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FORM 10-K 405
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, 1994
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.
(Exact name of registrant as specified in its charter)
Colorado 84-1060548
State of Organization (IRS Employer
Identification No.)
P.O. Box 3309, Englewood, Colorado 80155-3309 (303) 792-3111
(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 (Section.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
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PART I.
ITEM 1. BUSINESS
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. 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. On December 15, 1991, Intercable made
an equity investment in the Venture in the amount of $2,872,000 and a loan of
$1,800,000 to the Venture. On that date, IDS Management Corporation also made an
equity investment of $2,872,000 in the Venture and a loan to the Venture in the
amount of $1,800,000. A portion of the $1,800,000 loan from IDS Management
Corporation was repaid in November 1994. See Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations. The loans from
Intercable and IDS Management Corporation are subordinate to the Venture's new
revolving credit and term loan. These loans matured in the fourth quarter of
1994. IDS Management Corporation extended its loan until December 5, 1995 and,
although Intercable has not formally extended its loan, it has not demanded
repayment. In the first quarter of 1994, Intercable agreed to subordinate to all
other Venture debt the $1,406,647 advance to the Venture outstanding at March
30, 1994 and IDS Management Corporation made an additional loan of $1,000,000 to
the Venture to fund principal repayments due on the Venture's then outstanding
term loan. In the second quarter of 1994, Intercable made a loan of $1,000,000
to the Venture to fund principal repayments due on the Venture's then
outstanding term loan. This loan was repaid with interest in November 1994.
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 loan, are at its weighted average
cost of borrowing. It is anticipated that the remaining loans will be repaid
over time with borrowings from the Venture's new revolving credit and term
loan. If the December 5, 1991 loans are not repaid, Intercable and IDS
Management Corporation will have the right, among other rights, to convert these
loans to equity in the Venture. As a result of their equity contributions to the
Venture, 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. If the December 5, 1991 loans are converted to equity, the
ownership percentages will be adjusted accordingly.
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.
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,
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weather reports, stock market and financial information and live or videotaped
programs of a public service or entertainment nature. FM radio signals are also
frequently distributed to subscribers as part of the basic service.
The 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. In addition,
advertising sales are becoming a significant source of revenue for the Aurora
System. As a result of the adoption by the FCC of new rules under the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act"), and several rate regulation orders, the Aurora System's rate structures
for cable programming services and equipment have been revised. See Regulation
and Legislation. At December 31, 1994, the Aurora System's monthly basic service
rates ranged from $10.54 to $10.62, monthly basic and tier ("basic plus")
service rates ranged from $21.00 to $21.08 and monthly premium services ranged
from $6.78 to $11.95 per premium service. Charges for additional outlets have
been eliminated, and charges for remote controls and converters have been
"unbundled" from the programming service rates. In addition, 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 $42.45;
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, 1994, of
the total fees received by the Aurora System, basic service and tier service
fees accounted for approximately 63% of total revenues, premium service fees
accounted for approximately 17% of total revenues, pay-per-view fees were
approximately 3% of total revenues, advertising fees were approximately 5% of
total revenues and the remaining 12% of total revenues came principally from
equipment rentals, installation fees and program guide sales. The Venture is
dependent upon the timely receipt of service fees to provide for maintenance and
replacement of plant and equipment, current operating expenses and other costs
of the Aurora System.
The Aurora System'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 its 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 Managing General Partner's policy with regard to past due
accounts is basically one of disconnecting service before a past due account
becomes material.
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The Aurora System does not depend to any material extent on the
availability of raw materials; it carries no significant amounts of inventory
and it has no material backlog of customer orders. The Aurora system has no
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 Partnership's funds expended for
such research and development has never been material.
Compliance with Federal, state and local provisions that have been
enacted or adopted regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment has had no material
effect upon the capital expenditures, earnings or competitive position of the
Partnership.
FRANCHISES. The Aurora System is operated under non-exclusive,
fixed-term franchises or other types of operating authorities (referred to
collectively herein as "franchises") granted by local governmental authorities.
The Aurora System's franchises require that franchise fees ranging from 3% to 5%
of gross revenues of the cable system be paid to the governmental authority that
granted the franchise, that certain channels be dedicated to municipal use, that
municipal facilities, hospitals and schools be provided cable service free of
charge and that any new cable plant be substantially constructed within specific
periods. (See Item 2 for a range of franchise expiration dates of the Aurora
System.)
The responsibility for franchising of cable television systems
generally is left to state and local authorities. There are, however, several
provisions in the Communications Act of 1934, as amended, that govern the terms
and conditions under which cable television systems provide service, including
the standards applicable to cable television operators seeking renewal of a
cable television franchise. In addition, the 1992 Cable Act also made several
procedural changes to the process under which a cable operator has not
substantially complied with the material terms of the franchise, has not
provided reasonable service in light of the community's needs, does not have the
financial, legal and technical ability to provide the services being proposed
for the future, or has not presented a reasonable proposal for future service. A
final decision of non-renewal by the franchising authority is appealable in
court. The Managing General Partner and its affiliates recently have experienced
lengthy negotiations with some franchising authorities for the granting of
franchise renewals and transfers. Some of the issues involved in recent renewal
negotiations include rate reregulation, customer service standards, cable plant
upgrade or replacement and shorter terms of franchise agreements. The inability
of the Venture to renew a franchise, or lengthy negotiations or litigation
involving the renewal process could have an adverse impact on the business of
the Venture.
COMPETITION. Cable television systems currently experience competition
from several sources, but two technologies, Multichannel Multipoint Distribution
Service ("MMDS") systems, commonly called wireless cable systems, and Direct
Broadcast Satellite ("DBS") systems, which distribute programming to home
satellite dishes, currently pose the greatest potential threat to the cable
television industry.
MMDS systems will likely focus on providing service to residents of
rural areas that are not served by cable television systems, but providers of
programming via MMDS systems will generally have the potential to compete
directly with cable television systems in urban areas as well, and in some areas
of the country, MMDS systems are now in direct competition with cable television
systems. To date, the Aurora System has not lost a significant number of
subscribers, nor a significant amount of revenue, to MMDS operators.
DBS operators deliver premium channel services and specialized
programming to subscribers by high-powered DBS satellites on a wide-scale basis,
and two major companies began operations in 1994. Subscribers are able to
receive DBS services virtually anywhere in the United States with a rooftop or
wall-mounted antenna. In some instances, DBS systems may serve as a complement
to cable television operations by enabling cable television operators to offer
additional channels of programming without the construction of additional cable
plant. DBS companies use video compression technology to increase the channel
capacity of their satellite systems to provide a wide variety of program
services that are competitive with those of cable television systems.
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Cable television systems also compete with broadcast television,
private cable television systems known as Master Antenna Television ("MATV"),
Satellite Master Antenna Television ("SMATV") and Television Receive-Only Earth
Stations ("TVRO"). MATV and SMATV generally serve multi-unit dwellings such as
condominiums, apartment complexes and private residential communities, and TVROs
are satellite receiving antenna dishes that are used by "backyard users."
There is also potential competition from an emerging technology, Local
Multipoint Distribution Service ("LMDS"). When it is authorized for service, the
LMDS, sometimes referred to as cellular television, could have the capability of
delivering approximately 50 channels, or if two systems were combined 100
channels, of video programming to a subscriber's home, which capacity could be
increased by using video compression technology. The Managing General Partner
believes that there are not any current fully operational LMDS systems.
Although the Aurora System has not yet encountered competition from a
telephone company entering into the business of providing video services to
subscribers, the Aurora System could potentially face competition from telephone
companies doing so. A Federal cross-ownership restriction has historically
limited entry into the cable television business by potentially strong
competitors such as telephone companies. This restriction, which is contained in
the 1984 Cable Act, has generally prohibited telephone companies from owning or
operating cable television systems within their own telephone service areas, but
several recent court decisions have eliminated this restriction. In addition,
the FCC is authorizing telephone companies to provide video dialtone service
within their service areas. Legislation is also pending in Congress that would
permit telephone companies to provide video programming through separate
subsidiaries. The Managing General Partner cannot predict at this time to what
extent current restrictions will be modified to permit telephone companies to
provide cable television services within their own service areas in competition
with cable television systems. See Regulation and Legislation, Ownership and
Market Structure for a description of the potential participation of the
telephone industry in the delivery of cable television services. Entry into the
market by telephone companies as direct competitors of the Aurora System could
adversely impact the profitability of the Aurora System. If a telephone company
were to become a direct competitor of the Venture in an area served by the
Aurora System, the Venture could be at a competitive disadvantage because of the
relative financial strength of a telephone company compared to the Venture.
