historically limited entry by local telephone companies into the cable
television business. The 1996 Telecommunications Act (the "1996 Telecom Act")
eliminated this cross-ownership restriction, making it possible for companies
with considerable resources to overbuild existing cable operators and enter the
business. Several telephone companies have begun seeking cable television
franchises from local governmental authorities and constructing cable television
systems. Ameritech, one of the seven regional Bell Operating Companies
("BOCs"), which provides telephone service in a multi-state region including
Illinois, has been the most active BOC in seeking local cable franchises within
its service area. It has begun cable service in competition with partnerships
managed by Intercable in Elgin, Glen Ellyn and Naperville, Illinois. The
Managing General Partner cannot predict at this time the extent of telephone
company competition that will emerge. The entry of telephone companies as
direct competitors, however, is likely to continue over the next several years
and could adversely affect the profitability and market value of cable
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television systems. The entry of electric utility companies into the cable
television business, as now authorized by the 1996 Telecom Act, could have a
similar adverse effect. The local electric utility in the Washington D.C. area
recently announced plans to participate in RCN, a planned video competitor.
Private Cable. Additional competition is provided by private cable
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television systems, known as Satellite Master Antenna Television (SMATV),
serving multi-unit dwellings such as condominiums, apartment complexes, and
private residential communities. These private cable systems may enter into
exclusive agreements with apartment owners and homeowners associations, which
may preclude operators of franchised systems from serving residents of such
private complexes. Private cable systems that do not cross public rights of way
are free from the federal, state and local regulatory requirements imposed on
franchised cable television operators. In some cases, the Venture has been
unable to provide cable television service to buildings in which private
operators have secured exclusive contracts to provide video and telephony
services. The Venture is interested in providing these same services, but
expects that the market to install and provide these services in multi-unit
buildings will continue to be highly competitive.
MMDS. Cable television systems also compete with wireless program
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distribution services such as multichannel, multipoint distribution service
("MMDS") systems, commonly called wireless cable, which are licensed to serve
specific areas. MMDS uses low-power microwave frequencies to transmit
television programming over-the-air to paying subscribers. The MMDS industry is
less capital intensive than the cable television industry, and it is therefore
more practical to construct MMDS systems in areas of lower subscriber
penetration. Wireless cable systems are now in direct competition with cable
television systems in several areas of the country, including the system in Pima
County, Arizona owned by Intercable. Telephone companies have acquired or
invested in wireless companies, and may use MMDS systems to provide services
within their service areas in lieu of wired delivery systems. Enthusiasm for
MMDS has waned in recent months, however, as Bell Atlantic and NYNEX have
suspended their investment in two major MMDS companies. To date, the Venture
has not lost a significant number of subscribers, nor a significant amount of
revenue, to MMDS operators competing with the Aurora System. A series of
actions taken by the FCC, however, including reallocating certain frequencies to
the wireless services, are intended to facilitate the development of wireless
cable television systems as an alternative means of distributing video
programming. In addition, Local Multipoint Distribution Services ("LMDS"),
could also pose a significant threat to the cable television industry, if and
when it becomes established. The potential impact, however, of LMDS is
difficult to assess due to the newness of the technology and the absence of any
current fully operational LMDS systems.
Cable television systems are also in competition, in various degrees
with other communications and entertainment media, including motion pictures and
home video cassette recorders.
REGULATION AND LEGISLATION
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The operation of cable television systems is extensively regulated by
the FCC, some state governments and most local governments. The new 1996
Telecom Act alters the regulatory structure governing the nation's
telecommunications providers. It removes barriers to competition in both the
cable television market and the local telephone market. Among other things, it
also reduces the scope of cable rate regulation.
The 1996 Telecom Act requires the FCC to undertake a host of
implementing rulemakings, the final outcome of which cannot yet be determined.
Moreover, Congress and the FCC have frequently revisited the subject of cable
regulation. Future legislative and regulatory changes could adversely affect
the Venture's operations, and there has been a recent increase in calls to
maintain or even tighten cable regulation in the absence of widespread effective
competition. This section briefly summarizes key laws and regulations affecting
the operation of the Aurora System and does not purport to describe all present,
proposed, or possible laws and regulations affecting the Venture.
Cable Rate Regulation. The 1992 Cable Act imposed an extensive rate
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regulation regime on the cable television industry. Under that regime, all
cable systems are subject to rate regulation, unless they face "effective
competition" in their local franchise area. Federal law now defines "effective
competition" on a community-
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specific basis as requiring either low penetration (less than 30 percent) by the
incumbent cable operator, appreciable penetration (more than 15 percent) by
competing multichannel video providers ("MVPs"), or the presence of a competing
MVP affiliated with a local telephone company.
Although the FCC rules control, local government units (commonly
referred to as local franchising authorities or "LFAs") are primarily
responsible for administering the regulation of the lowest level of cable -- the
basic service tier ("BST"), which typically contains local broadcast stations
and public, educational, and government ("PEG") access channels. Before an LFA
begins BST rate regulation, it must certify to the FCC that it will follow
applicable federal rules, and many LFAs have voluntarily declined to exercise
this authority. LFAs also have primary responsibility for regulating cable
equipment rates. Under federal law, charges for various types of cable
equipment must be unbundled from each other and from monthly charges for
programming services. The 1996 Telecom Act allows operators to aggregate costs
for broad categories of equipment across geographic and functional lines. This
change should facilitate the introduction of new technology.
The FCC itself directly administers rate regulation of any cable
programming service tiers ("CPST"), which typically contain satellite-delivered
programming. Under the 1996 Telecom Act, the FCC can regulate CPST rates only
if an LFA first receives at least two rate complaints from local subscribers and
then files a formal complaint with the FCC. When new CPST rate complaints are
filed, the FCC now considers only whether the incremental increase is justified
and will not reduce the previously established CPST rate.
Under the FCC's rate regulations, most cable systems were required to
reduce their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price cap scheme that allows for the
recovery of inflation and certain increased costs, as well as providing some
incentive for expanding channel carriage. The FCC has modified its rate
adjustment regulations to allow for annual rate increases and to minimize
previous problems associated with regulatory lag. Operators also have the
opportunity of bypassing this "benchmark" regulatory scheme in favor of
traditional "cost-of-service" regulation in cases where the latter methodology
appears favorable. Premium cable services offered on a per-channel or per-
program basis remain unregulated, as do affirmatively marketed packages
consisting entirely of new programming product. Federal law requires that the
BST be offered to all cable subscribers, but limits the ability of operators to
require purchase of any CPST before purchasing premium services offered on a
per-channel or per-program basis.
The 1996 Telecom Act sunsets FCC regulation of CPST rates for all
systems (regardless of size) on March 31, 1999. Certain critics of the cable
television industry have called for a delay in the regulatory sunset, and some
have even urged more rigorous rate regulation in the interim, including a limit
on operators passing through to their customers increased programming costws.
The 1996 Telecom Act also relaxes existing uniform rate requirements by
specifying that uniform rate requirements do not apply where the operator faces
"effective competition," and by exempting bulk discounts to multiple dwelling
units, although complaints about predatory pricing still may be made to the FCC.
Cable Entry Into Telecommunications. The 1996 Telecom Act provides
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that no state or local laws or regulations may prohibit or have the effect of
prohibiting any entity from providing any interstate or intrastate
telecommunications service. States are authorized, however, to impose
"competitively neutral" requirements regarding universal service, public safety
and welfare, service quality, and consumer protection. State and local
governments also retain their authority to manage the public rights-of-way and
may require reasonable, competitively neutral compensation for management of the
public rights-of-way when cable operators provide telecommunications service.
The favorable pole attachment rates afforded cable operators under federal law
can be gradually increased by utility companies owning the poles (beginning in
2001) if the operator provides telecommunications service, as well as cable
service, over its plant.
Cable entry into telecommunications will be affected by the regulatory
landscape now being fashioned by the FCC and state regulators. One critical
component of the 1996 Telecom Act to facilitate the entry of new
telecommunications providers (including cable operators) is the interconnection
obligation imposed on all telecommunications carriers. In July 1997, the Eighth
Circuit Court of Appeals vacated certain aspects of the FCC's initial
interconnection order. That decision is now on appeal to the U.S. Supreme
Court.
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Telephone Company Entry Into Cable Television. The 1996 Telecom Act
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allows telephone companies to compete directly with cable operators by repealing
the historic telephone company/cable cross-ownership ban. Local exchange
carriers ("LECs"), including the BOCs, can now compete with cable operators both
inside and outside their telephone service areas. Because of their resources,
LECs could be formidable competitors to traditional cable operators, and certain
LECs have begun offering cable service. As described above, Intercable is now
witnessing the beginning of LEC competition in a few of its cable communities.
Under the 1996 Telecom Act, an LEC providing video programming to
subscribers will be regulated as a traditional cable operator (subject to local
franchising and federal regulatory requirements), unless the LEC elects to
provide its programming via an "open video system" ("OVS"). To qualify for OVS
status, the LEC must reserve two-thirds of the system's activated channels for
unaffiliated entities. RCN and affiliates of local power companies recently
have been certified to provide OVS service in areas encompassing Intercable's
cable systems in Maryland and Virginia. This OVS potential competition is not
yet operational.
Although LECs and cable operators can now expand their offerings
across traditional service boundaries, the general prohibition remains on LEC
buyouts (i.e., any ownership interest exceeding 10 percent) of co-located cable
systems, cable operator buyouts of co-located LEC systems, and joint ventures
between cable operators and LECs in the same market. The 1996 Telecom Act
provides a few limited exceptions to this buyout prohibition, including a
carefully circumscribed "rural exemption." The 1996 Telecom Act also provides
the FCC with the limited authority to grant waivers of the buyout prohibition
(subject to LFA approval).
Electric Utility Entry Into Telecommunications/Cable Television. The
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1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services (including cable
television) notwithstanding the Public Utilities Holding Company Act. Electric
utilities must establish separate subsidiaries, known as "exempt
telecommunications companies" and must apply to the FCC for operating authority.
Again, because of their resources, electric utilities could be formidable
competitors to traditional cable systems.
Additional Ownership Restrictions. The 1996 Telecom Act eliminates
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statutory restrictions on broadcast/cable cross-ownership (including broadcast
network/cable restrictions), but leaves in place existing FCC regulations
prohibiting local cross-ownership between co-located television stations and
cable systems. The 1996 Telecom Act also eliminates the three year holding
period required under the 1992 Cable Act's "anti-trafficking" provision. The
1996 Telecom Act leaves in place existing restrictions on cable cross-ownership
with SMATV and MMDS facilities, but lifts those restrictions where the cable
operator is subject to effective competition. In January 1995, however, the FCC
adopted regulations which permit cable operators to own and operate SMATV
systems within their franchise area, provided that such operation is consistent
with local cable franchise requirements.
Pursuant to the 1992 Cable Act, the FCC adopted rules precluding a
cable system from devoting more than 40 percent of its activated channel
capacity to the carriage of affiliated national program services. A companion
rule establishing a nationwide ownership cap on any cable operator equal to 30
percent of all domestic cable subscribers has been stayed pending further
judicial review, although the FCC recently expressed an interest in reviewing
and reimposing this limit.
There are no federal restrictions on non-U.S. entities having an
ownership interest in cable television systems or the FCC licenses commonly
employed by such systems. Section 310(b)(4) of the Communications Act does,
however, prohibit foreign ownership of FCC broadcast and telephone licenses,
unless the FCC concludes that such foreign ownership is consistent with the
public interest. The investment by BCI Telecom Holding Inc. ("BCI") in
Intercable could, therefore, adversely affect any plan to acquire FCC broadcast
or common carrier licenses. The Partnership, however, does not currently plan
to acquire such licenses.
Must Carry/Retransmission Consent. The 1992 Cable Act contains
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broadcast signal carriage requirements that allow local commercial television
broadcast stations to elect once every three years between
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requiring a cable system to carry the station ("must carry") or negotiating for
payments for granting permission to the cable operator to carry the station
("retransmission consent"). Less popular stations typically elect "must carry,"
and more popular stations typically elect "retransmission consent." Must carry
requests can dilute the appeal of a cable system's programming offerings, and
retransmission consent demands may require substantial payments or other
concessions. Either option has a potentially adverse affect on the Venture's
business. Additionally, cable systems are required to obtain retransmission
consent for all "distant" commercial television stations (except for satellite-
delivered independent "superstations" such as WGN). The burden associated with
"must carry" may increase substantially if broadcasters proceed with planned
conversion to digital transmission and the FCC determines that cable systems
must carry all analogue and digital broadcasts in their entirety.
Access Channels. LFAs can include franchise provisions requiring
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cable operators to set aside certain channels for public, educational and
governmental access programming. Federal law also requires cable systems to
designate a portion of their channel capacity (up to 15 percent in some cases)
for commercial leased access by unaffiliated third parties. The FCC has adopted
rules regulating the terms, conditions and maximum rates a cable operator may
charge for use of the designated channel capacity, but use of commercial leased
access channels has been relatively limited. The FCC released revised rules in
February 1997 mandating a modest rate reduction. The reduction sparked some
increase in part-time use, but did not make commercial leased access
substantially more attractive to third party programmers. Certain of those
programmers have now appealed the revised rules to the D.C. Court of Appeals.
Should the courts and the FCC ultimately determine that an additional reduction
in access rates is required, cable operators could lose programming control of a
substantial number of cable channels.
Access to Programming. To spur the development of independent cable
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programmers and competition to incumbent cable operators, the 1992 Cable Act
imposed restrictions on the dealings between cable operators and cable
programmers. Of special significance from a competitive business posture, the
1992 Cable Act precludes video programmers affiliated with cable companies from
favoring cable operators over competitors and requires such programmers to sell
their programming to other multichannel video distributors. This provision
limits the ability of vertically integrated cable programmers to offer exclusive
programming arrangements to cable companies. There recently has been increased
interest in further restricting the marketing practices of cable programmers,
including subjecting programmers who are not affiliated with cable operators to
all of the existing program access requirements.
Other FCC Regulations. In addition to the FCC regulations noted
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above, there are other FCC regulations covering such areas as equal employment
opportunity, subscriber privacy, programming practices (including, among other
things, syndicated program exclusivity, network program nonduplication, local
sports blackouts, indecent programming, lottery programming, political
programming, sponsorship identification, and children's programming
advertisements), registration of cable systems and facilities licensing,
maintenance of various records and public inspection files, frequency usage,
lockbox availability, antenna structure notification, tower marking and
lighting, consumer protection and customer service standards, technical
standards, and consumer electronics equipment compatibility. Federal
requirements governing Emergency Alert Systems and Closed Captioning adopted in
1997 will impose additional costs on the operation of cable systems. The FCC is
currently considering whether cable customers must be allowed to purchase cable
converters from third party vendors. If the FCC concludes that such distribution
is required, and does not make appropriate allowances for signal piracy
concerns, it may become more difficult for cable operators to combat theft of
service. The FCC has the authority to enforce its regulations through the
imposition of substantial fines, the issuance of cease and desist orders and/or
the imposition of other administrative sanctions, such as the revocation of FCC
licenses needed to operate certain transmission facilities used in connection
with cable operations.
Internet Access. Many cable operators have begun offering high speed
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internet service to its customers. At this time, there is no significant
federal or local regulation of this service. However, as internet services
develop, it is possible that new regulations could be imposed.
Copyright. Cable television systems are subject to federal copyright
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licensing covering carriage of television and radio broadcast signals. In
exchange for filing certain reports and contributing a percentage of their
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revenues to a federal copyright royalty pool (that varies depending on the size
of the system and the number of distant broadcast television signals carried),
cable operators can obtain blanket permission to retransmit copyrighted material
on broadcast signals. The possible modification or elimination of this
compulsory copyright license is the subject of continuing legislative review and
could adversely affect the Venture's ability to obtain desired broadcast
programming. In addition, the cable industry pays music licensing fees to BMI
and is negotiating a similar arrangement with ASCAP. Copyright clearances for
nonbroadcast programming services are arranged through private negotiations.
State and Local Regulation. Cable television systems generally are
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operated pursuant to nonexclusive franchises granted by a municipality or other
state or local government entity in order to cross public rights-of-way.
Federal law now prohibits franchise authorities from granting exclusive
franchises or from unreasonably refusing to award additional franchises. Cable
franchises generally are granted for fixed terms and in many cases include
monetary penalties for non-compliance and may be terminable if the franchisee
fails to comply with material provisions.