Depending on a number of factors, such competition could also result in cable
television systems providing the same types of services now provided by the
telephone industry.
The FCC has established a new wireless telecommunications service known
as Personal Communications Service ("PCS"). It is envisioned that PCS would
provide portable non-vehicular mobile communications services similar to that
available from cellular telephone companies, but at a lower cost. PCS would be
delivered by placing numerous microcells in a particular area to be covered,
accessible to both residential and business customers. Because of the need to
link the many microcells necessary to deliver this service economically, many
parties are investigating integration of PCS with cable television operations.
Several cable television multiple systems operators and others, including
affiliates of Intercable, hold or have requested experimental licenses from the
FCC to test PCS technology. The FCC has established spectrum auctioning
procedures for PCS licenses and the licenses are being auctioned in a series of
auction events.
Cable television franchises are not exclusive, 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. The Aurora System currently faces no direct competition from other cable
television operators.
COMPETITION FOR SUBSCRIBERS IN THE AURORA SYSTEM. Following is a
summary of competition from DBS, MMDS, SMATV and TVRO operators in the Aurora
System's franchise areas: There is one MMDS operator in the Aurora System's
service area that provides over 30 channels at a price comparable to the Aurora
System's rates. However, at this time this MMDS operator is providing minimal
competition. DBS was offered in 1994 to all the homes passed in the Aurora
System's service area providing over 100 channels at competitive prices. The
initial cost for equipment and installation is approximately $800 to $1,200. To
date, the Aurora System has lost very few customers to DBS. However, the
Managing General Partner believes that the DBS operator represents potential
significant competition in the Aurora System. Ameritech has announced plans to
build a cable television system in the Naperville, Illinois area and to extend
into several other communities within
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the next few years. Ameritech is the major provider of telephone services in the
Naperville, Illinois area, and it has substantially greater financial resources
than the Partnership. The Managing General Partner is uncertain at this time
whether Ameritech's plans include any of the communities located in the Aurora
System.
REGULATION AND LEGISLATION. The cable television industry is regulated
through a combination of the Federal Communications Commission ("FCC"), some
state governments, and most local governments. In addition, the Copyright Act of
1976 imposes copyright liability on all cable television systems. Cable
television operations are subject to local regulation insofar as systems operate
under franchises granted by local authorities.
Cable Television Consumer Protection and Competition Act of 1992. On
October 5, 1992, Congress enacted the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act"), which became effective on
December 4, 1992. This legislation has caused significant changes to the
regulatory environment in which the cable television industry operates. The 1992
Cable Act generally allows for a greater degree of regulation of the cable
television industry. Under the 1992 Cable Act's definition of effective
competition, nearly all cable television systems in the United States, including
those owned and managed by Intercable, are subject to rate regulation of basic
cable services. In addition, the 1992 Cable Act allows the FCC to regulate rates
for non-basic service tiers other than premium services in response to
complaints filed by franchising authorities and/or cable subscribers. In April
1993, the FCC adopted regulations governing rates for basic and non-basic
services. The FCC's rules became effective on September 1, 1993.
In compliance with these rules, the Venture reduced rates charged for
certain regulated services effective September 1, 1993. These reductions
resulted in some decrease in revenues and operating income before depreciation
and amortization; however, the decrease was not as severe as originally
anticipated. The Managing General Partner has undertaken actions to mitigate a
portion of these reductions primarily through (a) new service offerings in some
systems, (b) product re-marketing and re-packaging and (c) marketing efforts
directed at non-subscribers.
On February 22, 1994, however, the FCC adopted several additional rate
orders including an order which revised its earlier-announced regulatory scheme
with respect to rates. The FCC's new regulations generally require rate
reductions, absent a successful cost-of-service showing, of 17% of September 30,
1992 rates, adjusted for inflation, channel modifications, equipment costs, and
increases in programming costs. However, the FCC held rate reductions in
abeyance in certain systems. The new regulations became effective on May 15,
1994, but operators could elect to defer rate reductions to July 14, 1994, so
long as they made no changes in their rates and did not restructure service
offerings between May 15 and July 14.
On February 22, 1994, the FCC also adopted interim cost-of-service
regulations. Rate reductions will not be required where it is successfully
demonstrated that rates for basic and other regulated programming services are
justified and reasonable using cost-of-service standards. The FCC established an
interim industry-wide 11.25% permitted rate of return, and requested comments on
whether this standard and other interim cost-of-service standards should be made
permanent. The FCC also established a presumption that acquisition costs above a
system's book value should be excluded from the rate base, but the FCC will
consider individual showings to rebut this presumption. The need for special
rate relief will also be considered by the FCC if an operator demonstrates that
the rates set by a cost-of-service proceeding would constitute confiscation of
investment, and that, absent a higher rate, the return necessary to operate and
to attract investment could not be maintained. The FCC will establish a uniform
system of accounts for operators that elect cost-of-service rate regulation, and
the FCC has adopted affiliate transaction regulations. After a rate has been set
pursuant to a cost-of-service showing, rate increases for regulated services
will be indexed for inflation, and operators will also be permitted to increase
rates in response to increases in costs beyond their control, such as taxes and
increased programming costs.
After analyzing the effects of the two methods of rate regulation, the
Venture elected to file cost-of-service showings for the Aurora System. The
Managing General Partner thus anticipates no further reduction in revenues or
operating income before depreciation and amortization resulting from the FCC's
rate
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regulations. At this time, however, the regulatory authorities have not
approved the cost-of-service showings, and there can be no assurance that the
Venture's cost-of-service showings will prevent further rate reductions until
such final approval is received.
Among other issues addressed by the FCC in its February 1994 rate
orders was the treatment of packages of a la carte channels. The FCC in its rate
regulations adopted April 1, 1993, exempted from rate regulation the price of
packages of a la carte channels upon the fulfillment of certain conditions. On
November 10, 1994, the FCC reversed its policy regarding rate regulation of
packages of a la carte services. A la carte services that are offered in a
package will now be subject to rate regulation by the FCC, although the FCC
indicated that it cannot envision circumstances in which any price for a
collective offering of premium channels that have traditionally been offered on
a per-channel basis would be found to be unreasonable.
On November 10, 1994, the FCC also announced a revision to its
regulations governing the manner in which cable operators may charge subscribers
for new cable programming services. In addition to the present formula for
calculating the permissible rate for new services, the FCC instituted a
three-year flat fee mark-up plan for charges relating to new channels of cable
programming services. Commencing on January 1, 1995, operators may charge for
new channels of cable programming services added after May 14, 1994 at a rate of
up to 20 cents per channel, but may not make adjustments to monthly rates
totaling more than $1.20 plus an additional 30 cents for programming license
fees per subscriber over the first two years of the three-year period for these
new services. Operators may charge an additional 20 cents in the third year only
for channels added in that year plus the costs for the programming. Operators
electing to use the 20 cent per channel adjustment may not also take a 7.5%
mark-up on programming cost increases, which is permitted under the FCC's
current rate regulations. The FCC has requested further comment as to whether
cable operators should continue to receive the 7.5% mark-up on increases in
license fees on existing programming services.
The FCC also announced that it will permit operators to offer a "new
product tier" ("NPT"). Operators will be able to price this tier as they elect
so long as, among other conditions, other channels that are subject to rate
regulation are priced in conformity with applicable regulations and operators do
not remove programming services from existing tiers and offer them on the NPT.
There have been several lawsuits filed by cable operators and
programmers in Federal court challenging various aspects of the 1992 Cable Act,
including provisions relating to mandatory broadcast signal carriage,
retransmission consent, access to cable programming, rate regulations,
commercial leased channels and public access channels. On April 8, 1993, a
three-judge Federal district court panel issued a decision upholding the
constitutionality of the mandatory signal carriage requirements of the 1992
Cable Act. That decision was appealed directly to the United States Supreme
Court. The United States Supreme Court vacated the lower court decision on June
27, 1994 and remanded the case to the district court for further development of
a factual record. The Supreme Court's majority determined that the must-carry
rules were content neutral, but that it was not yet proven that the rules were
needed to preserve the economic health of the broadcasting industry. In the
interim, the must-carry rules will remain in place during the pendency of the
proceedings in district court. In 1993, a Federal district court for the
District of Columbia upheld provisions of the 1992 Cable Act concerning rate
regulation, retransmission consent, restrictions on vertically integrated cable
television operators and programmers, mandatory carriage of programming on
commercial leased channels and public, educational and governmental access
channels and the exemption for municipalities from civil damage liability
arising out of local regulation of cable services. The 1992 Cable Act's
provisions providing for multiple ownership limits for cable operators and
advance notice of free previews for certain programming services have been found
unconstitutional. In November 1993, the United States Court of Appeals for the
District of Columbia held that the FCC's regulations implemented pursuant to
Section 10 of the 1992 Cable Act, which permit cable operators to ban indecent
programming on public, educational or governmental access channels or leased
access channels, were unconstitutional, but the court has agreed to reconsider
its decision. All of these decisions construing provisions of the 1992 Cable Act
and the FCC's implementing regulations have been or are expected to be appealed.
Ownership and Market Structure. The FCC rules and Federal law generally
prohibit the direct or indirect common ownership, operation, control or interest
in a cable television system, on the one hand, and a
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local television broadcast station whose television signal reaches any portion
of the community served by the cable television system, on the other hand. The
FCC recently lifted its ban on the cross-ownership of cable television systems
by broadcast networks. The FCC revised its regulations to permit broadcast
networks to acquire cable television systems serving up to 10% of the homes
passed in the nation, and up to 50% of the homes passed in a local market.
Neither the Partnership nor Intercable nor the Managing General Partner has any
direct or indirect ownership, operation, control or interest in a television
broadcast station, or a telephone company, and they are thus presently
unaffected by the cross-ownership rules.
The Cable Communications Policy Act of 1984 (the "1984 Cable Act") and
FCC regulations generally prohibit the common operation of a cable television
system and a telephone company within the same service area. Until recently, a
provision of a Federal court antitrust consent decree also prohibited the
regional Bell operating companies ("RBOCs") from engaging in cable television
operations. This prohibition was recently removed when the court retaining
jurisdiction over the consent decree ruled that the RBOCs could provide
information services over their facilities. This decision permits the RBOCs to
acquire or construct cable television systems outside of their own service
areas.
The 1984 Cable Act prohibited local exchange carriers, including the
RBOCs, from providing video programming directly to subscribers within their
local exchange telephone service areas, except in rural areas or by specific
waiver of FCC rules. Several Federal district courts have struck down the 1984
Cable Act's telco/cross-ownership provision as facially invalid and inconsistent
with the First Amendment. The United States Courts of Appeals for the Fourth and
the Ninth Circuits have upheld the appeals of two of these district court
decisions, and the United States Justice Department is expected to request the
United States Supreme Court to review these two decisions. This Federal
cross-ownership rule is particularly important to the cable industry since these
telephone companies already own certain facilities needed for cable television
operation, such as poles, ducts and associated rights-of-way.
The FCC amended its rules in 1992 to permit local telephone companies
to offer "video dialtone" service for video programmers, including channel
capacity for the carriage of video programming and certain noncommon carrier
activities such as video processing, billing and collection and joint marketing
arrangements. In its video dialtone order, which was part of a comprehensive
proceeding examining whether and under what circumstances telephone companies
should be allowed to provide cable television services, including video
programming to their customers, the FCC concluded that neither the 1984 Cable
Act nor its rules apply to prohibit the interexchange carriers (i.e., long
distance telephone companies such as AT&T) from providing such services to their
customers. Additionally, the FCC also concluded that where a local exchange
carrier ("LEC") makes its facilities available on a common carrier basis for the
provision of video programming to the public, the 1984 Cable Act does not
require the LEC or its programmer customers to obtain a franchise to provide
such service. This aspect of the FCC's video dialtone order was upheld on appeal
by the United States Court of Appeals for the D.C. Circuit. The FCC recently
issued an order reaffirming its initial decision, and this order has been
appealed. Because cable operators are required to bear the costs of complying
with local franchise requirements, including the payment of franchise fees, the
FCC's decision could place cable operators at a competitive disadvantage
vis-a-vis services offered on a common carrier basis over local telephone
company provided facilities. In its Reconsideration Order, the FCC, among other
actions, refused to require telephone companies to justify cost allocations
prior to the construction of video dialtone facilities, and indicated that it
would provide guidance on costs that must be included in proposed video dialtone
tariffs. The FCC also established dual Federal/state jurisdiction over video
dialtone services based on the origination point of the video dialtone
programming service. In a separate proceeding, the FCC has proposed to increase
the numerical limit on the population of areas qualifying as "rural" and in
which LECs can provide cable service without a FCC waiver.
On January 12, 1995, the FCC adopted a Fourth Further Notice of
Proposed Rulemaking in its video dialtone docket. The FCC tentatively concluded
that it should not ban telephone companies from providing their own video
programming over their video dialtone platforms in those areas in which the
cable/telephone cross-ownership rules have been found unconstitutional. The FCC
requested comments on this issue and on further refinements of its video
dialtone regulatory framework concerning, among other issues, telephone
programmer affiliation standards, the establishment of structural safeguards to
prevent cross-subsidization of video
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dialtone and programming activities, and the continuation of the FCC's ban
prohibiting telephone companies from acquiring cable systems within their
telephone service areas for the provision of video dialtone services. The FCC
will also consider whether a LEC offering video dialtone service must secure a
local franchise if that LEC also engages in the provision of video programming
carried on its video dialtone platform. The FCC has also proposed to broadly
interpret its authority to waive the cable/telephone cross-ownership ban upon a
showing by telephone companies that they comply with the safeguards which the
FCC establishes as a condition of providing video programming.
A number of bills that would have permitted telephone companies to
provide cable television service within their own service areas were considered
during the last Congress, but none were adopted. These bills would have
permitted the provision of cable television service by telephone companies in
their own service areas conditioned on the establishment of safeguards to
prevent cross-subsidization between telephone and cable television operations
and the provision of telecomunication services by cable television systems.
Similar legislation is expected to be considered by Congress during its current
session. The outcome of these FCC, legislative or court proceedings and
proposals or the effect of such outcome on cable system operations cannot be
predicted.
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. While the charge for basic plus service may have increased in
1993 in some cases as a result of the FCC's rate regulations, overall revenues
may have decreased due to the elimination of charges for additional outlets and
certain equipment. In cable television systems, basic subscribers can subscribe
to more than one pay TV service. Thus, the total number of pay services
subscribed to by basic subscribers are called pay units. As of December 31,
1994, the Aurora System operated approximately 700 miles of cable plant, passing
approximately 62,000 homes, representing an approximate 60% 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, ILLINOIS 1994 1993 1992
---------------- ----------- ----------- -----------
Monthly basic plus service rate $ 21.08 $ 21.08 $ 21.45
Basic subscribers 40,666 37,426 35,194
Pay units 27,856 28,283 27,912
Franchise expiration dates range from August 1995 to November 2008. Any
franchises expiring in 1995 are in the process of renewal.
PROGRAMMING SERVICES
Programming services provided by the Aurora System include local
affiliates of the national broadcast networks, local independent broadcast
channels, the traditional satellite services (e.g., American Movie Classics,
Arts & Entertainment, Black Entertainment Network, C-SPAN, The Discovery
Channel, Lifetime, Entertainment Sports Network, Home Shopping Network, Mind
Extension University, Music Television, Nickelodeon, Turner Network Television,
The Nashville Network, Video Hits One, and superstations WOR, WGN and TBS. The
Venture's Systems also provide a selection, which varies by system, of premium
channel programming (e.g., Cinemax, Encore, Home Box Office, Showtime and The
Movie Channel).
9
10
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. As of February 15, 1995, the approximate number of equity
security holders in the Partnership was 6,950.