The terms and conditions of franchises vary materially from
jurisdiction to jurisdiction. Each franchise generally contains provisions
governing cable operations, service rates, franchise fees, system construction
and maintenance obligations, system channel capacity, design and technical
performance, customer service standards, and indemnification protections. A
number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. Although LFAs have considerable
discretion in establishing franchise terms, there are certain federal
limitations. For example, LFAs cannot insist on franchise fees exceeding 5
percent of the system's gross revenues, cannot dictate the particular technology
used by the system, and cannot specify video programming other than identifying
broad categories of programming.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the franchise authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees as a condition of renewal. Similarly, if a franchise
authority's consent is required for the purchase or sale of a cable system or
franchise, such authority may attempt to impose more burdensome or onerous
franchise requirements in connection with a request for consent. Historically,
franchises have been renewed for cable operators that have provided satisfactory
services and have complied with the terms of their franchises.
GENERAL. The Venture's business consists of providing cable
television services to a large number of customers, the loss of any one of which
would have no material effect on the Venture's business. The Aurora System 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
Aurora System is not significant. The Venture's policy with regard to past due
accounts is basically one of disconnecting service before a past due account
becomes material.
The Venture 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. Neither the Venture nor the Partnership
has any employees because all properties are managed by employees of Intercable.
Intercable has engaged in research and development activities relating to the
provision of new services but the amount of the Venture's funds expended for
such research and development has never been material.
Compliance with federal, state and local provisions that have been
enacted or adopted regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment has had no material
effect upon the capital expenditures, earnings or competitive position of the
Venture.
9
ITEM 2. PROPERTIES
-------------------
The Aurora System was acquired by the Venture in May 1990. 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 Aurora System. The monthly basic
service rates set forth herein represent, with respect to systems with multiple
headends, the basic service rate charged to the majority of the subscribers
within the system. In cable television systems, basic subscribers can subscribe
to more than one pay TV service. Thus, the total number of pay services
subscribed to by basic subscribers are called pay units. As of December 31,
1997, the Aurora System operated cable plant passing approximately 76,900 homes,
with an approximate 64 percent penetration rate. Figures for numbers of
subscribers, miles of cable plant and homes passed are compiled from the
Managing General Partner's records and may be subject to adjustments.
At December 31,
----------------------------
AURORA SYSTEM 1997 1996 1995
- --------------------------------- ---------- ------- -------
Monthly basic plus service rate $ 24.21 $ 23.99 $ 22.58
Basic subscribers 49,429 47,018 43,982
Pay units 25,513 26,002 25,938
ITEM 3. LEGAL PROCEEDINGS
--------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
None.
PART II.
--------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
-------------------------------------------------
AND RELATED SECURITY HOLDER MATTERS
-----------------------------------
While the Partnership is publicly held, there is no public market for
the limited partnership interests, and it is not expected that a market will
develop in the future. During 1997, limited partners of the Partnership
conducted "limited tender offers" for interests in the Partnership at prices
ranging from $50 to $55 per interest. As of February 16, 1998, the number of
equity security holders in the Partnership was 6,701.
10
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------
For the Year Ended December 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
Revenues $19,713,788 $18,394,451 $16,860,900 $15,388,489 $15,196,068
Depreciation and Amortization 9,071,373 9,990,694 10,317,694 10,601,501 10,883,845
Operating Loss (2,378,678) (4,556,911) (5,411,813) (5,888,186) (5,816,179)
Minority Interest in Net Loss 2,108,575 2,882,115 3,154,893 3,061,563 2,836,367
Net Loss (4,021,003) (5,496,125) (6,016,306) (5,838,329) (5,408,884)
Net Loss per Limited
Partnership Unit (22.83) (31.21) (34.16) (33.15) (30.71)
Weighted Average Number of Limited
Partnership Units Outstanding 174,343 174,343 174,343 174,343 174,343
General Partners' Deficit (451,155) (410,945) (355,984) (295,821) (237,438)
Limited Partners' Capital (Deficit) (7,121,187) (3,140,394) 2,300,770 8,256,913 14,036,859
Total Assets 42,162,099 46,258,004 51,448,914 57,752,046 64,595,970
Debt 50,093,792 48,693,134 45,909,122 43,566,064 41,604,580
Managing General Partner Advances 343,974 398,507 331,185 933,949 1,056,828
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The following discussion of the financial condition and results of
operations of IDS/Jones Growth Partners II, L.P. (the "Partnership") and
IDS/Jones Joint Venture Partners (the "Venture") contains, in addition to
historical information, forward-looking statements that are based upon certain
assumptions and are subject to a number of risks and uncertainties. The
Partnership's and Venture's actual results may differ significantly from the
results predicted in such forward-looking statements.
FINANCIAL CONDITION
- -------------------
IDS/Jones Growth Partners II, L.P. -
- ----------------------------------
The Partnership owns a 66 percent interest in the Venture. During
1997, the Partnership's interest in the Venture decreased $4,021,003 to a
deficit of $7,572,342 at December 31, 1997. This decrease represents the
Partnership's proportionate share of losses generated by the Venture in 1997.
Such losses are anticipated to continue. Refer to Management's Discussion and
Analysis of Financial Condition and Results of Operations for the Venture for
details pertaining to its financial condition.
IDS/Jones Joint Venture Partners -
- --------------------------------
It is Intercable's publicly announced policy that it intends to
liquidate its managed partnerships, including the Partnership, as opportunities
for sales of partnership cable television systems arise in the marketplace. In
accordance with Intercable's policy, the cable television system serving the
communities of Aurora, North Aurora, Montgomery, Plano, Oswego, Sandwich,
Yorkville and certain unincorporated areas of Kendall and Kane Counties, all in
the State of Illinois (the "Aurora System") has been marketed for sale and
Intercable is continuing to seek out opportunities to sell the Aurora System.
There is no assurance as to the timing or terms of any sales.
For the year ended December 31, 1997, the Venture generated net cash
from operating activities totaling $3,148,913, which is available to fund
capital expenditures and non-operating costs. During 1997, the Venture expended
approximately $4,464,000 on capital expenditures. Approximately 40 percent of
the expenditures related to construction of service drops to subscriber homes.
Approximately 36 percent of the expenditures related to plant extensions to new
homes passed. The remainder of the expenditures was used for various
enhancements in the Aurora System. Funding for these expenditures was provided
by cash generated from operations and borrowings from the Venture's credit
facility. Budgeted capital expenditures for 1998 are approximately $4,310,000.
Approximately 42 percent of the expenditures is for plant extensions to new
homes passed. Approximately 36 percent of the expenditures is for service drops.
The remainder of anticipated capital expenditures is necessary to maintain the
value of the Aurora System until it is sold. Funding for the expenditures is
expected to be provided by cash generated from operations and, if necessary and
in its discretion, borrowings from the Managing General Partner.
11
On December 5, 1991, Intercable made a $1,800,000 loan to the Venture,
of which $1,200,000 had been repaid as of December 31, 1997. Any amounts not
repaid to Intercable are convertible into equity in the Venture at Intercable's
option. In the first quarter of 1994, Intercable agreed to subordinate to all
other Venture debt its $1,406,647 advance to the Venture outstanding at March
31, 1994 and IDS Management Corporation made a loan of $1,000,000 to the Venture
to fund principal repayments due on March 31, 1994 on the Venture's then-
outstanding term loan. The interest rates on the respective loans, which will
vary from time to time, with respect to IDS Management Corporation's loan, are
at its cost of borrowing, and, with respect to Intercable's loans, are at its
weighted average cost of borrowing. It is anticipated that the remaining loans
will be repaid from a portion of the sale proceeds to be received on the
eventual sale of the Aurora System. The related parties' notes will be repaid
including accrued interest in the following order: first, to Intercable the
remaining $600,000 of the $1,800,000 note dated December 5, 1991; second, to IDS
Management Corporation the $1,000,000 note dated March 30, 1994; and third, to
Intercable the $1,406,647 subordinated advance.
The Venture is a party to a $47,000,000 revolving credit and term loan
agreement with commercial banks. The agreement allows for a reducing revolving
commitment that will begin to reduce quarterly on June 30, 1999 until December
31, 1999, at which time the commitment will reduce to zero and all principal and
interest amounts will be due and payable in full. At December 31, 1997, all
$47,000,000 was outstanding under this agreement. Interest on the credit
facility is at the Venture's option of the Prime Rate plus .625 percent, the
London Interbank Offered Rate plus 1.625 percent or the Certificate of Deposit
Rate plus 1.75 percent. The effective interest rates on outstanding obligations
to non-affiliates as of December 31, 1997 and 1996 were 7.52 percent and 7.38
percent, respectively.