10
11
ITEM 6. SELECTED FINANCIAL DATA
For the Year Ended December 31,
-----------------------------------------------------------------------------------
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
Revenues $15,388,489 $15,196,068 $14,486,583 $13,196,389 $ 7,126,678
Depreciation and Amortization 10,596,340 10,883,845 10,507,110 10,474,319 8,761,878
Operating Loss (5,883,025) (5,816,179) (5,481,821) (6,105,858) (6,234,497)
Minority Interest in Net Loss 3,061,563 2,836,367 2,827,893 3,178,872 3,806,620
Net Loss (5,838,329) (5,408,884) (5,392,724) (6,979,500) (5,704,464)
Net Loss per Limited
Partnership Unit (33.15) (30.71) (30.62) (49.39) (89.95)
Weighted Average Number of Limited
Partnership Units Outstanding 174,343 174,343 174,343 139,901 62,750
General Partners' Deficit (295,821) (237,438) (183,349) (129,422) (59,627)
Limited Partners' Capital 8,256,913 14,036,859 19,391,654 24,730,451 18,599,372
Total Assets 57,752,046 64,595,970 73,796,057 80,534,496 86,603,937
Debt 43,566,064 41,604,580 43,678,543 41,825,847 52,957,545
Managing General Partner Advances 933,949 1,056,828 345,839 486,652 284,398
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
IDS/JONES GROWTH PARTNERS II, L.P.
Results of Operations
All of the operations of IDS/Jones Growth Partners II, L.P. (the
"Partnership"), a Colorado limited partnership, are represented exclusively by
its approximate 66 percent interest in IDS/Jones Joint Venture Partners (the
"Venture"). Refer to Management's Discussion and Analysis of Financial Condition
and Results of Operations for the Venture for details pertaining to its
operations.
Financial Condition
The Partnership owns an approximate 66 percent interest in the Venture.
The Partnership's interest in the Venture decreased $5,838,329 to $7,960,592 at
December 31, 1994. This decrease represents the Partnership's proportionate
share of losses generated by the Venture in 1994. 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.
11
12
IDS/JONES JOINT VENTURE PARTNERS
Results of Operations
1994 Compared to 1993
Revenues of the Venture's Aurora System increased $192,421, or
approximately 1 percent, from $15,196,068 in 1993 to $15,388,489 in 1994. An
increase in the subscriber base primarily accounted for the increase in
revenues. Basic subscribers increased 3,240, or approximately 9 percent, from
37,426 at December 31, 1993 to 40,666 at December 31, 1994. The increase in
revenues would have been greater but for the reduction in basic rates due to
basic rate regulations issued by the FCC in April 1993 with which the Venture
complied effective September 1993. See Regulation and Legislation discussed
below. No other individual factor was significant to the increase in revenues.
Operating, general and administrative expense increased $545,609, or
approximately 7 percent, from $8,109,395 in 1993 to $8,655,004 in 1994.
Increases in programming expenses, due in part to the increase in the subscriber
base, were primarily responsible for the increase in operating, general and
administrative expense. No other individual factors contributed significantly to
the increase. Operating, general and administrative expense represented 53
percent of revenue in 1993 and 56 percent in 1994. Management and supervision
fees and allocated overhead from the General Partners increased $1,163, less
than 1 percent, from $2,019,007 in 1993 to $2,020,170 in 1994 due primarily to
the increase in revenues, upon which management and supervision fees and
allocated overhead are based. The increase was partially offset by a decrease in
allocated expenses from the Managing General Partner resulting from a change in
allocation methods effective December 1, 1993.
Depreciation and amortization expense decreased $287,505, or
approximately 3 percent, from $10,883,845 in 1993 to $10,596,340 in 1994 due to
the maturation of a portion of the Venture's intangible asset base.
Operating loss increased $66,846, or approximately 1 percent, from
$5,816,179 in 1993 to $5,883,025 in 1994 due to the increases in operating,
general and administrative expense and management and supervision fees from the
General Partners exceeding the increase in revenues and the decrease in
depreciation and amortization expense.
Operating income before depreciation and amortization decreased
$354,351, or approximately 7 percent, from $5,067,666 in 1993 to $4,713,315 in
1994 due to the increases in operating, general and administrative expense and
management and supervision fees from the General Partners exceeding the increase
in revenues. The decrease in operating income before depreciation and
amortization reflects the current operating environment of the cable television
industry. The FCC rate regulations under the 1992 Cable Act have caused revenues
to increase more slowly than otherwise would have been the case. In turn, this
has caused certain expenses which are a function of revenue, such as franchise
fees, copyright fees and management fees, to increase more slowly than in prior
years. However, other operating costs such as programming fees, salaries and
benefits, and marketing costs as well as other costs incurred by Jones
Intercable, Inc. which are allocated to the Venture, continue to increase at
historical rates . This situation has led to reductions in operating income
before depreciation and amortization as a percent of revenue ("Operating
Margin"). Such reductions in Operating Margins may continue in the near term as
the Venture and Jones Intercable, Inc. incur cost increases (due to, among other
things, programming fees, reregulation and competition) that exceed increases in
revenue. Jones Intercable, Inc. will attempt to mitigate a portion of these
reductions through (a) new service offerings; (b) product re-marketing and
re-packaging and (c) marketing efforts directed at non-subscribers.
Interest expense increased $611,733, or approximately 27 percent, from
$2,250,106 in 1993 to $2,861,839 in 1994 due to higher effective interest rates
and higher outstanding balances on interest bearing obligations. Consolidated
loss increased $654,641, or approximately 8 percent, from $8,245,251 in 1993 to
$8,899,892 in 1994. This loss is due to the factors discussed above and are
expected to continue in the future.
1993 Compared to 1992
Revenues of the Venture increased $709,485, or approximately 5 percent,
from $14,486,583 in 1992 to $15,196,068 in 1993. An increase in the basic
subscriber base accounted for approximately 64 percent of the increase in
revenues. Basic subscribers increased 2,232, or approximately 6 percent, from
35,194 at December 31, 1992 to 37,426 at December 31, 1993. Basic service rate
adjustments accounted for approximately 14 percent of the increase in revenues.
The increase in revenues would have been greater but for the reduction in basic
rates due to basic rate regulations issued by the FCC in April 1993 with which
the Venture complied effective September 1, 1993. No other individual factor was
significant to the increases in revenues.
12
13
Operating, general and administrative expense increased $540,008, or
approximately 7 percent, from $7,569,387 in 1992 to $8,109,395 in 1993.
Operating, general and administrative expense represented 52 percent of revenue
in 1992 and 53 percent in 1993. Increases in programming expenses, personnel
related expense and system plant related expense were primarily responsible for
the increase in operating, general and administrative expense. No other
individual factor contributed significantly to the increase. Management fees and
allocated overhead from the General Partners increased $127,100, or
approximately 7 percent, from $1,891,907 in 1992 to $2,019,007 in 1993 due to
the increase in revenues, upon which such fees and allocations are based, and an
increase in allocated expenses from Jones Intercable, Inc.
Depreciation and amortization expense increased $376,735, or
approximately 4 percent, from $10,507,110 in 1992 to $10,883,845 in 1993. This
increase was due to capital additions during 1992 and 1993.
Operating loss increased $334,358, or approximately 6 percent, from
$5,481,821 in 1992 to $5,816,179 in 1993. This increase was due to the increases
in operating, general and administrative expenses, management and supervision
fees and allocated overhead from the General Partners and depreciation and
amortization expenses exceeding the increase in revenues.
Operating income before depreciation and amortization increased
$42,377, or approximately 1 percent, from $5,025,289 in 1992 to $5,067,666 in
1993. This increase was due to the increase in revenues exceeding the increases
in operating, general and administrative expense and management and supervision
fees and allocated overhead from the General Partners.
Interest expense decreased $372,893, or approximately 14 percent, from
$2,622,999 in 1992 to $2,250,106 in 1993 due to lower effective interest rates
and lower outstanding balances on interest bearing obligations. Other expense
increased $63,169, or approximately 55 percent, from $115,797 in 1992 to
$178,966 in 1993. Such expense primarily represents allocated depreciation from
related entities that provide advertising sales, warehouse and converter repair
services to the Venture. Net loss increased $24,634, or less than 1 percent,
from $8,220,617 in 1992 to $8,245,251 in 1993. Such losses are due to the
factors discussed above.
Financial Condition
During 1994, the Venture expended approximately $3,588,000 on capital
expenditures. Approximately 37 percent of the expenditures related to
construction of service drops to subscriber homes. Approximately 37 percent of
the expenditures related to plant extensions. Approximately 12 percent of the
expenditures related to system rebuilds and upgrades. The remainder of the
expenditures was used for various enhancements in the Aurora System. Funding for
these expenditures was provided by cash on hand, cash generated from operations,
advances from the General Partners and borrowings from its credit facility.
Budgeted capital expenditures for 1995 are approximately $3,255,000.
Approximately 51 percent of the expenditures are for plant extensions.
Approximately 29 percent of the expenditures are for construction of service
drops to subscriber homes. Approximately 12 percent of the anticipated capital
expenditures are for system rebuilds and upgrades. The remainder are for various
enhancements in the Aurora System. Funding for the expenditures is expected to
be provided by cash generated from operations and, if available, borrowings
under the Venture's credit facility, as discussed below.
On December 5, 1991, Jones Intercable, Inc. ("Intercable") made an
equity investment in the Venture in the amount of $2,872,000 and a loan of
$1,800,000 to the Venture. On that date, IDS Management Corporation also made an
equity investment of $2,872,000 in the Venture and a loan to the Venture in the
amount of $1,800,000. A portion of the $1,800,000 loan from IDS Management
Corporation was repaid in November 1994. See discussion below. The loans from
Intercable and IDS Management Corporation are subordinate to the Venture's new
revolving credit and term loan. These loans matured in the fourth quarter of
1994. IDS Management Corporation extended its loan until December 5, 1995 and,
although Intercable has not formally extended its loan, it has not demanded
repayment. In the first quarter of 1994, Intercable agreed to subordinate to all
other Venture debt the $1,406,647 advance to the Venture outstanding at March
30, 1994 and IDS Management Corporation made an additional loan of $1,000,000 to
the Venture to fund principal repayments due on the Venture's then-outstanding
term loan. In the second quarter of 1994, Intercable made a loan of $1,000,000
to the Venture to fund principal repayments due on the Venture's
then-outstanding term loan. This loan was repaid with interest in November
1994. 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 loan, are at its weighted average
cost of borrowing. It is anticipated that the remaining loans will be repaid
over time with borrowings from the Venture's new revolving credit and term
loan, as discussed below. If the December 5, 1991 loans are not repaid,
Intercable and IDS Management Corporation will have the right, among other
rights, to convert these loans to equity in the Venture.
13
14
In November 1994, the Venture entered into a new revolving credit and
term loan agreement with a commercial bank. The new credit facility has a
maximum amount available of $40,000,000 through March 31, 1995, at which time
the maximum amount available will increase to $45,000,000. At December 31, 1994,
$38,300,000 was outstanding under this agreement. Borrowings from this new
credit facility were used to repay the balance of the Venture's previous term
loan of $36,000,000, to repay to Intercable the $1,000,000 advanced by
Intercable to fund the Venture's second quarter debt repayment plus interest, to
repay to IDS Management Corporation $880,000 of principal plus interest on the
$1,800,000 loan from IDS Management Corporation dated December 5, 1991 and to
pay certain fees incurred in obtaining the new credit facility. The revolving
credit period expires December 31, 1996, at which time the then-outstanding
balance converts to a term loan payable in 28 consecutive quarterly
installments. Interest on the new credit facility is at the Venture's option of
the Base rate plus .75 percent, LIBOR plus 1.75 percent or the CD rate plus
1.875 percent. The Venture anticipates repaying the remaining notes outstanding
to related parties with borrowings from this new credit facility. As borrowings
become available, subject to leverage covenants, the related parties' notes will
be repaid including accrued interest in the following order: first, to IDS
Management Corporation the remaining $920,000 of the $1,800,000 note dated
December 5, 1991; second, to Intercable the $1,800,000 note dated December 5,
1991; third, to IDS Management Corporation the $1,000,000 note dated March 30,
1994; and fourth, to Intercable the $1,406,647 outstanding advance.
As a result of their equity contributions to the Venture, IDS
Management Corporation and Intercable each have an approximate 5 percent equity
interest in the Venture, the Partnership has a 66 percent interest and IDS/Jones
89-B has a 24 percent interest. If any portion of the December 5, 1991 loans are
converted to equity, the ownership percentages will be adjusted accordingly.
Regulation and Legislation
On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"), which became
effective on December 4, 1992. The 1992 Cable Act generally allows for a greater
degree of regulation of the cable television industry. In April 1993, the FCC
adopted regulations governing rates for basic and non-basic services. These
regulations became effective on September 1, 1993. Such regulations caused
reductions in rates for certain regulated services. On February 22, 1994, the
FCC adopted several additional rate orders including an order which revised its
earlier-announced regulatory scheme with respect to rates.
The Venture has filed a cost-of-service showing for its Aurora System
and thus anticipates no further reductions in rates. The cost-of-service showing
has not yet received final approval from franchising authorities, however, and
there can be no assurance that the Venture's cost-of-service showing will
prevent further rate reductions in that system until such final approval is
received. See Item 1 for further discussion of the provisions of the 1992 Cable
Act and the FCC regulations promulgated thereunder.
14
15
Item 8. Financial Statements
IDS/JONES GROWTH PARTNERS II
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 and 1993
INDEX
Page
----
Report of Independent Public Accountants 16
Consolidated Balance Sheets 17
Consolidated Statements of Operations 19
Consolidated Statements of Partners' Capital (Deficit) 20
Consolidated Statements of Cash Flows 21
Notes to Consolidated Financial Statements 22
15
16
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, 1994 and 1993, 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, 1994. These financial statements are the
responsibility of the General Partners' management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of IDS/Jones Growth
Partners II, L.P. as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 8, 1995.
16
17
IDS/JONES GROWTH PARTNERS II, L.P.
(A Limited Partnership)
CONSOLIDATED BALANCE SHEETS
December 31,
---------------------------------
ASSETS 1994 1993
------ ------------ ------------
CASH $ 57,284 $ 81,997
TRADE RECEIVABLES, less allowance for
doubtful receivables of $50,993 and $34,993 at
December 31, 1994 and 1993, respectively 403,428 365,509
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 34,508,868 30,921,229
Less- accumulated depreciation (14,180,482) (10,370,393)
------------ ------------
20,328,386 20,550,836
Franchise costs, net of accumulated amortization
of $31,231,579 and $25,699,750 at December 31, 1994
and 1993, respectively 27,335,542 32,867,371
Subscriber lists, net of accumulated amortization
of $4,951,136 and $3,884,274 at December 31, 1994
and 1993, respectively 2,668,367 3,735,229
Costs in excess of interests in net assets
purchased, net of accumulated amortization
of $859,836 and $672,276 at December 31, 1994
and 1993, respectively 6,651,535 6,839,095
------------ ------------
Total investment in cable television properties 56,983,830 63,992,531
DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 307,504 155,933
------------ ------------
Total assets $ 57,752,046 $ 64,595,970
============ ============
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
17
18
IDS/JONES GROWTH PARTNERS II, L.P.
(A Limited Partnership)
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------------------
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) 1994 1993
------------------------------------------- ------------ ------------
LIABILITIES:
Debt $ 43,566,064 $ 41,604,580
Accounts payable-
Trade - 9,570
Managing General Partner 933,949 1,056,828
Accrued liabilities 1,195,393 979,721
Subscriber prepayments 54,863 43,602
------------ ------------
Total liabilities 45,750,269 43,694,301
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
MINORITY INTEREST IN JOINT VENTURE 4,040,685 7,102,248
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partners-
Contributed capital 500 500
Accumulated deficit (296,321) (237,938)
------------ ------------
(295,821) (237,438)
------------ ------------
Limited Partners-
Net contributed capital (174,343 units
outstanding at December 31, 1994 and 1993) 37,256,546 37,256,546
Accumulated deficit (28,999,633) (23,219,687)
------------ ------------
8,256,913 14,036,859
------------ ------------
Total liabilities and partners'
capital (deficit) $ 57,752,046 $ 64,595,970
============ ============
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
18
19
IDS/JONES GROWTH PARTNERS II, L.P.