The Venture has sufficient sources of capital available through its
ability to generate cash from operations and, if necessary and in its
discretion, borrowings from the Managing General Partner to meet its current
needs.
Year 2000 Issue
- ---------------
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
Partnership's customers. In addition, the General Partner will assess its
options regarding repair or replacement of affected equipment during this
testing. The General Partner currently has no definitive estimate of the cost or
the extent of the impact, if any, this problem will have on service delivery;
however, the General Partner does not believe that the impact will be material.
The General Partner anticipates completion of its testing in 1998, at which time
it will determine the financial impact on the Partnership. The General Partner
expects that the financial impact on the Partnership of the Year 2000 issue
likely will not be material because the General Partner anticipates that the
Partnership will be liquidated before the year 2000.
RESULTS OF OPERATIONS
- ---------------------
IDS/Jones Growth Partners II, L.P. -
- ----------------------------------
All of the operations of the Partnership are represented exclusively
by its 66 percent interest in the Venture. Refer to Management's Discussion and
Analysis of Financial Condition and Results of Operations for the Venture
immediately below for details pertaining to its operations.
IDS/Jones Joint Venture Partners -
- --------------------------------
Revenues of the Venture's Aurora System increased $1,319,337, or
approximately 7 percent, to $19,713,788 in 1997 compared to $18,394,451 in 1996.
Increases in basic service revenues primarily accounted for the increase in
revenues. Basic service rate increases accounted for approximately 49 percent of
the increase in revenues. An increase in the number of basic service subscribers
accounted for approximately 51 percent of the increase in revenues. The number
of basic subscribers increased 2,411, or approximately 5 percent, to 49,429 at
December 31, 1997 compared to 47,018 at December 31, 1996.
12
Operating expenses consist primarily of costs associated with the
operation and administration of the Aurora System. The principal cost components
are salaries paid to system personnel, programming expenses, professional fees,
subscriber billing costs, rent for leased facilities, cable system maintenance
expenses and marketing expenses.
Operating expenses increased $103,869, or approximately 1 percent, to
$10,837,726 in 1997 compared to $10,733,857 for the comparable 1996 period.
Increases in programming fees primarily accounted for the increase in operating
expenses. No other individual factors contributed significantly to the increase.
Operating expenses represented approximately 55 percent and 58 percent of
revenues in 1997 and 1996, respectively.
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
increased $1,215,468, or approximately 16 percent, to $8,876,062 in 1997
compared to $7,660,594 in 1996. The increase was due to the increase in revenues
exceeding the increase in operating expenses.
Management and supervision fees and allocated overhead from the
General Partners decreased $43,444, or approximately 2 percent, to $2,183,367 in
1997 compared to $2,226,811 in 1996. This decrease was the result of a decrease
in expenses allocated from the Managing General Partner.
Depreciation and amortization expenses decreased $919,321, or
approximately 9 percent, to $9,071,373 in 1997 compared to $9,990,694 in 1996.
The decrease was due to the maturation of a portion of the intangible asset
base.
Operating loss decreased $2,178,233, or approximately 48 percent, to
$2,378,678 in 1997 compared to $4,556,911 in 1996. The decrease was due to the
increase in operating cash flow and the decrease in depreciation and
amortization expense.
Interest expense increased $1,794, or less than 1 percent, to
$3,759,271 in 1997 compared to $3,757,477 in 1996.
Net loss decreased $2,248,662, or approximately 27 percent, to
$6,129,578 in 1997 compared to $8,378,240 in 1996. The decrease was due to the
factors discussed above and is expected to continue in future periods.
1996 Compared to 1995
- ---------------------
Revenues of the Venture increased $1,533,551, or approximately 9
percent, to $18,394,451 in 1996 compared to $16,860,900 in 1995. The increase in
revenues was primarily due to an increase in the number of basic subscribers and
basic service rate increases. An increase in the number of basic service
subscribers accounted for approximately 50 percent of the increase in revenues.
The number of basic service subscribers increased 3,036, or approximately 7
percent, to 47,018 at December 31, 1996 compared to 43,982 at December 31, 1995.
Basic service rate increases accounted for approximately 45 percent of the
increase in revenues. No other individual factor was significant to the
increases in revenues.
Operating expenses increased $924,679, or approximately 9 percent, to
$10,733,857 in 1996 compared to $9,809,178 for the comparable 1995 period.
Increases in programming fees primarily accounted for the increase in operating
expenses. No other individual factors contributed significantly to the increase.
Operating expenses represented approximately 58 percent of revenues in 1996 and
1995, respectively.
Operating cash flow increased $608,872, or approximately 9 percent, to
$7,660,594 in 1996 compared to $7,051,722 in 1995. The increase was due to the
increase in revenues exceeding the increase in operating expenses.
Management and supervision fees and allocated overhead from the
General Partners increased $80,970, or approximately 4 percent, to $2,226,811 in
1996 compared to $2,145,841 in 1995. The increase was due to the increase in
revenues, upon which management and supervision fees are based.
Depreciation and amortization expense decreased $327,000, or
approximately 3 percent, to $9,990,694 in 1996 compared to $10,317,694 in 1995.
The decrease was due to the maturation of a portion of the tangible asset base.
Operating loss decreased $854,902, or approximately 16 percent, to
$4,556,911 in 1996 compared to $5,411,813 in 1995. The decrease was due to the
increase in operating cash flow and the decrease in depreciation and
amortization expense.
Interest expense decreased $9,899, or less than one percent, to
$3,757,477 in 1996 compared to $3,767,376 in 1995. This decrease was due to
lower effective interest rates on interest bearing obligations during 1996.
13
Net loss decreased $792,959, or approximately 9 percent, to $8,378,240
in 1996 compared to $9,171,199 in 1995. This decrease was due to the factors
discussed above.
ITEM 8. FINANCIAL STATEMENTS
- -----------------------------
The audited financial statements of the Partnership for the year ended
December 31, 1997 follow.
14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Partners of IDS/Jones Growth Partners II, L.P.:
We have audited the accompanying consolidated balance sheets of
IDS/JONES GROWTH PARTNERS II, L.P. (a Colorado limited partnership) as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, partners' capital (deficit) and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Managing 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 IDS/Jones Growth
Partners II, L.P. as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 13, 1998.
15
IDS/JONES GROWTH PARTNERS II, L.P.
----------------------------------
(A Limited Partnership)
CONSOLIDATED BALANCE SHEETS
---------------------------
December 31,
----------------------------
ASSETS 1997 1996
------ ------------ -------------
CASH $ 124,766 $ 39,236
TRADE RECEIVABLES, less allowance for
doubtful receivables of $91,156 and $183,205 at
December 31, 1997 and 1996, respectively 565,702 486,278
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 47,080,064 42,616,023
Less- accumulated depreciation (23,938,318) (20,360,651)
------------ -------------
23,141,746 22,255,372
Franchise costs and other intangible assets, net of
accumulated amortization of $55,831,988 and
$50,617,891 at December 31, 1997 and 1996,
respectively 17,866,007 23,080,104
------------ -------------
Total investment in cable television properties 41,007,753 45,335,476
DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 463,878 397,014
------------ -------------
Total assets $ 42,162,099 $ 46,258,004
============ =============
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
16
IDS/JONES GROWTH PARTNERS II, L.P.
----------------------------------
(A Limited Partnership)
CONSOLIDATED BALANCE SHEETS
---------------------------
December 31,
----------------------------
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) 1997 1996
- ------------------------------------------------- ------------- -------------
LIABILITIES:
Debt $ 50,093,792 $ 48,693,134
Managing General Partner advances 343,974 398,507
Trade accounts payable and accrued liabilities 3,342,658 2,649,331
Subscriber prepayments 58,915 64,694
------------ ------------
Total liabilities 53,839,339 51,805,666
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
MINORITY INTEREST IN JOINT VENTURE (4,104,898) (1,996,323)
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partners-
Contributed capital 500 500
Accumulated deficit (451,655) (411,445)
------------ ------------
(451,155) (410,945)
------------ ------------
Limited Partners-
Net contributed capital (174,343 units
outstanding at December 31, 1997 and 1996) 37,256,546 37,256,546
Accumulated deficit (44,377,733) (40,396,940)
------------ ------------
(7,121,187) (3,140,394)
------------ ------------
Total liabilities and partners'
capital (deficit) $ 42,162,099 $ 46,258,004
============ ============
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
17
IDS/JONES GROWTH PARTNERS II, L.P.