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
---------------------------------------------------------
1994 1993 1992
----------- ----------- -----------
REVENUES $15,388,489 $15,196,068 $14,486,583
COSTS AND EXPENSES:
Operating, general and
administrative 8,655,004 8,109,395 7,569,387
Management and supervision
fees and allocated overhead
from General Partners 2,020,170 2,019,007 1,891,907
Depreciation and amortization 10,596,340 10,883,845 10,507,110
----------- ----------- -----------
OPERATING LOSS (5,883,025) (5,816,179) (5,481,821)
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (2,861,839) (2,250,106) (2,622,999)
Other, net (155,028) (178,966) (115,797)
----------- ----------- -----------
Total other income (expense) (3,016,867) (2,429,072) (2,738,796)
----------- ----------- -----------
CONSOLIDATED LOSS (8,899,892) (8,245,251) (8,220,617)
MINORITY INTEREST IN CONSOLIDATED
LOSS 3,061,563 2,836,367 2,827,893
----------- ----------- -----------
NET LOSS $(5,838,329) $(5,408,884) $(5,392,724)
=========== =========== ===========
ALLOCATION OF NET LOSS:
General Partners $ (58,383) $ (54,089) $ (53,927)
=========== =========== ===========
Limited Partners $(5,779,946) $(5,354,795) $(5,338,797)
=========== =========== ===========
NET LOSS PER LIMITED PARTNERSHIP
UNIT $ (33.15) $ (30.71) $ (30.62)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 174,343 174,343 174,343
============ =========== ===========
Theaccompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
19
20
IDS/JONES GROWTH PARTNERS II, L.P.
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
Year Ended December 31,
---------------------------------------------------------
1994 1993 1992
------------- ------------- -------------
GENERAL PARTNERS:
Jones Cable Corporation
Balance, beginning of year $ (118,719) $ (91,675) $ (64,711)
Net loss for year (29,192) (27,044) (26,964)
----------- ------------ ------------
Balance, end of year $ (147,911) $ (118,719) $ (91,675)
=========== ============ ============
IDS Cable II Corporation
Balance, beginning of year $ (118,719) $ (91,674) $ (64,711)
Net loss for year (29,191) (27,045) (26,963)
----------- ------------ ------------
Balance, end of year $ (147,910) $ (118,719) $ (91,674)
=========== ============ ============
Total
Balance, beginning of year $ (237,438) $ (183,349) $ (129,422)
Net loss for year (58,383) (54,089) (53,927)
----------- ------------ ------------
Balance, end of year $ (295,821) $ (237,438) $ (183,349)
=========== ============ ============
LIMITED PARTNERS:
Balance, beginning of year $14,036,859 $ 19,391,654 $ 24,730,451
Net loss for year (5,779,946) (5,354,795) (5,338,797)
----------- ------------ ------------
Balance, end of year $ 8,256,913 $ 14,036,859 $ 19,391,654
=========== ============ ============
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
20
21
IDS/JONES GROWTH PARTNERS II, L.P.
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-------------------------------------------------------
1994 1993 1992
------------ ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,838,329) $(5,408,884) $(5,392,724)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation and amortization 10,596,340 10,883,845 10,507,110
Minority interest in consolidated loss (3,061,563) (2,836,367) (2,827,893)
Amortization of interest rate protection contract - - 29,997
Decrease (increase) in trade receivables (37,919) 15,099 (29,549)
Decrease (increase) in deposits, prepaid expenses
and deferred charges (151,571) 11,335 53,179
Increase (decrease) in trade accounts
payable, accrued liabilities and
subscriber prepayments 217,363 408,138 (229,705)
Increase (decrease) in advances from
Managing General Partner (122,879) 710,989 (140,813)
------------ ----------- -----------
Net cash provided by
operating activities 1,601,442 3,784,155 1,969,602
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (3,587,639) (2,997,575) (2,489,949)
------------ ----------- -----------
Net cash used in investing activities (3,587,639) (2,997,575) (2,489,949)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 40,900,085 - 2,129,607
Repayment of debt (38,938,601) (2,073,963) (276,911)
------------ ----------- -----------
Net cash provided by (used in)
financing activities 1,961,484 (2,073,963) 1,852,696
------------ ----------- -----------
Increase (decrease) in cash (24,713) (1,287,383) 1,332,349
Cash, beginning of year 81,997 1,369,380 37,031
------------ ----------- -----------
Cash, end of year $ 57,284 $ 81,997 $ 1,369,380
============ =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 2,516,358 $ 2,069,821 $ 2,674,761
============ ============ ===========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
21
22
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. ("IDS/Jones 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 Partners
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 IDS/Jones 89-B formed the
Venture. The Partnership's offering closed on September 30, 1991 with limited
partner subscriptions totalling $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. In addition, on December
5, 1991, Intercable and IDS Management Corporation made subordinated loans to
the Venture each in the principal amount of $1,800,000. See Note 5 for further
information about the status of such loans. As a result of their equity
contributions to the Venture described above, ownership percentages of the
Venture are detailed below:
The Partnership 66%
IDS/Jones 89-B 24%
Intercable 5%
IDS Management Corporation 5%
-----
100%
If any of the December 5, 1991 loans discussed in Note 5 are converted
to equity, the ownership percentages will be adjusted accordingly.
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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").
(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.
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 years
Office furniture and equipment 5 years
Buildings 10 - 20 years
Vehicles 3 years
Replacements, renewals and improvements are capitalized and
maintenance and repairs are charged to expense as incurred.
Intangible Assets
Costs assigned to franchises, subscriber lists and costs in excess of
interests in net assets purchased will be amortized using the straight-line
method over their remaining estimated useful lives.
Franchise costs 6 years
Subscriber lists 3 years
Costs in excess of interests in
net assets purchased 36 years
Revenue Recognition
Subscriber prepayments will be initially deferred and recognized as
revenue when earned.
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(3) TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES
Management Fees, Supervision Fees, Distribution Ratios and
Reimbursements
Intercable manages the Venture and receives a fee for its services
equal to 5 percent of the gross revenues of the Venture, excluding revenues from
the sale of cable television systems or franchises. Management fees paid by the
Venture to Intercable during the years ended December 31, 1994, 1993 and 1992
were $769,424, $759,803 and $724,329, 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, 1994,
1993 and 1992 were $76,942, $75,980 and $72,433, 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 related facilities costs. Such personnel provide engineering,
marketing, administrative, accounting, legal and investor relations services to
the Venture. Allocations of personnel costs are based on actual time spent by
employees of Intercable with respect to each partnership managed. Remaining
overhead costs are allocated primarily based on revenues and/or the costs of
partnership assets managed. 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. Effective
December 1, 1993, the allocation method was changed to be based only on
revenue, which Intercable believes provides a more accurate method of
allocation. 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, 1994, 1993 and 1992 were $1,173,804,
$1,183,224 and $1,095,145, 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, 1994, 1993 and 1992.
During 1994, the Venture was charged interest by Intercable at an
average interest rate of 10 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, 1994, 1993 and 1992 was $386,257, $192,746
and $230,032, respectively.
The Venture was charged interest on the subordinated loans from IDS
Management Corporation at an average interest rate of 5.69 percent, which
approximated IDS Management Corporation's cost of borrowing. Total interest
charged to the Venture by IDS Management Corporation during 1994, 1993, and 1992
was $113,458, $65,653 and $76,112, 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 programming from Product Information Network,
Superaudio, The Mind Extension University and Jones Computer Network,
affiliates of Intercable. Payments to Superaudio totaled $23,558, $22,627 and
$22,066, respectively, in 1994, 1993 and 1992. Payments to The Mind Extension
University totaled $21,347, $13,168 and $12,643, respectively, in 1994, 1993
and 1992. Payments to Jones Computer Network, which initiated service in 1994,
totaled $12,421 in 1994. The Venture receives a commission from Product
Information Network based on a percentage of advertising revenue and number of
subscribers. Product Information Network, which initiated service in 1994, paid
commissions to the Venture totaling $11,442 in 1994.
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(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 1994 and 1993,
consisted of the following:
1994 1993
----------- -----------
Cable distribution systems $33,355,717 $29,996,667
Equipment and tools 560,606 569,391
Office furniture and equipment 180,163 184,056
Vehicles 270,382 171,115
----------- -----------
34,366,868 30,921,229
Less- accumulated depreciation (14,180,482) (10,370,393)
----------- -----------
$20,186,386 $20,550,836
=========== ===========
(5) DEBT
Debt consists of the following: December 31,
---------------------------
1994 1993
----------- -----------
Lending institutions-
Revolving credit agreement $38,300,000 $38,000,000
Affiliated entities-
Subordinated loans 5,126,647 3,600,000
Capital lease obligations 139,417 4,580
----------- -----------
$43,566,064 $41,604,580
========== ==========
On December 5, 1991, Intercable made an equity investment in the
Venture in the amount of $2,872,000 and a loan of $1,800,000 to the Venture. On
that date, IDS Management Corporation also made an equity investment of
$2,872,000 in the Venture and a loan to the Venture in the amount of
$1,800,000. A portion of the $1,800,000 loan from IDS Management Corporation
was repaid in November 1994. See discussion below. The loans from Intercable
and IDS Management Corporation are subordinate to the Venture's new revolving
credit and term loan. These loans matured in the fourth quarter of 1994. IDS
Management Corporation extended its loan until December 5, 1995 and, although
Intercable has not formally extended its loan, it has not demanded repayment.
In the first quarter of 1994, Intercable agreed to subordinate to all other
Venture debt the $1,406,647 advance to the Venture outstanding at March 30,
1994 and IDS Management Corporation made an additional loan of $1,000,000 to
the Venture to fund principal repayments due on the Venture's then-outstanding
term loan. In the second quarter of 1994, Intercable made a loan of $1,000,000
to the Venture to fund principal repayments due on the Venture's
then-outstanding term loan. This loan was repaid with interest in November
1994. 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 loan, are at its weighted average
cost of borrowing. It is anticipated that the remaining loans will be repaid
over time with borrowings from the Venture's new revolving credit and term
loan, as discussed below. If the December 5, 1991 loans are not repaid,
Intercable and IDS Management Corporation will have the right, among other
rights, to convert these loans to equity in the Venture.
In November 1994, the Venture entered into a new revolving credit and
term loan agreement with a commercial bank. The new credit facility has a
maximum amount available of $40,000,000 through March 31, 1995, at which time
the maximum amount available will increase to $45,000,000. At December 31, 1994,
$38,300,000 was outstanding under this agreement. Borrowings from this new
credit facility were used to repay the balance of the Venture's previous term
loan of $36,000,000, to repay to Intercable the $1,000,000 advanced by
Intercable to fund the Venture's second quarter debt repayment plus interest, to
repay to IDS Management Corporation $880,000 of principal plus interest on the
$1,800,000 loan from IDS Management Corporation dated December 5, 1991 and to
pay certain fees incurred in obtaining the new credit facility. The revolving
credit period expires December 31, 1996, at which time the then-outstanding
balance converts to a term loan payable in 28 consecutive quarterly
installments. Interest on the new credit facility is at the Venture's option of
the Base rate plus .75 percent, LIBOR plus 1.75 percent or the CD rate plus
1.875 percent. The Venture anticipates repaying the remaining notes outstanding
to related parties with borrowings from this new credit facility. As borrowings
become available, subject to leverage covenants, the related parties' notes will
be repaid including accrued interest in the following order: first, to IDS
Management Corporation the remaining
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26
$920,000 of the $1,800,000 note dated December 5, 1991; second, to Intercable
the $1,800,000 note dated December 5, 1991; third, to IDS Management Corporation
the $1,000,000 note dated March 30, 1994; and fourth, to Intercable the
$1,406,647 outstanding advance.
On December 7, 1991, the Venture entered into an interest rate
protection contract covering outstanding debt obligations of $20,000,000. The
Venture paid a fee of $37,000. The agreement protected the Venture from LIBOR
interest rates that exceeded 7 percent and expired December 1993. The fee was
charged to interest expense over the life of the agreement using the
straight-line method.
Installments due on debt principal for each of the five years in the
period ending December 31, 1999 and thereafter, respectively, are: $5,168,472,
$41,825, $1,956,825, $3,843,942, $4,596,000 and $27,959,000.
(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. There are no significant differences between taxable income and
the loss reported in the statements of operations.
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
On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"), which became
effective on December 4, 1992. The 1992 Cable Act generally allows for a greater
degree of regulation of the cable television industry. In April 1993, Federal
Communications Commission (the "FCC") adopted regulations governing rates for
basic and non-basic services. These regulations became effective on September 1,
1993. Such regulations caused reductions in rates for certain regulated
services. On February 22, 1994, however, the FCC adopted several additional rate
orders including an order which revised its earlier-announced regulatory scheme
with respect to rates. The Venture has filed a cost-of-service showing in its
Aurora System and therefore anticipates no further reductions in rates. The
cost-of-service showing has not-yet received final approval from franchising
authorities, however, and there can be no assurance that the Venture's
cost-of-service showing will prevent further rate reductions until such final
approval is received.
The Venture rents office and other facilities under various long-term
lease arrangements. Rent paid under such lease arrangements totalled $60,313,
$106,840 and $86,417, respectively, for the years ended December 31, 1994, 1993
and 1992. Minimum commitments under operating leases for each of the five years
in the period ending December 31, 1999, and thereafter are as follows:
1995 $18,830
1996 16,730
1997 16,730
1998 16,730
1999 16,730
Thereafter 1,394
-------
$87,144
=======
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(8) SUPPLEMENTARY PROFIT AND LOSS INFORMATION
Supplementary profit and loss information for the respective years is
presented below:
Year Ended December 31,
----------------------------------------
1994 1993 1992
---------- ---------- ----------
Maintenance and repairs $ 133,849 $ 115,863 $ 82,923
========== ========== ==========
Taxes, other than income and payroll taxes $ 11,949 $ 25,485 $ 37,954
========== ========== ==========
Advertising $ 423,866 $ 346,457 $ 357,594
========== ========== ==========
Depreciation of property, plant and equipment $3,810,089 $3,467,318 $3,091,691
========== ========== ==========
Amortization of intangible assets $6,786,251 $7,416,527 $7,415,419
========== ========== ==========
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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.
Name Age Positions with the Managing General Partner
------------------- --- -------------------------------------------------
Glenn R. Jones 65 Chairman of the Board and Chief Executive Officer
James B. O'Brien 45 President
Kevin P. Coyle 43 Vice President of Finance
Elizabeth M. Steele 43 Vice President and Secretary
Mr. Glenn R. Jones has been 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. Glenn R. 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 the subsidiaries of Jones Intercable, Inc. and of
certain other affiliates of Jones Intercable, Inc. Mr. Jones has been involved
in the cable television business in various capacities since 1961, is a past and
present member of the Board of Directors of the National Cable Television
Association, and is a former member of its Executive Committee. Mr. Jones is a
past director and member of the Executive Committee of C-Span. Mr. Jones has
been the recipient of several awards including the Grand Tam Award in 1989, the
highest award from the Cable Television Administration and Marketing Society;
the Chairman's Award from the Investment Partnership Association, which is an
association of sponsors of public syndications; the cable television industry's
Public Affairs Association President's Award in 1990, the Donald G. McGannon
award for the advancement of minorities and women in cable; the STAR Award from
American Women in Radio and Television, Inc. for exhibition of a commitment to
the issues and concerns of women in television and radio; and the Women in Cable
Accolade in 1990 in recognition of support of this organization. Mr. Jones is
also a founding member of the James Madison Council of the Library of Congress
and is on the Board of Governors of the American Society of Training and
Development.
Mr. 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 is a board member of Cable Labs,
Inc., the research arm of the cable television industry. He also serves as a
director of the Cable Television Administration and Marketing Association and as
a director of the Walter Kaitz Foundation, a foundation that places people of
any ethnic minority group in positions with cable television systems, networks
and vendor companies.
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.