----------------------------------
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
Year Ended December 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
REVENUES $19,713,788 $18,394,451 $16,860,900
COSTS AND EXPENSES:
Operating expenses 10,837,726 10,733,857 9,809,178
Management and supervision
fees and allocated overhead
from General Partners 2,183,367 2,226,811 2,145,841
Depreciation and amortization 9,071,373 9,990,694 10,317,694
----------- ----------- -----------
OPERATING LOSS (2,378,678) (4,556,911) (5,411,813)
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (3,759,271) (3,757,477) (3,767,376)
Other, net 8,371 (63,852) 7,990
----------- ----------- -----------
Total other income (expense) (3,750,900) (3,821,329) (3,759,386)
----------- ----------- -----------
CONSOLIDATED LOSS (6,129,578) (8,378,240) (9,171,199)
MINORITY INTEREST IN CONSOLIDATED
LOSS 2,108,575 2,882,115 3,154,893
----------- ----------- -----------
NET LOSS $(4,021,003) $(5,496,125) $(6,016,306)
=========== =========== ===========
ALLOCATION OF NET LOSS:
General Partners $ (40,210) $ (54,961) $ (60,163)
=========== =========== ===========
Limited Partners $(3,980,793) $(5,441,164) $(5,956,143)
=========== =========== ===========
NET LOSS PER LIMITED PARTNERSHIP
UNIT $ (22.83) $ (31.21) $ (34.16)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 174,343 174,343 174,343
=========== =========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
18
IDS/JONES GROWTH PARTNERS II, L.P.
----------------------------------
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
------------------------------------------------------
Year Ended December 31,
----------------------------------------
1997 1996 1995
----------- ----------- ------------
GENERAL PARTNERS:
Jones Cable Corporation
Balance, beginning of year $ (205,472) $ (177,992) $ (147,911)
Net loss for year (20,105) (27,480) (30,081)
----------- ----------- -----------
Balance, end of year $ (225,577) $ (205,472) $ (177,992)
=========== =========== ===========
IDS Cable II Corporation
Balance, beginning of year $ (205,473) $ (177,992) $ (147,910)
Net loss for year (20,105) (27,481) (30,082)
----------- ----------- -----------
Balance, end of year $ (225,578) $ (205,473) $ (177,992)
=========== =========== ===========
Total
Balance, beginning of year $ (410,945) $ (355,984) $ (295,821)
Net loss for year (40,210) (54,961) (60,163)
----------- ----------- -----------
Balance, end of year $ (451,155) $ (410,945) $ (355,984)
=========== =========== ===========
LIMITED PARTNERS:
Balance, beginning of year $(3,140,394) $ 2,300,770 $ 8,256,913
Net loss for year (3,980,793) (5,441,164) (5,956,143)
----------- ----------- -----------
Balance, end of year $(7,121,187) $(3,140,394) $ 2,300,770
=========== =========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
19
IDS/JONES GROWTH PARTNERS II, L.P.
----------------------------------
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Year Ended December 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,021,003) $(5,496,125) $ (6,016,306)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 9,071,373 9,990,694 10,317,694
Minority interest in consolidated loss (2,108,575) (2,882,115) (3,154,893)
Amortization of interest rate protection contract - 52,500 52,500
Increase in trade receivables (79,424) (23,180) (59,670)
Increase in deposits, prepaid expenses and
deferred charges (346,473) (194,372) (81,080)
Increase in trade accounts payable and accrued
liabilities and subscriber prepayments 687,548 335,996 1,127,773
Increase (decrease) in advances from
Managing General Partner (54,533) 67,322 (602,764)
----------- ----------- ------------
Net cash provided by
operating activities 3,148,913 1,850,720 1,583,254
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (4,464,041) (4,602,299) (3,871,793)
----------- ----------- ------------
Net cash used in investing activities (4,464,041) (4,602,299) (3,871,793)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 1,431,266 7,829,712 3,016,410
Repayment of debt (30,608) (5,045,700) (673,352)
Purchase of interest rate protection contract - - (105,000)
----------- ----------- ------------
Net cash provided by financing activities 1,400,658 2,784,012 2,238,058
----------- ----------- -----------
Increase (decrease) in cash 85,530 32,433 (50,481)
Cash, beginning of year 39,236 6,803 57,284
----------- ----------- -----------
Cash, end of year $ 124,766 $ 39,236 $ 6,803
=========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 3,644,227 $ 3,434,691 $ 2,974,550
=========== =========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
20
IDS/JONES GROWTH PARTNERS II, L.P.
----------------------------------
(A Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(1) ORGANIZATION AND PARTNERS' INTERESTS
------------------------------------
Formation and Business
----------------------
IDS/Jones Growth Partners II, L.P. (the "Partnership"), a Colorado
limited partnership, was formed on November 9, 1989, pursuant to a public
offering. The Partnership was formed to acquire, develop and operate cable
television systems. Jones Cable Corporation, a Colorado corporation, is the
"Managing General Partner" and manager of the Partnership. IDS Cable II
Corporation, a Minnesota corporation, is the "Supervising General Partner" of
the Partnership. IDS Cable Corporation is the supervising general partner of
IDS/Jones Growth Partners 89-B, Ltd. ("Growth Partners 89-B") and Jones Cable
Corporation is the Managing General Partner of Growth Partners 89-B. Jones
Intercable, Inc. ("Intercable"), the parent of Jones Cable Corporation, manages
the cable television system purchased by IDS/Jones Joint Venture Partners (the
"Venture"). Intercable and its subsidiaries also own and operate cable
television systems as well as manage cable television systems for other limited
partnerships for which it is general partner and, also, for affiliated entities.
The Managing General Partner and the Supervising General Partner are referred to
as the "General Partners."
Contributed Capital, Commissions and Syndication Costs
------------------------------------------------------
The capitalization of the Partnership is set forth in the accompanying
Consolidated Statements of Partners' Capital (Deficit). No limited partner is
obligated to make any additional contributions to partnership capital.
The Managing General Partner and the Supervising General Partner
purchased their interests in the Partnership by contributing $250 each to
partnership capital.
All profits and losses of the Partnership are allocated 99 percent to
the limited partners, 1/2 percent to the Managing General Partner and 1/2
percent to the Supervising 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 and
interest income earned prior to the first acquisition by the Partnership of a
cable television system, which was allocated 100 percent to the limited
partners.
Formation of Joint Venture
--------------------------
On May 30, 1990, the Partnership and Growth Partners 89-B formed the
Venture. The Partnership's offering closed on September 30, 1991 with limited
partner subscriptions totaling $43,585,750, of which $37,592,709 was contributed
to the Venture. In the fourth quarter of 1991, due to the necessity for
additional funding for the Venture, Intercable and IDS Management Corporation
each made equity investments of $2,872,000 in the Venture under the joint
venture agreement between the joint venture partners. Profits, losses, and
distributions of the Venture will be shared in proportion to total capital
contributions made by the individual venture partners. As a result of their
equity contributions to the Venture described above, ownership percentages of
the Venture are detailed below:
The Partnership 66%
Growth Partners 89-B 24%
Intercable 5%
IDS Management Corporation 5%
----
100%
The Venture was formed for the purpose of acquiring the cable
television system serving the communities of Aurora, North Aurora, Montgomery,
Plano, Oswego, Sandwich, Yorkville and certain unincorporated areas of Kendall
and Kane Counties, all in the state of Illinois (the "Aurora System").
21
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Accounting Records
------------------
The accompanying consolidated financial statements have been prepared
on the accrual basis of accounting in accordance with generally accepted
accounting principles. The Partnership's tax returns are also prepared on the
accrual basis.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Managing General Partner's
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include 100 percent
of the accounts of the Partnership and those of the Venture, reduced by the
minority interest in the Venture. All inter-partnership accounts and
transactions have been eliminated.
Allocation of Cost of Purchased Cable Television Systems
--------------------------------------------------------
The total purchase price of the Aurora System purchased by the Venture
was allocated as follows: first, to the fair value of net tangible assets
acquired; second, to the value of subscriber lists; third, to franchise costs;
and fourth, to costs in excess of interests in net assets purchased.
Acquisition fees paid to affiliates of the General Partners and other
acquisition costs were capitalized and charged to intangible assets.
Property, Plant and Equipment
-----------------------------
Depreciation of property, plant and equipment is provided primarily
using the straight-line method over the following estimated service lives:
Cable distribution systems 5 - 15 years
Equipment and tools 5 - 7 years
Office furniture and equipment 3 - 5 years
Buildings 30 years
Vehicles 3 - 4 years
Replacements, renewals and improvements are capitalized and
maintenance and repairs are charged to expense as incurred.
Property, plant and equipment and the corresponding accumulated
depreciation are written off as certain assets become fully depreciated and are
no longer in service.
Intangible Assets
-----------------
Costs assigned to franchises and costs in excess of interests in net
assets purchased are amortized using the straight-line method over the following
remaining estimated useful lives:
Franchise costs 3 years
Costs in excess of interests in
net assets purchased 33 years
Revenue Recognition
-------------------
Subscriber prepayments will be initially deferred and recognized as
revenue when earned.
Reclassification
----------------
Certain prior year amounts have been reclassified to conform to the
1997 presentation.
22
(3) TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES
-----------------------------------------------------
Management Fees, Supervision Fees, Distribution Ratios and
----------------------------------------------------------
Reimbursements
--------------
Intercable manages the Aurora System on behalf of 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 by the Venture to Intercable during the years
ended December 31, 1997, 1996 and 1995 were $985,689, $919,723 and $843,045,
respectively.
The Supervising General Partners participate in certain management
decisions of the Venture and receive a fee for their services equal to 1/2
percent of the gross revenues of the Venture, excluding revenues from the sale
of cable television systems or franchises. Supervision fees paid by the Venture
to the Supervising General Partners during the years ended December 31, 1997,
1996 and 1995 were $98,569, $91,972 and $84,305, 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. 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 on actual time
spent by employees of Intercable with respect to each partnership managed.
Remaining expenses are allocated based on the pro rata relationship of the
Venture's revenues to the total revenues of all systems owned or managed by
Intercable and certain of its affiliates. Systems owned by Intercable and all
other systems owned by partnerships for which Intercable or affiliates are the
general partners are also allocated a proportionate share of these expenses.
Intercable believes that the methodology used in allocating overhead and
administrative expenses is reasonable. Reimbursements made to Intercable by the
Venture for allocated overhead and administrative expenses during the years
ended December 31, 1997, 1996 and 1995 were $1,099,109, $1,215,116 and
$1,218,491, respectively.
The Supervising General Partners may also be reimbursed for certain
expenses incurred on behalf of the Venture. There were no reimbursements made to
the Supervising General Partners by the Venture for allocated overhead and
administrative expenses during the years ended December 31, 1997, 1996 and 1995.
During 1997, the Venture was charged interest by Intercable at an
average interest rate of 7.82 percent on amounts due Intercable and on the
subordinated loans from Intercable, which approximated Intercable's weighted
average cost of borrowing. Total interest charged to the Venture by Intercable
during the years ended December 31, 1997, 1996 and 1995 was $241,938, $382,725
and $481,211, respectively.
The Venture was charged interest on the subordinated loans from IDS
Management Corporation at an average interest rate of 6.27 percent, which
approximated IDS Management Corporation's cost of borrowing. Total interest
charged to the Venture by IDS Management Corporation during 1997, 1996 and 1995
was $62,737, $111,741 and $120,970, 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,
1/2 percent to the Managing General Partner and 1/2 percent to the Supervising
General Partner. Any distributions other than interest income on limited
partner subscriptions earned prior to the acquisition of the Partnership's first
cable television system or from cash flow, such as from the sale or refinancing
of a system or upon dissolution of the Partnership, will be made as follows:
first, to the limited partners in an amount which, together with all prior
distributions, will equal 100 percent of the amount initially contributed to the
Partnership by the limited partners; second, to the General Partners in an
amount which, together with all prior distributions, will equal the amount
contributed to the capital of the partnership by the General Partners; third, to
the limited partners in an amount which, together with all prior distributions,
will equal a 6 percent per annum cumulative and noncompounded return on the
capital contributions of the limited partners; the balance, 75 percent to the
limited partners, 12-1/2 percent to the Managing General Partner and 12-1/2
percent to the Supervising General Partner.
Payments to/from Affiliates for Programming Services
----------------------------------------------------
The Venture receives or has received programming from Superaudio,
Knowledge TV, Inc., Jones Computer Network, Ltd., Great American Country, Inc.
and Product Information Network, all of which are affiliates of Intercable.
Payments to Superaudio totaled $31,413, $27,973 and $23,928,
respectively, in 1997, 1996 and 1995. Payments to Knowledge TV, Inc. totaled
$34,932, $30,139 and $25,603, respectively, in 1997, 1996 and 1995. Payments to
Jones Computer
23
Network, Ltd., whose service was discontinued in April 1997, totaled $22,875,
$60,279 and $51,138, respectively, in 1997, 1996 and 1995. Payments to Great
American Country, Inc., which initiated service in 1997, totaled $35,504.
The Venture receives a commission from Product Information Network
based on a percentage of advertising revenue and number of subscribers. Product
Information Network paid commissions to the Venture totaling $71,847, $46,841
and $29,347 in 1997, 1996 and 1995, respectively.
(4) PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant and equipment as of December 31, 1997 and 1996,
consisted of the following:
1997 1996
------------- -------------
Cable distribution systems $ 45,270,244 $ 41,144,449
Equipment and tools 982,821 686,650
Office furniture and equipment 331,660 318,341
Vehicles 416,054 387,298
Buildings 79,285 79,285
------------ ------------
47,080,064 42,616,023
Less- accumulated depreciation (23,938,318) (20,360,651)
------------ ------------
$ 23,141,746 $ 22,255,372
============ ============
(5) DEBT
----
Debt consists of the following: December 31,
------------
1997 1996
------------ ------------
Lending institutions-
Revolving credit agreement $ 47,000,000 $ 45,600,000
Affiliated entities-
Subordinated loans:
Intercable 2,006,647 2,006,647
IDS Management Corporation 1,000,000 1,000,000
Capital lease obligations 87,145 86,487
------------ ------------
$ 50,093,792 $ 48,693,134
============ ============
On December 5, 1991, Intercable made a $1,800,000 loan to the Venture,
of which $1,200,000 had been repaid as of December 31, 1997. Any amounts not
repaid to Intercable are convertible into equity in the Venture at Intercable's
option. In the first quarter of 1994, Intercable agreed to subordinate to all
other Venture debt its $1,406,647 advance to the Venture outstanding at March
31, 1994 and IDS Management Corporation made a loan of $1,000,000 to the Venture
to fund principal repayments due on March 31, 1994 on the Venture's then-
outstanding term loan. The interest rates on the respective loans, which will
vary from time to time, with respect to IDS Management Corporation's loan, are
at its cost of borrowing, and, with respect to Intercable's loans, are at its
weighted average cost of borrowing. It is anticipated that the remaining loans
will be repaid from a portion of the sale proceeds to be received on the
eventual sale of the Aurora System. The related parties' notes will be repaid
including accrued interest in the following order: first, to Intercable the
remaining $600,000 of the $1,800,000 note dated December 5, 1991; second, to IDS
Management Corporation the $1,000,000 note dated March 30, 1994; and third, to
Intercable the $1,406,647 subordinated advance.
The Venture is a party to a $47,000,000 revolving credit and term loan
agreement with commercial banks. The agreement allows for a reducing revolving
commitment that will begin to reduce quarterly on June 30, 1999 until December
31, 1999, at which time the commitment will reduce to zero and all principal and
interest amounts will be due and payable in full. At December 31, 1997, all
$47,000,000 was outstanding under this agreement. Interest on the credit
facility is at the Venture's option of the Prime Rate plus .625 percent, the
London Interbank Offered Rate plus 1.625 percent or the Certificate of Deposit
Rate plus 1.75 percent. The effective interest rates on outstanding obligations
to non-affiliates as of December 31, 1997 and 1996 were 7.52 percent and 7.38
percent, respectively.
24
Installments due on debt principal for each of the five years in the
period ending December 31, 2002 and thereafter, respectively, are: $3,032,791,
$47,026,144, $26,144, $8,713, $-0- and $-0-.