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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. 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
------------------- --- ----------------------------------------------
Janis E. Miller 43 President and Director
Morris Goodwin, Jr. 43 Vice President and Treasurer
Lori J. Larson 36 Vice President and Director
Ronald W. Powell 50 Vice President
Juanita M. Costa 46 Vice President and Director
Bradley C. Nelson 30 Vice President
Louis C. Fornetti 45 Director
Ms. Janis E. Miller has served as Vice President of Variable Assets of
American Express Financial Corporation since December 1993. From June 1990 to
November 1993, Ms. Miller held the position of Vice President of Mutual
Funds/Limited Partnership Product Development and Marketing with American
Express Financial Corporation.
Mr. Morris Goodwin, Jr. has served as Vice President and Treasurer of
American Express Financial Corporation since July 1989. From January 1988 to
July 1989, he had been the Chief Financial Officer and Treasurer of IDS Bank &
Trust Company. From January 1980 to January 1988, he was a Vice President with
Morgan Stanley, an investment banking business headquartered in New York.
Ms. Lori J. Larson has been employed by American Express Financial
Corporation since 1981 and currently holds the title of Vice President.
Since August 1988, she has been responsible for day-to-day management of
vendor relationships, due diligence review, and operational aspects for
various limited partnerships distributed by American Express Financial
Advisors Inc. In addition, Ms. Larson is responsible for product development
of the publicly offered mutual funds in the IDS Mutual Fund Group.
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 IDS law department since 1975.
Ms. Juanita M. Costa has served as Director of Financial Education
Services ("FES") for American Express Financial Corporation since January 1994.
She is responsible for marketing FES programs to corporate clients. Ms. Costa
has served as Vice President of Investment Services with IDS Trust Company since
October 1991. From April 1987 to mid-1991, Ms. Costa was Vice President-Limited
Partnership Operations. From June 1984 to April 1987, she was a Vice President
of L.F. Rothschild and, from January 1980 to June 1984, she was an Assistant
Vice President at Prudential Bache Securities.
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. Louis C. Fornetti has been employed with American Express Financial
Corporation since 1985 as Corporate Controller. He has been on the board of
directors of American Express Financial Corporation since 1988 and assumed the
role of Chief Financial Officer and Senior Vice President in 1993.
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ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no employees; however, various personnel are
required to operate cable television systems owned by the Partnership. 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
No person or entity owns 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.
The Managing General Partner charges a management fee, and Intercable,
the parent of the Managing General Partner, is reimbursed for certain allocated
overhead and administrative expenses. These expenses consist primarily of
salaries and benefits paid to corporate personnel, rent, data processing
services and other facilities costs. Such personnel provide engineering,
marketing, administrative, accounting, legal and investor relations services.
Allocations of personnel costs are based primarily on actual time spent by
employees with respect to each partnership managed. Remaining overhead costs are
allocated based on revenues and/or the costs of assets managed. 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 for
supervision fees.
Intercable, the parent of the Managing General Partner, also advances
funds and charges interest on the balance payable. The interest rate charged
approximates Intercable's weighted average cost of borrowing.
The Aurora System receives stereo audio programming from Superaudio, a
joint venture owned 50% by an affiliate of the Managing General Partner and 50%
by an unaffiliated party, educational video programming from Mind Extension
University, Inc., an affiliate of the Managing General Partner, and computer
video programming from Jones Computer Network, Ltd., an affiliate of the
Managing General Partner, for fees based upon the number of subscribers
receiving the programming.
Product Information Network ("PIN"), an affiliate of the Managing
General Partner, provides advertising time for third parties on the Aurora
System. In consideration, the revenues generated from the third parties are
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shared two-thirds and one-third between PIN and the Venture. During the year
ended December 31, 1994, the Venture received revenues from PIN of $11,442.
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:
At December 31,
-------------------------------------------------------
1994 1993 1992
------------- ---------- ----------
Management fees $ 769,424 $ 759,803 $ 724,329
Supervision fees 76,942 75,980 72,433
Allocation of expenses 1,173,804 1,183,224 1,095,145
Interest expense 386,257 258,399 306,144
Amount of notes and advances outstanding 933,949 1,056,828 345,839
Highest amount of notes and advances outstanding 1,040,406 1,056,828 462,447
Programming fees:
Superaudio 23,558 22,627 22,066
Mind Extension University 21,347 13,168 12,643
Jones Computer Network 12,421 -0- -0-
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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). (2)
10.1.2 Copy of franchise and related documents granting a cable
television system franchise for Kane County, Illinois
(IDS/Jones Joint Venture Partners). (3)
10.1.3 Resolution No. 91-49 dated March 12, 1991 of Kane County
extending the term of the franchise. (3)
10.1.4 Franchise Extension Agreement dated March 29, 1991 of Kane
County extending the term of the franchise. (3)
10.1.5 Resolution No. 92-54 dated March 12, 1991 of Kane County
extending the term of the franchise. (3)
10.1.6 Ordinance No. 92-133 dated June 9, 1992 of Kane County
renewing the franchise. (3)
10.1.7 Copy of franchise and related documents granting a cable
television system franchise for Kendall County, Illinois
(IDS/Jones Joint Venture Partners). (2)
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). (2)
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). (2)
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). (2)
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). (2)
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). (2)
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). (2)
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.
10.2.2 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. (4)
32
33
27 Financial Data Schedule
----------
(1) Incorporated by reference from the Partnership's Form 8-A
(Commission File No. 0-18133).
(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, 1990.
(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, 1992.
(4) 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.
(b) Reports on Form 8-K
None.
33
34
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 II, L.P.
a Colorado limited partnerships
By Jones Cable Corporation,
their Managing General Partner
By: /s/ Glenn R. Jones
---------------------------------
Glenn R. Jones
Chairman of the Board and
Dated: March 27, 1995 Chief Executive Officer
By IDS Cable II Corporation,
their Supervising General Partner
By: /s/ Janis E. Miller
---------------------------------
Janis E. Miller
Dated: March 27, 1995 President and Director
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 27, 1995 (Principal Executive Officer)
By: /s/ Kevin P. Coyle
--------------------------------
Kevin P. Coyle
Vice President/Finance
(Principal Financial and
Dated: March 27, 1995 Accounting Officer)
34
35
OFFICERS AND DIRECTORS OF IDS CABLE II CORPORATION:
By: /s/ Janis E. Miller
------------------------
Janis E. Miller
President and Director
Dated: March 27, 1995 (Principal Executive Officer)
By: /s/ Morris Goodwin, Jr.
------------------------
Morris Goodwin, Jr.
Vice President and Treasurer
(Principal Financial and
Dated: March 27, 1995 Accounting Officer)
By: /s/ Lori J. Larson
------------------------
Lori J. Larson
Dated: March 27, 1995 Vice President and Director
By: /s/ Juanita M. Costa
------------------------
Juanita M. Costa
Dated: March 27, 1995 Vice President and Director
By: /s/ Louis C. Fornetti
------------------------
Dated: March 27, 1995 Louis C. Fornetti, Director
35
36
EXHIBIT INDEX
Exhibit Page
------- ----
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). (2)
10.1.2 Copy of franchise and related documents granting a cable
television system franchise for Kane County, Illinois
(IDS/Jones Joint Venture Partners). (3)
10.1.3 Resolution No. 91-49 dated March 12, 1991 of Kane County
extending the term of the franchise. (3)
10.1.4 Franchise Extension Agreement dated March 29, 1991 of Kane
County extending the term of the franchise. (3)
10.1.5 Resolution No. 92-54 dated March 12, 1991 of Kane County
extending the term of the franchise. (3)
10.1.6 Ordinance No. 92-133 dated June 9, 1992 of Kane County
renewing the franchise. (3)
10.1.7 Copy of franchise and related documents granting a cable
television system franchise for Kendall County, Illinois
(IDS/Jones Joint Venture Partners). (2)
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). (2)
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). (2)
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). (2)
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). (2)
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). (2)
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). (2)
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.
10.2.2 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. (4)
37
Exhibit Page
------- ----
27 Financial Data Schedule
----------
(1) Incorporated by reference from the Partnership's Form 8-A
(Commission File No. 0-18133).
(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, 1990.
(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, 1992.
(4) 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.