At December 31, 1997, the carrying amount of the Venture's long-term
debt did not differ significantly from the estimated fair value of the financial
instruments. The fair value of the Venture's long-term debt is estimated based
on the discounted amount of future debt service payments using rates of
borrowing for a liability of similar risk.
(6) 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 Managing
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 income or loss reported by 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.
(7) COMMITMENTS AND CONTINGENCIES
-----------------------------
The Venture rents office and other facilities under various long-term
lease arrangements. Rent paid under such lease arrangements totaled $90,931,
$106,722 and $105,400, respectively, for the years ended December 31, 1997, 1996
and 1995. Minimum commitments under operating leases for each of the five years
in the period ending December 31, 2002, and thereafter are as follows:
1998 $ 99,954
1999 80,668
2000 1,394
2001 -
2002 -
Thereafter -
---------
$ 182,016
=========
(8) SUPPLEMENTARY PROFIT AND LOSS INFORMATION
-----------------------------------------
Supplementary profit and loss information for the respective years is presented below:
Year Ended December 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
Maintenance and repairs $ 142,981 $ 141,422 $ 152,338
========== ========== ==========
Taxes, other than income and payroll taxes $ 33,847 $ 25,399 $ 23,470
========== ========== ==========
Advertising $ 243,977 $ 249,828 $ 374,340
========== ========== ==========
Depreciation of property, plant and equipment $3,708,135 $3,203,024 $3,491,637
========== ========== ==========
Amortization of intangible assets $5,363,238 $6,787,670 $6,826,057
========== ========== ==========
25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
---------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None.
PART III.
---------
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 Managing
General Partner is set forth below. Directors of the Managing General Partner
serve until the next annual meeting of the Managing General Partner and until
their successors shall be elected and qualified.
Name Age Positions with the Managing General Partner
--- --- -------------------------------------------------
Glenn R. Jones 68 Chairman of the Board and Chief Executive Officer
James B. O'Brien 48 President
Kevin P. Coyle 46 Vice President/Finance
Elizabeth M. Steele 46 Vice President and Secretary
Mr. Glenn R. Jones has served as Chairman of the Board of the Managing
General Partner since its formation in October 1986. Mr. Jones served as
President of the Managing General Partner until September of 1990 at which time
he was elected Chief Executive Officer. Mr. Jones has served as Chairman of
the Board of Directors and Chief Executive Officer of Jones Intercable, Inc.
since its formation in 1970, and he was President from June 1984 until April
1988. 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 several affiliates of the Managing General Partner. Mr. Jones has
been involved in the cable television business in various capacities since 1961,
and he is a member of the Board of Directors and the Executive Committee of the
National Cable Television Association. In addition, Mr. Jones is a member of
the Board of Education Council of the National Alliance of Business. Mr. Jones
is also a founding member of the James Madison Council of the Library of
Congress. 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 President's Award from the Cable
Television Public Affairs Association in recognition of Jones International's
educational efforts through Mind Extension University (now Knowledge TV); the
Donald G. McGannon Award for the advancement of minorities and women in cable
from the United Church of Christ Office of Communications; 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; the Cableforce 2000
Accolade awarded by Women in Cable in recognition of Jones Intercable, Inc.'s
innovative employee programs; the Most Outstanding Corporate Individual
Achievement Award from the International Distance Learning Conference for his
contributions to distance education; the Golden Plate Award from the American
Academy of Achievement for his advances in distance education; the Man of the
Year named by the Denver chapter of the Achievement Rewards for College
Scientists; and in 1994 Mr. Jones was inducted into Broadcasting and Cable's
Hall of Fame.
Mr. James B. O'Brien was elected President of the Managing General
Partner in September of 1990. Mr. O'Brien joined Jones Intercable, Inc. in
January 1982. Mr. O'Brien was elected President and a Director of Jones
Intercable, Inc. in December 1989. Prior to being elected President and a
Director of Jones Intercable, Inc., 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 Jones Intercable,
Inc.'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
Jones Intercable, Inc. Mr. O'Brien is a board member of Cable Labs, Inc., the
research arm of the cable television industry. He also serves as Chairman of
the Board of Directors of the Cable Television Administration and Marketing
Association and as a director and member of the Executive Committee
26
of the Walter Kaitz Foundation, a foundation that places people of ethnic
minority groups in positions with cable television systems, networks and vendor
companies.
Mr. Kevin P. Coyle was elected Vice President of Finance of the
Managing General Partner in February 1989. Mr. Coyle is the principal financial
and accounting officer of the Managing General Partner. Mr. Coyle joined The
Jones Group, Ltd. in July 1981 as Vice President/Financial Services. He was
elected Treasurer of Jones Intercable, Inc. in August 1987, Vice
President/Treasurer in April 1988 and Group Vice President/Finance in October
1990.
Ms. Elizabeth M. Steele has served as Secretary of the Managing
General Partner since August 1987 and Vice President since February 1989. Ms.
Steele joined Jones Intercable, Inc. in August 1987 as Vice President/General
Counsel and Secretary. From August 1980 until joining Jones Intercable, Inc.,
Ms. Steele was an associate and then a partner at the Denver law firm of Davis,
Graham & Stubbs, which serves as counsel to Jones Intercable, Inc.
Certain information concerning directors and executive officers of the
Supervising General Partner is set forth below:
Name Age Positions with the Supervising General Partner
---- --- ----------------------------------------------
Peter J. Slattery 32 President and Director
John M. Knight 45 Vice President and Director
Jeffrey S. Horton 36 Vice President, Treasurer and Director
Bradley C. Nelson 33 Vice President
Ronald W. Powell 52 Vice President
Mr. Peter J. Slattery is the Director of Non-Proprietary Products for
American Express Financial Advisors' Variable Assets division. During his
tenure he has led the transition to multiple classes for the IDS mutual fund
line, developed five new retail funds and let the creation of the flagship
Flexible Portfolio Annuity. He currently is responsible for all non-proprietary
relationships involving products sold through AEFA's various distribution
channels.
Mr. John M. Knight joined American Express Financial Corporation in
July 1975. He is currently Controller-Variable Assets and charged with the
overall finance responsibilities for Mutual Funds, Limited Partnerships,
Variable Annuities and Wealth Management Services. From 1981 to March 1994, he
held a number of positions in the IDS Certificate Company, leading to Controller
of that organization.
Mr. Jeffrey S. Horton joined American Express Financial Corporation in
July 1987. He was named Vice President - Corporate Treasurer in December 1997.
Prior to December 1997, Mr. Horton has served in various capacities with
American Express Financial Corporation including the Director of Finance
(Marketing and Products), Controller for Information Technology and Vice
President Controller for Information Technology.
Mr. Bradley C. Nelson joined American Express Financial Corporation in
1991 as an Investment Department analyst following his graduation from Cornell
University's Johnson Graduate School of Management where he earned an MBA with a
concentration in finance.
Mr. Ronald W. Powell has held the position of Vice President and
Assistant General Counsel with American Express Financial Corporation since
November 1985. He has been a member of the American Express Financial
Corporation law department since 1975.
27
ITEM 11. EXECUTIVE COMPENSATION
--------------------------------
The Partnership has no employees; however, various personnel are
required to operate cable television systems owned by the Venture. Such
personnel are employed by Intercable and, pursuant to the terms of the
Partnership's limited partnership agreement, the cost of such employment is
charged by the Managing General Partner to the Partnership as a direct
reimbursement item. See Item 13.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS
----------------------------------------------------------------------
As of February 16, 1998, no person or entity owned more than 5 percent
of the limited partnership interests of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
The Managing General Partner and its affiliates engage in certain
transactions with the Partnership as contemplated by the limited partnership
agreement of the Partnership. The Managing General Partner believes that the
terms of such transactions are generally as favorable as could be obtained by
the Partnership from unaffiliated parties. This determination has been made by
the Managing 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 from unaffiliated parties.
The Supervising General Partner and its affiliates engage in certain
transactions with the Partnership as contemplated by the limited partnership
agreement of the Partnership. The Supervising General Partner believes that the
terms of such transactions, which are set forth in the Partnership's limited
partnership agreement, are generally as favorable as could be obtained by the
Partnership from unaffiliated parties. This determination has been made by the
Supervising 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 from unaffiliated parties.
TRANSACTIONS WITH THE MANAGING GENERAL PARTNER AND THE SUPERVISING GENERAL
PARTNER
The Managing General Partner charges the Venture a 5 percent
management fee, and the Partnership reimburses Intercable, the parent of the
Managing General Partner, for certain allocated overhead and administrative
expenses. These expenses represent the 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 to the Partnership. Allocations of personnel costs
are based primarily on actual time spent by employees with respect to each
partnership managed. Remaining expenses are allocated based on the pro rata
relationship of the Partnership's revenues to the total revenues of all systems
owned or managed by Intercable or its affiliates. Systems owned by Intercable
and all other systems owned by partnerships for which Intercable serves as
general partner are also allocated a proportionate share of these expenses. The
Supervising General Partner, IDS Cable II Corporation, charges the Partnership
for supervision fees in accordance with the limited partnership agreement of the
Partnership.
Intercable, the parent of the Managing General Partner, from time to
time also advances funds to the Venture and charges interest on the balance
payable. The interest rate charged approximates Intercable's weighted average
cost of borrowing.
28
TRANSACTIONS WITH AFFILIATES
Knowledge TV, Inc., a company owned 67 percent by Jones Education
Group, Ltd., 7 percent by Mr. Jones and 26 percent by Intercable, operates the
television network JEC Knowledge TV. JEC Knowledge TV provides programming
related to computers and technology; business, careers and finance; health and
wellness; and global culture and languages. Knowledge TV, Inc. sells its
programming to the Aurora System.
Jones Computer Network, Ltd., a wholly owned subsidiary of Jones
Education Group, Ltd., a company owned 64 percent by Jones International, Ltd.,
16 percent by Intercable, 12 percent by BCI and 8 percent by Mr. Jones, operated
the television network Jones Computer Network. This network provided
programming focused primarily on computers and technology. Jones Computer
Network sold its programming to the Aurora System. Jones Computer Network, Ltd.
terminated its programming in April 1997.
The Great American Country network provides country music video
programming to the Aurora System. This network, owned and operated by Great
American Country, Inc., a subsidiary of Jones International Networks, Ltd., an
affiliate of Intercable, commenced service in 1997 in the Aurora System.
Jones Galactic Radio, Inc. is a susidiary of Jones International
Networks, Ltd., an affiliate of Intercable. Superaudio, a joint venture between
Jones Galactic Radio, Inc. and an unaffiliated entity, provides satellite
programming to the Aurora System.
The Product Information Network Venture (the "PIN Venture") is a
venture among a subsidiary of Jones International Networks, Ltd., an affiliate
of International, and two unaffiliated cable system operators. The PIN Venture
operates the Product Information Network ("PIN"), which is a 24-hour network
that airs long-form advertising generally known as "infomercials." The PIN
Venture generally makes incentive payments of approximately 60 percent of its
net advertising revenue to the cable systems that carry its programming. Most
of Intercable's owned and managed systems carry PIN for all or part of each day.
Revenues received by the Venture from the PIN Venture relating to the Aurora
System totaled approximately $71,847 for the year ended December 31, 1997.
The activities of the Partnership are limited to its equity ownership
in the Venture. The charges to the Venture for related party transactions are
as follows for the periods indicated:
For the Year Ended December 31,
-------------------------------
1997 1996 1995
---------- ---------- ----------
Management fees $ 985,689 $ 919,723 $ 843,045
Supervision fees 98,569 91,972 84,305
Allocation of expenses 1,099,109 1,215,116 1,218,491
Interest expense on advances and loans
from the 539,626 382,725 481,211
Managing General Partner and Intercable
Interest expense on loan from IDS
Management 62,737 111,741 120,970
Corporation
Amount of notes and advances outstanding 343,974 382,725 331,185
Highest amount of notes and advances 343,974 1,556,731 331,185
outstanding
Programming fees:
Knowledge TV, Inc. $ 34,932 $ 30,139 $ 25,603
Jones Computer Network, Ltd. 22,875 60,279 51,138
Great American Country 35,504 0 0
Superaudio 31,413 27,973 23,928
29
PART IV.
--------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
-------------------------------------------------------------------------
(a)1. See index to financial statements for list of
financial statements and exhibits thereto filed as
part of this report.
3. The following exhibits are filed herewith:
4.1 Limited Partnership Agreement for IDS/Jones Growth
Partners II, L.P. (1)
10.1.1 Copy of franchise and related documents granting a
cable television system franchise for the City of
Aurora, Illinois (IDS/Jones Joint Venture
Partners). (1)
10.1.2 Copy of franchise and related documents granting a
cable television system franchise for Kane County,
Illinois (IDS/Jones Joint Venture Partners). (2)
10.1.3 Resolution No. 91-49 dated March 12, 1991 of Kane
County extending the term of the franchise. (2)
10.1.4 Franchise Extension Agreement dated March 29, 1991
of Kane County extending the term of the
franchise. (2)
10.1.5 Resolution No. 92-54 dated March 12, 1991 of Kane
County extending the term of the franchise. (2)
10.1.6 Ordinance No. 92-133 dated June 9, 1992 of Kane
County renewing the franchise. (2)
10.1.7 Copy of franchise and related documents granting a
cable television system franchise for Kendall
County, Illinois (IDS/Jones Joint Venture
Partners). (1)
10.1.8 Copy of franchise and related documents granting a
cable television system franchise for the Village
of Montgomery, Illinois (IDS/Jones Joint Venture
Partners). (1)
10.1.9 Copy of franchise and related documents granting a
cable television system franchise for the Village
of North Aurora, Illinois (IDS/Jones Joint Venture
Partners). (1)
10.1.10 Copy of franchise and related documents granting a
cable television system franchise for the Village
of Oswego, Illinois (IDS/Jones Joint Venture
Partners). (1)
10.1.11 Copy of franchise and related documents granting a
cable television system franchise for the City of
Plano, Illinois (IDS/Jones Joint Venture
Partners). (1)
10.1.12 Copy of franchise and related documents granting a
cable television system franchise for the City of
Sandwich, Illinois (IDS/Jones Joint Venture
Partners). (1)
10.1.13 Copy of franchise and related documents granting a
cable television system franchise for the Village
of Yorkville, Illinois (IDS/Jones Joint Venture
Partners). (1)
10.2.1 Credit Agreement dated as of November 3, 1994
among the Venture, IDS/Jones 89-B, Growth Partners
II and Shawmut Bank Connecticut, N.A., as agent
for various lenders. (5)
10.2.2 Second Amendment Agreement dated as of December
27, 1996 among the Venture and Shawmut Bank
Connecticut, N.A., as agent for various lenders.
(5)
30
10.2.3 Two Promissory Notes both dated December 5, 1991,
each in the principal amount of $1,800,000 from
the Venture, payable to the order, respectively,
of IDS Management Corporation and Jones
Intercable, Inc. (3)
27 Financial Data Schedule
__________
(1) Incorporated by reference from the Annual Report
on Form 10-K of IDS/Jones Growth Partners II
(Commission File No. 0-18133) for fiscal year
ended December 31, 1990.
(2) Incorporated by reference from the Annual Report
on Form 10-K of IDS/Jones Growth Partners II
(Commission File No. 0-18133) for fiscal year
ended December 31, 1992.
(3) Incorporated by reference from the Annual Report
on Form 10-K of IDS/Jones Growth Partners II
(Commission File No. 0-18133) for fiscal year
ended December 31, 1991.
(4) Incorporated by reference from the Annual Report
on Form 10-K of IDS/Jones Growth Partners II, L.P.
(Commission File No. 0-18133) for fiscal year
ended December 31, 1994.
(5) Incorporated by reference from the Annual Report
on Form 10-K of IDS/Jones Growth Partners II
(Commission File No. 0-18133) for fiscal year
ended December 31, 1996.
(b) Reports on Form 8-K
-------------------
None.
31
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.
IDS/JONES GROWTH PARTNERS, L.P.
a Colorado limited partnership
By Jones Cable Corporation,
its Managing General Partner
By:/s/ Glenn R. Jones
------------------
Glenn R. Jones
Chairman of the Board and
Dated: March 23, 1998 Chief Executive Officer
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.
OFFICERS AND DIRECTORS OF JONES CABLE CORPORATION:
By:/s/ Glenn R. Jones
------------------
Glenn R. Jones
Chairman of the Board and
Chief Executive Officer
Dated: March 23, 1998 (Principal Executive Officer)
By:/s/ Kevin P. Coyle
------------------
Kevin P. Coyle
Vice President/Finance
(Principal Financial and
Dated: March 23, 1998 Accounting Officer)
32